8-K
Sally Beauty Holdings, Inc. (SBH)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: May 5, 2022
(Date of earliest event reported)
SALLY BEAUTY HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
| Delaware | 1-33145 | 36-2257936 |
|---|---|---|
| (State or Other Jurisdiction<br><br><br>of Incorporation) | (Commission File Number) | (IRS Employer<br><br><br>Identification No.) |
| 3001 Colorado Boulevard,<br><br><br>Denton, Texas | 76210 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s Telephone Number, Including Area Code: (940) 898-7500
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br><br><br>Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.01 par value | SBH | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition |
|---|
On May 5, 2022, Sally Beauty Holdings, Inc. (the “Company”) issued the news release attached hereto as Exhibit 99.1 reporting the financial results of the Company for the second quarter ended March 31, 2022 (the “Earnings Release”).
| Item 7.01 | Regulation FD Disclosure |
|---|
The Earnings Release also provides an update on the Company’s strategy and business outlook.
| Item 9.01 | Financial Statement and Exhibits |
|---|
(d)
| Exhibit | Description |
|---|---|
| 99.1 | News release reporting financial results for the second quarter ended March 31, 2022, issued by Sally Beauty Holdings, Inc. on May 5, 2022 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
All of the information furnished in Items 2.02 and 7.01 of this report and the accompanying exhibit shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended, unless expressly incorporated by reference therein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| SALLY BEAUTY HOLDINGS, INC. | ||
|---|---|---|
| May 5, 2022 | By: | /s/ Denise Paulonis |
| Name: Denise Paulonis | ||
| Title: President and Chief Executive Officer |
sbh-ex991_15.htm
Exhibit 99.1
Contact: Jeff Harkins
Investor Relations
940-297-3877
jharkins@sallybeauty.com
Sally Beauty Holdings Reports Second Quarter Fiscal 2022 Results
Q2 GAAP Diluted EPS of $0.42; Adjusted Diluted EPS of $0.47
Q2 GAAP Operating Margin of 9.5%; Adjusted Operating Margin of 9.9%
Q2 Share Repurchases Totaled $55 Million
DENTON, Texas, May 5, 2022 – 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, 2022. The Company will hold a conference call today at 7:30 a.m. Central Time to discuss these results and its business.
Fiscal 2022 Second Quarter Summary
| • | Consolidated net sales of $911 million, a decrease of 1.6% compared to the prior year, with a comparable sales increase of 0.2%; |
|---|---|
| • | Global e-commerce sales of $81 million, representing 8.9% of net sales; |
| --- | --- |
| • | GAAP gross margin up 70 basis points to 51.1% and Adjusted Gross Margin up 20 basis points to 51.4%; |
| --- | --- |
| • | GAAP operating earnings of $86 million and GAAP operating margin of 9.5%, Adjusted Operating Earnings of $90 million and Adjusted Operating Margin of 9.9%; |
| --- | --- |
| • | Interest expense of $20 million compared to $24 million in the prior year, reflecting the Company’s deleveraging actions; |
| --- | --- |
| • | GAAP diluted net earnings per share of $0.42 and Adjusted Diluted Net Earnings Per Share of $0.47; and |
| --- | --- |
| • | Repurchased 3.2 million shares at an aggregate cost of $55.3 million. |
| --- | --- |
“After a strong start to the year, we experienced greater than expected pressure on the top line as supply chain and inflationary challenges intensified in the back half of the quarter and we lapped the stimulus benefits of 2021,” said Denise Paulonis, president and chief executive officer. “While these factors impacted net sales, we delivered healthy gross margins above 51% and adjusted earnings per share of $0.47. As we navigate the ongoing macro environment, we remain confident in the underlying strength of our business and the resiliency of our core color and care customers. Our teams are continuing to focus on our four key growth pillars, which include leveraging our digital platform, driving loyalty and personalization, delivering product innovation and optimizing our supply chain. Importantly, our strong balance sheet allowed us to continue investing for growth while returning value to shareholders through our share repurchase program during the quarter.”
