Item 1. Financial Statements.
The following condensed consolidated balance sheets as of December 31, 2020, and September 30, 2020, the condensed consolidated statements of earnings, condensed consolidated statements of comprehensive income, the condensed consolidated statements of stockholders’ equity and the condensed consolidated statements of cash flows for the three months ended December 31, 2020 and 2019, are those of Sally Beauty Holdings, Inc. and its subsidiaries.
5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except par value data)
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
537,644
|
|
|
$
|
514,151
|
|
Trade accounts receivable, net
|
|
|
40,046
|
|
|
|
35,590
|
|
Accounts receivable, other
|
|
|
27,904
|
|
|
|
20,839
|
|
Inventory
|
|
|
895,984
|
|
|
|
814,503
|
|
Other current assets
|
|
|
44,300
|
|
|
|
48,014
|
|
Total current assets
|
|
|
1,545,878
|
|
|
|
1,433,097
|
|
Property and equipment, net of accumulated depreciation of $725,437 at
December 31, 2020, and $694,709 at September 30, 2020
|
|
|
305,225
|
|
|
|
315,029
|
|
Operating lease assets
|
|
|
519,985
|
|
|
|
525,634
|
|
Goodwill
|
|
|
546,027
|
|
|
|
540,038
|
|
Intangible assets, excluding goodwill, net of accumulated amortization of
$68,590 at December 31, 2020, and $63,491 at September 30, 2020
|
|
|
58,819
|
|
|
|
58,283
|
|
Other assets
|
|
|
23,714
|
|
|
|
23,066
|
|
Total assets
|
|
$
|
2,999,648
|
|
|
$
|
2,895,147
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
186
|
|
|
$
|
180
|
|
Accounts payable
|
|
|
285,636
|
|
|
|
236,333
|
|
Accrued liabilities
|
|
|
133,328
|
|
|
|
170,665
|
|
Current operating lease liabilities
|
|
|
154,090
|
|
|
|
153,267
|
|
Income taxes payable
|
|
|
17,096
|
|
|
|
2,917
|
|
Total current liabilities
|
|
|
590,336
|
|
|
|
563,362
|
|
Long-term debt
|
|
|
1,798,154
|
|
|
|
1,796,897
|
|
Long-term operating lease liabilities
|
|
|
390,873
|
|
|
|
394,375
|
|
Other liabilities
|
|
|
29,406
|
|
|
|
32,976
|
|
Deferred income tax liabilities, net
|
|
|
92,013
|
|
|
|
92,094
|
|
Total liabilities
|
|
|
2,900,782
|
|
|
|
2,879,704
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value. Authorized 500,000 shares; 112,814 and
112,824 shares issued and 112,538 and 112,405 shares outstanding at
December 31, 2020, and September 30, 2020, respectively
|
|
|
1,125
|
|
|
|
1,124
|
|
Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued
|
|
|
—
|
|
|
|
—
|
|
Additional paid-in capital
|
|
|
4,556
|
|
|
|
1,913
|
|
Accumulated earnings
|
|
|
174,300
|
|
|
|
117,109
|
|
Accumulated other comprehensive loss, net of tax
|
|
|
(81,115
|
)
|
|
|
(104,703
|
)
|
Total stockholders’ equity
|
|
|
98,866
|
|
|
|
15,443
|
|
Total liabilities and stockholders’ equity
|
|
$
|
2,999,648
|
|
|
$
|
2,895,147
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net sales
|
|
$
|
936,022
|
|
|
$
|
980,208
|
|
Cost of goods sold
|
|
|
465,298
|
|
|
|
505,360
|
|
Gross profit
|
|
|
470,724
|
|
|
|
474,848
|
|
Selling, general and administrative expenses
|
|
|
366,170
|
|
|
|
377,930
|
|
Restructuring
|
|
|
232
|
|
|
|
2,531
|
|
Operating earnings
|
|
|
104,322
|
|
|
|
94,387
|
|
Interest expense
|
|
|
25,978
|
|
|
|
21,541
|
|
Earnings before provision for income taxes
|
|
|
78,344
|
|
|
|
72,846
|
|
Provision for income taxes
|
|
|
21,153
|
|
|
|
19,631
|
|
Net earnings
|
|
$
|
57,191
|
|
|
$
|
53,215
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.51
|
|
|
$
|
0.46
|
|
Diluted
|
|
$
|
0.50
|
|
|
$
|
0.45
|
|
Weighted-average shares:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
112,475
|
|
|
|
116,125
|
|
Diluted
|
|
|
113,828
|
|
|
|
117,154
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
|
|
Three Months Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net earnings
|
|
$
|
57,191
|
|
|
$
|
53,215
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
25,007
|
|
|
|
14,961
|
|
Interest rate caps, net of tax
|
|
|
175
|
|
|
|
109
|
|
Foreign exchange contracts, net of tax
|
|
|
(1,594
|
)
|
|
|
(200
|
)
|
Other comprehensive income, net of tax
|
|
|
23,588
|
|
|
|
14,870
|
|
Total comprehensive income
|
|
$
|
80,779
|
|
|
$
|
68,085
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
Common Stock
|
Paid-in
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity
|
|
Balance at September 30, 2020
|
|
112,405
|
|
|
$
|
1,124
|
|
|
$
|
1,913
|
|
|
$
|
117,109
|
|
|
$
|
(104,703
|
)
|
|
$
|
15,443
|
|
Net earnings
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57,191
|
|
|
|
—
|
|
|
|
57,191
|
|
Other comprehensive income
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,588
