GAAP Diluted EPS of $0.34; Adjusted Diluted EPS of $0.57

GAAP Operating Margin of 8.2%; Adjusted Operating Margin of 12.1%

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, 2021. The Company will hold a conference call today at 7:30 a.m. Central Time to discuss the results.

Fiscal 2021 Second Quarter Summary

  • Consolidated same store sales increased 6.5%, primarily reflecting the favorable impact in the U.S. from improving consumer confidence, government stimulus payments and the easing of COVID-19 restrictions in salons;
  • Global e-commerce sales increased 56%;
  • GAAP gross margin of 50.4%, up 110 basis points compared to the prior year;
  • GAAP operating earnings of $76 million and GAAP operating margin of 8.2%, Adjusted Operating Earnings of $112 million and Adjusted Operating Margin of 12.1%, up 510 basis points compared to the prior year;
  • GAAP diluted net earnings per share of $0.34 and Adjusted Diluted Net Earnings Per Share of $0.57, up 183% and 148%, respectively, compared to the prior year;
  • Strong liquidity position, balance sheet cash and cash equivalents of $408 million and zero balance outstanding on $600 million asset-based line of credit at quarter end.

“We are pleased to report strong financial results across all of our key measures despite extensive store closures in parts of our international territories and salon closures in California in January,” said Chris Brickman, president and chief executive officer. “In the U.S., we saw an acceleration in consumer demand in the latter part of the quarter, which drove a net sales increase of 6.3%. Our top line performance, coupled with ongoing strength in gross margin, resulted in significant earnings per share growth compared to the prior year.”

“In the second half of the year, we will continue to focus on growing customer engagement and loyalty, leveraging our new capabilities in support of our mission to recruit and retain color customers, and implementing the remaining steps in our successful transformation journey, which remains on track to be substantially completed by the end of the year. It is clear that the capabilities we’ve been building across digital, customer engagement and supply chain are bearing fruit and position us to drive sustainable long-term growth.”

COVID-19 Update

The table below includes the operating status of corporate-owned stores at the end of each month during the second quarter, reflecting the disruption caused by COVID-19 on global stores operations and customer traffic.

January February March Territory

Hard Closed

Reduced Capacity

Fully Open

Hard Closed

Reduced Capacity

Fully Open

Hard Closed

Reduced Capacity

Fully Open

Sally US/CAN

0%

38%

62%

0%

37%

63%

0%

34%

66%

Sally Europe

62%

2%

36%

49%

17%

34%

32%

36%

32%

Sally LATAM

28%

69%

3%

13%

70%

17%

11%

35%

54%

BSG US/CAN

2%

39%

59%

0%

42%

58%

0%

40%

60%

SBH Total *

8%

37%

55%

5%

39%

56%

4%

35%

61%

*Includes corporate stores only (excludes franchises)

Fiscal 2021 Second Quarter Operating Results

Second quarter consolidated same store sales increased 6.5% and consolidated net sales increased 6.3% to $926.3 million, primarily driven by the favorable impact in the U.S. from improving consumer confidence, government stimulus payments and the easing of COVID-19 restrictions in salons. The favorable impact was partially offset by continued COVID-19 mandated store closures in parts of our international territories and salon closures in California in January while operating 71 fewer stores compared to the prior year. Foreign currency translation had a favorable impact of approximately 90 basis points on reported sales. Global e-commerce sales increased 56%.

Consolidated gross profit for the second quarter was $467.2 million compared to $429.8 million in the prior year, an increase of 8.7%. Consolidated gross margin was 50.4%, an increase of 110 basis points compared to 49.3% in the prior year, driven primarily by fewer promotions in the Sally segment. Adjusted Gross Margin was 51.2%, excluding a $7 million write-down of COVID-19 related personal protective equipment inventory.

