SBH Sally Beauty Holdings Inc

• Generated Q2 Cash Flow from Operations of $37 Million
• Executed $20 Million in Share Repurchases
• Completed the Refinancing of the $680 Million Senior Unsecured Note Due 2025
• Updates Fiscal 2024 Guidance

Sally Beauty Holdings, Inc. (NYSE: SBH) (“the Company”), the leader in professional hair color, today announced financial results for its second quarter ended March 31, 2024. The Company will hold a conference call today at 7:30 a.m. Central Time to discuss these results and its business.

Fiscal 2024 Second Quarter Summary

• Consolidated net sales of $908 million, a decrease of 1.1% compared to the prior year;
• Consolidated comparable sales decline of 1.5%;
• Global e-commerce sales of $90 million, representing 9.9% of net sales;
• GAAP gross margin 51.0%;
• GAAP operating earnings of $60 million and GAAP operating margin of 6.6%; Adjusted Operating Earnings of $69 million and Adjusted Operating Margin of 7.6%;
• GAAP diluted net earnings per share of $0.27 and Adjusted Diluted Net Earnings Per Share of $0.35; and
• Cash flow from operations of $37 million and Operating Free Cash Flow of $23 million.

“Our second quarter performance reflects the benefits of expanded distribution, product innovation and the strengthening of salon demand trends in our Beauty Systems Group segment, offset by moderating traffic and customer purchasing patterns in our Sally Beauty segment resulting from the inflationary environment,” said Denise Paulonis, president and chief executive officer. “Amidst these cross-currents, our teams continued to advance our strategic initiatives and deliver engaging experiences for our customers as we focus on driving long-term growth and profitability.”

Paulonis added, “We further optimized our balance sheet by refinancing our $680 million senior unsecured note due 2025, which extended the maturity to 2032. We also generated solid cash flow from operations of $37 million in the quarter, allowing us to return value to shareholders through our share repurchase program.”

Fiscal 2024 Second Quarter Operating Results

Second quarter consolidated net sales were $908.4 million, a decrease of 1.1% compared to the prior year. Foreign currency translation had a favorable impact of 50 basis points on consolidated net sales for the quarter. At constant currency, global e-commerce sales were $90 million or 9.9% of consolidated net sales for the quarter.

Consolidated comparable sales declined 1.5%, primarily reflecting soft traffic and consumer purchasing trends at Sally Beauty driven by the inflationary environment, partially offset by expanded distribution, product innovation and improving salon demand trends at Beauty Systems Group.

Consolidated gross profit for the second quarter was $463.1 million compared to $468.3 million in the prior year, a decrease of 1.1%. Consolidated GAAP gross margin was 51.0%, which was flat to the prior year of 51.0%. Excluding the prior year’s true-up of the non-cash inventory write-down as part of the Company’s previously announced distribution center consolidation and store optimization plan, Adjusted Gross Margin was 51.0%, an increase of 30 basis points compared to 50.7% in the prior year. The increase was driven primarily by lower distribution and freight costs from supply chain efficiencies, partially offset by an unfavorable sales mix shift between Sally Beauty (higher margin) and Beauty Systems Group (lower margin).

Selling, general and administrative (SG&A) expenses totaled $403.4 million, an increase of $13.8 million compared to the prior year. Adjusted Selling, General and Administrative Expenses, excluding costs related to the Company’s fuel for growth initiative and other expenses, totaled $394.5 million, an increase of $4.8 million compared to the prior year. The increase was driven primarily by higher labor costs and rent expense, partially offset by lower accrued bonus expense. As a percentage of sales, Adjusted SG&A expenses were 43.4% compared to 42.4% in the prior year.

GAAP operating earnings and operating margin in the second quarter were $59.6 million and 6.6%, compared to $71.4 million and 7.8%, in the prior year. Adjusted Operating Earnings and Operating Margin, excluding the costs related to the Company’s fuel for growth initiative, restructuring efforts, and other expenses, were $68.6 million and 7.6%, compared to $76.3 million and 8.3%, in the prior year.

