- Consolidated Same Store Sales Decreased 0.3%
- Beauty Systems Group Same Store Sales Positive for Third
Consecutive Quarter at 1.2%; Segment Revenue Reaches All-Time
Quarterly High
- Sally Beauty Supply Same Store Sales Decreased 1.1%; Europe
Turns Positive
- Global E-Commerce Sales Increased by 27.6%
- GAAP Diluted EPS of $0.45; Decline of 16.7%
- Adjusted Diluted EPS of $0.47; Decline of 17.5%
- Continued Progress on the Transformation Plan; Overall
Remains on Track
- FY20 Revenue and Same Store Sales Guidance Maintained;
Adjusted Operating Earnings Modified to Flat to Prior Year
Sally Beauty Holdings, Inc.
(NYSE: SBH) (“the Company”) today announced financial results for
its first quarter ended December 31, 2019. The Company will hold a
conference call today at 7:30 a.m. Central Time to discuss these
results.
Fiscal 2020 First Quarter Overview
Consolidated same store sales decreased by 0.3% in the first
quarter. Consolidated net sales were $980.2 million in the quarter,
down 0.9% compared to the prior year, driven by a decrease in same
store sales as a result of the shortened holiday retail calendar,
technology implementation issues impacting pricing and promotion in
our new point-of-sale system, a smaller store base with 57 fewer
stores and an unfavorable impact from foreign currency translation
of approximately 10 basis points on reported sales.
GAAP diluted earnings per share in the first quarter were $0.45,
compared to $0.54 in the prior year, a decrease of 16.7%, driven
primarily by the reduction in sales, gross margin contraction
resulting from technology issues, and increased wage and marketing
expenses, partially offset by reduced interest expense related to
the Company’s deleveraging efforts. Adjusted diluted earnings per
share, excluding charges related to the Company’s transformation
efforts in both years, were $0.47 in the first quarter, compared to
$0.57 in the prior year, a decrease of 17.5%.
“Although we made significant progress on our transformation
program during the first quarter, we fell short of both our
top-line and bottom-line goals. I would highlight two key factors
that contributed to the shortfall. First, traffic declined at both
Sally Beauty Supply and specialty retail in general, resulting from
the shortened holiday season. Second, implementation-related
technology disruptions led to product pricing issues, the
misapplication and unintended increase of promotional discounts,
and a resulting disruption of our planned marketing activities
during the quarter,” said Chris Brickman, president and chief
executive officer.
“As we enter the second quarter, we believe we have addressed
the most critical of the technology challenges we faced during the
first quarter and we have already taken aggressive management steps
to improve financial performance,” Brickman continued. “We want to
be clear that our first priority is to complete the transformation
and put in place the right retail and digital capabilities to set
the company up for long-term success. We are focused on unlocking
the full potential of our highly differentiated business and we
will invest additional resources as appropriate over the year if
that is required to deliver our objectives. To be prudent, while we
are maintaining our top-line expectations, we are modifying
guidance for Adjusted Operating Earnings and now expect that metric
to be approximately flat to the prior year.”
“In summary, we remain confident that we have the right plan,
that the business is highly differentiated and defensible, and that
we will return to growth and provide value creation potential for
our shareholders over the long-term. A challenging quarter will not
distract us from completing our transformation goals and delivering
future growth,” Brickman concluded.
Update on Transformation Plan
Based on our key transformation objectives, during the first
quarter and so far this quarter, we have:
Playing to Win with Our Customers – Refocus on Our
Differentiated Core of Color and Care
- Executed the launch of the new Sally Beauty brand campaign
“Unleash your PROtential” nationwide, which began January 6,
2020;
- Renewed our exclusive contract between Coty and Beauty Systems
Group for three more years, adding certainty to our relationship
going forward;
- Launched CHI color and innovative CHI appliances at Sally
Beauty stores; and
- Launched professional brand hair care products at Sally Beauty
in the U.S. and new brands like Olaplex in Europe.
Improving Our Retail Fundamentals
- Added key new management and talent to our organization in
areas such as Merchandising, Beauty Systems Group Store Operations,
Marketing, E-Commerce, Digital Product and Planning &
Allocation;
- Reached more than 16.1 million active loyalty members in Sally
Beauty Rewards; and
- Rolled out the new Oracle-based point-of-sale systems to
approximately 2,500 stores.
Advancing Our Digital Commerce Capabilities
- Implemented our Order Management System across our network,
shortening our ‘order to customer’ timing and increasing the
flexibility of our shipping options;
- Implemented further upgrades to sallybeauty.com and reached
final development stages for the impending launch of
sallybeauty.ca; and
- Continued to drive the Sally Beauty integrated mobile app,
which has been downloaded by a younger mix of customers more than
900,000 times.
