UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED: JUNE 30,DECEMBER 31, 2020
-OR-
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-33145
SALLY BEAUTY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 36-2257936 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
3001 Colorado Boulevard |
|
|
Denton, Texas |
| 76210 |
(Address of principal executive offices) |
| (Zip Code) |
(940) 898-7500
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report): N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueSBHThe New York Stock Exchange
Indicate by check mark whether the registrantregistrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ |
| Accelerated filer | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ |
| Emerging growth company | ☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Act). Yes ☐ No ☒
As of July 24, 2020,February 1, 2021, there were 112,852,369112,814,336 shares of the issuer’s common stock outstanding.
TABLE OF CONTENTS
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5 | |
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations |
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Item 3. Quantitative And Qualitative Disclosures About Market Risk |
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2
In this Quarterly Report, references to “the Company,” “Sally Beauty,” “our company,” “we,” “our,” “ours” and “us” refer to Sally Beauty Holdings, Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report on Form 10-Q and in the documents incorporated by reference herein which are not purely historical facts or which depend upon future events may constitute 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, which we refer to as the Exchange Act. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions may also identify such forward-looking statements. Forward-looking statements may relate to, among other things, the impact on our business, operations and financial results of the novel coronavirus (“COVID-19”) pandemic.
Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made and 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. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors in Item 1A contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020,, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements.
3
WHERE YOU CAN FIND MORE INFORMATION
Our quarterly financial results and other important information are available by calling our Investor Relations Department at (940) 297-3877.
We maintain a website at www.sallybeautyholdings.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the Securities and Exchange Commission (“SEC”). The information contained on this website should not be considered to be a part of this or any other report filed with or furnished to the SEC.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
The following condensed consolidated balance sheets as of June 30,December 31, 2020, and September 30, 2019,2020, the condensed consolidated statements of earnings, (loss), condensed consolidated statements of comprehensive income, (loss) and the condensed consolidated statements of stockholders’ deficit for the three and nine months ended June 30, 2020 and 2019,equity and the condensed consolidated statements of cash flows for the ninethree months ended June 30,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)
|
| June 30, 2020 |
|
| September 30, 2019 |
|
| December 31, 2020 |
|
| September 30, 2020 |
| ||||
|
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 838,811 |
|
| $ | 71,495 |
|
| $ | 537,644 |
|
| $ | 514,151 |
|
Trade accounts receivable, net |
|
| 42,818 |
|
|
| 43,136 |
|
|
| 40,046 |
|
|
| 35,590 |
|
Accounts receivable, other |
|
| 17,485 |
|
|
| 61,403 |
|
|
| 27,904 |
|
|
| 20,839 |
|
Inventory |
|
| 815,632 |
|
|
| 952,907 |
|
|
| 895,984 |
|
|
| 814,503 |
|
Other current assets |
|
| 48,596 |
|
|
| 34,612 |
|
|
| 44,300 |
|
|
| 48,014 |
|
Total current assets |
|
| 1,763,342 |
|
|
| 1,163,553 |
|
|
| 1,545,878 |
|
|
| 1,433,097 |
|