|
|
|
|
23,588
|
|
Share-based compensation
|
|
—
|
|
|
|
—
|
|
|
|
2,893
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,893
|
|
Stock issued for equity awards
|
|
133
|
|
|
|
1
|
|
|
|
(250
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(249
|
)
|
Balance at December 31, 2020
|
|
112,538
|
|
|
$
|
1,125
|
|
|
$
|
4,556
|
|
|
$
|
174,300
|
|
|
$
|
(81,115
|
)
|
|
$
|
98,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Accumulated
|
|
|
Other
|
|
|
Total
|
|
|
Common Stock
|
Paid-in
|
|
|
(Deficit)
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Loss
|
|
|
Equity (Deficit)
|
|
Balance at September 30, 2019
|
|
116,725
|
|
|
$
|
1,167
|
|
|
$
|
—
|
|
|
$
|
55,797
|
|
|
$
|
(117,287
|
)
|
|
$
|
(60,323
|
)
|
Cumulative effect of ASC 842 adoption
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(445
|
)
|
|
|
—
|
|
|
|
(445
|
)
|
Net earnings
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53,215
|
|
|
|
—
|
|
|
|
53,215
|
|
Other comprehensive income
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
14,870
|
|
|
|
14,870
|
|
Repurchases and cancellations of
common stock
|
|
(766
|
)
|
|
|
(7
|
)
|
|
|
(6,237
|
)
|
|
|
(5,113
|
)
|
|
|
—
|
|
|
|
(11,357
|
)
|
Share-based compensation
|
|
—
|
|
|
|
—
|
|
|
|
3,473
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,473
|
|
Stock issued for equity awards
|
|
206
|
|
|
|
2
|
|
|
|
2,764
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,766
|
|
Balance at December 31, 2019
|
|
116,165
|
|
|
$
|
1,162
|
|
|
$
|
—
|
|
|
$
|
103,454
|
|
|
$
|
(102,417
|
)
|
|
$
|
2,199
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
Three Months Ended December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
57,191
|
|
|
$
|
53,215
|
|
Adjustments to reconcile net earnings to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
26,386
|
|
|
|
27,076
|
|
Share-based compensation expense
|
|
|
2,893
|
|
|
|
3,473
|
|
Amortization of deferred financing costs
|
|
|
1,496
|
|
|
|
887
|
|
Gain on early extinguishment of debt
|
|
|
—
|
|
|
|
(223
|
)
|
Loss on disposal of equipment and other property
|
|
|
1,589
|
|
|
|
—
|
|
Deferred income taxes
|
|
|
229
|
|
|
|
555
|
|
Changes in (exclusive of effects of acquisitions):
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(3,502
|
)
|
|
|
2,457
|
|
Accounts receivable, other
|
|
|
(8,643
|
)
|
|
|
8,793
|
|
Inventory
|
|
|
(67,764
|
)
|
|
|
(30,138
|
)
|
Other current assets
|
|
|
3,220
|
|
|
|
(482
|
)
|
Other assets
|
|
|
(240
|
)
|
|
|
(2,480
|
)
|
Operating leases, net
|
|
|
2,996
|
|
|
|
—
|
|
Accounts payable and accrued liabilities
|
|
|
12,401
|
|
|
|
(11,930
|
)
|
Income taxes payable
|
|
|
14,307
|
|
|
|
10,352
|
|
Other liabilities
|
|
|
(3,573
|
)
|
|
|
770
|
|
Net cash provided by operating activities
|
|
|
38,986
|
|
|
|
62,325
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Payments for property and equipment, net of proceeds
|
|
|
(15,483
|
)
|
|
|
(40,875
|
)
|
Acquisitions, net of cash acquired
|
|
|
(2,025
|
)
|
|
|
(1,944
|
)
|
Net cash used by investing activities
|
|
|
(17,508
|
)
|
|
|
(42,819
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
—
|
|
|
|
232,000
|
|
Repayments of long-term debt
|
|
|
(63
|
)
|
|
|
(247,830
|
)
|
Payments for common stock repurchased
|
|
|
—
|
|
|
|
(11,357
|
)
|
Proceeds from equity awards
|
|
|
—
|
|
|
|
2,766
|
|
Employee withholding taxes paid related to net share settlement of equity awards
|
|
|
(249
|
)
|
|
|
—
|
|
Net cash used by financing activities
|
|
|
(312
|
)
|
|
|
(24,421
|
)
|
Effect of foreign exchange rate changes on cash and cash equivalents
|
|
|
2,327
|
|
|
|
682
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
23,493
|
|
|
|
(4,233
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
514,151
|
|
|
|
71,495
|
|
Cash and cash equivalents, end of period
|
|
$
|
537,644
|
|
|
$
|
67,262
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
43,439
|
|
|
$
|
33,297
|
|
Income taxes paid
|
|
$
|
2,609
|
|
|
$
|
9,216
|
|
Capital expenditures incurred but not paid
|
|
$
|
6,707
|
|
|
$
|
3,491
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
10
Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures are adequate to make the information not misleading. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of December 31, 2020 and September 30, 2020, and our consolidated results of operations, consolidated comprehensive income, and consolidated statements of stockholders’ equity and our consolidated cash flows for the three months ended December 31, 2020 and 2019.