Fiscal 2022 Second Quarter Operating Results
Second quarter consolidated net sales were $911.4 million, a decrease of 1.6% compared to the prior year, with a comparable sales increase of 0.2%. The Company was operating 142 fewer stores at the end of the quarter compared to the prior year. Foreign currency translation had an unfavorable impact of 50 basis points on consolidated net sales for the quarter. Global e-commerce sales were $81 million or 8.9% of consolidated net sales for the quarter.
Consolidated gross profit for the second quarter was $465.3 million compared to $467.2 million in the prior year, a decrease of 0.4%. GAAP consolidated gross margin was 51.1%, an increase of 70 basis points compared to 50.4% in the prior year. Adjusted Gross Margin, excluding the write-down of COVID-19 related personal-protective equipment inventory in both the 2022 and 2021 quarters, was 51.4% compared to 51.2% in the prior year. The 20 basis point increase was driven primarily by higher product margins at both Sally Beauty and Beauty Systems Group, partially offset by higher distribution and freight costs and an unfavorable sales mix shift between the higher margin Sally U.S. and lower margin Sally international operations.
Selling, general and administrative (SG&A) expenses totaled $378.9 million, down $12.2 million compared to the prior year period. Adjusted Selling, General and Administrative Expenses, excluding COVID-19 related net expenses and other adjustments in both the 2022 and 2021 quarters, were $378.0 million, up $15.8 million compared to the prior year, driven primarily by increased cost pressures from labor and expenses related to re-opening international territories that were closed last year. These factors were partially offset by lower variable and accrued bonus expenses. As a percentage of sales, Adjusted SG&A expenses were 41.5% compared to 39.1% in the prior year.
GAAP operating earnings and operating margin in the second quarter were $86.5 million and 9.5%, compared to $75.5 million and 8.2%, in the prior year. Adjusted Operating Earnings and Operating Margin, excluding the Company’s previously announced restructuring efforts, COVID-19 related net expenses and other adjustments in both the 2022 and 2021 quarters, were $90.2 million and 9.9%, compared to $112.1 million and 12.1%, in the prior year.
GAAP net earnings in the second quarter were $46.8 million, or $0.42 per diluted share, compared to GAAP net earnings of $38.3 million, or $0.34 per diluted share in the prior year. Adjusted Net Earnings were $51.9 million, or $0.47 per diluted share, compared to Adjusted Net Earnings of $65.5 million, or $0.57 per diluted share in the prior year. Adjusted EBITDA in the second quarter was $116.3 million, a decrease of 17.7% compared to the prior year, and Adjusted EBITDA Margin was 12.8%, a decrease of 250 basis points compared to the prior year.
Balance Sheet and Cash Flow
As of March 31, 2022, the Company had cash and cash equivalents of $227 million and no borrowings outstanding under its asset-based revolving line of credit. At the end of the quarter, inventory was $963 million, up 1.4% versus a year ago. Second quarter cash flow from operations was $2.9 million. Capital expenditures in the quarter totaled $17.7 million.
In the second quarter, the Company used excess cash to repurchase 3.2 million of its shares at an aggregate cost of $55.3 million. Additionally, the Company ended the quarter with a net debt leverage ratio of 2.07x.