Property and equipment, net of accumulated depreciation of $688,798 at June 30, 2020, and $659,285 at September 30, 2019 |
|
| 311,063 |
|
|
| 319,628 |
| ||||||||
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 |
|
| 514,415 |
|
|
| — |
|
|
| 519,985 |
|
|
| 525,634 |
|
Goodwill |
|
| 530,681 |
|
|
| 530,786 |
|
|
| 546,027 |
|
|
| 540,038 |
|
Intangible assets, excluding goodwill, net of accumulated amortization of $65,791 at June 30, 2020, and $64,615 at September 30, 2019 |
|
| 56,859 |
|
|
| 62,051 |
| ||||||||
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 |
|
| 21,734 |
|
|
| 22,428 |
|
|
| 23,714 |
|
|
| 23,066 |
|
Total assets |
| $ | 3,198,094 |
|
| $ | 2,098,446 |
|
| $ | 2,999,648 |
|
| $ | 2,895,147 |
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
| ||||||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
| ||||||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
| $ | 395,673 |
|
| $ | 1 |
|
| $ | 186 |
|
| $ | 180 |
|
Accounts payable |
|
| 239,905 |
|
|
| 278,688 |
|
|
| 285,636 |
|
|
| 236,333 |
|
Accrued liabilities |
|
| 148,197 |
|
|
| 169,054 |
|
|
| 133,328 |
|
|
| 170,665 |
|
Current operating lease liabilities |
|
| 152,650 |
|
|
| — |
|
|
| 154,090 |
|
|
| 153,267 |
|
Income taxes payable |
|
| 1,307 |
|
|
| 8,336 |
|
|
| 17,096 |
|
|
| 2,917 |
|
Total current liabilities |
|
| 937,732 |
|
|
| 456,079 |
|
|
| 590,336 |
|
|
| 563,362 |
|
Long-term debt |
|
| 1,845,594 |
|
|
| 1,594,542 |
|
|
| 1,798,154 |
|
|
| 1,796,897 |
|
Long-term operating lease liabilities |
|
| 377,930 |
|
|
| — |
|
|
| 390,873 |
|
|
| 394,375 |
|
Other liabilities |
|
| 26,433 |
|
|
| 27,757 |
|
|
| 29,406 |
|
|
| 32,976 |
|
Deferred income tax liabilities, net |
|
| 79,538 |
|
|
| 80,391 |
|
|
| 92,013 |
|
|
| 92,094 |
|
Total liabilities |
|
| 3,267,227 |
|
|
| 2,158,769 |
|
|
| 2,900,782 |
|
|
| 2,879,704 |
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
| ||||||||
Common stock, $0.01 par value. Authorized 500,000 shares; 112,848 and 116,986 shares issued and 112,280 and 116,725 shares outstanding at June 30, 2020, and September 30, 2019, respectively |
|
| 1,123 |
|
|
| 1,167 |
| ||||||||
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; NaN issued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 2,513 |
|
|
| — |
|
|
| 4,556 |
|
|
| 1,913 |
|
Accumulated earnings |
|
| 46,399 |
|
|
| 55,797 |
|
|
| 174,300 |
|
|
| 117,109 |
|
Accumulated other comprehensive loss, net of tax |
|
| (119,168 | ) |
|
| (117,287 | ) |
|
| (81,115 | ) |
|
| (104,703 | ) |
Total stockholders’ deficit |
|
| (69,133 | ) |
|
| (60,323 | ) | ||||||||
Total liabilities and stockholders’ deficit |
| $ | 3,198,094 |
|
| $ | 2,098,446 |
| ||||||||
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 (Loss)
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
| |||||||||||||||
|
| June 30, |
|
| June 30, |
|
| December 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Net sales |
| $ | 705,287 |
|
| $ | 975,169 |
|
| $ | 2,556,518 |
|
| $ | 2,910,474 |
|
| $ | 936,022 |
|
| $ | 980,208 |
|
Cost of goods sold |
|
| 383,441 |
|
|
| 492,947 |
|
|
| 1,330,067 |
|
|
| 1,479,222 |
|
|
| 465,298 |
|
|
| 505,360 |
|
Gross profit |
|
| 321,846 |
|
|
| 482,222 |
|
|
| 1,226,451 |
|
|
| 1,431,252 |
|
|
| 470,724 |
|
|
| 474,848 |
|
Selling, general and administrative expenses |
|
| 314,599 |
|
|
| 360,183 |
|
|
| 1,075,827 |
|
|
| 1,088,797 |
|
|
| 366,170 |
|
|
| 377,930 |
|
Restructuring |
|
| 5,816 |
|
|
| 1,908 |
|
|
| 11,541 |
|
|
| 74 |
|
|
| 232 |
|
|
| 2,531 |
|
Operating earnings |
|
| 1,431 |
|
|
| 120,131 |
|
|
| 139,083 |
|
|
| 342,381 |
|
|
| 104,322 |
|
|
| 94,387 |
|
Interest expense |
|
| 27,298 |
|
|
| 25,781 |
|
|
| 70,483 |
|
|
| 74,092 |
|
|
| 25,978 |
|
|
| 21,541 |
|
Earnings (loss) before provision for income taxes |
|
| (25,867 | ) |
|
| 94,350 |
|
|
| 68,600 |
|
|
| 268,289 |
| ||||||||
Provision (benefit) for income taxes |
|
| (2,341 | ) |
|
| 23,186 |
|
|
| 25,543 |
|
|
| 65,673 |
| ||||||||
Net earnings (loss) |
| $ | (23,526 | ) |
| $ | 71,164 |
|
| $ | 43,057 |
|
| $ | 202,616 |