Our operating results for the three months ended December 31, 2020, may not be indicative of the results that may be expected for the full fiscal year ending September 30, 2021, in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic on future periods. Due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.
2. Significant Accounting Policies
We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full-year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full-year assumptions. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.
3. Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12 which simplifies the accounting for income taxes by removing an exception related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period with year to date losses and the recognition of deferred tax liabilities for outside basis differences. Additionally, the update clarifies and simplifies other areas of ASC 740, Income Taxes. For public companies, the amendments in the update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, but all amendments must be adopted at once. The amendments in this update have different adoption methods including prospective basis, retrospective basis, and a modified retrospective basis dependent on the specific change. We are currently evaluating the impact of this update, but based on our preliminary assessment we do not believe this will have a material impact to our results of operations or financial position.
4. Revenue Recognition
Substantially all of our revenue is derived through the sale of merchandise at the point-of-sale. Revenue is recognized net of estimated sales returns and sales taxes. We estimate sales returns based on historical data.
Changes to our contract liabilities for the period were as follows (in thousands):
September 30, 2020
|
|
|
|
|
|
$
|
13,947
|
|
Loyalty points and gift cards issued but not redeemed, net of estimated breakage
|
|
|
5,709
|
|
Revenue recognized from beginning liability
|
|
|
(3,476
|
)
|
December 31, 2020
|
|
|
|
|
|
$
|
16,180
|
|
See Note 11, Business Segments, for additional information regarding the disaggregation of our sales revenue.
11
5. Fair Value Measurements
Fair value on recurring basis
Consistent with the three-level hierarchy defined in ASC Topic 820, Fair Value Measurement, as amended, we categorize our financial assets and liabilities as follows (in thousands):
|
|
Classification
|
|
Fair Value Hierarchy Level
|
|
December 31,
2020
|
|
|
September 30,
2020
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
Cash and cash equivalents
|
|
Level 1
|
|
$
|
—
|
|
|
$
|
194,612
|
|
Interest rate caps
|
|
Other assets
|
|
Level 2
|
|
|
18
|
|
|
|
27
|
|
Total assets
|
|
|
|
|
|
$
|
18
|
|
|
$
|
194,639
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
Accrued liabilities
|
|
Level 2
|
|
$
|
1,587
|
|
|
$
|
—
|
|
Other fair value disclosures
|
|
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
|
|
Fair Value Hierarchy Level
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
Long-term debt, excluding capital leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes
|
|
Level 1
|
|
$
|
1,177,380
|
|
|
$
|
1,234,206
|
|
|
$
|
1,177,380
|
|
|
$
|
1,217,707
|
|
Term loan B
|
|
Level 2
|
|
|
635,788
|
|
|
|
632,623
|
|
|
|
635,788
|
|
|
|
619,397
|
|
Total long-term debt
|
|
|
|
$
|
1,813,168
|
|
|
$
|
1,866,829
|
|
|
$
|
1,813,168
|
|
|
$
|
1,837,104
|
|
The table above excludes amounts, if any, related to our ABL facility as the balance approximates fair value due to the short-term nature of our borrowings.
6. Stockholders’ Equity
Share Repurchases
In August 2017, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.0 billion of its common stock, subject to certain limitations governed by our debt agreements, over an approximate four-year period expiring on September 30, 2021.
Information related to our shares repurchased and subsequently retired were as follows (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Number of shares repurchased
|
|
|
—
|
|
|
|
766
|
|
Total cost of share repurchased
|
|
$
|
—
|
|
|
$
|
11,357
|
|
Accumulated Other Comprehensive Loss
The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):
|
|
Foreign Currency Translation Adjustments
|
|
|
Interest Rate Caps
|
|
|
Foreign Exchange Contracts
|
|
|
Total
|
|
Balance at September 30, 2020
|
|
$
|
(102,111
|
)
|
|
$
|
(3,003
|
)
|
|
$
|
411
|
|
|
$
|
(104,703
|
)
|
Other comprehensive income (loss) before
reclassification, net of tax
|
|
|
25,007
|
|
|
|
(69
|
)
|
|
|
(1,224
|
)
|
|
|
23,714
|
|
Reclassification to net earnings, net of tax
|
|
|
—
|
|
|
|
244
|
|
|
|
(370
|
)
|
|
|
(126
|
)
|
Balance at December 31, 2020
|
|
$
|
(77,104
|
)
|
|
$
|
(2,828
|
)
|
|
$
|
(1,183
|
)
|
|
$
|
(81,115
|
)
|
The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings were not material.