As we move through fiscal year 2020, we will continue our
transformation efforts by:
- Completing the national rollout of the new point-of-sale
systems, first at Beauty Systems Group and then at Sally
Beauty;
- Rolling out sallybeauty.ca, supported by ship-from-store
capabilities in Canada;
- Improving our digital commerce capabilities, including refining
our Order Management System capabilities, expanding our Same-Day
Delivery test and launching further fulfillment options, like
ship-from-store, for our Sally Beauty customers in the United
States;
- Continuing the testing of the JDA merchandising and supply
chain platform;
- Expanding our concept stores for both Sally Beauty and Beauty
Systems Group in additional territories;
- Advancing our merchandising transformation efforts; and
- Continuing to optimize our Supply Chain Network with changes to
our transportation model and our network of nodes.
Fiscal 2020 First Quarter Financial Detail
Consolidated gross profit for
the first quarter was $474.8 million, a decrease of $5.9 million
from the prior year. Gross margin for the first quarter was 48.4%,
a decrease of 20 basis points compared to the prior year, with
decreases in the U.S. and Canadian businesses of Sally Beauty
Supply offsetting increases in Beauty Systems Group. Selling,
general and administrative expenses increased by $10.9 million,
driven primarily by investments in store personnel and marketing,
and were 38.6%, as a percentage of sales, compared to 37.1% in the
prior year.
GAAP operating earnings and operating margin in the first
quarter were $94.4 million and 9.6%, respectively, compared to
$109.7 million and 11.1%, respectively, in the prior year. Adjusted
operating earnings and operating margin were $96.9 million and
9.9%, respectively, compared to $113.7 million and 11.5%,
respectively, in the prior year.
GAAP net earnings in the first
quarter were $53.2 million, a decrease of $12.5 million, or 19.0%, compared to the prior
year. Adjusted EBITDA in the first quarter was $127.5
million, a decrease of $16.1
million, or 11.2%, compared to the prior year, and adjusted EBITDA
margin was 13.0%, a decrease of approximately 150
basis points from the prior
year.
During the first quarter, cash
flow from operations was $62.3 million. Capital expenditures totaled
$40.9 million. Operating
free cash flow was $21.4 million and was used opportunistically to
reduce the Company’s debt levels by an additional $16.2
million. At the end of the first
quarter, the Company’s leverage ratio was 2.68x. Since the
beginning of fiscal year 2019, the Company has reduced its debt
levels by over $200 million. Early in the first quarter, the
Company also repurchased 0.8 million shares at an aggregate cost of
$11.4 million.
Fiscal 2020 First Quarter Segment Results
Sally Beauty Supply
- Total segment same store sales decreased by 1.1% for the
quarter, driven by a decrease in same store sales in the U.S. and
Canada of 1.4%. The Sally Beauty businesses in the U.S. and Canada
represented 77% of the segment sales for the quarter. Europe was a
positive contributor to same store sales for Sally Beauty.
- Net sales were $569.1 million in the quarter, a decrease of
2.0% compared to the prior year, driven primarily by 36 fewer
stores and an unfavorable foreign exchange impact of approximately
20 basis points.
- At the end of the quarter, net store count was 3,703, a
decrease of 36 from the prior year.
- Gross margin decreased 30 basis points to 54.3% in the
quarter.
- GAAP operating earnings were $74.2 million in the quarter, a
decrease of 17.5% versus the prior year. GAAP operating margin was
13.0%, compared to 15.5% in the prior year.
Beauty Systems Group
- Same store sales increased by 1.2% for the quarter.
- Net sales were $411.1 million in the quarter, an increase of
0.5% compared to the prior year. Foreign currency translation had
no impact on the quarter.
- At the end of the quarter, net store count was 1,369, a
decrease of 21 from the prior year.
- Gross margin increased 30 basis points to 40.3% in the
quarter.
- GAAP operating earnings were $62.4 million in the quarter, an
increase of 0.2% versus the prior year. GAAP operating margin in
the quarter was 15.2%, flat to the prior year.
- At the end of the quarter, there were 740 distributor sales
consultants, compared to 822 in the prior year.
Fiscal Year 2020 Guidance
The Company is maintaining its
revenue and same store sales guidance, while adjusting its Adjusted
Operating Earnings guidance to flat to the prior year. This
reflects the implementation challenges of the first quarter,
aggressive steps already taken to recover and a commitment to
invest as necessary to complete the ongoing Transformation Plan.
However, when combined with the benefit of the debt reduction and
share repurchases to date, the Company is maintaining its EPS
guidance for the year, but at the lower end of the
range.