| ||||||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
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 |
| $ | (0.21 | ) |
| $ | 0.59 |
|
| $ | 0.38 |
|
| $ | 1.69 |
|
| $ | 0.51 |
|
| $ | 0.46 |
|
Diluted |
| $ | (0.21 | ) |
| $ | 0.59 |
|
| $ | 0.37 |
|
| $ | 1.68 |
|
| $ | 0.50 |
|
| $ | 0.45 |
|
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 112,271 |
|
|
| 120,119 |
|
|
| 114,413 |
|
|
| 120,062 |
|
|
| 112,475 |
|
|
| 116,125 |
|
Diluted |
|
| 112,271 |
|
|
| 120,977 |
|
|
| 115,370 |
|
|
| 120,928 |
|
|
| 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 (Loss)
(In thousands)
(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net earnings (loss) |
| $ | (23,526 | ) |
| $ | 71,164 |
|
| $ | 43,057 |
|
| $ | 202,616 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 5,116 |
|
|
| 834 |
|
|
| (3,707 | ) |
|
| (9,591 | ) |
Interest rate caps, net of tax |
|
| 245 |
|
|
| 586 |
|
|
| 274 |
|
|
| (4,384 | ) |
Foreign exchange contracts, net of tax |
|
| (286 | ) |
|
| 103 |
|
|
| 1,552 |
|
|
| (65 | ) |
Other comprehensive income (loss), net of tax |
|
| 5,075 |
|
|
| 1,523 |
|
|
| (1,881 | ) |
|
| (14,040 | ) |
Total comprehensive income (loss) |
| $ | (18,451 | ) |
| $ | 72,687 |
|
| $ | 41,176 |
|
| $ | 188,576 |
|
|
| 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)
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 43,057 |
|
| $ | 202,616 |
|
| $ | 57,191 |
|
| $ | 53,215 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 80,829 |
|
|
| 80,425 |
|
|
| 26,386 |
|
|
| 27,076 |
|
Share-based compensation expense |
|
| 9,094 |
|
|
| 7,728 |
|
|
| 2,893 |
|
|
| 3,473 |
|
Amortization of deferred financing costs |
|
| 2,965 |
|
|
| 2,894 |
|
|
| 1,496 |
|
|
| 887 |
|
Loss (gain) on early extinguishment of debt |
|
| (357 | ) |
|
| 951 |
| ||||||||
Loss (gain) on disposal of equipment and other property |
|
| 2,910 |
|
|
| (6,557 | ) | ||||||||
Gain on early extinguishment of debt |
|
| — |
|
|
| (223 | ) | ||||||||
Loss on disposal of equipment and other property |
|
| 1,589 |
|
|
| — |
| ||||||||
Deferred income taxes |
|
| 600 |
|
|
| 12,095 |
|
|
| 229 |
|
|
| 555 |
|
Changes in (exclusive of effects of acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| 495 |
|
|
| 3,361 |
|
|
| (3,502 | ) |
|
| 2,457 |
|
Accounts receivable, other |
|
| 45,888 |
|
|
| (10,641 | ) |
|
| (8,643 | ) |
|
| 8,793 |
|
Inventory |
|
| 134,824 |
|
|
| (28,283 | ) |
|
| (67,764 | ) |
|
| (30,138 | ) |
Other current assets |
|
| (15,840 | ) |
|
| 4,687 |
|
|
| 3,220 |
|
|
| (482 | ) |
Other assets |
|
| (691 | ) |
|
| (1,195 | ) |
|
| (240 | ) |
|
| (2,480 | ) |
Operating leases, net |
|
| 2,996 |
|
|
| — |
| ||||||||
Accounts payable and accrued liabilities |
|
| (35,572 | ) |
|
| (59,105 | ) |
|
| 12,401 |
|
|
| (11,930 | ) |
Income taxes payable |
|
| (7,154 | ) |
|
| (926 | ) |
|
| 14,307 |
|
|
| 10,352 |
|
Other liabilities |
|
| 13,336 |
|
|
| (4,227 | ) |
|
| (3,573 | ) |
|
| 770 |
|
Net cash provided by operating activities |
|
| 274,384 |
|
|
| 203,823 |
|
|
| 38,986 |
|
|
| 62,325 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
| (89,740 | ) |
|
| (66,763 | ) | ||||||||
Proceeds from sale of property and equipment |
|
| 38 |
|
|
| 12,021 |
| ||||||||
Payments for property and equipment, net of proceeds |
|
| (15,483 | ) |
|
| (40,875 | ) | ||||||||
Acquisitions, net of cash acquired |
|
| (1,944 | ) |
|
| (2,763 | ) |
|
| (2,025 | ) |
|
| (1,944 | ) |
Net cash used by investing activities |
|
| (91,646 | ) |
|
| (57,505 | ) |
|
| (17,508 | ) |
|
| (42,819 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| 1,087,504 |
|
|
| 394,004 |
|
|
| — |
|
|
| 232,000 |
|
Repayments of long-term debt |
|
| (437,391 | ) |
|
| (561,162 | ) |
|
| (63 | ) |
|
| (247,830 | ) |
Debt issuance costs |
|
| (6,257 | ) |
|
| — |
| ||||||||
Payments for common stock repurchased |
|
| (61,357 | ) |
|
| — |
|
|
| — |
|
|
| (11,357 | ) |
Proceeds from exercises of stock options |
|
| 2,722 |
|
|
| 1,787 |
| ||||||||
Net cash provided (used) by financing activities |
|
| 585,221 |