Selling, general and administrative (SG&A) expenses totaled $391.1 million, up $7.8 million compared to the prior year, which included COVID-19 related net expenses of $29.0 million ($31.2 million donation expense of personal protective equipment inventory partially offset by Canadian wage and rent subsidy credits of $2.2 million). Adjusted Selling, General and Administrative (Adjusted SG&A) Expenses, excluding COVID-19 net expenses in both years, were $362.1 million as compared to $368.6 million in the prior year. As a percentage of sales, Adjusted SG&A was 39.1% compared to 42.3% in the prior year.

GAAP operating earnings and operating margin in the second quarter were $75.5 million and 8.2%, respectively, compared to $43.3 million and 5.0%, respectively, in the prior year. Adjusted Operating Earnings and Operating Margin increased to $112.1 million and 12.1%, respectively, compared to $61.2 million and 7.0%, respectively, in the prior year.

GAAP net earnings in the second quarter were $38.3 million, or $0.34 per diluted share, compared to $13.4 million, or $0.12 per diluted share in the prior year. Adjusted Net Earnings were $65.5 million, an increase of 143% compared to $27.0 million in the prior year and Adjusted Diluted Net Earnings Per Share increased 148% to $0.57. Adjusted EBITDA in the second quarter was $141.3 million, an increase of 55.0% compared to the prior year, and Adjusted EBITDA Margin was 15.3%, an increase of 480 basis points compared to the prior year.

Balance Sheet and Cash Flow

In January, the Company utilized excess cash to fully repay the outstanding balance of $213 million of its 4.5% fixed rate term loan. At the end of the quarter, the Company had cash and cash equivalents on the balance sheet of $408 million and a zero balance outstanding under its $600 million asset-based revolving line of credit. Additionally, the Company ended the quarter with a net debt leverage ratio of 2.34x, reflecting its significant cash balance. For comparison purposes, the leverage ratio, as defined in our loan agreements where the impact of balance sheet cash and cash equivalents is capped at $100 million for net debt calculation purposes, was 2.95x.

Second quarter fiscal 2021 cash flow from operations totaled $92.6 million. Capital expenditures totaled $11.6 million. Operating free cash flow totaled $81.0 million. Subsequent to quarter end, on April 1, 2021, the Company utilized excess cash to fully repay the outstanding balance of $197 million of its 5.50% unsecured notes due 2023.

Fiscal 2021 Second Quarter Segment Results

Sally Beauty Supply

  • Global segment same store sales increased 4.9% in the second quarter. The Sally Beauty businesses in the U.S. and Canada represented 86% of the segment sales for the quarter and had a same store sales increase of 13.9%. Both Europe and Latin America had decreases in same store sales for the quarter due to government mandated store closures related to COVID-19.
  • Net sales were $542.7 million in the quarter, an increase of 4.5% compared to the prior year, driven primarily by the favorable impact in the U.S. from improving consumer confidence, government stimulus payments, partially offset by continued COVID-19 mandated store closures in parts of our international territories and operating 76 fewer stores compared to the prior year. Foreign currency translation had a favorable impact of approximately 110 basis points on reported sales.
  • At the end of the quarter, net store count was 3,625, a decrease of 76 stores compared to the prior year.
  • Gross margin increased by 280 basis points to 58.4%, with the Sally Beauty business in the U.S. and Canada delivering gross margin of 60.2%. The increase in gross margin was primarily driven by fewer promotions, partially offset by the write-down of COVID-19 related personal protective equipment inventory, which impacted segment gross margin by approximately 60 basis points.
  • GAAP operating earnings were $100.1 million in the quarter, an increase of 77.5% compared to the prior year. GAAP operating margin was 18.4% compared to 10.9% in the prior year.

Beauty Systems Group

  • Total segment same store sales increased 9.9% in the second quarter.
  • Net sales were $383.7 million in the quarter, an increase of 9.1% compared to the prior year, driven primarily by the favorable impact from the easing of COVID-19 restrictions across the U.S. and higher operating capacities in salons, resulting in stronger demand. Foreign currency translation had a favorable impact of approximately 50 basis points on reported sales.
  • At the end of the quarter, net store count was 1,379, an increase of 5 stores compared to the prior year.
  • Gross margin decreased 90 basis points to 39.1% in the quarter, driven primarily by the write-down of COVID-19 related personal protective equipment inventory which was approximately 90 basis points.
  • GAAP operating earnings were $47.8 million in the quarter, an increase of 16.6% compared to the prior year. GAAP operating margin in the quarter was 12.5% compared to 11.7% in the prior year.
  • At the end of the quarter, there were 704 distributor sales consultants compared to 660 in the prior year.