12
7. Weighted-Average Shares
The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Weighted-average basic shares
|
|
|
112,475
|
|
|
|
116,125
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
Stock option and stock award programs
|
|
|
1,353
|
|
|
|
1,029
|
|
Weighted-average diluted shares
|
|
|
113,828
|
|
|
|
117,154
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from our computation of diluted shares
|
|
|
6,009
|
|
|
|
5,132
|
|
8. Goodwill and Intangible Assets
Due to the uncertainty around COVID-19, our projected future cash flows may differ materially from actual results. We considered potential triggering events and determined there were none during the three months ended December 31, 2020. No material impairment losses were recognized in the current or prior periods presented in connection with our goodwill and other intangible assets.
For the three months ended December 31, 2020 and 2019, amortization expense related to other intangible assets was $1.7 million and $2.4 million, respectively.
Additionally, goodwill increased primarily from the effects of foreign currency exchange rates of $6.1 million during the three months ended December 31, 2020.
9. Short-term Borrowings and Long-term Debt
At December 31, 2020, there were no outstanding borrowings and we had $461.0 million available for borrowing under our ABL facility, including the Canadian sub-facility, subject to the conditions contained therein. Our ABL facility matures on July 6, 2022.
Please see Note 13, Subsequent Event, for further information about our debt.
Covenants
The agreements governing our ABL facility, term loan B and the senior notes contain a customary covenant package that places restrictions on the disposition of assets, the granting of liens and security interests, the prepayment of certain indebtedness, and other matters with customary events of default, including customary cross-default and/or cross-acceleration provisions. As of December 31, 2020, we were in compliance with all debt covenants and all the net assets of our consolidated subsidiaries were unrestricted from transfer.
10. Derivative Instruments and Hedging Activities
During the three months ended December 31, 2020, we did not purchase or hold any derivative instruments for trading or speculative purposes. See Note 5, Fair Value Measurements, for the classification and fair value of our derivative instruments.
Designated Cash Flow Hedges
Foreign Currency Forwards
We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on inventory purchases in U.S. dollars by our foreign subsidiaries. At December 31, 2020, the notional amount we held through these forwards, based upon exchange rates at December 31, 2020, was as follows (in thousands):
Notional Currency
|
|
Notional Amount
|
|
Euro
|
|
$
|
13,916
|
|
Mexican Peso
|
|
|
10,932
|
|
Canadian Dollar
|
|
|
3,767
|
|
Total
|
|
$
|
28,615
|
|
We record quarterly, net of income tax, the changes in fair value related to the foreign currency forwards into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold based on inventory turns. For the three months ended December
13
31, 2020, we recognized a $0.4 million gain into cost of goods sold on our condensed consolidated statements of earnings. Based on December 31, 2020, valuations and exchange rates, we expect to reclassify losses of approximately $1.3 million into cost of goods sold over the next 12 months.
Interest Rate Caps
In July 2017, we purchased two interest rate caps with an initial aggregate notional amount of $550 million (the “interest rate caps”) to mitigate the exposure to higher interest rates in connection with our term loan B. The interest rate caps are comprised of individual caplets that expire ratably through June 30, 2023, and are designated as cash flow hedges. Accordingly, changes in fair value of the interest rate caps are recorded quarterly, net of income tax, and are included in AOCL. Over the next 12 months, we expect to reclassify approximately $1.3 million into interest expense, which represents the original value of the expiring caplets.
The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three months ended December 31, 2020.
11. Business Segments
Segment data for the three months ended December 31, 2020 and 2019, is as follows (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Net sales:
|
|
|
|
|
|
|
|
|
Sally Beauty Supply ("SBS")
|
|
$
|
547,670
|
|
|
$
|
569,147
|
|
Beauty Systems Group ("BSG")
|
|
|
388,352
|
|
|
|
411,061
|
|
Total
|
|
$
|
936,022
|
|
|
$
|
980,208
|
|
Earnings before provision for income taxes:
|
|
|
|
|
|
|
|
|
Segment operating earnings:
|
|
|
|
|
|
|
|
|
SBS
|
|
$
|
95,128
|
|
|
$
|
74,225
|
|
BSG
|
|
|
48,572
|
|
|
|
62,434
|
|
Segment operating earnings
|
|
|
143,700
|
|
|
|
136,659
|
|
Unallocated expenses
|
|
|
39,146
|
|
|
|
39,741
|
|
Restructuring
|
|
|
232
|
|
|
|
2,531
|
|
Consolidated operating earnings
|
|
|
104,322
|
|
|
|
94,387
|
|
Interest expense
|
|
|
25,978
|
|
|
|
21,541
|
|
Earnings before provision for income taxes
|
|
$
|
78,344
|
|
|
$
|
72,846
|
|
Sales between segments, which are eliminated in consolidation, were not material during the three months ended December 31, 2020 and 2019.