|
|
| (165,371 | ) | ||||||||
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 |
|
| (643 | ) |
|
| (387 | ) |
|
| 2,327 |
|
|
| 682 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 767,316 |
|
|
| (19,440 | ) |
|
| 23,493 |
|
|
| (4,233 | ) |
Cash and cash equivalents, beginning of period |
|
| 71,495 |
|
|
| 77,295 |
|
|
| 514,151 |
|
|
| 71,495 |
|
Cash and cash equivalents, end of period |
| $ | 838,811 |
|
| $ | 57,855 |
|
| $ | 537,644 |
|
| $ | 67,262 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 74,046 |
|
| $ | 82,903 |
|
| $ | 43,439 |
|
| $ | 33,297 |
|
Income taxes paid |
| $ | 45,292 |
|
| $ | 62,852 |
|
| $ | 2,609 |
|
| $ | 9,216 |
|
Capital expenditures incurred but not paid |
| $ | 4,469 |
|
| $ | 3,116 |
|
| $ | 6,707 |
|
| $ | 3,491 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
910
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Deficit
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Other |
|
| Total |
| |||
| Common Stock | Paid-in |
|
| Accumulated |
|
| 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 stock options |
| 206 |
|
|
| 2 |
|
|
| 2,764 |
|
|
| — |
|
|
| — |
|
|
| 2,766 |
|
Balance at December 31, 2019 |
| 116,165 |
|
| $ | 1,162 |
|
| $ | — |
|
| $ | 103,454 |
|
| $ | (102,417 | ) |
| $ | 2,199 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 13,368 |
|
|
| — |
|
|
| 13,368 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,826 | ) |
|
| (21,826 | ) |
Repurchases and cancellations of common stock |
| (3,936 | ) |
|
| (39 | ) |
|
| (3,064 | ) |
|
| (46,897 | ) |
|
| — |
|
|
| (50,000 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 3,059 |
|
|
| — |
|
|
| — |
|
|
| 3,059 |
|
Stock issued for stock options |
| 35 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Balance at March 31, 2020 |
| 112,264 |
|
| $ | 1,123 |
|
| $ | - |
|
| $ | 69,925 |
|
| $ | (124,243 | ) |
| $ | (53,195 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (23,526 | ) |
|
| — |
|
|
| (23,526 | ) |
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,075 |
|
|
| 5,075 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,562 |
|
|
| — |
|
|
| — |
|
|
| 2,562 |
|
Stock issued for stock options |
| 16 |
|
|
| — |
|
|
| (49 | ) |
|
| — |
|
|
| — |
|
|
| (49 | ) |
Balance at June 30, 2020 |
| 112,280 |
|
| $ | 1,123 |
|
| $ | 2,513 |
|
| $ | 46,399 |
|
| $ | (119,168 | ) |
| $ | (69,133 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
| Accumulated |
|
|
|
| Other |
|
|
|
| Total |
| ||||
| Common Stock |
| Paid-in |
|
|
|
| (Deficit) |
|
|
|
| Comprehensive |
|
|
|
| Stockholders’ |
| ||||||||||||||
| Shares |
|
|
|
| Amount |
|
|
|
| Capital |
|
|
|
| Earnings |
|
|
|
| Loss |
|
|
|
| Deficit |
| ||||||
Balance at September 30, 2018 |
| 119,926 |
|
|
|
| $ | 1,199 |
|
|
|
| $ | — |
|
|
|
| $ | (179,764 | ) |
|
|
| $ | (89,991 | ) |
|
|
| $ | (268,556 | ) |
Net earnings |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 65,727 |
|
|
|
|
| — |
|
|
|
|
| 65,727 |
|
Other comprehensive loss |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| (16,705 | ) |
|
|
|
| (16,705 | ) |
Share-based compensation |
| — |
|
|
|
|
| — |
|
|
|
|
| 3,354 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 3,354 |
|
Stock issued for stock options |
| 115 |
|
|
|
|
| 1 |
|
|
|
|
| 1,448 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 1,449 |
|
Balance at December 31, 2018 |
| 120,041 |
|
|
|
| $ | 1,200 |
|
|
|
| $ | 4,802 |
|
|
|
| $ | (114,037 | ) |
|
|
| $ | (106,696 | ) |
|
|
| $ | (214,731 | ) |
Net earnings |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 65,725 |
|
|
|
|
| — |
|
|
|
|
| 65,725 |
|
Other comprehensive income |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 1,142 |
|
|
|
|
| 1,142 |
|
Share-based compensation |
| — |
|
|
|
|
| — |
|
|
|
|
| 2,517 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 2,517 |
|
Stock issued for stock options |
| 66 |
|
|
|
|
| 1 |
|
|
|
|
| 271 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 272 |
|
Balance at March 31, 2019 |
| 120,107 |
|
|
|
| $ | 1,201 |
