Thank you all for being here and welcome to the Sally Beauty Holdings Fourth Quarter Conference Call. At this moment, all lines are set to listen-only mode. Also, please note that today’s conference call is being recorded. I will now hand the call over to Mr. Jeff Harkins. Please proceed.

Thank you. Good morning everyone, and welcome to the Sally Beauty Holdings fourth quarter earnings conference call. Before we begin, I would like to remind everyone that we have made a presentation available for today's call that can be viewed from the link provided on our earnings press release this morning or on our investor site at sallybeautyholdings.com/investorrelations. I would also like to remind you that certain comments, including matters such as forecasted financial information, contracts or business and trend information made during this call may contain 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. Many of these forward-looking statements can be identified by the use of words such as believe, project, expect, can, may, estimate, should, plan, target, intend, could, will, would, anticipate, potential, confident, optimistic and similar words or phrases. These statements are subject to a number of factors that could cause actual results to differ materially from expectations. Those factors are described in Sally Beauty Holdings' filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K. The company does not undertake any obligation to publicly update or revise its forward-looking statements. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. With me on the call today are Chris Brickman, President and Chief Executive Officer; Aaron Alt, President of Sally Beauty Supply and Chief Financial Officer; and Marlo Cormier, Senior Vice President of Finance and Chief Accounting Officer. Chris will start by offering some thoughts on our very respectable fourth quarter. He will also touch on our thoughts about the current economic environment and our outlook for fiscal year 2021, and finish with our focus, our key focus and investments in fiscal year 2021 as we move towards the completion of our transformation plan. Aaron will then discuss our fourth quarter and full year financial results, touch on our cash liquidity, and also provide some perspective on fiscal year 2021. Finally, Chris, Aaron, Marlo, and I will be available to answer your questions. Now, I like to turn the call over to Chris.