Disaggregation of net sales by segment
|
|
Three Months Ended
December 31,
|
|
SBS
|
|
2020
|
|
|
2019
|
|
Hair color
|
|
|
35.4
|
%
|
|
|
29.4
|
%
|
Hair care
|
|
|
18.6
|
%
|
|
|
19.4
|
%
|
Skin and nail care
|
|
|
14.2
|
%
|
|
|
14.0
|
%
|
Styling tools
|
|
|
12.8
|
%
|
|
|
14.9
|
%
|
Salon supplies and accessories
|
|
|
7.9
|
%
|
|
|
7.7
|
%
|
Textured hair products
|
|
|
5.5
|
%
|
|
|
6.1
|
%
|
Other beauty items
|
|
|
5.6
|
%
|
|
|
8.5
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
14
|
|
Three Months Ended
December 31,
|
|
BSG
|
|
2020
|
|
|
2019
|
|
Hair color
|
|
|
40.8
|
%
|
|
|
37.5
|
%
|
Hair care
|
|
|
35.0
|
%
|
|
|
34.5
|
%
|
Skin and nail care
|
|
|
8.2
|
%
|
|
|
8.1
|
%
|
Styling tools
|
|
|
7.1
|
%
|
|
|
3.6
|
%
|
Other beauty items
|
|
|
2.6
|
%
|
|
|
5.8
|
%
|
Promotional items
|
|
|
6.3
|
%
|
|
|
10.5
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
The following tables disaggregate our segment revenue by sales channels:
|
|
Three Months Ended
December 31,
|
|
SBS
|
|
2020
|
|
|
2019
|
|
Company-operated stores
|
|
|
93.9
|
%
|
|
|
95.8
|
%
|
E-commerce
|
|
|
6.0
|
%
|
|
|
4.0
|
%
|
Franchise stores
|
|
|
0.1
|
%
|
|
|
0.2
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
Three Months Ended
December 31,
|
|
BSG
|
|
2020
|
|
|
2019
|
|
Company-operated stores
|
|
|
69.6
|
%
|
|
|
69.4
|
%
|
Distributor sales consultants
|
|
|
14.3
|
%
|
|
|
17.9
|
%
|
E-commerce
|
|
|
8.5
|
%
|
|
|
7.3
|
%
|
Franchise stores
|
|
|
7.6
|
%
|
|
|
5.4
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
12. Restructuring
Restructuring expense for the three months ended December 31, 2020 and 2019, are as follows (in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
Project Surge
|
|
$
|
190
|
|
|
$
|
1,253
|
|
Transformation Plan
|
|
|
42
|
|
|
|
1,278
|
|
Total expense
|
|
$
|
232
|
|
|
$
|
2,531
|
|
Project Surge
In November 2019, we announced that we were launching Project Surge, which takes the successful elements of the North American Sally Beauty transformation and integrates them into our European operations, with the support and participation of several key leaders from the corporate headquarters. As part of this plan, we are focusing on several operating elements, including a review of our talent and operating structure.
The liability related to Project Surge, which is included in accrued liabilities on our condensed consolidated balance sheets, is as follows (in thousands):
Project Surge
|
|
Liability at
September 30,
2020
|
|
|
Expenses
|
|
|
Expenses Paid or Otherwise Settled
|
|
|
Adjustments
|
|
|
Liability at
December 31,
2020
|
|
Workforce reductions
|
|
$
|
—
|
|
|
$
|
150
|
|
|
$
|
150
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other
|
|
|
—
|
|
|
|
40
|
|
|
|
40
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
—
|
|
|
$
|
190
|
|
|
$
|
190
|
|
|
$
|
—
|
|
|
$
|
—
|
|
15
Expenses incurred during the three months ended December 31, 2020, represent costs incurred by SBS of $0.2 million.
Transformation Plan
We previously disclosed a plan to focus on certain core business strategies. In addition to optimizing our supply chain network with changes to our transportation model and network of nodes, we are improving our marketing and digital commerce capabilities, and advancing our merchandising transformation efforts. In addition, we expanded our plan and announced a reduction in workforce within our field and headquarters. All these together, make up our Transformation Plan.
The liability related to the Transformation Plan, which is included in accrued liabilities on our condensed consolidated balance sheets, is as follows (in thousands):
Transformation Plan
|
|
Liability at
September 30,
2020
|
|
|
Expenses
|
|
|
Expenses Paid or Otherwise Settled
|
|
|
Adjustments
|
|
|
Liability at
December 31,
2020
|
|
Workforce reductions
|
|
$
|
65
|
|
|
$
|
7
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other
|
|
|
—
|
|
|
|
35
|
|
|
|
35
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
65
|
|
|
$
|
42
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Expenses incurred during the three months ended December 31, 2020, represent costs incurred by SBS of $0.1 million.
13. Subsequent Event
On January 5, 2021, we announced that we fully repaid the outstanding balance of $213.2 million on our term loan B fixed portion. The repayment was funded with excess cash and reflects our continued progress toward deleveraging the balance sheet. In connection with this repayment, we recognized an approximately $1 million loss on the extinguishment of debt from the write-off of unamortized deferred financing costs.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty. This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and our other filings with the Securities and Exchange Commission, including the Risk Factors sections therein, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and notes to those financial statements. The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year, in particular as a result of the uncertainty of the continued effects of the COVID-19 pandemic on future periods.