|
|
|
| $ | 7,590 |
|
|
|
| $ | (48,312 | ) |
|
|
| $ | (105,554 | ) |
|
|
| $ | (145,075 | ) |
Net earnings |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 71,164 |
|
|
|
|
| — |
|
|
|
|
| 71,164 |
|
Other comprehensive income |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 1,523 |
|
|
|
|
| 1,523 |
|
Share-based compensation |
| — |
|
|
|
|
| — |
|
|
|
|
| 1,857 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 1,857 |
|
Stock issued for stock options |
| 23 |
|
|
|
|
| — |
|
|
|
|
| 66 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 66 |
|
Balance at June 30, 2019 |
| 120,130 |
|
|
|
| $ | 1,201 |
|
|
|
| $ | 9,513 |
|
|
|
| $ | 22,852 |
|
|
|
| $ | (104,031 | ) |
|
|
| $ | (70,465 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
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, 2019.2020. 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 June 30,December 31, 2020 and September 30, 2019,2020, and our consolidated results of operations, consolidated comprehensive income, (loss), and consolidated statements of stockholders’ deficit for the three and nine months ended June 30, 2020 and 2019,equity and our consolidated cash flows for the ninethree months ended June 30,December 31, 2020 and 2019.
Our operating results for the three months ended June 30,December 31, 2020, may not be indicative of the results that may be expected for the full fiscal year ending September 30, 2020,2021, in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic. As a result of COVID-19, we temporarily shut down virtually all global customer-facing store operations at the end of our second fiscal quarter and the start of our third fiscal quarter, followed by a rapid re-opening process over the course of the third quarter, although there is no certainty that we will not have to reclose certain, even a significant number, of our stores in the future. As of June 30, 2020, we have re-opened substantially all of our customer-facing store operations, except for parts of our operations in Mexico and South America.pandemic on future periods. Due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the material adverse impact of thisthe pandemic will likelymay continue for the remainder of our fiscal year 2020, and may continuefurther into our fiscal year 2021 and possibly beyond.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. See Note 3 for more information about the adoption of the new lease accounting standard. 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. Accounting Changes and Recent Accounting Pronouncements
Accounting Change
In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU No. 2016-02”), which requires most operating leases to be reported on the balance sheet as a right-of-use asset and a lease liability. On October 1, 2019, we adopted ASU No. 2016-02 using a modified retrospective transition method without restating comparative periods. We have elected the package of practical expedients permitted within the transition guidance under the new standard relating to the identification, classification and initial direct costs of leases commencing before the effective date of Topic 842. In addition, we have elected to not recognize a right-of-use asset or lease obligation for short-term leases with an initial term of 12 months or less.
Additionally, the adoption of ASU No. 2016-02, as amended, resulted in the recognition of an operating lease asset of $513.9 million and an operating lease liability of $523.5 million. Existing straight-line rent liability, prepaid rent and accrued rent were reclassified from certain other assets and liabilities into the operating lease asset. Furthermore, the cumulative effect of the adoption of ASU No. 2016-02 resulted in a $0.4 million adjustment to accumulated earnings resulting from the impairment of certain operating lease assets. The impact on our condensed consolidated results of operations or condensed consolidated cash flows was not material.
See Note 8 for additional information in connection with ASU No. 2016-02.