GAAP net earnings in the second quarter were $29.2 million, or $0.27 per diluted share, compared to GAAP net earnings of $40.9 million, or $0.37 per diluted share in the prior year. Adjusted Net Earnings, excluding the costs related to the Company’s fuel for growth initiative, loss on debt extinguishment, restructuring efforts, and other expenses, were $37.8 million, or $0.35 per diluted share, compared to Adjusted Net Earnings of $44.6 million, or $0.41 per diluted share in the prior year. Adjusted EBITDA in the second quarter was $99.5 million, a decrease of 5.4% compared to the prior year, and Adjusted EBITDA Margin was 11.0%, a decrease of 50 basis points compared to the prior year.

Balance Sheet and Cash Flow

As of March 31, 2024, the Company had cash and cash equivalents of $97 million and a $62 million balance outstanding under its asset-based revolving line of credit. At the end of the quarter, inventory was $1.04 billion, up 1.6% versus a year ago. The Company ended the quarter with a net debt leverage ratio of 2.2x.

During the second quarter, the Company issued a new $600 million 8-year senior unsecured note due 2032. The net proceeds from the transaction, in combination with existing cash and a modest draw under the Company’s asset-based revolving line of credit, were used to refinance the Company’s $680 million 5.625% senior unsecured note due 2025. The new senior unsecured note was issued with a coupon rate of 6.75%.

Second quarter cash flow from operations was $36.9 million. Capital expenditures in the quarter totaled $14.1 million. During the quarter, the Company repurchased 1.5 million shares under its share repurchase program at an aggregate cost of $20 million.

Fiscal 2024 Second Quarter Segment Results

Sally Beauty Supply

• Segment net sales were $513.2 million in the quarter, a decrease of 3.2% compared to the prior year. The segment had a favorable impact of 90 basis points from foreign currency translation on reported sales. At constant currency, segment e-commerce sales were $34 million or 6.6% of segment net sales for the quarter.
• Segment comparable sales decreased 4.0% in the second quarter, primarily reflecting soft traffic and customer purchasing trends driven by the inflationary environment.
• At the end of the quarter, segment store count was 3,134 compared to 3,143 in the prior year.
• GAAP gross margin increased by 10 basis points to 59.9% compared to the prior year. The increase was driven primarily by lower distribution and freight costs from supply chain efficiencies, partially offset by the prior year’s true-up of the non-cash inventory write-down as part of the Company’s previously announced distribution center consolidation and store optimization plan.
• GAAP operating earnings were $76.8 million compared to $92.1 million in the prior year. GAAP operating margin decreased to 15.0% compared to 17.4% in the prior year.

Beauty Systems Group

• Segment net sales were $395.1 million in the quarter, an increase of 1.7% compared to the prior year. At constant currency, segment e-commerce sales were $56 million or 14.1% of segment net sales for the quarter.
• Segment comparable sales increased 2.0% in the second quarter, primarily reflecting expanded distribution, product innovation and improving salon demand trends.
• At the end of the quarter, net store count was 1,334 compared to 1,341 in the prior year.
• GAAP gross margin increased 50 basis points to 39.4% in the quarter compared to the prior year. The increase was driven primarily by lower distribution and freight costs from supply chain efficiencies, partially offset by lower product margin due to a higher take rate on promotions and brand mix.
• GAAP operating earnings were $43.0 million in the quarter compared to $37.3 million in the prior year. GAAP operating margin in the quarter was 10.9% compared to 9.6% in the prior year.
• At the end of the quarter, there were 654 distributor sales consultants compared to 675 in the prior year.

Fiscal Year 2024 Guidance

The Company is updating its full year guidance by adjusting its full year operating margin outlook to reflect the Company’s second quarter results, as follows:

• The Company continues to expect net sales and comparable sales to be approximately flat compared to the prior year;
• Gross Margin is now expected to be in the range of 50.5% to 51.0%;
• Adjusted Operating Margin is now expected to be approximately 8.5%;
• Operating Cash Flow is now expected to be approximately $240 million; and
• Capital expenditures are expected to be approximately $100 million.

*

The Company does not provide a reconciliation for forward-looking non-GAAP financial measures where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the occurrence and the financial impact of various items that have not yet occurred, are out of the Company’s control or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.