Highlights for the Three Months Ended December 31, 2020
|
•
|
During the three months ended December 31, 2020, we experienced further disruption to sales from COVID-19, including temporary store closures in international markets, government-mandated store capacity restrictions and salon shut-downs in California and parts of Canada for part of the quarter;
|
|
•
|
Consolidated net sales for the three months ended December 31, 2020, decreased $44.2 million, or 4.5%, to $936.0 million, compared to the three months ended December 31, 2019;
|
|
•
|
Consolidated same store sales decreased 3.7% for the three months ended December 31, 2020, while our global e-commerce sales increased 48.0%, compared to the three months ended December 31, 2019;
|
|
•
|
Consolidated gross profit for the three months ended December 31, 2020, decreased $4.1 million, or 0.9%, to $470.7 million, compared to the three months ended December 31, 2019. Gross margin increased 190 basis points to 50.3% for the three months ended December 31, 2020, compared to the three months ended December 31, 2019;
|
|
•
|
Consolidated operating earnings for the three months ended December 31, 2020, increased $9.9 million, or 10.5%, to $104.3 million, compared to the three months ended December 31, 2019. Operating margin increased 150 basis points to 11.1% for the three months ended December 31, 2020, compared to the three months ended December 31, 2019;
|
|
•
|
Consolidated net earnings for the three months ended December 31, 2020 increased $4.0 million, or 7.5%, to $57.2 million, compared to the three months ended December 31, 2019;
|
|
•
|
For the three months ended December 31, 2020, we had diluted earnings per share of $0.50, compared to $0.45 for the three months ended December 31, 2019; and
|
|
•
|
Cash provided by operations was $37.4 million for the three months ended December 31, 2020, compared to $62.3 million for the three months ended December 31, 2019.
|
Impact of COVID-19 on Our Business and Business Strategy Update
As mentioned above, we continued to see the impact of COVID-19 on our sales into our first fiscal quarter as we had temporary store closures in international markets, restricted store capacity in certain markets and salon shut-downs in California and parts of Canada for part of the quarter.
However, we continued to make progress against our key business initiatives, which include leveraging and optimizing our elevated digital capabilities, growing customer engagement and loyalty, and completing the final steps in our successful transformation journey.
The effects of the COVID-19 pandemic and related responses had a noticeable impact on our first quarter fiscal year 2021 results of operations and cash flows. Furthermore, due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.
17
Overview
Key Operating Metrics
The following table sets forth, for the periods indicated, information concerning key measures we rely on to evaluate our operating performance (dollars in thousands):
|
|
Three Months Ended
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
Increase (Decrease)
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS
|
|
$
|
547,670
|
|
|
$
|
569,147
|
|
|
$
|
(21,477
|
)
|
|
|
(3.8
|
)%
|
BSG
|
|
|
388,352
|
|
|
|
411,061
|
|
|
|
(22,709
|
)
|
|
|
(5.5
|
)%
|
Consolidated
|
|
$
|
936,022
|
|
|
$
|
980,208
|
|
|
$
|
(44,186
|
)
|
|
|
(4.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS
|
|
$
|
315,811
|
|
|
$
|
308,989
|
|
|
$
|
6,822
|
|
|
|
2.2
|
%
|
BSG
|
|
|
154,913
|
|
|
|
165,859
|
|
|
|
(10,946
|
)
|
|
|
(6.6
|
)%
|
Consolidated
|
|
$
|
470,724
|
|
|
$
|
474,848
|
|
|
$
|
(4,124
|
)
|
|
|
(0.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS
|
|
|
57.7
|
%
|
|
|
54.3
|
%
|
|
340
|
|
|
bps
|
|
BSG
|
|
|
39.9
|
%
|
|
|
40.3
|
%
|
|
(40)
|
|
|
bps
|
|
Consolidated
|
|
|
50.3
|
%
|
|
|
48.4
|
%
|
|
190
|
|
|
bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS
|
|
$
|
95,128
|
|
|
$
|
74,225
|
|
|
$
|
20,903
|
|
|
|
28.2
|
%
|
BSG
|
|
|
48,572
|
|
|
|
62,434
|
|
|
|
(13,862
|
)
|
|
|
(22.2
|
)%
|
Segment operating earnings
|
|
|
143,700
|
|
|
|
136,659
|
|
|
|
7,041
|
|
|
|
5.2
|
%
|
Unallocated expenses and restructuring (a)
|
|
|
39,378
|
|
|
|
42,272
|
|
|
|
(2,894
|
)
|
|
|
(6.8
|
)%
|
Consolidated operating earnings
|
|
|
104,322
|
|
|
|
94,387
|
|
|
|
9,935
|
|
|
|
10.5
|
%
|
Interest expense
|
|
|
25,978
|
|
|
|
21,541
|
|
|
|
4,437
|
|
|
|
20.6
|
%
|
Earnings before provision for income taxes
|
|
|
78,344
|
|
|
|
72,846
|
|
|
|
5,498
|
|
|
|
7.5
|
%
|
Provision for income taxes
|
|
|
21,153
|
|
|
|
19,631
|
|
|
|
1,522
|
|
|
|
7.8
|
%
|
Net earnings
|
|
$
|
57,191
|
|
|
$
|
53,215
|
|
|
$
|
3,976
|
|
|
|
7.5
|
%
|
|
|
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of stores at end-of-period (including franchises):
|
|
|
|
|
|
|
|
|
|
SBS
|
|
|
3,645
|
|
|
|
3,703
|
|
|
|
(58
|
)
|
|
|
(1.6
|
)%
|
BSG
|
|
|
1,384
|
|
|
|
1,369
|
|
|
|
15
|
|
|
|
1.1
|
%
|
Consolidated
|
|
|
5,029
|
|
|
|
5,072
|
|
|
|
(43
|
)
|
|
|
(0.8
|
)%
|
Same store sales growth (decline) (b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS
|
|
|
(3.3
|
)%
|
|
|
(1.1
|
)%
|
|
(220)
|
|
|
bps
|
|
BSG
|
|
|
(4.6
|
)%
|
|
|
1.2
|
%
|
|
(580)
|
|
|
bps
|
|
Consolidated
|
|
|
(3.7
|
)%
|
|
|
(0.3
|
)%
|
|
(340)
|
|
|
bps
|
|
(a)
|
Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our consolidated statements of earnings. See Note 12, Restructuring, of the Notes to Condensed Consolidated Financial Statements for details on our restructuring charges.
