Financial analysts are predicting that in the remaining nine months of the 2007 financial year the loss of the distribution rights is likely to compact the company's turnover by an estimated $110m.
The decision affects all the Sally Beauty business division, except its Armstrong-McCall business, and means that the company's sales consultants will no longer be selling L'Oreal products at professional hair care salons from the beginning of February next year.
The termination of the distribution contract also means that the Armstrong-McCall business will not distribute L'Oreal Redken professional hair care products through sales consultants or its stores.
The loss comes at a difficult time for the company. Having been spun off by from the Alberto-Culver earlier this year it is made its debut as a public listed company only last month and was planning significant expansion worldwide.
Stock trading reacted quickly to the announcement, made on Tuesday, and in the first full day of share trading on the New York Stock Exchange, share prices in Sally Beauty fell 12 per cent to reach $8.15.
But despite the fact that Sally Beauty is losing one of its biggest clients at an important stage in the development of the business, industry experts believe that continued growth in the professional beauty care market should be enough to sustain it through what should prove to be just a hiccup.
Alberto-Culver announced that it would spin off Sally Beauty back in July of this year, in a deal that is estimated to have been worth $2.6bn and aims to transform the business into a $4.5bn business.