Thank you, Jeff, and good morning, everyone. I want to start by thanking all of our SBH team members across the globe, whose dedication and hard work helped us deliver a great fourth quarter, your efforts to turn us into an agile operator with real strength in both digital and physical retail. And you've set us up well for the future. I could not be more proud of our team and what they accomplished in spite of the countless challenges we experienced in fiscal year 2020. During our last earnings call, we discussed the nimbleness and agility displayed by our teams and associates during the third quarter. As our business responded to store closures and consumer uncertainty, our teams quickly pivoted to launch new e-commerce capabilities and service models. In June, we saw strong sales as a majority of our stores reopened. As we moved into July and the fourth quarter, we continue to see strong sales with the business normalizing. Of course, the environment continued to evolve around us. As exemplified by California shutting down salons in many counties for parts of July and August. All-in we delivered enterprise positive same store sales of 1.3% with strength in retail helping to compensate for soft, but still positive same store sales in the wholesale business. Here are some of the key highlights regarding our fourth quarter. Our Sally Beauty retail business in the U.S. and Canada delivered same store sales growth of 3.7% for the quarter. We saw continued strength in our core category of hair color, where we continue to gain share in the retail and pro-channels. For the fourth quarter, hair color was up over 22% in Sally Beauty’s U.S. and Canadian retail business with unit growth and increased AUR. We also saw strength in the nail category for Sally Beauty’s U.S. and Canadian retail business, which was up 11%. We continue to see solid strength and growth in our global e-commerce business. We delivered the highest gross margin in SBH history driven primarily by the U.S. and Canadian retail business and our strategy of fewer deeper, bigger promotions. We grew adjusted EPS over the prior year by 9%. We ended the quarter with less debt and a strong balance sheet. And we continued our focus on cost controls, cash management, and liquidity, and generated over $131 million in free cash flow. Operationally, we also continue to invest in our business and launch new programs. Following our fast launch of ship from store and same-day delivery in Q3, we launched Buy Online/Pickup In-Store at Sally Beauty and it will reach all U.S. stores nationwide within a few weeks. We completed the national rollout of our new private label rewards credit card program to both Sally and BSG customers in the U.S. In just the first month, we had approvals for over 80,000 new card members with a slight weighting to the professional stylist over the retail consumer. We want the second edition of Cultivate, which offers financial support, product distribution, and mentorship for female-owned beauty brands. We executed a number of small acquisitions on the BSG side, gaining brand distribution rights, a small number of stores, and new customers. We expanded our ship from store capabilities to 2,400 stores in the U.S. and nine provinces in Canada. And we successfully placed our new North Texas distribution center into service in August. Now, let's turn to our thoughts on the current economic environment and our outlook for next year. Looking ahead to fiscal 2021, we will have to remain agile as our consumers continue to deal with the impacts of COVID-19. While our business is certainly defensive, and more resilient than many retail peers, we expect an increased level of volatility, particularly in the first half of the year. Regardless of COVID-19, we remain confident in the direction we are headed, the investments we have made in our transformation plan over the past few years, and the resiliency of our categories. As we stated on our last earnings call, we feel we are well-positioned to handle the uncertainty in the near term due to three key factors. First, our businesses are on trend. The Sally Beauty business is the industry leader in professional color for home use, and is perfectly aligned with the increasing DIY trend. Our customers can find all of their needed solutions or products for hair, nail, and skin, either online or in our stores. Additionally, they can find how-to content on our digital sites, starting with Hair Color 101 all the way through more complex application techniques. Alternatively, a consumer can talk to a Sally associate at a store who has been trained in hair color. We plan to retain and build on the new customers who have discovered us as they experiment with DIY hair and nails and try out new exciting colors. And we are ready to serve our traditional customers with more convenient service options as they become increasingly comfortable with returning to stores over time. On the BSG side, while the salon business seems to be recovering more slowly, we are the industry leader in stylist safety with our large assortment of PPE, including hand sanitizer, Barbicide, gloves, masks, and cases. In addition, we have added more convenience – we have more convenience store locations, more DSCs that are now digitally enabled, and many of which are now trained and certified in salon safety protocols. And now, we offer improved delivery service options to ensure we are convenient and safe for our professional customers. We will continue to build on this leadership position. Second, we have the ability to operate effectively in an environment that will continue to be impacted by COVID-19. Customers and team members can feel confident in our stores, which have instituted the protocols required to operate safely. We have proven that we can rapidly evolve our service model to provide our customers with more choice on how they interact with us and more access to our inventory chain-wide. Third, we are sitting in an excellent liquidity position with strong cash flow and cash on the balance sheet. Aaron will discuss this more during his remarks. Finally, I will spend a few minutes talking about the key projects and investments that we will focus on in fiscal year 2021. First, we will continue our digital transformation by optimizing the guest experience and service offerings such as Buy Online/Pickup In-Store, which is rolling out across all Sally stores in the U.S. in November and optimizing the impact of digital to the income statement by addressing operating changes, which will lead to cost savings. We will also re-platform the BSG digital experience focused firmly on the pro and add further fulfillment options for BSG in the second half of fiscal year 2021. Second, now that we have completed the rollout of our private label rewards credit card program in the U.S., we will be intensely focused on growing and optimizing the portfolio and program. On the Sally side, the program will enhance the existing Sally Beauty rewards loyalty program by adding additional reward points to the customer spend. Additionally, the Sally e-commerce site is already set up to provide instant credit for online applications and accessibility to shop with their card online. On the BSG side, card benefits include an additional 3% discount on purchases, and adds better flexibility for stylists and pros to manage their cash flow and business. Through benchmark data, we know that private label credit card holders typically spend more per transaction, as well as having better retention rates. Therefore, our focus will be on driving activations while increasing basket size and shared wallet. This also translates the P&L benefits related to interchange relief from traditional bank cards, as well as adding royalties from new account openings. Third, as a significant part of our company’s history, growth and current assortment, our Sally Beauty division is partnered with over 25 Black-Owned brands in our current textured hair category. In fiscal year 2021, we have committed to growing these successful partnerships and expanding our offering to additional Black-Owned brands across both the Sally Beauty and BSG businesses. Fourth, now that we have JDA, our new merchandising and supply chain platform, and our new North Texas distribution center both up and live on a limited scale, our focus will be on expanding both of these initiatives. Once fully rolled out, JDA will improve product assortment by store location, improve out of stocks, and greatly improve visibility and forecasting of inventory. Once fully functional, the North Texas DC will be our first distribution center that services all channels for both business segments and will deliver the benefits of increased speed to market, lower operating costs, and will reduce the demand on our other DCs in our network. In summary, while we continue to operate in an uncertain environment, at Sally Beauty Holdings we believe we are a stronger company with even greater ability to deliver long-term sustainable growth driven by our enhanced capabilities in how we connect with our customers digitally through our loyalty and credit card programs and expanded differentiated offerings, our enhanced infrastructure, and omni-channel capabilities, and increased talent base all of which are supported by a strong balance sheet and cash flow. The bottom line, the challenges we faced in 2020 have simply made us better. They pushed us to accelerate our digital transformation to simplify and focus our business strategy and build a team that is prepared to win in a transformed retail environment. Now, I will turn it over to Aaron to discuss our financial results and our liquidity in more detail.