|
(b)
|
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 dollars and include e-commerce sales from certain digital platforms, 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.
|
18
Results of Operations
The Three Months Ended December 31, 2020, compared to the Three Months Ended December 31, 2019
Net Sales
Consolidated. Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $3.5 million, or 0.4% of consolidated net sales.
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Same store sales
|
|
$
|
(17,525
|
)
|
Other (a)
|
|
|
(7,033
|
)
|
Foreign currency exchange
|
|
|
3,081
|
|
Total
|
|
$
|
(21,477
|
)
|
|
(a)
|
Other consists of non-store sales, which include catalog and internet sales of our Sinelco Group subsidiaries.
|
SBS experienced lower unit volume caused primarily by the impact of the temporary closure of certain customer-facing store operations in various markets globally due to the effects of COVID-19 and fewer company-operated stores. The challenges faced by lower unit volume were partially offset by an increase in average unit prices, resulting from a change in product mix to higher-priced products and the cancellation of most promotional activity.
BSG. The decrease in net sales for BSG was primarily driven by the following (in thousands):
Distributor sales consultants
|
|
$
|
(12,838
|
)
|
Same store sales
|
|
|
(12,795
|
)
|
Other (a)
|
|
|
2,502
|
|
Foreign currency exchange
|
|
|
422
|
|
Total
|
|
$
|
(22,709
|
)
|
|
(a)
|
Other consists of stores outside same store sales, included recently acquired businesses, and sales to our franchisees.
|
BSG experienced lower unit volume primarily as a result of the temporary closure and restricted capacity of certain customer-facing store operations in various markets in the U.S. and Canada as well as salon closures in parts of California and Canada due to the effects of COVID-19. These negative impacts were partially offset by an increase in average unit prices resulting primarily from lower promotional activity.
Gross Profit
Consolidated. Consolidated gross profit decreased for the three months ended December 31, 2020, due to lower net sales in both segments and a lower gross margin in BSG, partially offset by a higher gross margin in SBS.
SBS. SBS’s gross profit increased for the three months ended December 31, 2020, as a result of a higher gross margin, partially offset by lower net sales. SBS’s gross margin increased primarily as a result of fewer promotions.
BSG. BSG’s gross profit decreased for the three months ended December 31, 2020, as a result of lower net sales and a lower gross margin. BSG’s gross margin decreased primarily as a result of higher capitalized inventory costs from lower inventory purchases.
Selling, General and Administrative Expenses
Consolidated. Consolidated selling, general and administrative expenses decreased primarily as a result of cost saving initiatives in response to COVID-19, including savings associated with lower compensation and compensation-related expenses and advertising expenses, and the suspension or elimination of all non-critical projects and non-essential spend. These decreases were partially offset by increased shipping costs resulting from increased e-commerce volume and incremental costs from businesses acquired in the past 12 months. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 50 basis points to 39.1% for the three months ended December 31, 2020, due to the decrease in sales.
SBS. SBS’s selling, general and administrative expenses decreased $14.1 million, or 6.0%, for the three months ended December 31, 2020, primarily due to our response to COVID-19. The decrease was driven by lower compensation and compensation-related expenses of $12.0 million and lower advertising expenses of $4.9 million. These decreases were partially offset by an increase in shipping costs of $3.0 million, resulting primarily from increased e-commerce volume, and incremental store expense for personal protective equipment and cleaning protocols related to COVID-19 safety procedures.
BSG. BSG’s selling, general and administrative expenses increased $2.9 million, or 2.8%, for the three months ended December 31, 2020. The increase was driven primarily by an increase in shipping costs of $3.0 million, resulting primarily from increased e-
19
commerce volume, and incremental expenses from recently acquired businesses in the past 12 months. These increases were partially offset by lower compensation and compensation-related expenses of $1.5 million.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $0.6 million, or 1.5%, for the three months ended December 31, 2020, primarily from lower costs associated with travel in response to COVID-19.
Restructuring
For the three months ended December 31, 2020, we incurred restructuring charges of $0.2 million primarily in connection with the Project Surge. For the three months ended December 31, 2019, we recognized charges of $2.5 million in connection with Project Surge and the Transformation Plan. See Note 12, Restructuring, of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.
