Will Amazon Buy Sally Beauty Supply?

Sally Beauty Holdings, Inc. SBH could be a possible takeover target from Amazon.com, Inc. AMZN according to a new report from D.A. Davidson.

With Ulta Beauty Inc ULTA shares trading up nearly 4 percent on rumors of a possible buyout from Wal-Mart Stores Inc WMT, Sally Beauty could be a worthy target that would enable Amazon to break into the beauty market.

“Beauty has been a hard category to crack for AMZN, and it has entered a partnership with SBH to test in the Dallas area same-day delivery of beauty orders fulfilled by Sally Beauty retail store,” said D.A. Davidson analyst Linda Bolton Weiser.

Sally Beauty’s uniquely high gross margin of 55 percent and a high number of retail stores, over 2,900, were key reasons why Sally Beauty became the beauty partner of Amazon according to Weiser.

Interestingly, Sally Beauty’s strategy has not been to compete with bigger competitors Wal-Mart and Target Corporation TGT. Nearly 50 percent of the company’s US sales come from private label products or products exclusive to the store.

“Rather, it’s strategy is to keep raising the percentage of sales from exclusive products over time, which enhances gross margin,” said Weiser

The idea is in a complete takeover, Amazon would easily be able to implement Sally’s private label beauty products to its platform, immediately bolstering their beauty portfolio with high margin products.

D.A. Davidson maintains a Buy rating on Sally Beauty with a $21 price target.

At time of publication, shares of Sally were down 4.42 percent at $16.97. Amazon shares were down 1.08 percent at $986.21.

Related Links: Ulta Beauty Loses Another Bull

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Image Credit: By SallyBeauty (Own work) [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)], href="https://commons.wikimedia.org/wiki/File:SBCStore.jpg">via Wikimedia Commons