Thank you, Chris, and good morning. I am delighted to be here to talk about the great work that the Sally Beauty Pro-Duo and Beauty Systems Group teams accomplished during the fourth quarter. Consolidated same-store sales went up. They increased by 1.3%. Consolidated revenue was $958 million for the quarter, a decrease of less than 1% to the prior year. The increase in same-store sales led by our Sally Beauty U.S. and Canadian retail business was offset by COVID-19’s modest impact on parts of our Beauty Systems Group business during the quarter and a smaller store base with 23 fewer stores compared to the prior year. Finally, we saw a favorable impact from foreign currency translation of approximately 20 basis points on reported sales. During the quarter, brick-and-mortar traffic was choppy. It was down to the prior year due to the lingering impact of COVID-19, but the average basket remained up due to an increase in units per transactions and an increase in average unit retail, which happened alongside an increase in units in our core differentiated category of hair color. As expected, customers are generally making fewer trips, but buy more when they do come in and shop. In contrast, we did see increased traffic through our digital channels. At the start of the quarter, even with the vast majority of our store network back open, our global e-commerce business grew rapidly. For the fourth quarter, e-commerce sales were $63 million, representing growth of 69% over the prior year, led by our Sally U.S. and Canadian e-commerce platform, which delivered growth of over 113%. Last quarter, we mentioned that during the peak of the COVID crisis, we had new e-commerce customers in our online U.S. retail channel that had signed up for our Sally Beauty rewards loyalty program. Retaining these new customers was obviously a key focus for us and in the fourth quarter we saw repeat purchases from approximately 60% of that new customer group. Similarly, last quarter we saw opportunity from competitor disruption in the pro channel, where BSG saw 40,000 new hair color customers walk into our stores during the quarter. During the fourth quarter, we saw repeat purchases from approximately 50% of those new customers. Let's turn now to gross margin, which is a simple story. It went up dramatically. Consolidated gross margin for the quarter was 51.1%, which is the highest gross margin rate in at least eight years. This represented a 150-basis point increase as compared to the prior year. The improvement was expected and is a signal of our efficient retail fundamental capabilities. It was driven primarily by better coordination and execution of fewer promotions across all businesses and an intentional positive mix shift towards higher-margin categories like hair color in the quarter, but partially offset by a reduction in vendor allowances from fewer promotions and reduced inventory purchases. Consolidated gross profit for the fourth quarter was $489.1 million, an increase of approximately $10 million from the prior year. As a percentage of sales, selling, general, and administrative expenses were 38.3%, compared to 37.7% in the prior year, driven primarily by higher e-commerce delivery expenses, which were expected and are something that we're working speedily on continued transformation investments and the de-leveraging impact of lower sales volume compared to the prior year. GAAP operating earnings and operating margin in the fourth quarter were $119.7 million and 12.5%, respectively, compared to $116.1 million and 12%, respectively, in the prior year. After excluding charges related to the company's previously announced restructuring efforts in both years and COVID-19 related income in the current year from a Canadian wage subsidy, adjusted operating earnings and adjusted operating margin were $120.3 million and 12.6%, respectively, compared to $115.3 million and 11.9%, respectively, in the prior year. Both GAAP and adjusted diluted earnings per share in the fourth quarter went up. GAAP diluted earnings were $0.62 per share and adjusted diluted earnings were $0.63 per share both compared to $0.58 in the prior year, representing growth of approximately 7% and 9%, respectively, as compared to the prior year. Stronger gross margin rate, lower income tax expense, and a lower average share account all contributed, partially offset by modestly higher selling, general, and administrative expenses and an increase in interest expense. In the fourth quarter, the company had net earnings of $70.2 million, compared to $69 million in the prior year, an increase of 1.7%. Adjusted EBITDA was modestly higher at $146.6 million in the quarter, compared to $144 million in the prior year. Adjusted EBITDA margin also increased to 15.3%. Let's turn to segment performance. Global Sally Beauty segment same store sales increased by 1.7% for the fourth quarter. The Sally Beauty business in the U.S. and Canada, which represent 80% of the segment sales for the quarter, had the same store sales increase of 3.7% in Q4. Europe had a decrease in same store sales for the quarter, while Latin America had a significant decline in same store sales given approximately 15% of the stores were closed for more than half the quarter due to COVID-19. The Global Sally Beauty segment generated revenue of $577 million in the quarter, an increase of about 1% compared to the prior year, driven primarily by the increase in sales store sales, and a favorable foreign exchange impact of approximately 40 basis points, partially offset by 42 fewer stores compared to the prior year. Our Global Sally Beauty e-commerce business continued to show strength with growth of 86% in the quarter led by our U.S. and Canadian e-commerce platforms, which delivered growth of 113%. For the quarter, gross margin for the accounting segment landed at 57.6%, an increase of 180 basis points compared to the prior year, with the Sally Beauty business in the U.S. and Canada also hitting a record gross margin level of 61%. Segment operating earnings were $103.9 million in the quarter, an increase of 10.6% compared to the prior year for all the reasons that I've just discussed. Segment operating margin increased to 18%, compared to 16.4% in the prior year. Now, turning to our Beauty Systems Group segment, total segment same store sales increased by 0.6% for the quarter. While we had higher expectations for the quarter from the Beauty Systems Group, there were a number of headwinds impacting comp sales. First, the COVID-19-related shutdown of California salons in many counties in July and August had an unfavorable impact for approximately 90 basis points on the segment same store sales. We also tested a variety of tactics in stores, which will set us up for success in subsequent quarters. Net sales for the segment were $381 million in the quarter, a decrease of 3.3% compared to the prior year. The decline in non-comp sales was driven by COVID-19. COVID-19 and the necessary social distancing guidelines forced the cancellation of a significant trade show in which BSG sells goods. It also constrains the reopening and velocity of customer appointments at our national chain customers. We also saw the creation of full-service salons during the quarter resulting from some inventory gaps. Finally, we saw an unfavorable foreign exchange impact of approximately 10 basis points. BSG's e-commerce platform grew by 55% for the fourth quarter driven by consistent demand throughout the quarter. BSG's gross margin increased by 60 basis points to 41.2% in the quarter, driven primarily by fewer promotions but partially offset by lower vendor allowances. Segment operating