Fiscal Year 2021 Outlook

The Company will provide perspective on its outlook for the third quarter during its earnings conference call. The Company will not be providing formal guidance at this time.

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 6, 2021. 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) 867-6169 (International: (409-207-6975) and referencing the access code 6806264#. 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 2TErvPZw4S5. A replay of the earnings conference call will be available starting at 10:30 a.m. Central Time, May 6, 2021, through May 13, 2021, by dialing (866) 207-1041 (International: (402) 970-0847) and reference access code 3919224#. 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. The Company operates approximately 5,000 stores, including 142 franchised locations. Sally Beauty Supply stores offer up to 8,000 products for hair color, hair care, skin care, and nails 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 Hot Shot Tools®. Beauty Systems Group stores, branded as CosmoProf® or Armstrong McCall® stores, along with its outside sales consultants, sell up to 10,500 professionally branded products including Paul Mitchell®, Wella®, Matrix®, Schwarzkopf®, Kenra®, Goldwell®, Joico® and CHI®, 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 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, 2020. 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 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 and COVID-19 related net expenses for the relevant time periods as indicated in the accompanying non-GAAP reconciliations to the comparable GAAP financial measures. Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of net sales.

Adjusted Operating Earnings and Operating Margin – Adjusted operating earnings are GAAP operating earnings that exclude costs related to the Company’s previously announced restructuring plans and net expenses related to COVID-19 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 and tax-effected net expenses related to COVID-19 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 and tax-effected net expenses related to COVID-19 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 Same Store 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,

2021

2020

PercentageChange

2021

2020

PercentageChange   Net sales

$

926,328

 

$

871,023

 

6.3

%

$

1,862,350

 

$

1,851,231

 

0.6

%

Cost of products sold

 

459,099

 

 

441,266

 

4.0

%

 

924,397

 

 

946,626

 

(2.3

)%

Gross profit

 

467,229

 

 

429,757

 

8.7

%

 

937,953

 

 

904,605

 

3.7

%

Selling, general and administrative expenses

 

391,087

 

 

383,299

 

2.0

%

 

757,257

 

 

761,228

 

(0.5

)%

Restructuring

 

631

 

 

3,193

 

(80.2

)%

 

863

 

 

5,725

 

(84.9

)%

Operating earnings

 

75,511

 

 

43,265

 

74.5

%

 

179,833

 

 

137,652

 

30.6

%

Interest expense

 

23,883

 

 

21,644

 

10.3

%

 

49,861

 

 

43,185

 

15.5

%

Earnings before provision for income taxes

 

51,628

 

 

21,621

 

138.8

%

 

129,972

 

 

94,467

 

37.6

%

Provision for income taxes

 

13,316

 

 

8,253

 

61.3

%

 

34,469

 

 

27,884

 

23.6

%

Net earnings

$

38,312

 

$

13,368

 

186.6

%

$

95,503

 

$

66,583

 

43.4

%

  Earnings per share: Basic

$

0.34

 

$

0.12

 

183.3

%

$

0.85

 

$

0.58

 

46.6

%

Diluted

$

0.34

 

$

0.12

 

183.3

%

$

0.84

 

$

0.57

 

47.4

%

  Weighted average shares: Basic

 

112,603

 

 

114,823

 

 

112,538

 

 

115,478

 

Diluted

 

114,342

 

 

115,795

 

 

114,028

 

 

116,462

 

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

 

50.4

%

 

49.3

%

110

 

 

50.4

%

 

48.9

%

150

 

Selling, general and administrative expenses

 

42.2

%

 

44.0

%

(180

)

 

40.7

%

 

41.1

%

(40

)

Consolidated operating margin

 

8.2

%

 

5.0

%

320

 

