Sally Beauty Holdings, Inc 10-Q for FY2023 Q2

Sally Beauty Holdings, Inc. (SBH)

10-Q 2023-05-04 For: 2023-03-31

Added on April 11, 2026

About this 10-Q

Sally Beauty Holdings, Inc filed this 10-Q on May 4, 2023, covering the quarter ended March 31, 2023 (FY2023 Q2).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $918.71M; up 0.8% from $911.39M a year earlier
Net income: $40.86M; down 12.7% from net income of $46.81M a year earlier
Diluted EPS: $0.37; down 11.9% from $0.42 a year earlier

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Delaware		36-2257936
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3001 Colorado Boulevard
Denton, Texas		76210
(Address of principal executive offices)		(Zip Code)

Large accelerated filer	☒		Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐		Emerging growth company	☐

	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements	4

Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Earnings	5
Condensed Consolidated Statements of Comprehensive Income	6
Condensed Consolidated Statements of Stockholders’ Equity	7
Condensed Consolidated Statements of Cash Flows	8
Notes to Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	17
Item 3. Quantitative And Qualitative Disclosures About Market Risk	24
Item 4. Controls And Procedures	24

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 6. Exhibits	26

	March 31, 2023			September 30, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	61,620		$	70,558
Trade accounts receivable, net		30,540			34,102
Accounts receivable, other		45,123			38,175
Inventory		1,023,656			936,374
Other current assets		48,072			53,192
Total current assets		1,209,011			1,132,401
Property and equipment, net of accumulated depreciation of $841,760 at March 31, 2023, and $820,811 at September 30, 2022		283,356			297,876
Operating lease assets		562,336			532,177
Goodwill		534,218			526,066
Intangible assets, excluding goodwill, net of accumulated amortization of $29,921 at March 31, 2023, and $26,794 at September 30, 2022		50,533			50,315
Other assets		35,660			38,032
Total assets	$	2,675,114		$	2,576,867
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	38,175		$	68,658
Accounts payable		265,075			275,717
Accrued liabilities		168,187			161,065
Current operating lease liabilities		154,255			157,734
Income taxes payable		4,949			4,740
Total current liabilities		630,641			667,914
Long-term debt		1,065,439			1,083,043
Long-term operating lease liabilities		444,819			424,762
Other liabilities		22,044			22,427
Deferred income tax liabilities, net		86,283			85,085
Total liabilities		2,249,226			2,283,231
Stockholders’ equity:
Common stock, $0.01 par value. Authorized 500,000 shares; 107,556 and 107,024 shares issued and 107,549 and 106,970 shares outstanding at March 31, 2023, and September 30, 2022, respectively		1,076			1,070
Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued		—			—
Additional paid-in capital		13,790			4,241
Accumulated earnings		531,370			440,172
Accumulated other comprehensive loss, net of tax		(120,348	)		(151,847	)
Total stockholders’ equity		425,888			293,636
Total liabilities and stockholders’ equity	$	2,675,114		$	2,576,867

	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2023		2022		2023		2022
Net sales	$	918,712	$	911,387	$	1,875,767	$	1,891,638
Cost of goods sold		450,373		446,055		918,854		926,177
Gross profit		468,339		465,332		956,913		965,461
Selling, general and administrative expenses		389,657		378,871		781,237		765,121
Restructuring		7,274		—		17,680		1,099
Operating earnings		71,408		86,461		157,996		199,241
Interest expense		16,685		19,896		34,608		40,137
Earnings before provision for income taxes		54,723		66,565		123,388		159,104
Provision for income taxes		13,862		19,757		32,190		43,458
Net earnings	$	40,861	$	46,808	$	91,198	$	115,646
Earnings per share:
Basic	$	0.38	$	0.43	$	0.85	$	1.05
Diluted	$	0.37	$	0.42	$	0.83	$	1.03
Weighted-average shares:
Basic		107,453		108,743		107,294		110,387
Diluted		109,706		110,540		109,499		112,207