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.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, 2019 |
|
|
|
|
| $ | 12,866 |
| ||||||||
September 30, 2020 |
|
|
|
|
| $ | 13,947 |
| ||||||||
Loyalty points and gift cards issued but not redeemed, net of estimated breakage | Loyalty points and gift cards issued but not redeemed, net of estimated breakage |
|
| 9,161 |
| Loyalty points and gift cards issued but not redeemed, net of estimated breakage |
|
| 5,709 |
| ||||||
Revenue recognized from beginning liability | Revenue recognized from beginning liability |
|
| (8,703 | ) | Revenue recognized from beginning liability |
|
| (3,476 | ) | ||||||
June 30, 2020 |
|
|
|
|
| $ | 13,324 |
| ||||||||
December 31, 2020 |
|
|
|
|
| $ | 16,180 |
|
Private Label Credit Card - In September 2019, we signed a multi-year agreement with a third-party bank to launch a private label credit card (the “Program”). As of June 30, 2020, Program operations had not yet commenced.
See Note 1311, 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 |
| June 30, 2020 |
|
| September 30, 2019 |
|
| Classification |
| Fair Value Hierarchy Level |
| December 31, 2020 |
|
| September 30, 2020 |
| ||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Other current assets |
| Level 2 |
| $ | 1,367 |
|
| $ | — |
| ||||||||||||
Cash equivalents |
| Cash and cash equivalents |
| Level 1 |
| $ | — |
|
| $ | 194,612 |
| ||||||||||||
Interest rate caps |
| Other assets |
| Level 2 |
|
| 308 |
|
|
| 344 |
|
| Other assets |
| Level 2 |
|
| 18 |
|
|
| 27 |
|
Total assets |
|
|
|
|
| $ | 1,675 |
|
| $ | 344 |
|
|
|
|
|
| $ | 18 |
|
| $ | 194,639 |
|
. |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Foreign exchange contracts |
| Accrued liabilities |
| Level 2 |
| $ | 1,587 |
|
| $ | — |
|
Other fair value disclosures
|
|
|
| June 30, 2020 |
|
| September 30, 2019 |
|
|
|
| December 31, 2020 |
|
| September 30, 2020 |
| ||||||||||||||||||||
|
| Fair Value Hierarchy Level |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
|
| 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 |
|
| $ | 1,177,726 |
|
| $ | 885,296 |
|
| $ | 898,814 |
|
| Level 1 |
| $ | 1,177,380 |
|
| $ | 1,234,206 |
|
| $ | 1,177,380 |
|
| $ | 1,217,707 |
|
Term loan B |
| Level 2 |
|
| 685,788 |
|
|
| 651,498 |
|
|
| 724,000 |
|
|
| 709,830 |
|
| Level 2 |
|
| 635,788 |
|
|
| 632,623 |
|
|
| 635,788 |
|
|
| 619,397 |
|
Total long-term debt |
|
|
| $ | 1,863,168 |
|
| $ | 1,829,224 |
|
| $ | 1,609,296 |
|
| $ | 1,608,644 |
|
|
|
| $ | 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 (Deficit)
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 June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Number of shares repurchased |
|
| — |
|
|
| — |
|
|
| 4,702 |
|
|
| — |
|
|
| — |
|
|
| 766 |
|
Total cost of share repurchased |
| $ | — |
|
| $ | — |
|
| $ | 61,357 |
|
| $ | — |
|
| $ | — |
|
| $ | 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, 2019 |
| $ | (113,932 | ) |
| $ | (3,201 | ) |
| $ | (154 | ) |
| $ | (117,287 | ) |
Other comprehensive loss (income) before reclassification, net of tax |
|
| (3,707 | ) |
|
| (131 | ) |
|
| (1,115 | ) |
|
| (4,953 | ) |
Reclassification to net earnings (loss), net of tax |
|
| — |
|
|
| 405 |
|
|
| 2,667 |
|
|
| 3,072 |
|
Balance at June 30, 2020 |
| $ | (117,639 | ) |
| $ | (2,927 | ) |
| $ | 1,398 |
|
| $ | (119,168 | ) |
|
| 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 (loss) 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 June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Weighted-average basic shares |
|
| 112,271 |
|
|
| 120,119 |
|
|
| 114,413 |
|
|
| 120,062 |
|
|
| 112,475 |
|
|
| 116,125 |
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and stock award programs |
|
| — |
|
|
| 858 |
|
|
| 957 |
|
|
| 866 |
|
|
| 1,353 |
|
|
| 1,029 |
|
Weighted-average diluted shares |
|
| 112,271 |
|
|
| 120,977 |
|
|
| 115,370 |
|
|
| 120,928 |
|
|
| 113,828 |
|
|
| 117,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from our computation of diluted shares |
|
| 4,976 |
|
|
| 5,044 |
|
|
| 4,887 |
|
|
| 5,044 |
|
|
| 6,009 |
|
|
| 5,132 |
|
Potentially dilutive stock option and stock award programs excluded from our computation of diluted shares |
|
| 941 |
|
|
| — |
|
|
| — |
|
|
| — |
|
8. Leases
Substantially all of our leases are operating leases and relate primarily to retail stores and warehousing properties with lease terms of five to ten years. Some of our leases include options to extend the agreement by a certain number of years, typically five years. At the lease commencement date, an operating lease liability and related operating lease asset are recognized and include the extended terms to the extent we are reasonably certain that we will exercise the option.