Conference Call and Where You Can Find Additional Information

The Company will hold a conference call and audio webcast today to discuss its financial results and its business at approximately 7:30 a.m. Central Time today, May 9, 2024. During the conference call, the Company may discuss and answer one or more questions concerning business and financial matters and trends affecting the Company. The Company’s responses to these questions, as well as other matters discussed during the conference call, may contain or constitute material information that has not been previously disclosed. Simultaneous to the conference call, an audio webcast of the call will be available via a link on the Company’s website, sallybeautyholdings.com/investor-relations. The conference call can be accessed by dialing (877) 336-4440 (International: (409) 207-6984) and referencing the access code 2198500#. The teleconference will be held in a “listen-only” mode for all participants other than the Company’s current sell-side and buy-side investment professionals. A replay of the earnings conference call will be available starting at 11:30 a.m. Central Time, May 9, 2024, through May 23, 2024, by dialing (866) 207-1041 (International: (402) 970-0847) and referencing access code 3810288#. Also, a website replay will be available on sallybeautyholdings.com/investor-relations.

About Sally Beauty Holdings, Inc.

Sally Beauty Holdings, Inc. (NYSE: SBH), as the leader in professional hair color, sells and distributes professional beauty supplies globally through its Sally Beauty Supply and Beauty Systems Group businesses. Sally Beauty Supply stores offer up to 7,000 products for hair color, hair care, nails, and skin care through proprietary brands such as Ion®, Bondbar®, Strawberry Leopard®, Generic Value Products®, Inspired by Nature® and Silk Elements® as well as professional lines such as Wella®, Clairol®, OPI®, L’Oreal®, Wahl® and Babyliss Pro®. Beauty Systems Group stores, branded as CosmoProf® or Armstrong McCall® stores, along with its outside sales consultants, sell up to 8,000 professionally branded products including Paul Mitchell®, Wella®, Matrix®, Schwarzkopf®, Kenra®, Goldwell®, Joico®, Amika® and Moroccannoil®, intended for use in salons and for resale by salons to retail consumers. For more information about Sally Beauty Holdings, Inc., please visit https://www.sallybeautyholdings.com/.

Cautionary Notice Regarding Forward-Looking Statements

Statements in this news release and the schedules hereto which are not purely historical facts or which depend upon future events may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995, can be identified by the use of forward-looking terminology such as “believes,” “projects,” “expects,” “can,” “may,” “estimates,” “should,” “plans,” “targets,” “intends,” “could,” “will,” “would,” “anticipates,” “potential,” “confident,” “optimistic,” or the negative thereof, or other variations thereon, or comparable terminology, or by discussions of strategy, objectives, estimates, guidance, expectations and future plans. Forward-looking statements can also be identified by the fact that these statements do not relate strictly to historical or current matters.

Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, those described in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended September 30, 2023. Consequently, all forward-looking statements in this release are qualified by the factors, risks and uncertainties contained therein. We assume no obligation to publicly update or revise any forward-looking statements.

Use of Non-GAAP Financial Measures

This news release and the schedules hereto include the following financial measures that have not been calculated in accordance with accounting principles generally accepted in the United States, or GAAP, and are therefore referred to as non-GAAP financial measures: (1) Adjusted Gross Margin; (2) Adjusted Selling, General and Administrative Expenses; (3) Adjusted EBITDA and EBITDA Margin; (4) Adjusted Operating Earnings and Operating Margin; (5) Adjusted Net Earnings; (6) Adjusted Diluted Net Earnings Per Share; and (7) Operating Free Cash Flow. We have provided definitions below for these non-GAAP financial measures and have provided tables in the schedules hereto to reconcile these non-GAAP financial measures to the comparable GAAP financial measures.

Adjusted Gross Margin – We define the measure Adjusted Gross Margin as GAAP gross margin excluding the true-up of the inventory write-down related to the Company’s distribution center consolidation and store optimization plan for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures.

Adjusted Selling, General and Administrative Expenses – We define the measure Adjusted Selling, General and Administrative Expenses as GAAP selling, general and administrative expenses excluding costs related to the Company’s fuel for growth initiative and other expenses for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures.