Fiscal 2022 Second Quarter Segment Results
Sally Beauty Supply
| • | Segment net sales were $525.8 million in the quarter, a decrease of 3.1% compared to the prior year. The segment had an unfavorable impact of 90 basis points from foreign currency translation on reported sales and operated 126 fewer stores at the end of the quarter compared to the prior year. Segment e-commerce sales were $33 million or 6.3% of segment net sales for the quarter. |
|---|---|
| • | Segment comparable sales decreased 0.5% in the second quarter. The Sally Beauty businesses in the U.S. and Canada represented 79% of segment net sales for the quarter and had a comparable sales decrease of 8.9%, primarily reflecting lower traffic and conversion due to the impact of the Omicron variant, supply chain disruptions, inflationary pressures impacting consumer behavior, and the lapping of stimulus benefits in the second quarter of 2021. |
| --- | --- |
| • | At the end of the quarter, net store count was 3,499, a decrease of 126 stores compared to the prior year. |
| --- | --- |
| • | Gross margin increased by 40 basis points to 58.8% compared to the prior year. The increase was primarily driven by pricing leverage and a smaller write-down of COVID-19 related personal-protective equipment inventory compared to the prior year. These benefits were partially offset by higher distribution and freight costs and an unfavorable sales mix shift between the higher margin Sally U.S. and lower margin Sally international operations. |
| --- | --- |
| • | GAAP operating earnings were $80.9 million compared to $100.1 million in the prior year, representing a decrease of 19.1%. GAAP operating margin decreased to 15.4% compared to 18.4% in the prior year. |
| --- | --- |
Beauty Systems Group
| • | Segment net sales were $385.6 million in the quarter, an increase of 0.5% compared to the prior year. The segment operated 16 fewer stores at the end of the quarter compared to the prior year and had no impact on reported sales from foreign currency translation. Segment e-commerce sales were $48 million or 12.5% of segment net sales for the quarter. |
|---|---|
| • | Segment comparable sales increased 1.3% in the second quarter. |
| --- | --- |
| • | At the end of the quarter, net store count was 1,363, a decrease of 16 stores compared to the prior year. |
| --- | --- |
| • | Gross margin increased 140 basis points to 40.5% in the quarter compared to the prior year, driven primarily by pricing leverage and a smaller write-down of COVID-19 related personal-protective equipment inventory. These benefits were partially offset by higher distribution and freight costs. |
| --- | --- |
| • | GAAP operating earnings were $46.0 million in the quarter, a decrease of 3.8% compared to $47.8 million in the prior year. GAAP operating margin in the quarter was 11.9% compared to 12.5% in the prior year. |
| --- | --- |
| • | At the end of the quarter, there were 712 distributor sales consultants compared to 704 in the prior year. |
| --- | --- |
Fiscal Year 2022 Guidance
Given the dynamic macro environment including the impact of inflationary pressures and intensified supply chain challenges, the Company is revising its full year guidance for fiscal year 2022 as outlined below:
| • | Net sales are expected to be flat to down 2% compared to the prior year; |
|---|---|
| • | Net store count is expected to decrease by approximately 1% to 2% for the fiscal year, reflecting the Company’s focus on optimizing its store portfolio; |
| --- | --- |
| • | Gross margin is expected to expand by 40 to 60 basis points compared to the prior year; |
| --- | --- |
| • | GAAP operating margin is expected to be approximately 11.0%; and |
| --- | --- |
| • | Adjusted Operating Margin is expected to be approximately 11.0%. |
| --- | --- |