 

9.7

%

 

7.4

%

230

 

  Effective tax rate

 

25.8

%

 

38.2

%

(1,240

)

 

26.5

%

 

29.5

%

(300

)

      SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (In thousands) (Unaudited)   March 31,2021 September 30,2020   Cash and cash equivalents

$

408,321

$

514,151

Trade and other accounts receivable

 

66,156

 

56,429

Inventory

 

949,695

 

814,503

Other current assets

 

42,278

 

48,014

Total current assets

 

1,466,450

 

1,433,097

Property and equipment, net

 

289,070

 

315,029

Operating lease assets

 

524,955

 

525,634

Goodwill and other intangible assets

 

601,539

 

598,321

Other assets

 

27,558

 

23,066

Total assets

$

2,909,572

$

2,895,147

  Current maturities of long-term debt

$

197,596

$

180

Accounts payable

 

310,215

 

236,333

Accrued liabilities

 

195,467

 

170,665

Current operating lease liabilities

 

155,711

 

153,267

Income taxes payable

 

16,062

 

2,917

Total current liabilities

 

875,051

 

563,362

Long-term debt, including capital leases

 

1,389,545

 

1,796,897

Long-term operating lease liabilities

 

388,733

 

394,375

Other liabilities

 

30,113

 

32,976

Deferred income tax liabilities, net

 

91,297

 

92,094

Total liabilities

 

2,774,739

 

2,879,704

Total stockholders’ equity

 

134,833

 

15,443

Total liabilities and stockholders’ equity

$

2,909,572

$

2,895,147

  Supplemental Schedule 1   SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Segment Information (In thousands) (Unaudited)     Three Months Ended March 31, Six Months Ended March 31,

2021

2020

PercentageChange

2021

2020

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

$

542,664

 

$

519,509

 

4.5

%

$

1,090,334

 

$

1,088,657

 

0.2

%

Beauty Systems Group ("BSG")

 

383,664

 

 

351,514

 

9.1

%

 

772,016

 

 

762,574

 

1.2

%

Total net sales

$

926,328

 

$

871,023

 

6.3

%

$

1,862,350

 

$

1,851,231

 

0.6

%

  Operating earnings: SBS

$

100,063

 

$

56,373

 

77.5

%

$

195,191

 

$

130,598

 

49.5

%

BSG

 

47,843

 

 

41,039

 

16.6

%

 

96,415

 

 

103,473

 

(6.8

)%

Segment operating earnings

 

147,906

 

 

97,412

 

51.8

%

 

291,606

 

 

234,071

 

24.6

%

  Unallocated expenses (1)

 

71,764

 

 

50,954

 

40.8

%

 

110,910

 

 

90,694

 

22.3

%

Restructuring

 

631

 

 

3,193

 

(80.2

)%

 

863

 

 

5,725

 

(84.9

)%

Interest expense

 

23,883

 

 

21,644

 

10.3

%

 

49,861

 

 

43,185

 

15.5

%

Earnings before provision for income taxes

$

51,628

 

$

21,621

 

138.8

%

$

129,972

 

$

94,467

 

37.6

%

    Segment gross margin:

2021

2020

Basis PointChange

2021

2020

Basis PointChange SBS

 

58.4

%

 

55.6

%

280

 

 

58.1

%

 

54.9

%

320

 

BSG

 

39.1

%

 

40.0

%

(90

)

 

39.5

%

 

40.2

%

(70

)

  Segment operating margin: SBS

 

18.4

%

 

10.9

%

750

 

 

17.9

%

 

12.0

%

590

 

BSG

 

12.5

%

 

11.7

%

80

 

 

12.5

%

 

13.6

%

(110

)

Consolidated operating margin

 

8.2

%

 

5.0

%

320

 

 

9.7

%

 

7.4

%

230

 

(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, 2021 As Reported(GAAP) Restructuring (1) COVID-19 (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

 

 

631

 

35,931

 

 

112,073

 

Operating margin

 

8.2

%

 

12.1

%

Earnings before provision for income taxes

 

51,628

 