Adjusted EBITDA and EBITDA Margin – We define the measure Adjusted EBITDA as GAAP net earnings before depreciation and amortization, interest expense, income taxes, share-based compensation, costs related to the Company’s restructuring plans, costs related to the Company’s fuel for growth initiative and other expenses for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of net sales.

Adjusted Operating Earnings and Operating Margin – Adjusted operating earnings are GAAP operating earnings that exclude costs related to the Company’s restructuring plans, costs related to the Company’s fuel for growth initiative and other expenses for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures. Adjusted Operating Margin is Adjusted Operating Earnings as a percentage of net sales.

Adjusted Net Earnings – Adjusted net earnings is GAAP net earnings that exclude tax-effected costs related to the Company’s restructuring plans, tax-effected expenses related to the Company’s fuel for growth initiative and other costs, and tax-effected expenses related to loss on debt extinguishment for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures.

Adjusted Diluted Net Earnings Per Share – Adjusted diluted net earnings per share is GAAP diluted earnings per share that exclude tax-effected costs related to the Company’s restructuring plans, tax-effected expenses related to the Company’s fuel for growth initiative and other costs, and tax-effected expenses related to loss on debt extinguishment for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures.

Operating Free Cash Flow – We define the measure Operating Free Cash Flow as GAAP net cash provided by operating activities less payments for capital expenditures (net). We believe Operating Free Cash Flow is an important liquidity measure that provides useful information to investors about the amount of cash generated from operations after taking into account payments for capital expenditures (net).

We believe that these non-GAAP financial measures provide valuable information regarding our earnings and business trends by excluding specific items that we believe are not indicative of the ongoing operating results of our businesses; providing a useful way for investors to make a comparison of our performance over time and against other companies in our industry.

We have provided these non-GAAP financial measures as supplemental information to our GAAP financial measures and believe these non-GAAP measures provide investors with additional meaningful financial information regarding our operating performance and cash flows. Our management and Board of Directors also use these non-GAAP measures as supplemental measures to evaluate our businesses and the performance of management, including the determination of performance-based compensation, to make operating and strategic decisions, and to allocate financial resources. We believe that these non-GAAP measures also provide meaningful information for investors and securities analysts to evaluate our historical and prospective financial performance. These non-GAAP measures should not be considered a substitute for or superior to GAAP results. Furthermore, the non-GAAP measures presented by us may not be comparable to similarly titled measures of other companies.

Supplemental Schedules

 

 

Segment Information

1

Non-GAAP Financial Measures Reconciliations

2-3

Non-GAAP Financial Measures Reconciliations; Adjusted EBITDA and

 

Operating Free Cash Flow

4

Store Count and Comparable Sales

5

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Earnings (In thousands, except per share data) (Unaudited)   Three Months Ended March 31, Six Months Ended March 31,

 

2024

 

 

2023

 

PercentageChange

 

2024

 

 

2023

 

PercentageChange   Net sales

$

908,361

 

$

918,712

 

(1.1

)%

$

1,839,663

 

$

1,875,767

 

(1.9

)%

Cost of products sold

 

445,289

 

 

450,373

 

(1.1

)%

 

909,415

 

 

918,854

 

(1.0

)%

Gross profit

 

463,072

 

 

468,339

 

(1.1

)%

 

930,248

 

 

956,913

 

(2.8

)%

Selling, general and administrative expenses

 

403,435

 

 

389,657

 

3.5

%

 

801,573

 

 

781,237

 

2.6

%

Restructuring

 

63

 

 

7,274

 

(99.1

)%

 

(22

)

 

17,680

 

(100.1

)%

Operating earnings

 

59,574

 

 

71,408

 

(16.6

)%

 

128,697

 

 

157,996

 

(18.5

)%

Interest expense

 

20,523

 

 

16,685

 

23.0

%

 

37,837

 

 

34,608

 

9.3

%

Earnings before provision for income taxes

 

39,051

 

 

54,723

 

(28.6

)%

 

90,860

 

 

123,388

 

(26.4

)%

Provision for income taxes

 

9,807

 

 

13,862

 

(29.3

)%

 

23,226

 

 

32,190

 

(27.8

)%

Net earnings

$

29,244

 

$

40,861

 