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 5, 2022. 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 (844) 291-4185 (International: (409) 207-6997) and referencing the access code 567981#. 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. In addition, a supplemental slide presentation may be viewed during the call at the following link SBH Q2 Earnings Presentation and entering the event password 9euJyVjjp38. A replay of the earnings conference call will be available starting at 10:30 a.m. Central Time, May 5, 2022, through May 19, 2022, by dialing (866) 207-1041 (International: (402) 970-0847) and referencing access code 8428821#. 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®, Generic Value Products®, Beyond the Zone® and Silk Elements® as well as professional lines such as Wella®, Clairol®, OPI®, Conair® and L’Oreal®. Beauty Systems Group stores, branded as CosmoProf® or Armstrong McCall® stores, along with its outside sales consultants, sell up to 10,000 professionally branded products including Paul Mitchell®, Wella®, Matrix®, Schwarzkopf®, Kenra®, Goldwell®, Joico® and Olaplex®, 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, but not limited to, the risks and uncertainties related to COVID-19, and its continuing impact on the economy and 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, 2021. 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 write-down of COVID-19 related personal protective equipment inventory 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 COVID-19 net expenses and other adjustments 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 previously announced restructuring plans, COVID-19 related net expenses and other adjustments 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 previously announced restructuring plans, net expenses related to COVID-19 and other adjustments 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 previously announced restructuring plans, tax-effected net expenses related
to COVID-19 and tax-effected other adjustments 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 previously announced restructuring plans, tax-effected net expenses related to COVID-19 and tax-effected other adjustments 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
Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | Percentage Change | 2022 | 2021 | Percentage Change | |||||||||||||
| Net sales | $ | 911,387 | $ | 926,328 | (1.6 | )% | $ | 1,891,638 | $ | 1,862,350 | 1.6 | % | ||||||
| Cost of products sold | 446,055 | 459,099 | (2.8 | )% | 926,177 | 924,397 | 0.2 | % | ||||||||||
| Gross profit | 465,332 | 467,229 | (0.4 | )% | 965,461 | 937,953 | 2.9 | % | ||||||||||
| Selling, general and administrative expenses | 378,871 | 391,087 | (3.1 | )% | 765,121 | 757,257 | 1.0 | % | ||||||||||
| Restructuring | — | 631 | (100.0 | )% | 1,099 | 863 | 27.3 | % | ||||||||||
| Operating earnings | 86,461 | 75,511 | 14.5 | % | 199,241 | 179,833 | 10.8 | % | ||||||||||
| Interest expense | 19,896 | 23,883 | (16.7 | )% | 40,137 | 49,861 | (19.5 | )% | ||||||||||
| Earnings before provision for income taxes | 66,565 | 51,628 | 28.9 | % | 159,104 | 129,972 | 22.4 | % | ||||||||||
| Provision for income taxes | 19,757 | 13,316 | 48.4 | % | 43,458 | 34,469 | 26.1 | % | ||||||||||
| Net earnings | $ | 46,808 | $ | 38,312 | 22.2 | % | $ | 115,646 | $ | 95,503 | 21.1 | % | ||||||
| Earnings per share: | ||||||||||||||||||
| Basic | $ | 0.43 | $ | 0.34 | 26.5 | % | $ | 1.05 | $ | 0.85 | 23.5 | % | ||||||
| Diluted | $ | 0.42 | $ | 0.34 | 23.5 | % | $ | 1.03 | $ | 0.84 | 22.6 | % | ||||||
| Weighted average shares: | ||||||||||||||||||
| Basic | 108,743 | 112,603 | 110,387 | 112,538 | ||||||||||||||
| Diluted | 110,540 | 114,342 | 112,207 | 114,028 | ||||||||||||||
| Basis Point Change | Basis Point Change | |||||||||||||||||
| Comparison as a percentage of net sales | ||||||||||||||||||