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

												Accumulated
							Additional					Other			Total
	Common Stock						Paid-in			Accumulated		Comprehensive			Stockholders’
	Shares			Amount			Capital			Earnings		Loss			Equity
Balance at September 30, 2022		106,970		$	1,070		$	4,241		$	440,172	$	(151,847	)	$	293,636
Net earnings		—			—			—			50,337		—			50,337
Other comprehensive income		—			—			—			—		25,234			25,234
Share-based compensation		—			—			5,135			—		—			5,135
Stock issued for equity awards		404			4			78			—		—			82
Employee withholding taxes paid related to net share settlement		(90	)		(1	)		(1,125	)		—		—			(1,126	)
Balance at December 31, 2022		107,284		$	1,073		$	8,329		$	490,509	$	(126,613	)	$	373,298
Net earnings		—			—			—			40,861		—			40,861
Other comprehensive income		—			—			—			—		6,265			6,265
Share-based compensation		—			—			3,838			—		—			3,838
Stock issued for equity awards		266			3			1,638			—		—			1,641
Employee withholding taxes paid related to net share settlement		(1	)		—			(15	)		—		—			(15	)
Balance at March 31, 2023		107,549		$	1,076		$	13,790		$	531,370	$	(120,348	)	$	425,888

	Six Months Ended March 31,
	2023			2022
Cash Flows from Operating Activities:
Net earnings	$	91,198		$	115,646
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation and amortization		50,347			48,471
Share-based compensation expense		8,973			5,990
Amortization of deferred financing costs		1,311			1,865
Loss on early extinguishment of debt		601			—
Impairment of long-lived assets, including operating lease assets		1,765			—
Loss on disposal of equipment and other property		2			80
Deferred income taxes		862			6,507
Changes in (exclusive of effects of acquisitions):
Trade accounts receivable		4,632			3,800
Accounts receivable, other		(5,805	)		2,108
Inventory		(68,355	)		(95,468	)
Other current assets		6,053			(6,273	)
Other assets		2,201			1,979
Operating leases, net		(14,286	)		3,657
Accounts payable and accrued liabilities		108			(70,217	)
Income taxes payable		434			(8,393	)
Other liabilities		(393	)		(12,525	)
Net cash provided (used) by operating activities		79,648			(2,773	)
Cash Flows from Investing Activities:
Payments for property and equipment, net of proceeds		(42,181	)		(44,109	)
Acquisitions, net of cash acquired		—			(318	)
Net cash used by investing activities		(42,181	)		(44,427	)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		853,000			—
Repayments of long-term debt		(898,093	)		(2,841	)
Payments for common stock repurchased		—			(130,328	)
Proceeds from equity awards		1,723			7,796
Debt issuance costs		(4,726	)		—
Employee withholding taxes paid related to net share settlement of equity awards		(1,141	)		(1,151	)
Net cash used by financing activities		(49,237	)		(126,524	)
Effect of foreign exchange rate changes on cash and cash equivalents		2,832			178
Net decrease in cash and cash equivalents		(8,938	)		(173,546	)
Cash and cash equivalents, beginning of period		70,558			400,959
Cash and cash equivalents, end of period	$	61,620		$	227,413
Supplemental Cash Flow Information:
Interest paid	$	35,191		$	37,809
Income taxes paid	$	32,077		$	56,701
Capital expenditures incurred but not paid	$	5,466		$	3,205

(in thousands)	Classification	Fair Value Hierarchy Level	March 31, 2023		September 30, 2022
Financial Assets:
Foreign exchange contracts
Non-designated cash flow hedges	Other current assets	Level 2	$	327	$	294
Interest rate caps	Other current assets	Level 2		—		3,860
Total assets			$	327	$	4,154
.
Financial Liabilities:
Foreign exchange contracts
Designated cash flow hedges	Accrued liabilities	Level 2	$	2,300	$	—
Non-designated cash flow hedges	Accrued liabilities	Level 2		1,887		79
Total liabilities			$	4,187	$	79