(28.4

)%

$

67,634

 

$

91,198

 

(25.8

)%

  Earnings per share: Basic

$

0.28

 

$

0.38

 

(26.3

)%

$

0.64

 

$

0.85

 

(24.7

)%

Diluted

$

0.27

 

$

0.37

 

(27.0

)%

$

0.63

 

$

0.83

 

(24.1

)%

  Weighted average shares: Basic

 

104,276

 

 

107,453

 

 

105,117

 

 

107,294

 

Diluted

 

107,080

 

 

109,706

 

 

107,881

 

 

109,499

 

  Basis PointChange Basis PointChange Comparison as a percentage of net sales Consolidated gross margin

 

51.0

%

 

51.0

%

—

 

 

50.6

%

 

51.0

%

(40

)

Selling, general and administrative expenses

 

44.4

%

 

42.4

%

200

 

 

43.6

%

 

41.6

%

200

 

Consolidated operating margin

 

6.6

%

 

7.8

%

(120

)

 

7.0

%

 

8.4

%

(140

)

  Effective tax rate

 

25.1

%

 

25.3

%

(20

)

 

25.6

%

 

26.1

%

(50

)

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) (Unaudited)   March 31,2024 September 30,2023   Cash and cash equivalents

$

97,174

$

123,001

Trade and other accounts receivable

 

87,561

 

75,875

Inventory

 

1,039,752

 

975,218

Other current assets

 

55,836

 

53,903

Total current assets

 

1,280,323

 

1,227,997

Property and equipment, net

 

273,175

 

297,779

Operating lease assets

 

562,770

 

570,657

Goodwill and other intangible assets

 

588,582

 

588,252

Other assets

 

41,692

 

40,565

Total assets

$

2,746,542

$

2,725,250

  Current maturities of long-term debt

$

66,164

$

4,173

Accounts payable

 

289,606

 

258,884

Accrued liabilities

 

150,002

 

163,366

Current operating lease liabilities

 

137,631

 

150,479

Income taxes payable

 

366

 

2,355

Total current liabilities

 

643,769

 

579,257

Long-term debt, including capital leases

 

978,360

 

1,065,811

Long-term operating lease liabilities

 

458,030

 

455,071

Other liabilities

 

21,626

 

23,139

Deferred income tax liabilities, net

 

93,907

 

93,224

Total liabilities

 

2,195,692

 

2,216,502

Total stockholders’ equity

 

550,850

 

508,748

Total liabilities and stockholders’ equity

$

2,746,542

$

2,725,250

Supplemental Schedule 1

  SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Segment Information (In thousands) (Unaudited)     Three Months Ended March 31, Six Months Ended March 31,

 

2024

 

 

2023

 

PercentageChange

 

2024

 

 

2023

 

PercentageChange Net sales: Sally Beauty Supply ("SBS")

$

513,241

 

$

530,246

 

(3.2

)%

$

1,036,479

 

$

1,079,718

 

(4.0

)%

Beauty Systems Group ("BSG")

 

395,120

 

 

388,466

 

1.7

%

 

803,184

 

 

796,049

 

0.9

%

Total net sales

$

908,361

 

$

918,712

 

(1.1

)%

$

1,839,663

 

$

1,875,767

 

(1.9

)%

  Operating earnings: SBS

$

76,820

 

$

92,134

 

(16.6

)%

$

154,449

 

$

191,308

 

(19.3

)%

BSG

 

43,015

 

 

37,260

 

15.4

%

 

87,642

 

 

86,907

 

0.8

%

Segment operating earnings

 

119,835

 

 

129,394

 

(7.4

)%

 

242,091

 

 

278,215

 

(13.0

)%

  Unallocated expenses (1)

 

60,198

 

 

50,712

 

18.7

%

 

113,416

 

 

102,539

 

10.6

%

Restructuring

 

63

 

 

7,274

 

(99.1

)%

 

(22

)

 

17,680

 

(100.1

)%

Interest expense

 

20,523

 

 

16,685

 

23.0

%

 

37,837

 

 

34,608

 

9.3

%

Earnings before provision for income taxes

$

39,051

 

$

54,723

 

(28.6

)%

$

90,860

 