earnings for BSG were $50.6 million, a decrease of 14.4%, compared to the prior year, driven primarily by the decrease in net sales, but partly offset by the increased gross margin rate. Segment operating margin declined to 13.3%, compared to 15% in the prior year. Let's talk about cash. We generated a lot of it. During the fourth quarter, the company delivered cash flow from operations of $153 million, an increase of 31% compared to the prior year. Payments for capital expenditures in the quarter totaled $21 million as we continue to invest against our business transformation. Investments in the quarter included further work on our digital capabilities and e-commerce platforms and optimizing our supply chain through our JDA and North Texas distribution center efforts. Free cash flow was $131 million in the quarter, which represented a 67% increase as compared to the prior year. I should note that we saw a significant cash benefit from a reduction in inventory, which carried over from Q3 into Q4. The combination of our efforts to manage cash, purposeful planning, as part of our merchandising transformation, and some supplier disruption put us in a position where inventory levels came down too far. And we are acting during Q1 to fix that, more on that to come. During the fourth quarter, the company used a portion of its cash to reduce its debt levels by $445 million, including paying off its outstanding balance on its revolving line of credit by $375 million. The entire final loan balance of $20 million and $50 million of the fixed portion of its Term Loan B. The company did not repurchase any shares during the quarter. In addition, the company also completed a small acquisition in Quebec, Canada, which added 10 stores, 17 direct sales consultants, and exclusive distribution rights to premier professional hair color and hair care brands such as Wella Professional and Goldwell. At the end of the fourth quarter, the company remained in a very strong liquidity position with $514 million cash on the balance sheet and a zero balance on a $600 million revolving line of credit. Generally, the company ended the quarter with a leverage ratio of 2.88x, reflecting our significant cash balance. For comparison purposes, the leverage ratio that we often cite as defined in our loan agreement where the impact of cash on hand is capped at $100 million for net debt calculation purposes, was 3.79x. Turning to our consolidated full-year financial results. For the full fiscal year, consolidated same-store sales decreased by 8.1%, due almost entirely to COVID. Consolidated net sales were $3.51 billion, a decrease of 9.3% driven primarily by the impact of COVID-19 shutdowns, operating 23 fewer stores, and an unfavorable impact before currency translation of approximately 10 basis points. Global e-commerce sales grew by 103%, compared to the prior year, once again led by our U.S. and Canadian e-commerce platforms, which delivered growth of 184%. GAAP diluted earnings per share for the full fiscal year were $0.99, a decline of 56.2%, compared to the prior year, driven primarily by the disrupted operations caused by COVID-19. Adjusted diluted earnings per share, excluding COVID-19 net expenses in the current year and charges related to the company's transformation efforts in both years, were $1.22, a decline of 46%, compared to the prior year. For the full fiscal year, cash flow from operations was $427 million, an increase of 33% compared to the prior year. Net payments for capital expenditures totaled $111 million. Operating free cash flow was $316 million, an increase of 39%, compared to the prior year. For the full fiscal year, the company repurchased 4.7 million shares at an aggregate cost of $61.4 million. Let's turn now to observations on fiscal year 2021. Whether it is lingering COVID-19 concerns or how long it will take the economy to fully recover or possible follow-up from the November elections, fiscal year 2021 will certainly present its share of twists and turns. We can already see this in the current operational status of the fleet. All stores in the United States and Canada are currently operating. However, stores in a few metropolitan areas like El Paso can only operate as curbside locations. Additionally, we are seeing occupancy restrictions in parts of New Mexico and Colorado. Europe has been more aggressive. We have seen stores in Belgium, Northern Ireland, and Wales close to local restrictions only to reopen shortly thereafter. Currently, of our 450 stores in Europe, approximately 180 stores are completely closed due to COVID-19 restrictions, with the remaining stores either fully open or operating curbside where permissible. The majority of the closures currently are in England and France. The result is we are seeing e-commerce accelerate again in Europe, similar to what we saw back in the third quarter. Given all this, we are not able to provide detailed financial guidance for fiscal 2021. However, the company can offer a couple of broad observations. Without adjusting for the impact of COVID restrictions, which are impossible to predict, the company would expect that sales in 2021 should be higher than 2019 even with the fewer stores in the fleet. While we can’t predict COVID, we are far better prepared than we were in fiscal 2019 or even in March with fiscal 2020. Regarding our store fleet, the company has revised its short-term plans with respect to new stores. The company now expects that net store count will be approximately flat for the year, with a small number of new stores being added to the footprint, which will be offset by a similar number of store closures as we optimize four locations. The company will, however, take advantage of the current leasing environment and relocate approximately 70 stores. Remodels were mostly put on hold for the time being. We expect our digital business to continue to grow and are continuing to invest in that area. The company expects continued strength in gross margin, particularly in the first three quarters, compared to last year, and particularly in Sally Beauty U.S. and Canada. The company expects SG&A investments will on a full-year basis rise to reflect our continued investments, particularly in labor and e-commerce distribution. However, the company is working hard on offsets to those investments and views it as an area of opportunity with more work for us to do. The company expects to continue to generate strong cash flow, so also expect it will be back-end loaded, given this company’s significant upfront investment in inventory that I referenced earlier. Finally, let's address capital allocation. Our priorities are relatively unchanged. The company will invest in its business. As I noted earlier in Q1, this will take the form of investing in new inventory. We will also continue our business transformation, so with some effort scaled back to reflect the uncertain environments until a vaccine is available. We will continue to hold significant cash on our balance sheet while we monitor how COVID-19 plays out over the first and second quarters. As we grow increasingly confident that the environment has stabilized to our satisfaction, we will consider deploying additional excess cash to reduce our debt levels in the direction of moving our leverage ratio to 2.5x. That all being said, as we look at the stock price versus our underlying business fundamentals, we may smartly consider share repurchases from time to time. We have not repurchased any shares so far this fiscal year. Thank you for your time this morning. Now, I would like to turn the call back over to the operator for Chris and I to take your questions.