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.
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, investor.sallybeautyholdings.com. The conference
call can be accessed by dialing (877) 692-8957 (International:
(234) 720-6980) and referencing the access code 247856. 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 Q1 Earnings Presentation. A replay of the earnings
conference call will be available starting at 10:30 a.m. Central
Time, February 6, 2020, through February 13, 2020, by dialing (866)
207-1041 (International: (402) 970-0847) and reference access code
1938843. Also, a website replay will be available on
investor.sallybeautyholdings.com.
About Sally Beauty Holdings, Inc.
Sally Beauty Holdings, Inc. (NYSE: SBH) is an international
specialty retailer and distributor of professional beauty supplies
with revenues of approximately $3.9 billion annually. Through the
Sally Beauty Supply and Beauty Systems Group businesses, the
Company sells and distributes through 5,072 stores, including 157
franchised units, and has operations throughout the United States,
Puerto Rico, Canada, Mexico, Chile, Peru, the United Kingdom,
Ireland, Belgium, France, the Netherlands, Spain and Germany. 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
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 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 described in our filings with the
Securities and Exchange Commission, including our most recent
Annual Report on Form 10-K for the year ended September 30, 2019,
as filed with the Securities and Exchange Commission. 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 EBITDA and EBITDA Margin; (2) Adjusted Operating
Earnings and Operating Margin; (3) Adjusted Diluted Net Earnings
Per Share; and (4) 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 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 and costs related to the Company’s previously
announced restructuring plans 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
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 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 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
Non-GAAP
Financial Measures Reconciliations; Adjusted EBITDA and
Operating Free Cash
Flow
3
Store
Count and Same Store Sales
4
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated
Statements of Earnings (In thousands, except per share data)
(Unaudited)
Three Months Ended December 31,
2019
2018
PercentageChange Net sales
$
980,208
$
989,453
-0.9
%
Cost of products sold
505,360
508,748
-0.7
%
Gross profit
474,848
480,705
-1.2
%
Selling, general and administrative expenses
377,930
366,987
3.0
%
Restructuring
2,531
3,980
-36.4
%
Operating earnings
94,387
109,738
-14.0
%
Interest expense
21,541
24,489
-12.0
%
Earnings before provision for income taxes
72,846
85,249
-14.5
%
Provision for income taxes
19,631
19,522
0.6
%
Net earnings
$
53,215
$
65,727
-19.0
%
Earnings per share: Basic
$
0.46
$
0.55
-16.4
%
Diluted
$
0.45
$
0.54
-16.7
%
Weighted average shares: Basic
116,125
119,989
Diluted
117,154
120,979
Basis PointChange Comparison as a
percentage of net sales Consolidated gross margin
48.4
%
48.6
%
(20
)
Selling, general and administrative expenses
38.6
%
37.1
%
150
Consolidated operating margin
9.6
%
11.1
%
(150
)
Effective tax rate
26.9
%
22.9
%
400
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (In thousands) (Unaudited)
December 31,2019 September 30,2019 Cash
and cash equivalents
$
67,262
$
71,495
Trade and other accounts receivable
94,657
104,539
Inventory
991,839
952,907
Other current assets
35,283
34,612
Total current assets
1,189,041
1,163,553
Property and equipment, net
315,925
319,628
Operating lease assets
553,464
-
Goodwill and other intangible assets
596,269
592,837
Other assets
20,360
22,428
Total assets
$
2,675,059
$
2,098,446
Current maturities of long-term debt
$
855
$
1
Accounts payable
272,082
278,688
Accrued liabilities
142,848
169,054
Current operating lease liabilities
160,193
-
Income taxes payable
18,627
8,336
Total current liabilities
594,605
456,079
Long-term debt, including capital leases
1,578,436
1,594,542
Long-term operating lease liabilities
400,490
-
Other liabilities
18,368
27,757
Deferred income tax liabilities, net
80,961
80,391
Total liabilities
2,672,860
2,158,769
Total stockholders’ equity (deficit)
2,199
(60,323
)
Total liabilities and stockholders’ equity (deficit)
$
2,675,059
$
2,098,446