$

123,388

 

(26.4

)%

    Segment gross margin:

 

2024

 

 

2023

 

Basis PointChange

 

2024

 

 

2023

 

Basis PointChange SBS

 

59.9

%

 

59.8

%

10

 

 

59.3

%

 

59.3

%

—

 

BSG

 

39.4

%

 

38.9

%

50

 

 

39.4

%

 

39.7

%

(30

)

  Segment operating margin: SBS

 

15.0

%

 

17.4

%

(240

)

 

14.9

%

 

17.7

%

(280

)

BSG

 

10.9

%

 

9.6

%

130

 

 

10.9

%

 

10.9

%

—

 

Consolidated operating margin

 

6.6

%

 

7.8

%

(120

)

 

7.0

%

 

8.4

%

(140

)

  (1) Unallocated expenses, including share-based compensation expense, consist of corporate and shared costs and are included in selling, general and administrative expenses. Additionally, unallocated expenses include costs associated with our Fuel for Growth initiative. Supplemental Schedule 2 SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP Financial Measures Reconciliations (In thousands, except per share data) (Unaudited)     Three Months Ended March 31, 2024 As Reported(GAAP) Restructuring (1) Fuel for Growthand Other (2) Loss on DebtExtinguishment (3) As Adjusted(Non-GAAP)   Cost of products sold

$

445,289

 

$

—

$

—

 

$

—

 

$

445,289

 

Consolidated gross margin

 

51.0

%

 

51.0

%

Selling, general and administrative expenses

 

403,435

 

 

—

 

(8,945

)

 

—

 

 

394,490

 

SG&A expenses, as a percentage of sales

 

44.4

%

 

43.4

%

Operating earnings

 

59,574

 

 

63

 

8,945

 

 

—

 

 

68,582

 

Operating margin

 

6.6

%

 

7.6

%

Interest expense

 

20,523

 

 

—

 

—

 

 

(2,565

)

 

17,958

 

Earnings before provision for income taxes

 

39,051

 

 

63

 

8,945

 

 

2,565

 

 

50,624

 

Provision for income taxes (4)

 

9,807

 

 

16

 

2,297

 

 

659

 

 

12,779

 

Net earnings

$

29,244

 

$

47

$

6,648

 

$

1,906

 

$

37,845

 

  Earnings per share: Basic

$

0.28

 

$

0.00

$

0.06

 

$

0.02

 

$

0.36

 

Diluted

$

0.27

 

$

0.00

$

0.07

 

$

0.02

 

$

0.35

 

  Three Months Ended March 31, 2023 As Reported(GAAP) Restructuring (1) As Adjusted(Non-GAAP)   Cost of products sold

$

450,373

 

$

2,362

$

452,735

 

Consolidated gross margin

 

51.0

%

 

50.7

%

Selling, general and administrative expenses

 

389,657

 

 

—

 

389,657

 

SG&A expenses, as a percentage of sales

 

42.4

%

 

42.4

%

Operating earnings

 

71,408

 

 

4,912

 

76,320

 

Operating margin

 

7.8

%

 

8.3

%

Interest expense

 

16,685

 

 

—

 

16,685

 

Earnings before provision for income taxes

 

54,723

 

 

4,912

 

59,635

 

Provision for income taxes (4)

 

13,862

 

 

1,222

 

15,084

 

Net earnings

$

40,861

 

$

3,690

$

44,551

 

  Earnings per share: Basic

$

0.38

 

$

0.03

$

0.41

 

Diluted

$

0.37

 

$

0.03

$

0.41

 