Thank you. Our first question will come from Steph Wissink with Jefferies. Your line is open.

Hi, good morning, everyone. Chris and Aaron, my first question for you is just related to the color and nail strength that you saw which would imply that the other categories within your product mix were down pretty sharply. So, if you can just help us contextualize how the composition of the category performance was across your chains that would be great? And then secondly, I recall on the last quarterly conference call you talked about July being up in the mid-single digits, and with the full quarter kind of up just a little under 2% would imply a pretty sharp deceleration in August and September. So, if you can maybe help us think about the cadence, and then, if you've seen any change in that cadence as we have rolled into the first fiscal quarter, that would be very helpful as well? Thank you.

Good morning. I'll address the questions in reverse order. What we saw from the quarter was a barbell quarter where we saw strong July, much softer August, as for reasons we've talked about, and then, September, recovered, as you carry forward, so it's the barbell quarter. With respect to your categories, you're right, it's actually the case that we had some real strength in our defensible core and hair color care and nail, but we did see weakness in other categories. Part of it's driven by the consumer, for instance, we don't sell a lot of cosmetics, it's not a core trip driver for us, but we did see a decline in the cosmetics category and some categories like hair extensions, offset by, you know, the growth we saw in hair color in particular, which was both consumer-driven and strategy-driven as we've increasingly focused our assortment and inventory spend, you know, in those areas around hair color and hair care. Chris?

And Steph, just to point you back to – you know, Sally finished with a 3.7 comp for the quarter, which, you know, was very strong, a little bit of the barbell impact as discussed. But remember that BSG dealt with significant salon closures throughout the network. As an example, California reclosed for approximately six weeks during that period. And obviously, that was a significant hit. And, you know, we expect there'll be more volatility like that, where regions or areas of the country may close salons again.

That's great. And then, just one follow-up on your e-commerce business. I’m wondering – I know it's only about $60 million to $65 million, but as you look at that percentage of the sales, what do you expect that to be as you look ahead? And then, are you learning anything about the composition of online orders versus your in-store orders or in-store transactions? Is there a unique composition? Are they very similar across both channels?

Well, our aspiration continues to be what it was, which is, we want to get to the 10% penetration figure for our categories. We're not there yet. We have more opportunity, although we are seeing nice increases in penetration across the entire business. And with respect to the basket, you know, our answer now is different than it would have been, you know, a year ago. You know, a year ago, the answer would have been that the online consumer is typically very deal-driven and is looking for, you know, more commodity categories like appliances. Now, what we're seeing is a real strong presence in color helping to drive, you know, that growth and nail as well as care. We drive a lot of those categories for the digital channels. We're quite pleased with that. It's in part also though, driven by a change in strategy where we are far less promotional online than we were and far more focused on, you know, content, the how-to, right, in the world in which we're operating where the consumer is not as willing to go out the door, go to a stylist, even, the retail business is responding by making it easier for her to try it or understand it or evolve it or fix it, right, that's really the strategy.

And on the wholesale side, Steph, I'll add that in general, it has been much more like our retail business all along. But Aaron's right, on the retail side, those two businesses are converging and becoming much more similar and that's what we should be in an omni-channel business.

That’s great. Last one for us is just on inventory. I think, Aaron, you mentioned that it was a bit lower than you would have expected. So, maybe just help us think about remediation of buying back into inventory and planning into more stability in the business going forward?