 

631

 

35,931

 

 

88,190

 

Provision for income taxes (3)

 

13,316

 

 

143

 

9,210

 

 

22,669

 

Net earnings

$

38,312

 

$

488

$

26,721

 

$

65,521

 

  Earnings per share: Basic

$

0.34

 

$

0.00

$

0.24

 

$

0.58

 

Diluted

$

0.34

 

$

0.00

$

0.23

 

$

0.57

 

  Three Months Ended March 31, 2020 As Reported(GAAP) Restructuring (1) COVID-19 (2) As Adjusted(Non-GAAP)   Selling, general and administrative expenses

$

383,299

 

$

-

$

(14,697

)

$

368,602

 

SG&A expenses, as a percentage of sales

 

44.0

%

 

42.3

%

Operating earnings

 

43,265

 

 

3,193

 

14,697

 

 

61,155

 

Operating margin

 

5.0

%

 

7.0

%

Earnings before provision for income taxes

 

21,621

 

 

3,193

 

14,697

 

 

39,511

 

Provision for income taxes (3)

 

8,253

 

 

853

 

3,438

 

 

12,544

 

Net earnings

$

13,368

 

$

2,340

$

11,259

 

$

26,967

 

  Earnings per share: Basic

$

0.12

 

$

0.02

$

0.10

 

$

0.23

 

Diluted

$

0.12

 

$

0.02

$

0.10

 

$

0.23

 

    (1) For the three months ended March 31, 2021 and 2020, restructuring represents costs and expenses incurred primarily in connection with Project Surge and the Transformation Plan.   (2) For the three months ended March 31, 2021, COVID-19 net expenses primarily represents a write-down of $7.0 million for personal protective equipment inventory in costs of products sold and donation expense of $31.2 million in selling, general, and administrative expenses related to personal-protective equipment inventory, partially offset by wage and rent subsidies provided by the Canadian government of $2.2 million. For the three months ended March 31, 2020, COVID-19 expenses primarily represents costs associated with disaster pay and furloughed employees in response to the coronavirus pandemic, partially offset by an employee retention payroll tax credit provided by the U.S. Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").   (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. 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, 2021 As Reported Restructuring (1) COVID-19 (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

 

 

863

 

35,886

 

 

216,582

 

Operating margin

 

9.7

%

 

11.6

%

Earnings before provision for income taxes

 

129,972

 

 

863

 

35,886

 

 

166,721

 

Provision for income taxes (3)

 

34,469

 

 

177

 

9,198

 

 

43,844

 

Net earnings

$

95,503

 

$

686

$

26,688

 

$

122,877

 

  Earnings per share: Basic

$

0.85

 

$

0.01

$

0.24

 

$

1.09

 

Diluted

$

0.84

 

$

0.01

$

0.23

 

$

1.08

 

  Six Months Ended March 31, 2020 As Reported Restructuring (1) COVID-19 (2) As Adjusted(Non-GAAP)   Selling, general and administrative expenses

$

761,228

 

$

-

$

(14,697

)

$

746,531

 

SG&A expenses, as a percentage of sales

 

41.1

%

 

40.3

%

Operating earnings

 

137,652

 

 

5,725

 

14,697

 

 

158,074

 

Operating margin

 

7.4

%

 

8.5

%

Earnings before provision for income taxes

 

94,467

 

 

5,725

 

14,697

 

 

114,889

 

Provision for income taxes (3)

 

27,884

 

 

718

 

3,438

 

 

32,040

 

Net earnings

$

66,583

 

$

5,007

$

11,259

 

$

82,849

 

  Earnings per share: Basic

$

0.58

 

$

0.04

$

0.10

 

$

0.72

 

Diluted

$

0.57

 

$

0.04

$

0.10

 

$

0.71

 