  (1) For the three months ended March 31, 2024 and 2023, restructuring represents expenses and adjustments incurred primarily in connection with our Distribution Center Consolidation and Store Optimization Plan, including $2.4 million in cost of products sold related to adjustments to our expected obsolescence reserve in the three months ended March 31, 2023.   (2) Fuel for Growth and other represents expenses related to consulting services and severance expenses.   (3) Loss on debt extinguishment relates to the repayment of our 5.625% Senior Notes due 2025, which included a the write-off of unamortized deferred financing costs of $2.0 million, and overlapping interest, net of interest earned on short-term cash equivalents, in the amount of $0.5 million on such senior notes after February 27, 2024 and until their redemption. These pro-forma adjustments assume the redeemed senior notes were repaid on February 27, 2024 at the time of closing on our 6.75% Senior Notes due 2032.   (4) The provision for income taxes was calculated using the applicable tax rates for each country, while excluding the tax benefits for countries where the tax benefit is not currently deemed probable of being realized. Supplemental Schedule 3 SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP Financial Measures Reconciliations, Continued (In thousands, except per share data) (Unaudited)     Six Months Ended March 31, 2024 As Reported(GAAP) Restructuring (1) Fuel for Growthand Other (2) Loss on DebtExtinguishment (3) As Adjusted(Non-GAAP)   Cost of products sold

$

909,415

 

$

—

 

$

—

 

$

—

 

$

909,415

 

Consolidated gross margin

 

50.6

%

 

50.6

%

Selling, general and administrative expenses

 

801,573

 

 

—

 

 

(13,826

)

 

—

 

 

787,747

 

SG&A expenses, as a percentage of sales

 

43.6

%

 

42.8

%

Operating earnings

 

128,697

 

 

(22

)

 

13,826

 

 

—

 

 

142,501

 

Operating margin

 

7.0

%

 

7.7

%

Interest expense

 

37,837

 

 

—

 

 

—

 

 

(2,565

)

 

35,272

 

Earnings before provision for income taxes

 

90,860

 

 

(22

)

 

13,826

 

 

2,565

 

 

107,229

 

Provision for income taxes (5)

 

23,226

 

 

(5

)

 

3,552

 

 

659

 

 

27,432

 

Net earnings

$

67,634

 

$

(17

)

$

10,274

 

$

1,906

 

$

79,797

 

  Earnings per share: Basic

$

0.64

 

$

(0.00

)

$

0.10

 

$

0.02

 

$

0.76

 

Diluted

$

0.63

 

$

(0.00

)

$

0.10

 

$

0.02

 

$

0.74

 

  Six Months Ended March 31, 2023 As Reported(GAAP) Restructuring andOther (1) COVID-19 (4) As Adjusted(Non-GAAP)   Cost of products sold

$

918,854

 

$

5,043

 

$

—

 

$

923,897

 

Consolidated gross margin

 

51.0

%

 

50.7

%

Selling, general and administrative expenses

 

781,237

 

 

—

 

 

(1,052

)

 

780,185

 

SG&A expenses, as a percentage of sales

 

41.6

%

 

41.6

%

Operating earnings

 

157,996

 

 

12,637

 

 

1,052

 

 

171,685

 

Operating margin

 

8.4

%

 

9.2

%

Interest expense

 

34,608

 

 

—

 

 

—

 

 

34,608

 

Earnings before provision for income taxes

 

123,388

 

 

12,637

 

 

1,052

 

 

137,077

 

Provision for income taxes (5)

 

32,190

 

 

3,198

 

 

270

 

 

35,658

 

Net earnings

$

91,198

 

$

9,439

 

$

782

 

$

101,419

 

  Earnings per share: Basic

$

0.85

 

$

0.09

 

$

0.01

 

$

0.95

 

Diluted

$

0.83

 

$

0.09

 

$

0.01

 

$

0.93

 

    (1) For the six months ended March 31, 2024 and 2023, restructuring represents expenses and adjustments incurred primarily in connection with our Distribution Center Consolidation and Store Optimization Plan, including $5.0 million in cost of products sold related to adjustments to our expected obsolescence reserve in the three months ended March 31, 2023.   (2) Fuel for Growth and other represents expenses related to consulting services and severance expenses.   (3) Loss on debt extinguishment relates to the repayment of our 5.625% Senior Notes due 2025, which included a the write-off of unamortized deferred financing costs of $2.0 million, and overlapping interest, net of interest earned on short-term cash equivalents, in the amount of $0.5 million on such senior notes after February 27, 2024 and until their redemption. These pro-forma adjustments assume the redeemed senior notes were repaid on February 27, 2024 at the time of closing on our 6.75% Senior Notes due 2032.   (4) For the six months ended March 31, 2023, COVID-19 expenses related to use taxes around the donation of personal protection merchandise.   (5) The provision for income taxes was calculated using the applicable tax rates for each country, while excluding the tax benefits for countries where the tax benefit is not currently deemed probable of being realized.