Yes. Well, what I can tell you is that we're at, I think, a six-year low from inventory. We were in Q3 and we were in Q4, even though we have been aggressively buying inventory back into the fleet for both Sally Beauty and BSG. And while that activity started in Q4, right, it’s certainly carried into Q1 and we believe that we have sales upside resulting from being back in stock in color in BSG and in particular brands, as well as in key categories, like clippers in retail. Some of it was driven, as I called out, by our efforts to manage cash given the crisis earlier in the year. Some of it was driven by a very thoughtful and purposeful set of assortment changes driven by our merchandising organization. And some of it was driven by, you know, some supplier disruption as our suppliers also deal with, you know, COVID-19. So, we're confident we're back on the right track. It will, however, be a use of cash for the first quarter in particular, as we carry forward, but we think it results in upside.

Thank you.

Thanks, Steph.

Thank you. Our next question comes from the line of Oliver Chen with Cowen. And your line is open.

Hi, the gross margin performance has been impressive. What do you see ahead for what's driving that? And also in the context of managing inventories, and the composition and freshness of inventories, some of the supply disruption may or may not be, you know, out of your control. I’d love your thoughts there.

I'll take a first shot, and then, hand it over to Aaron. You know, listen, I think, you know, as we said and as we've stated, Oliver, we've really made a big focus on, you know, fewer, deeper, bigger promotions, and much more focus on content and education is how we want to serve our customers as opposed to using promotions to drive volume. And as a result of that, that's translating into much higher margins. There is some geography shift in the P&L as well associated with delivery expense falling down lower. And as Aaron mentioned in his comments, that'll be a major focus for us. And obviously, we expect buy-online, pick-up in-store to be – to play a major role in helping us address that. In terms of freshness of inventory, I do think we can address most of the issues we have in terms of out of stocks ourselves. It's within our control. There are a few vendors that are struggling to keep up or get back into full stock and that'll take longer just because that's out of our control. But I would say the majority of it, we can fix and we are in the process of fixing right now. And Aaron, I don’t know if you want to add anything to that?

No, I think it's well said. At its core, Oliver, on the gross margin side and the retail side, we believe that we have a differentiated core that we're conveying value and that we don't need to over-promote in those categories. And we've been gradually moving in that direction and Q4 saw us get to a real turning point on that.

And a final question, the engagement of new customers was impressive in some of the statistics you mentioned. On the e-commerce front, what are your thoughts on generating incrementality relative to cannibalization of retail? And also what's ahead in terms of managing margins in that segment? Thank you.

I believe your question is on retail, Oliver. What I would tell you is, we believe there is opportunity for incrementality. As I’ve said on prior calls, you know, once we can get the consumer to in our store or buy from us online, the quality of our products and the different experience speaks for itself. And so, once we've got it, we've really got them. And so, we believe that we have the opportunity to continue to build those baskets with them and drive, you know, more trips. With respect to your question on gross margin, what I would say is, this is part of a concerted strategy in the retail business. We believe that we will have continued strength in gross margin as we carry forward, particularly as we manage through, you know, the holiday season here, we're not a certainly holiday-focused business, and so, I expect good things to continue.

And, Oliver, just to add to that real quick, I mean, with now we shift from store scaled up across the network and with Buy Online/Pickup In-Store scaling up now, the stores are integrally, you know, are fully integrated into our e-commerce business. It's all one. It truly is an omni-channel business and the stores are going to serve a major part of our e-com business. And, you know, what we're excited about is that allows us to really leverage the expertise in store, leverage recommendations, add to the basket, and, you know, we see that as how we want to grow the business long-term, it's one seamless way of interacting. Whichever way the consumer wants to interact, we’ll interact with them and we'll offer both our expertise and our products through those.

Thank you. Very helpful. Best regards.

You bet.

Thank you. Our next question will come from the line of Rupesh Parikh with Oppenheimer. And your line is open.

Good morning. Thank you for taking my question. To start, I would like to hear your thoughts on the categories you compete in regarding the growth rates or declines you experienced last quarter. Additionally, do you have any insights on whether you gained market share during this period for both Sally Beauty Supply and BSG?

Rupesh, good morning. Great question. I'm not going to give you category specific decline numbers, but what I can tell you broadly is this. We did see growth in hair color. We saw growth in nails as we called out. We saw good business in care and these are the three core categories for us. We saw declines in sales in most of the rest of the portfolio, not all of it, where – and in particular, I would point to cosmetics. We don't have prestige or even masstige, right, in the business, and so, we weren't terribly surprised by that. We also saw some declines in areas like hair extensions, right, where we have not, for the last couple of years, played heavily there. And so, on balance, as I think about the portfolio, we're winning, where we're focused, and we have work to do in the basket-filled categories that are around the core.