| Consolidated gross margin | 51.1 | % | 50.4 | % | 70 | 51.0 | % | 50.4 | % | 60 | ||||||||
| Selling, general and administrative expenses | 41.6 | % | 42.2 | % | (60 | ) | 40.4 | % | 40.7 | % | (30 | ) | ||||||
| Consolidated operating margin | 9.5 | % | 8.2 | % | 130 | 10.5 | % | 9.7 | % | 80 | ||||||||
| Effective tax rate | 29.7 | % | 25.8 | % | 390 | 27.3 | % | 26.5 | % | 80 |
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
| March 31,<br><br><br>2022 | September 30,<br><br><br>2021 | |||
|---|---|---|---|---|
| Cash and cash equivalents | $ | 227,413 | $ | 400,959 |
| Trade and other accounts receivable | 60,715 | 66,581 | ||
| Inventory | 962,563 | 871,349 | ||
| Other current assets | 50,990 | 44,686 | ||
| Total current assets | 1,301,681 | 1,383,575 | ||
| Property and equipment, net | 287,855 | 307,377 | ||
| Operating lease assets | 540,801 | 537,673 | ||
| Goodwill and other intangible assets | 592,676 | 596,741 | ||
| Other assets | 19,990 | 21,766 | ||
| Total assets | $ | 2,743,003 | $ | 2,847,132 |
| Current maturities of long-term debt | $ | 182 | $ | 194 |
| Accounts payable | 240,594 | 291,632 | ||
| Accrued liabilities | 170,540 | 206,155 | ||
| Current operating lease liabilities | 160,549 | 156,234 | ||
| Income taxes payable | 2,404 | 10,666 | ||
| Total current liabilities | 574,269 | 664,881 | ||
| Long-term debt, including capital leases | 1,381,385 | 1,382,530 | ||
| Long-term operating lease liabilities | 406,658 | 404,147 | ||
| Other liabilities | 16,547 | 29,056 | ||
| Deferred income tax liabilities, net | 92,278 | 85,777 | ||
| Total liabilities | 2,471,137 | 2,566,391 | ||
| Total stockholders’ equity | 271,866 | 280,741 | ||
| Total liabilities and stockholders’ equity | $ | 2,743,003 | $ | 2,847,132 |
Supplemental Schedule 1
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Segment Information
(In thousands)
(Unaudited)
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | Percentage Change | 2022 | 2021 | Percentage Change | |||||||||||||
| Net sales: | ||||||||||||||||||
| Sally Beauty Supply ("SBS") | $ | 525,785 | $ | 542,664 | (3.1 | )% | $ | 1,087,315 | $ | 1,090,334 | (0.3 | )% | ||||||
| Beauty Systems Group ("BSG") | 385,602 | 383,664 | 0.5 | % | 804,323 | 772,016 | 4.2 | % | ||||||||||
| Total net sales | $ | 911,387 | $ | 926,328 | (1.6 | )% | $ | 1,891,638 | $ | 1,862,350 | 1.6 | % | ||||||
| Operating earnings: | ||||||||||||||||||
| SBS | $ | 80,940 | $ | 100,063 | (19.1 | )% | $ | 181,563 | $ | 195,191 | (7.0 | )% | ||||||
| BSG | 46,008 | 47,843 | (3.8 | )% | 104,554 | 96,415 | 8.4 | % | ||||||||||
| Segment operating earnings | 126,948 | 147,906 | (14.2 | )% | 286,117 | 291,606 | (1.9 | )% | ||||||||||
| Unallocated expenses ^(1)^ | 40,487 | 71,764 | (43.6 | )% | 85,777 | 110,910 | (22.7 | )% | ||||||||||
| Restructuring | - | 631 | (100.0 | )% | 1,099 | 863 | 27.3 | % | ||||||||||
| Interest expense | 19,896 | 23,883 | (16.7 | )% | 40,137 | 49,861 | (19.5 | )% | ||||||||||
| Earnings before provision for income taxes | $ | 66,565 | $ | 51,628 | 28.9 | % | $ | 159,104 | $ | 129,972 | 22.4 | % | ||||||
| Segment gross margin: | 2022 | 2021 | Basis Point Change | 2022 | 2021 | Basis Point Change | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| SBS | 58.8 | % | 58.4 | % | 40 | 58.6 | % | 58.1 | % | 50 | ||||||||
| BSG | 40.5 | % | 39.1 | % | 140 | 40.8 | % | 39.5 | % | 130 | ||||||||
| Segment operating margin: | ||||||||||||||||||
| SBS | 15.4 | % | 18.4 | % | (300 | ) | 16.7 | % | 17.9 | % | (120 | ) | ||||||
| BSG | 11.9 | % | 12.5 | % | (60 | ) | 13.0 | % | 12.5 | % | 50 | |||||||
| Consolidated operating margin | 9.5 | % | 8.2 | % | 130 | 10.5 | % | 9.7 | % | 80 |
(1) Unallocated expenses, including share-based compensation expense, consist of corporate and shared costs and are included in selling, general and administrative expenses.