Interest Expense
The increase in interest expense is primarily from incremental interest on the senior notes issued in April 2020 of $6.6 million, partially offset by the impact of lower interest rates on our term loan B variable tranche of $1.8 million and a lower outstanding balance on our term loan B fixed tranche of $0.9 million. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The effective tax rates were 27.0% and 26.9%, for the three months ended December 31, 2020, and 2019, respectively.
Liquidity and Capital Resources
We are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on our outstanding indebtedness and from funding the costs of operations, working capital, capital expenditures, debt repayment and share repurchases. Working capital (current assets less current liabilities) increased $85.8 million, to $955.5 million at December 31, 2020, compared to $869.7 million at September 30, 2020, resulting primarily from an increase in inventory. The increase in inventory resulted from investments in key products to reach desired inventory levels.
At December 31, 2020, cash and cash equivalents were $537.6 million. Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), funds expected to be generated by operations and funds available under the ABL facility will be sufficient to fund working capital requirements, potential acquisitions, anticipated capital expenditures, including information technology upgrades and store remodels, and debt repayments over the next 12 months. Due to the impact of COVID-19, we have shifted our focus to being proactive in maintaining our financial flexibility.
We utilize our ABL facility for the issuance of letters of credit, certain working capital and liquidity needs, and to manage normal fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, interest payments due on our indebtedness, paying down other debt and opportunistic share repurchases. During the three months ended December 31, 2020, we did not borrow on our ABL facility. As of December 31, 2020, we had $461.0 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit. Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities.
Share Repurchase Programs
During the three months ended December 31, 2020, we did not repurchase any common stock. As of December 31, 2020, we had authorization of approximately $726.1 million of additional potential share repurchases remaining under the 2017 Share Repurchase Program.
Historical Cash Flows
Historically, our primary source of cash has been net funds provided by operating activities and, when necessary, borrowings under our ABL facility. While historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions, we have shifted our focus in the short-term to reduce cash expenditures.
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the three months ended December 31, 2020, decreased $23.3 million to $39.0 million, compared to the three months ended December 31, 2019, mainly due to increased inventory purchases, in connection with inventory investments to improve stock levels for key products, and the timing of our vendor receivables, partially offset by an increase in our accounts payable in connection with increased inventory purchases.
20
Net Cash Used by Investing Activities
Net cash used by investing activities during the three months ended December 31, 2020, decreased $25.3 million to $17.5 million, compared to the three months ended December 31, 2019. This change was primarily a result of our focus on reduced capital expenditures.
Net Cash Used by Financing Activities
Net cash used by financing activities during the three months ended December 31, 2020, decreased $24.1 million to $0.3 million, compared to the three months ended December 31, 2019. The decrease was driven by the absence of debt borrowings and minimal repayments during the current quarter and not repurchasing our common stock under our share repurchase program.
Long-Term Debt and Guarantor Financial Information
At December 31, 2020, we had $1,813.2 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $14.8 million. Our debt consisted of $1,177.4 million of senior notes outstanding and a term loan with an outstanding principal balance of $635.8 million. As of December 31, 2020, there were no outstanding principal borrowings under our ABL facility.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.
See Note 9, Short-term Borrowings and Long-term Debt, and Note 13, Subsequent Event, for more information on our debt.
Guarantor Financial Information
We are providing the following information in compliance with Rule 13-01 of Regulation S-X for guaranteed issued securities that have been registered under such regulation. Currently, our issued securities consist of the 5.625% Senior Notes due 2025 and the 5.50% Senior Notes due 2023. These debt instruments were issued by our wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc. (the “Issuers”), under a shelf registration statement.
These notes are unsecured debt instruments guaranteed by us and certain of our wholly-owned domestic subsidiaries (together, the “Guarantors”) and have certain restrictions on the ability to pay restrictive payments to Sally Beauty. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors.
The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these combined entities has been eliminated.
The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of December 31, 2020 and September 30, 2020 (in thousands):
|
|
December 31, 2020
|
|
|
September 30, 2020
|
|
Inventory
|
|
$
|
681,568
|
|
|
$
|
615,092
|
|
Intercompany receivable
|
|
$
|
77,499
|
|
|
$
|
75,892
|
|
Current assets
|
|
$
|
1,244,851
|
|
|
$
|
1,166,250
|
|
Total assets
|
|
$
|
2,344,371
|
|
|
$
|
2,281,896
|
|
Current liabilities
|
|
$
|
343,132
|
|
|
$
|
325,380
|
|
Total liabilities
|
|
$
|
2,667,543
|
|
|
$
|
2,657,033
|
|
The following table presents the summarized statement of income information for three months ended December 31, 2020 (in thousands):
Net sales
|
|
|
|
$
|
759,620
|
|
Gross profit
|
|
|
|
$
|
385,129
|
|
Earnings before provision for income taxes
|
|
|
|
$
|
62,595
|
|
Net earnings
|
|
|
|
$
|
45,830
|
|
Contractual Obligations
There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2020.
Off-Balance Sheet Financing Arrangements
At December 31, 2020, and September 30, 2020, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.
21
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates or assumptions since September 30, 2020.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.