I think the other thing I would add, Rupesh, is some of this is just tied to changes in consumer behavior and lifestyle right now, right. So, we're seeing declines in appliances like curling irons, and styling tools. We're seeing declines in things like hairsprays. You know, if you're not going out as much, whether that be to dinner or to events and things like that, then your need to, you know, significantly style your hair and purchase styling tools and styling aids is going to decline. So, as Aaron pointed out, we're really excited about the strength that we're seeing in our core. We assume those other things will come back as the consumer returns to normal behavior sometime later next year.

And I would be a bad CFO if I did not point out, Rupesh, that the areas where we are seeing our growth are our higher margin categories.

Okay, great. And Aaron, that’s a good segue into my next question. So, really strong gross margin improvement this quarter, as you look for like, any sense of the improvement that we're seeing now that any portion that could be like, you know, more of a sustainable improvement, you know, I guess longer-term?

We do believe it's a sustainable improvement carrying forward, particularly in the retail business. Now, at some point, you know, probably Q4 next year, we will lap where we are, but as we think about the year ahead, we do believe that we have continued opportunity and this is not a one-off quarter on the gross margin line. We've rationalized our inventory. We’ve rationalized our promotional structure. The merchandising team and the planning and allocation team is working better together between themselves and the rest of the organization than they ever have. And so, we view it as a real opportunity.

Okay, great. And my last question, and maybe I guess this one is for Chris, as you look at salon demand out there, any sense of where we are in salon demand versus pre-pandemic? Like, I don’t know, are we down 20% or I’m just curious as you look at the industry? Maybe we're on the BSG side like – you know, when you talk to salon owners and stylists like, you know, where you think the industry is from versus pre-pandemic levels?

Yes. And I don't have a lot of data to share. I do believe it is down. I don't think it's down as 20%. You know, I think the reality is there is disruption in the market. There are restrictions in some markets. Salons often can't operate at the same capacity. A great example is our chain business where we use handle distribution to large chains that are, you know, focused on lots of volume, high volumes of clients. They're down more significantly because they just can't process as many clients in a day given the restrictions. So, I do believe it is down. We're not – we're down just a little bit. And as you saw, BSG actually had positive same-store sales overall, which is great. And I think that, you know, the net result of that is I'm hoping we're gaining share. We're certainly working hard at it and we've seen a lot of color conversions, where we've been able to pick up new accounts. But I expect that it's going to take some time before the salon business returns to normal. It'll be the back half of the year or even later.

Okay, great. Thank you for all the color.

You bet.

Thank you. Our next question comes from the line of Mark Altschwager with Baird. And your line is open.

Hi, good morning. Thanks for taking my questions. I guess to start out, and I apologize if I missed it, but is there any color you can share on the quarter-to-date comp trends you're seeing?

Mark, during our last earnings call, we announced that we would not be providing monthly updates thereafter.

Okay, okay. Fair enough. And then, you know, on the gross margin, not to kind of keep beating on it here, but, you know, you just concluded, I guess, a very volatile year on the gross margin front. You know, I think in Sally Beauty there is, nearly 900 basis points spread between kind of Q3 and Q4 rate. You know, understanding a lot of kind of one-time factors at play. You outlined a lot of the, you know, positive changes here with inventory and, you know, what you're doing with promotions. I guess, you know, how do you feel about kind of just the ability to deliver kind of steadier gross margin trends in the future? Do you think we're kind of past some of this volatility? And then, just as you kind of think higher level, I mean, how should we be thinking about kind of the normalized, you know, baseline gross margin rate kind of Sally Beauty supply and consolidated basis as all these changes take hold?

You raised a series of great questions, Mark. Let me attempt to address them best I can. What I would tell you is, you're right, we had a very significant difference in Q3 and Q4 from a gross margin rate perspective in Sally Beauty. If you look back at our transcript from Q3, you'll see I walked through a very detailed bridge of the one-time actions we were taking in connection with our inventory at that time. Q4 reflects more of a steady state margin structure for Sally Beauty in the U.S. and Canada, right. We saw particular strength there. Look, in the European business, we believe we have some more opportunity to work on our gross margin structure there. We had, of course, a little bit different business. It's more of a mix of professional and retail. And then, in BGS, we continue to look to optimize, you know, for that as well. So, I take a fair amount of comfort from where Sally Beauty in the U.S. and Canada is at 80% of the segment sales as a carry forward, and we're not anticipating additional one-time actions to what we saw in Q3.

Okay, that's very helpful. And I guess just finally, I was hoping to also just kind of ask a big picture question on sort of the state of the pro-stylist market. I guess do you have a sense of how many salons have closed? Maybe how many have permanently closed? And I would think the pressure on salons is maybe just accelerated the shift to booth renting. You know, is that something you're seeing? And if so, is that a headwind to BSG, but tailwind to Sally Beauty or, you know, things not quite that simple? So, you know, obviously a very volatile period, you know, we went through and are continuing to go through. So, we just love, you know, your high-level thoughts on some of the more structural shifts in the market that are going on versus some of the factors that might kind of normalize here in the coming months?