		March 31, 2023				September 30, 2022
(in thousands)	Fair Value Hierarchy Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, excluding capital leases
Senior notes	Level 1	$	679,961	$	668,062	$	679,961	$	639,163
Term loan B due 2024	Level 2		—		—		407,500		398,331
Term loan B due 2030	Level 2		400,000		398,500		—		—
Total long-term debt		$	1,079,961	$	1,066,562	$	1,087,461	$	1,037,494

	Foreign Currency Translation Adjustments			Interest Rate Caps			Foreign Exchange Contracts			Total
Balance at September 30, 2022	$	(153,128	)	$	1,960		$	(679	)	$	(151,847	)
Other comprehensive loss before reclassification, net of tax		35,386			817			(1,815	)		34,388
Reclassification to net earnings, net of tax		—			(2,777	)		(112	)		(2,889	)
Balance at March 31, 2023	$	(117,742	)	$	—		$	(2,606	)	$	(120,348	)

	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Weighted-average basic shares		107,453		108,743		107,294		110,387
Dilutive securities:
Stock option and stock award programs		2,253		1,797		2,205		1,820
Weighted-average diluted shares		109,706		110,540		109,499		112,207

Anti-dilutive options excluded from our computation of diluted shares		1,964		2,534		1,964		2,169

	March 31, 2023		September 30, 2022
Compensation and benefits	$	66,868	$	58,693
Deferred revenue		18,980		18,810
Rental obligations		12,766		10,701
Insurance reserves		6,111		5,742
Property and other taxes		3,022		4,161
Interest payable		13,699		13,445
Operating accruals and other		46,741		49,513
Total accrued liabilities	$	168,187	$	161,065

Notional Currency	Notional Amount
Mexican Peso	$	12,846
Euro		7,699
Canadian Dollar		6,284
Total	$	26,829

	Six Months Ended March 31,
	2023			2022
Beginning Balance	$	13,460		$	16,744
Loyalty points and gift cards issued but not redeemed, net of estimated breakage		9,327			6,214
Revenue recognized from beginning liability		(8,370	)		(6,316	)
Ending Balance	$	14,417		$	16,642

	Three Months Ended March 31,						Six Months Ended March 31,
SBS	2023			2022			2023			2022
Hair color		39.8	%		38.1	%		39.2	%		37.4	%
Hair care		24.3	%		24.1	%		23.9	%		24.0	%
Styling tools and supplies		17.9	%		19.2	%		18.7	%		19.7	%
Nail		10.0	%		10.6	%		10.2	%		10.5	%
Skin and cosmetics		7.5	%		7.4	%		7.4	%		7.7	%
Other beauty items		0.5	%		0.6	%		0.6	%		0.7	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

	Three Months Ended March 31,						Six Months Ended March 31,
BSG	2023			2022			2023			2022
Hair care		42.0	%		43.1	%		42.8	%		43.3	%
Hair color		40.6	%		39.5	%		39.4	%		38.9	%
Styling tools and supplies		10.8	%		11.2	%		10.8	%		11.3	%
Skin and cosmetics		3.7	%		3.5	%		4.1	%		3.9	%
Nail		2.7	%		2.3	%		2.7	%		2.2	%
Other beauty items		0.2	%		0.4	%		0.2	%		0.4	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

	Three Months Ended March 31,						Six Months Ended March 31,
SBS	2023			2022			2023			2022
Company-operated stores		93.6	%		93.7	%		93.6	%		94.0	%
E-commerce		6.4	%		6.3	%		6.4	%		6.0	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

Notional Currency	Notional Amount
British Pound	$	51,936
Canadian Dollar		13,491
Euro		21,173
Mexican Peso		26,175
Total	$	112,775