The operating lease liabilities are calculated using the present value of lease payments. The discount rate used is either the rate implicit in the lease, when known, or our estimated incremental borrowing rate. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not generally borrow on a collateralized basis, we derive an appropriate incremental borrowing rate using the interest rate we pay on our non-collateralized borrowings, adjusted for the amount of the lease payments, the lease term and the effect of designating specific collateral with a value equal to the unpaid lease payments for that lease. We apply the incremental borrowing rate on a portfolio basis given the impact of applying it on a lease by lease basis would be immaterial.
Operating lease assets are valued based on the initial operating lease liabilities plus any prepaid rent and direct costs from executing the leases, reduced by tenant improvement allowances and any rent abatement. Operating lease assets are tested for impairment in the same manner as our long-lived assets. During the three months ended June 30, 2020, we recognized impairment on our certain operating lease asset and immaterial amounts for lease hold improvements of $0.9 million within selling, general and administrative expenses. See Note 15 for additional information related to impairments in connection with our restructuring activity.
Our operating and finance leases consisted of the following (in thousands):
|
| Balance Sheet Classification |
| June 30, 2020 |
| |
Assets: |
|
|
|
|
|
|
Operating lease |
| Operating lease assets |
| $ | 514,415 |
|
Finance lease |
| Property and equipment, net |
|
| 2,839 |
|
Total lease assets |
|
|
| $ | 517,254 |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
Operating lease |
| Current operating lease liabilities |
| $ | 152,650 |
|
Finance lease |
| Current maturities of long-term debt |
|
| 173 |
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
Operating lease |
| Long-term operating lease liabilities |
|
| 377,930 |
|
Finance lease |
| Long-term debt |
|
| 683 |
|
Total lease liabilities |
|
|
| $ | 531,436 |
|
Our lease costs, net of immaterial sublease income, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Statement of Earnings (Loss) Classification |
| Three Months Ended June 30, 2020 |
|
| Nine Months Ended June 30, 2020 |
| ||
Operating lease costs (a) |
| Cost of goods sold and selling, general and administrative expenses (b) |
| $ | 48,785 |
|
| $ | 143,472 |
|
Finance lease costs: |
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
| Selling, general and administrative expenses |
|
| 74 |
|
|
| 224 |
|
Interest on lease liabilities |
| Interest expense |
|
| 11 |
|
|
| 33 |
|
Variable lease costs (c) |
| Selling, general and administrative expenses |
|
| 5,276 |
|
|
| 34,240 |
|
Total lease costs |
|
|
| $ | 54,146 |
|
| $ | 177,969 |
|
|
|
|
|
|
|
In response to COVID-19, the FASB issued interpretive guidance that provides an option for entities to make a policy election for lease concessions as a result of COVID-19, provided that the modified contracts result in total cash flows that are substantially the same or less than the original contracts. This policy election allows for lease concessions to be treated as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contracts). We have elected to apply this policy election and have included rent abatements related to COVID-19 into variable lease costs. For the three and nine months ended June 30, 2020, we have recognized a benefit of $8.1 million for rent abatements.
As of June 30, 2020, the approximate future lease payments under our leases are as follows (in thousands):
Fiscal Year |
|
| Operating leases |
|
| Finance leases |
| |||
Remainder of 2020 |
|
| $ | 45,867 |
|
| $ | 45 |
| |
| 2021 |
|
|
| 161,902 |
|
|
| 171 |
|
| 2022 |
|
|
| 122,267 |
|
|
| 171 |
|
| 2023 |
|
|
| 86,973 |
|
|
| 171 |
|
| 2024 |
|
|
| 58,007 |
|
|
| 171 |
|
Thereafter |
|
|
| 101,561 |
|
|
| 127 |
| |
Total undiscounted lease payments |
|
|
| 576,577 |
|
|
| 856 |
| |
Less: imputed interest |
|
|
| 45,997 |
|
|
| — |
| |
Present value of lease liabilities |
|
| $ | 530,580 |
|
| $ | 856 |
|
The table above does not include operating leases we have entered into of approximately $11.6 million that have not commenced, primarily related to future retail stores.