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, 2022 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As Reported<br><br><br>(GAAP) | COVID-19 ^(1)^ | Restructuring and Other ^(2)^ | As Adjusted (Non-GAAP) | |||||||||
| Cost of products sold | $ | 446,055 | $ | (2,841 | ) | $ | — | $ | 443,214 | |||
| Consolidated gross margin | 51.1 | % | 51.4 | % | ||||||||
| Selling, general and administrative expenses | 378,871 | (938 | ) | 27 | 377,960 | |||||||
| SG&A expenses, as a percentage of sales | 41.6 | % | 41.5 | % | ||||||||
| Operating earnings | 86,461 | 3,779 | (27 | ) | 90,213 | |||||||
| Operating margin | 9.5 | % | 9.9 | % | ||||||||
| Earnings before provision for income taxes | 66,565 | 3,779 | (27 | ) | 70,317 | |||||||
| Provision for income taxes ^(3)^ | 19,757 | 1,099 | (2,400 | ) | 18,456 | |||||||
| Net earnings | $ | 46,808 | $ | 2,680 | $ | 2,373 | $ | 51,861 | ||||
| Earnings per share: | ||||||||||||
| Basic | $ | 0.43 | $ | 0.02 | $ | 0.02 | $ | 0.48 | ||||
| Diluted | $ | 0.42 | $ | 0.02 | $ | 0.02 | $ | 0.47 | ||||
| Three Months Ended March 31, 2021 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |
| As Reported<br><br><br>(GAAP) | COVID-19 ^(1)^ | Restructuring ^(2)^ | As Adjusted (Non-GAAP) | |||||||||
| Cost of products sold | $ | 459,099 | $ | (6,957 | ) | $ | — | $ | 452,142 | |||
| Consolidated gross margin | 50.4 | % | 51.2 | % | ||||||||
| Selling, general and administrative expenses | 391,087 | (28,974 | ) | — | 362,113 | |||||||
| SG&A expenses, as a percentage of sales | 42.2 | % | 39.1 | % | ||||||||
| Operating earnings | 75,511 | 35,931 | 631 | 112,073 | ||||||||
| Operating margin | 8.2 | % | 12.1 | % | ||||||||
| Earnings before provision for income taxes | 51,628 | 35,931 | 631 | 88,190 | ||||||||
| Provision for income taxes ^(3)^ | 13,316 | 9,210 | 143 | 22,669 | ||||||||
| Net earnings | $ | 38,312 | $ | 26,721 | $ | 488 | $ | 65,521 | ||||
| Earnings per share: | ||||||||||||
| Basic | $ | 0.34 | $ | 0.24 | $ | 0.00 | $ | 0.58 | ||||
| Diluted | $ | 0.34 | $ | 0.23 | $ | 0.00 | $ | 0.57 |
(1) For the three months ended March 31, 2022, COVID-19-related expense is comprised of obsolete personal-protective equipment inventory ("PPE") included in costs of products sold of $2.8 million as well as costs associated with vaccinations and testing in selling, general and administrative expenses. For the three months ended March 31, 2021, COVID-19 expenses comprised of a write-down of $7.0 million for PPE in costs of products sold and $31.2 million in selling, general and administrative expenses related to the donation expense in connection with the PPE, partially offset by wage and rent subsidies provided by the Canadian government of $2.2 million.
(2) For three months ended March 31, 2022, restructuring and other represents an adjustment for the cancelled debt offering during our first fiscal quarter. For the three months ended March 31, 2021, restructuring represents costs and expenses incurred primarily in connection with the Transformation Plan and Project Surge.
(3) 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. Additionally, for the three months ended March 31, 2022, provision for income taxes includes the impact of a deferred tax asset write-down related to expired options in connection with the Transformation Plan.