Supplemental Schedule 4

  SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP Financial Measures Reconciliations, Continued (In thousands) (Unaudited)     Three Months Ended March 31, Six Months Ended March 31, Adjusted EBITDA:

 

2024

 

 

2023

 

PercentageChange

 

2024

 

 

2023

 

PercentageChange   Net earnings

$

29,244

 

$

40,861

 

(28.4

)%

$

67,634

 

$

91,198

 

(25.8

)%

Add: Depreciation and amortization

 

26,954

 

 

25,062

 

7.5

%

 

55,017

 

 

50,347

 

9.3

%

Interest expense

 

20,523

 

 

16,685

 

23.0

%

 

37,837

 

 

34,608

 

9.3

%

Provision for income taxes

 

9,807

 

 

13,862

 

(29.3

)%

 

23,226

 

 

32,190

 

(27.8

)%

EBITDA (non-GAAP)

 

86,528

 

 

96,470

 

(10.3

)%

 

183,714

 

 

208,343

 

(11.8

)%

Share-based compensation

 

3,964

 

 

3,838

 

3.3

%

 

9,082

 

 

8,973

 

1.2

%

Restructuring

 

63

 

 

4,912

 

(98.7

)%

 

(22

)

 

12,637

 

(100.2

)%

Fuel for Growth and Other

 

8,945

 

 

—

 

100.0

%

 

13,826

 

 

—

 

100.0

%

COVID-19

 

—

 

 

—

 

—

%

 

—

 

 

1,052

 

(100.0

)%

Adjusted EBITDA (non-GAAP)

$

99,500

 

$

105,220

 

(5.4

)%

$

206,600

 

$

231,005

 

(10.6

)%

  Basis PointChange Basis PointChange Adjusted EBITDA as a percentage of net sales Adjusted EBITDA margin

 

11.0

%

 

11.5

%

(50

)

 

11.2

%

 

12.3

%

(110

)

    Operating Free Cash Flow:

 

2024

 

 

2023

 

PercentageChange

 

2024

 

 

2023

 

PercentageChange Net cash provided by operating activities

$

36,940

 

$

24,697

 

49.6

%

$

87,960

 

$

79,648

 

10.4

%

Less: Payments for property and equipment, net

 

14,108

 

 

17,174

 

(17.9

)%

 

44,659

 

 

42,181

 

5.9

%

Operating free cash flow (non-GAAP)

$

22,832

 

$

7,523

 

203.5

%

$

43,301

 

$

37,467

 

15.6

%

   

Supplemental Schedule 5

  SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Store Count and Comparable Sales (Unaudited)     As of March 31,

2024

 

2023

 

Change   Number of stores: SBS stores

3,134

 

3,143

 

(9

)

BSG: Company-operated stores

1,202

 

1,209

 

(7

)

Franchise stores

132

 

132

 

—

 

Total BSG

1,334

 

1,341

 

(7

)

Total consolidated

4,468

 

4,484

 

(16

)

  Number of BSG distributor sales consultants (1)

654

 

675

 

(21

)

  (1) BSG distributor sales consultants (DSC) include 191 and 189 sales consultants employed by our franchisees at March 31, 2024 and 2023, respectively.   Three Months Ended March 31, Six Months Ended March 31,

2024

 

2023

 

Basis PointChange

2024

 

2023

 

Basis PointChange Comparable sales growth (decline): SBS

(4.0

)%

9.1

%

(1,310

)

(3.0

)%

5.9

%

(890

)

BSG

2.0

%

1.3

%

70

 

1.3

%

(0.2

)%

150

 

Consolidated

(1.5

)%

5.7

%

(720

)

(1.1

)%

3.3

%

(440

)

  Our comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and e-commerce revenue. Additionally, our comparable sales include sales to franchisees and full service sales. Our comparable sales excludes the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquisitions are excluded from our comparable sales calculation until 14 months after the acquisition.

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240509744268/en/

Jeff Harkins Investor Relations 940-297-3877 jharkins@sallybeauty.com