Supplemental Schedule 1
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Segment
Information (In thousands) (Unaudited)
Three
Months Ended December 31,
2019
2018
Percentage Change
Net sales: Sally Beauty Supply ("SBS")
$
569,147
$
580,608
-2.0
%
Beauty Systems Group ("BSG")
411,061
408,845
0.5
%
Total net sales
$
980,208
$
989,453
-0.9
%
Operating earnings: SBS
$
74,225
$
89,991
-17.5
%
BSG
62,434
62,330
0.2
%
Segment operating earnings
136,659
152,321
-10.3
%
Unallocated expenses (1)
39,741
38,603
2.9
%
Restructuring
2,531
3,980
-36.4
%
Interest expense
21,541
24,489
-12.0
%
Earnings before provision for income taxes
$
72,846
$
85,249
-14.5
%
Segment gross margin:
2019
2018
Basis PointChange SBS
54.3
%
54.6
%
(30
)
BSG
40.3
%
40.0
%
30
Segment operating margin: SBS
13.0
%
15.5
%
(250
)
BSG
15.2
%
15.2
%
—
Consolidated operating margin
9.6
%
11.1
%
(150
)
(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 December
31, 2019
As Reported (GAAP)
Restructuring (1)
As Adjusted (Non-GAAP)
Selling, general and administrative expenses
$
377,930
$
-
$
377,930
SG&A expenses, as a percentage of sales
38.6
%
38.6
%
Operating earnings
94,387
2,531
96,918
Operating margin
9.6
%
9.9
%
Earnings before provision for income taxes
72,846
2,531
75,377
Provision for income taxes (2)
19,631
581
20,212
Net earnings
$
53,215
$
1,950
$
55,165
Earnings per share: Basic
$
0.46
$
0.02
$
0.48
Diluted
$
0.45
$
0.02
$
0.47
Three Months Ended December
31, 2018
As Reported (GAAP)
Restructuring (1)
As Adjusted (Non-GAAP)
Selling, general and administrative expenses
$
366,987
$
-
$
366,987
SG&A expenses, as a percentage of sales
37.1
%
37.1
%
Operating earnings
109,738
3,980
113,718
Operating margin
11.1
%
11.5
%
Earnings before provision for income taxes
85,249
3,980
89,229
Provision for income taxes (2)
19,522
728
20,250
Net earnings
$
65,727
$
3,252
$
68,979
Earnings per share: Basic
$
0.55
$
0.03
$
0.57
Diluted
$
0.54
$
0.03
$
0.57
(1) For the three months ended December 31, 2019, restructuring
represents costs and expenses incurred primarily in connection with
the Project Surge plan. For the three months ended December 31,
2018, restructuring represents costs and expenses incurred in
connection with the 2018 Restructuring Plan. (2) The income
tax provision associated with restructuring for the three months
ended December 31, 2019 and 2018, was calculated using a 23.0% and
18.3% tax rate, respectively, since realization of a tax benefit
for portions of these expenses are currently not deemed probable.
Supplemental Schedule 3
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP
Financial Measures Reconciliations, Continued (In thousands)
(Unaudited)
Three Months Ended December 31,
Adjusted EBITDA:
2019
2018
PercentageChange Net earnings
$
53,215
$
65,727
-19.0
%
Add: Depreciation and amortization
27,076
26,506
2.2
%
Interest expense
21,541
24,489
-12.0
%
Provision for income taxes
19,631
19,522
0.6
%
EBITDA (non-GAAP)
121,463
136,244
-10.8
%
Share-based compensation
3,473
3,354
3.5
%
Restructuring
2,531
3,980
-36.4
%
Adjusted EBITDA (non-GAAP)
$
127,467
$
143,578
-11.2
%
Basis PointChange Adjusted
EBITDA as a percentage of net sales Adjusted EBITDA margin
13.0
%
14.5
%
(150
)
Operating Free Cash Flow:
2019
2018
PercentageChange Net cash provided by operating activities
$
62,325
$
50,256
24.0
%
Less: Payments for property and equipment, net
40,875
23,710
72.4
%
Operating free cash flow (non-GAAP)
$
21,450
$
26,546
-19.2
%
Supplemental Schedule 4
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Store
Count and Same Store Sales (Unaudited)
As of December 31,
2019
2018
Change
Number of stores:
SBS: Company-operated stores
3,690
3,723
(33)
Franchise stores
13
16
(3)
Total SBS
3,703
3,739
(36)
BSG: Company-operated stores
1,225
1,226
(1)
Franchise stores
144
164
(20)
Total BSG
1,369
1,390
(21)
Total consolidated
5,072
5,129
(57)
Number of BSG distributor sales
consultants
740
822
(82)
BSG distributor sales consultants (DSC) include 199 and 266 sales
consultants employed by our franchisees at December 31, 2019 and
2018, respectively.
Three Months Ended December
31,
2019
2018
Basis Point Change
Same store sales growth (decline): SBS
-1.1
%
0.7
%
(180
)
BSG
1.2
%
-0.6
%
180
Consolidated
-0.3
%
0.3
%
(60
)
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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200206005198/en/
Jeff Harkins Investor Relations 940-297-3877
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