(in thousands)	Liability at September 30, 2022		SBS Expense		BSG Expense			Cash Payments			Non-Cash Amounts			Liability at March 31, 2023
Closing costs - leases ^(a)	$	—	$	7,389	$	1,307		$	(5,463	)	$	(1,043	)	$	2,190
Closing costs - payroll expenses ^(b)		—		1,540		979			(2,458	)		—			61
Impairment - property and equipment ^(c)		—		1,276		193			—			(1,469	)		—
Inventory transfer costs		—		1,158		322			(1,372	)		—			108
Impairment - operating lease assets ^(c)		—		350		244			—			(594	)		—
Other closure costs ^(d)		1,291		2,978		(56	)		(2,659	)		—			1,554
Total	$	1,291	$	14,691	$	2,989		$	(11,952	)	$	(3,106	)	$	3,913


	•	Enhancing our customer centricity;
	•	Growing high margin owned brands at Sally Beauty and amplifying innovation; and


	•	Increasing the efficiency of our operations and optimizing our capabilities.

Comparable sales	$	43,868
Sales outside comparable sales ^(a)		(34,456	)
Foreign currency exchange		(4,951	)
Total	$	4,461

Comparable sales	$	4,769
Sales outside comparable sales ^(a)		171
Foreign currency exchange		(2,076	)
Total	$	2,864

Comparable sales	$	59,822
Sales outside comparable sales ^(a)		(50,676	)
Foreign currency exchange		(16,743	)
Total	$	(7,597	)

Comparable sales	$	(1,340	)
Sales outside comparable sales ^(a)		(2,225	)
Foreign currency exchange		(4,709	)
Total	$	(8,274	)

Net sales	$	1,523,975
Gross profit	$	784,446
Earnings before provision for income taxes	$	96,854
Net Earnings	$	72,906

Exhibit No.		Description

3.1		Third Restated Certificate of Incorporation of Sally Beauty Holdings, Inc., dated January 30, 2014, which is incorporated herein by reference from Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on January 30, 2014

3.2		Amended and Restated Bylaws of Sally Beauty Holdings, Inc., dated April 26, 2017, which is incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 28, 2017

10.1		Credit Agreement, dated as of February 28, 2023, by and among Sally Holdings LLC, Sally Capital, Inc., Bank of America, N.A., as Administrative Agent and Collateral Agent, and the lenders and other parties, which is incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 1, 2023

22		List of Subsidiary Guarantors*

31.1		Rule 13a-14(a)/15d-14(a) Certification of Denise Paulonis*

31.2		Rule 13a-14(a)/15d-14(a) Certification of Marlo M. Cormier*

32.1		Section 1350 Certification of Denise Paulonis*

32.2		Section 1350 Certification of Marlo M. Cormier*

101		The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Stockholders’ Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements.

104		The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2023, formatted in Inline XBRL (contained in Exhibit 101).

		SALLY BEAUTY HOLDINGS, INC.
		(Registrant)

Date: May 4, 2023

	By:	/s/ Marlo M. Cormier
		Marlo M. Cormier
		Senior Vice President, Chief Financial Officer
		For the Registrant and as its Principal Financial Officer


Exact Name of Registrant as Specified in Its Charter	State of Incorporation or Organization
Arcadia Beauty Labs LLC	Delaware
Armstrong McCall Holdings, Inc.	Texas
Armstrong McCall Holdings, L.L.C.	Delaware
Armstrong McCall, L.P.	Texas
Armstrong McCall Management, L.C.	Texas
Beauty Holding LLC	Delaware
Beauty Systems Group LLC	Virginia
Diorama Services Company, LLC	Delaware
Innovations-Successful Salon Services	California
Loxa Beauty LLC	Indiana
Neka Salon Supply, Inc.	New Hampshire
Procare Laboratories, Inc.	Delaware
Sally Beauty Holdings, Inc.	Delaware
Sally Beauty International Finance LLC	Delaware
Sally Beauty Military Supply LLC	Delaware
Sally Beauty Supply LLC	Virginia
Sally Investment Holdings LLC	Delaware
Salon Success International, LLC	Florida

Date: May 4, 2023

	By:	/s/ Denise Paulonis
		Denise Paulonis
		Chief Executive Officer