Yes. I mean, Mark, I think you're right. There is – it is a disrupted market. It's disrupted most in high volume change as I mentioned. It's also disrupted in large urban salons that, you know, obviously have tried to put a lot of people through in a very tight space. Those are the most disruptive, but even salons that might have had 12 chairs in a more mid-market city, you know, maybe you're operating eight now in order to maintain space restrictions, and then, those stylists are displaced. What that does mean is, you're exactly right, it does mean that there probably will be a surge in booth renting, a surgeon suite rentals, as well as small salons starting up in maybe six months as stylists go out on their own. In general, that's probably good for the BSG business because it supports the retail side of BSG. Some of the largest salons and larger accounts are often served directly by brands and manufacturers. And so, fragmentation over time should help our store business, but I think it's going to take time for all that to shake out.

Okay, great. Thank you for all the color.

You bet.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. And your line is open.

Hey, good morning, everyone. I wanted to ask again, on gross margin in SBS. If you look at the roughly 200 basis point improvement year-over-year, can you talk about how much roughly helped lower promotions? And then, Aaron, you mentioned better mix of product, can you talk about those buckets?

You know, we have not historically disclosed a, you know, mix analysis that way. And so, I think what I observe is, most of the benefits, I'm not going to quantify further, it comes from rationalizing our price and promotional structure. Second aspects of that would be mix.

Got it, okay. And when we're speaking to sustainability of these things, I don't know if you want to, you know, pin a number to it, but, you know, the gross was at that 57, I think, level and I think the U.S. was even stronger. That is the right way to think, so what we saw in the fourth quarter is a fair gauge of sustainable gross margin for that business going forward?

Yes.

Great. Okay. And then, look, we wanted to ask Chris, I know we've known this well or may have been, you know, separated Cody for some time. Curious if there's any implications, you know, good, bad, indifferent to think about, you know, for one of your programs moving – changing hands?

The reality is that separation hasn't occurred yet. I believe it occurs early next year, so it's coming soon. I don't expect that it'll change much. We re-signed a long-term contract with them earlier this year. And obviously, we're focused on growing their color brand – their professional color brand exclusively through BSG. And then, obviously, we sell color brands on a non-exclusive basis through Sally that they also own. So, you know, our plan is to work with the new management team there to grow their brands and to work together to continue to expand the business and grab market share where we can. And so at this point, I don't see any change in operating strategy other than I'm hoping we'll see more innovation from that business over time with more focus.

Right. Okay. Thanks, guys.

Thank you. Our next question comes from the line of Jonathan Keypour with Bank of America. And your line is open.

Hi, good morning, everybody. Thanks for the question. Just wanted to get a little bit of information on how you guys are thinking about the holiday season coming up. I know, you mentioned that it's not usually, you know, it's not a very big part of the year, but I just wanted to know how you were seeing demand, you know, into that quarter, how you're thinking about how it might play out and whether or not there'll be any even small incremental promotion compared to what we saw this quarter? And then after that, if you could touch on, given the strength of your e-commerce business so far, is there a longer-term change in how you're viewing store footprints, and maybe thinking about the ability to sort of translate those in-store purchases more online and then you have a smaller cost and footprint and all that? Thank you.

Great questions. Let me attempt to address the first, and Chris will take the second. With respect to Sally Beauty and our second quarter, which is already underway, the difference I would point you to is the difference not versus Q4 – our fiscal Q4, but rather versus prior year. We are not a terribly holiday-oriented enterprise. That said, if you walked into a Sally Beauty store or if you went on to SallyBeauty.com or sallybeauty.ca, what you would see is a very tailored merchandise assortment to actually speak to gifting, right. Our merchants have taken a much more selective cut at what goodness looks like there. And so while we will have holiday offers, they’ll be narrower than they were in previous years. Similarly, from a promotional cadence, and the say, may be going to the gross margin questions that folks have been asking, we're going to be very careful about it, right. We are not participating in a race to the bottom that a lot of retailers have underway right now as they think about, you know, not Black Friday, but rather, you know, black November, right? We will – there will be promotions. Right? We are focused on what the right promotions are, but we have moved to a strategy, which is much more content focused, helping our consumer emphasizing the categories in which we have a differentiated core and going from there, that would be our consistent strategy as we go forward.

Yeah, on a broader basis, if you just think about holiday, from what I've seen, and I have a circle of retail CEOs that I talk to regularly, you know, obviously it's going to be spread out, right. Rather than being concentrated in specific days or weeks it's going to be much more spread out. I actually don't think it's going to be as promotional as people are worried about, because I believe a lot of retailers did not buy as heavily into inventory during the summer months and before as they were conserving cash as they went to the crisis. And I've heard that from a number of my peers, that because they don't have as much inventory, you know, even if demand is a little soft, they don't have a lot to get rid of. So I just don't think you're going to see quite the level of clearance sales or panic sales in previous years, because I just don't think the inventory sitting in the stores or in warehouses that needs to be sold off.

Right. Thank you.

You bet.

Thank you. And ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.