  (1) For the six months ended March 31, 2021 and 2020, restructuring represents costs and expenses incurred primarily in connection with Project Surge and the Transformation Plan.   (2) For the six months ended March 31, 2021, COVID-19 net expenses primarily represents a write-down of $7.0 million for personal protective equipment inventory in costs of products sold and donation expense of $31.2 million in selling, general, and administrative expenses related to personal-protective equipment inventory, partially offset by wage and rent subsidies provided by the Canadian government of $2.2 million. For the six months ended March 31, 2020, COVID-19 expenses primarily represents costs associated with disaster pay and furloughed employees in response to the coronavirus pandemic, partially offset by an employee retention payroll tax credit provided by the CARES Act.   (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 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:

2021

2020

PercentageChange

2021

2020

PercentageChange   Net earnings

$

38,312

 

$

13,368

 

186.6

%

$

95,503

 

$

66,583

 

43.4

%

Add: Depreciation and amortization

 

26,559

 

 

26,951

 

(1.5

)%

 

52,945

 

 

53,997

 

(1.9

)%

Interest expense

 

23,883

 

 

21,644

 

10.3

%

 

49,861

 

 

43,185

 

15.5

%

Provision for income taxes

 

13,316

 

 

8,253

 

61.3

%

 

34,469

 

 

27,884

 

23.6

%

EBITDA (non-GAAP)

 

102,070

 

 

70,216

 

45.4

%

 

232,778

 

 

191,649

 

21.5

%

Share-based compensation

 

2,649

 

 

3,059

 

(13.4

)%

 

5,541

 

 

6,532

 

(15.2

)%

Restructuring

 

631

 

 

3,193

 

(80.2

)%

 

863

 

 

5,725

 

(84.9

)%

COVID-19

 

35,931

 

 

14,697

 

144.5

%

 

35,886

 

 

14,697

 

144.2

%

Adjusted EBITDA (non-GAAP)

$

141,281

 

$

91,165

 

55.0

%

$

275,068

 

$

218,603

 

25.8

%

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

 

15.3

%

 

10.5

%

480

 

 

14.8

%

 

11.8

%

300

 

    Operating Free Cash Flow:

2021

2020

PercentageChange

2021

2020

PercentageChange Net cash provided by operating activities

$

92,570

 

$

13,806

 

570.5

%

$

131,556

 

$

76,131

 

72.8

%

Less: Payments for property and equipment, net

 

11,612

 

 

31,085

 

(62.6

)%

 

27,095

 

 

71,960

 

(62.3

)%

Operating free cash flow (non-GAAP)

$

80,958

 

$

(17,279

)

568.5

%

$

104,461

 

$

4,171

 

2404.5

%

 

Supplemental Schedule 5

      SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES   Store Count and Same Store Sales   (Unaudited)              

As of March 31,

2021

 

2020

 

Change

      Number of stores:     SBS:     Company-operated stores

3,617

 

 

3,688

 

 

(71

)

Franchise stores

8

 

 

13

 

 

(5

)

Total SBS

3,625

 

 

3,701

 

 

(76

)

BSG:     Company-operated stores

1,245

 

 

1,229

 

 

16

 

Franchise stores

134

 

 

145

 

 

(11

)

Total BSG

1,379

 

 

1,374

 

 

5

 

Total consolidated

5,004

 

 

5,075

 

 

(71

)

      Number of BSG distributor sales consultants

704

 

 

660

 

 

44

 

      BSG distributor sales consultants (DSC) include 187 and 197 sales consultants employed by our franchisees at March 31, 2021 and 2020, respectively.

Three Months Ended March 31,

Six Months Ended March 31,

2021

2020

Basis Point Change

2021

 

2020

 

Basis Point Change

Same store sales growth (decline):     SBS

4.9

%

(7.0

)%

1,190

0.7

%

 

(4.0

)%

 

470

 

BSG

9.9

%

(7.4

)%

1,730

2.1

%

 

(3.0

)%

 

510

 

Consolidated

6.5

%

(7.1

)%

1,360

1.2

%

 

(3.6

)%

 

480

 

            For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year. Our same store sales are calculated in constant U.S. dollars and include e-commerce sales, but do not generally include the sales from stores relocated until 14 months after the relocation. The sales from stores acquired are excluded from our same store sales calculation until 14 months after the acquisition.

 

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

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