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, 2022 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| As Reported | COVID-19 ^(1)^ | Restructuring and other ^(2)^ | As Adjusted (Non-GAAP) | |||||||||
| Cost of products sold | $ | 926,177 | $ | (2,841 | ) | $ | — | $ | 923,336 | |||
| Consolidated gross margin | 51.0 | % | 51.2 | % | ||||||||
| Selling, general and administrative expenses | 765,121 | (2,078 | ) | (1,546 | ) | 761,497 | ||||||
| SG&A expenses, as a percentage of sales | 40.4 | % | 40.3 | % | ||||||||
| Operating earnings | 199,241 | 4,919 | 2,645 | 206,805 | ||||||||
| Operating margin | 10.5 | % | 10.9 | % | ||||||||
| Earnings before provision for income taxes | 159,104 | 4,919 | 2,645 | 166,668 | ||||||||
| Provision for income taxes ^(3)^ | 43,458 | 1,393 | (1,804 | ) | 43,047 | |||||||
| Net earnings | $ | 115,646 | $ | 3,526 | $ | 4,449 | $ | 123,621 | ||||
| Earnings per share: | ||||||||||||
| Basic | $ | 1.05 | $ | 0.03 | $ | 0.04 | $ | 1.12 | ||||
| Diluted | $ | 1.03 | $ | 0.03 | $ | 0.04 | $ | 1.10 | ||||
| Six Months Ended March 31, 2021 | ||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |
| As Reported | COVID-19 ^(1)^ | Restructuring ^(2)^ | As Adjusted (Non-GAAP) | |||||||||
| Cost of products sold | $ | 924,397 | $ | (6,957 | ) | $ | — | $ | 917,440 | |||
| Consolidated gross margin | 50.4 | % | 50.7 | % | ||||||||
| Selling, general and administrative expenses | 757,257 | (28,929 | ) | — | 728,328 | |||||||
| SG&A expenses, as a percentage of sales | 40.7 | % | 39.1 | % | ||||||||
| Operating earnings | 179,833 | 35,886 | 863 | 216,582 | ||||||||
| Operating margin | 9.7 | % | 11.6 | % | ||||||||
| Earnings before provision for income taxes | 129,972 | 35,886 | 863 | 166,721 | ||||||||
| Provision for income taxes ^(3)^ | 34,469 | 9,198 | 177 | 43,844 | ||||||||
| Net earnings | $ | 95,503 | $ | 26,688 | $ | 686 | $ | 122,877 | ||||
| Earnings per share: | ||||||||||||
| Basic | $ | 0.85 | $ | 0.24 | $ | 0.01 | $ | 1.09 | ||||
| Diluted | $ | 0.84 | $ | 0.23 | $ | 0.01 | $ | 1.08 |
(1) For the six months ended March 31, 2022, COVID-19-related expense is comprised of obsolete PPE included in costs of products sold of $2.8 million as well as costs associated with vaccinations and testing in selling, general and administrative expenses. For the six months ended March 31, 2021, COVID-19 expenses comprised of a write-down of $7.0 million for PPE in costs of products sold and $31.2 million in selling, general and administrative expenses related to donation expense in connection with the PPE, partially offset by wage and rent subsidies provided by the Canadian government of $2.2 million.
(2) For the six months ended March 31, 2022, restructuring and other represents costs and expenses incurred primarily in connection with the Transformation Plan and cancelled debt offering during the period. For the six months ended March 31, 2021, restructuring represents costs and expenses incurred primarily in connection with the Transformation Plan and Project Surge.
(3) 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. Additionally, for the six months ended March 31, 2022, provision for income taxes includes the impact of a deferred tax asset write-down related to expired options in connection with the Transformation Plan.
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: | 2022 | 2021 | Percentage Change | 2022 | 2021 | Percentage Change | ||||||||||||
| Net earnings | $ | 46,808 | $ | 38,312 | 22.2 | % | $ | 115,646 | $ | 95,503 | 21.1 | % | ||||||
| Add: | ||||||||||||||||||
| Depreciation and amortization | 24,050 | 26,559 | (9.4 | )% | 48,471 | 52,945 | (8.5 | )% | ||||||||||
| Interest expense | 19,896 | 23,883 | (16.7 | )% | 40,137 | 49,861 | (19.5 | )% | ||||||||||
| Provision for income taxes | 19,757 | 13,316 | 48.4 | % | 43,458 | 34,469 | 26.1 | % | ||||||||||
| EBITDA (non-GAAP) | 110,511 | 102,070 | 8.3 | % | 247,712 | 232,778 | 6.4 | % | ||||||||||
| Share-based compensation | 2,032 | 2,649 | (23.3 | )% | 5,990 | 5,541 | 8.1 | % | ||||||||||
| Restructuring and other | (27 | ) | 631 | (104.3 | )% | 2,645 | 863 | 206.5 | % | |||||||||
| COVID-19 | 3,779 | 35,931 | (89.5 | )% | 4,919 | 35,886 | (86.3 | )% | ||||||||||
| Adjusted EBITDA (non-GAAP) | $ | 116,295 | $ | 141,281 | (17.7 | )% | $ | 261,266 | $ | 275,068 | (5.0 | )% | ||||||
| Basis Point Change | Basis Point Change | |||||||||||||||||
| Adjusted EBITDA as a percentage of net sales | ||||||||||||||||||
| Adjusted EBITDA margin | 12.8 | % | 15.3 | % | (250 | ) | 13.8 | % | 14.8 | % | (100 | ) | ||||||
| Operating Free Cash Flow: | 2022 | 2021 | Percentage Change | 2022 | 2021 | Percentage Change | ||||||||||||
| Net cash (used) provided by operating activities | $ | 2,912 | $ | 92,570 | (96.9 | )% | $ | (2,773 | ) | $ | 131,556 | (102.1 | )% | |||||
| Less: | ||||||||||||||||||
| Payments for property and equipment, net | 17,719 | 11,612 | 52.6 | % | 44,109 | 27,095 | 62.8 | % | ||||||||||
| Operating free cash flow (non-GAAP) | $ | (14,807 | ) | $ | 80,958 | (118.3 | )% | $ | (46,882 | ) | $ | 104,461 | (144.9 | )% |
Supplemental Schedule 5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Store Count and Comparable Sales
(Unaudited)
| As of March 31, | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | Change | ||||||||||||||||
| Number of stores: | ||||||||||||||||||
| SBS: | ||||||||||||||||||
| Company-operated stores | 3,498 | 3,617 | (119 | ) | ||||||||||||||
| Franchise stores | 1 | 8 | (7 | ) | ||||||||||||||
| Total SBS | 3,499 | 3,625 | (126 | ) | ||||||||||||||
| BSG: | ||||||||||||||||||
| Company-operated stores | 1,232 | 1,245 | (13 | ) | ||||||||||||||
| Franchise stores | 131 | 134 | (3 | ) | ||||||||||||||
| Total BSG | 1,363 | 1,379 | (16 | ) | ||||||||||||||
| Total consolidated | 4,862 | 5,004 | (142 | ) | ||||||||||||||
| Number of BSG distributor sales consultants | 712 | 704 | 8 | |||||||||||||||
| BSG distributor sales consultants (DSC) include 189 and 187 sales consultants employed by our franchisees at March 31, 2022 and 2021, respectively. | ||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | Basis Point Change | 2022 | 2021 | Basis Point Change | |||||||||||||
| Comparable sales growth (decline): | ||||||||||||||||||
| SBS | (0.5 | )% | 3.7 | % | (420 | ) | 2.0 | % | (0.2 | )% | 220 | |||||||
| BSG | 1.3 | % | 8.0 | % | (670 | ) | 4.9 | % | 0.2 | % | 470 | |||||||
| Consolidated | 0.2 | % | 5.4 | % | (520 | ) | 3.2 | % | (0.1 | )% | 330 |
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.