As of September 30, 2019, our future minimum lease payments under non-cancelable operating leases as reported under the previous accounting standard were as follows (in thousands):
Fiscal Year |
|
|
|
|
2020 |
| $ | 174,578 |
|
2021 |
|
| 136,900 |
|
2022 |
|
| 95,918 |
|
2023 |
|
| 61,944 |
|
2024 |
|
| 33,803 |
|
Thereafter |
|
| 40,545 |
|
|
| $ | 543,688 |
|
Other lease information is as follows (dollars in thousands):
|
|
|
|
|
|
| Nine Months Ended June 30, 2020 |
| |
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
Operating cash flows – operating leases |
| $ | 147,959 |
|
Operating cash flows – finance leases |
|
| 33 |
|
Financing cash flows – finance leases |
|
| 3 |
|
|
|
|
|
|
Supplemental non-cash information on lease liabilities: |
|
|
|
|
Lease assets obtained in exchange for new operating lease liabilities |
| $ | 151,528 |
|
Lease assets obtained in exchange for new finance lease liabilities |
|
| 4 |
|
|
|
|
|
|
|
| June 30, 2020 |
| |
Weighted-average remaining lease term (in years): |
|
|
|
|
Operating leases |
|
| 4.9 |
|
Finance leases |
|
| 4.0 |
|
Weighted-average discount rate: |
|
|
|
|
Operating leases |
|
| 4.3 | % |
Finance leases |
|
| 5.0 | % |
9. Goodwill and Intangible Assets
We performed our annual assessment for impairment of goodwill and other intangible assets during our fiscal second quarter prior to the impacts of COVID-19. As a result of COVID-19, we performed an interim assessment for impairment of goodwill and other intangibles as of March 31, 2020, which updated our assumptions around the growth, timing and discount rate applied to future cash flows in connection with our business restart. Due to the uncertainty around COVID-19, our projected future cash flows may differ materially from actual results. Furthermore, weWe considered potential triggering events and determined there were NaN during the three months ended June 30, 2020, as our assumptions relative to future cash flows had improved during the quarter, and our market capitalization had increased significantly since MarchDecember 31, 2020. NaN 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 June 30,December 31, 2020 and 2019, amortization expense related to other intangible assets was $2.2$1.7 million and $2.8 million, respectively, and, for the nine months ended June 30, 2020 and 2019, amortization expense was $6.8 million and $8.5$2.4 million, respectively.
During the nine months ended June 30, 2020, we recorded approximately $1.4 million in other intangible assets related to immaterial acquisitions. Additionally, goodwill was negatively impacted by approximately $0.1 millionincreased primarily from changes inthe effects of foreign currency exchange rates of $6.1 million during the ninethree months ended June 30,December 31, 2020.
10.9. Short-term Borrowings and Long-term Debt
During the nine months ended June 30,At December 31, 2020, we preemptively drew on our ABL facility as a result of COVID-19. At June 30, 2020,there were 0 outstanding borrowingsand we had $395.5 million outstanding, including the FILO (first-in, last-out) tranche, and $81.0$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.
During the three months ended December 31, 2019, we paid down $14.8 million aggregate principal amount ofPlease see Note 13, Subsequent Event, for further information about our term loan B fixed tranche at a weighted-average price of 97.875% of face value, excluding accrued interest. Additionally, during the three months ended March 31, 2020, we paid down $22.0 million aggregate principal amount of our term loan B fixed tranche at a weighted-average price of 99.0% of face value, excluding accrued interest. In connection with the debt repayment, for the nine months ended June 30, 2020, we recognized a $0.4 million gain on the extinguishment of debt, including a gain of approximately $0.4 million from the discount paid under the face value and the write-off of $0.1 million in unamortized deferred financing costs.
During the three months ended March, 31, 2020, we paid down $7.9 million aggregate principal amount of our senior notes due 2025 at a weighted-average price of 98.7% of face value, excluding accrued interest.
On April 15, 2020, we entered into an amendment to our ABL facility to, among other things, increased the revolving commitment thereunder from $500.0 million to $600.0 million, established a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increased pricing on the revolving loans and modified certain covenant and reporting terms. The ABL facility continues to be secured by a first-priority lien in and upon the accounts and inventory (and the proceeds thereof) of the Company and its guarantor subsidiaries. The ABL facility is also secured by a second-priority lien in and upon the remaining assets of the Company and its guarantor subsidiaries.
On April 24, 2020, we completed a private offering of $300.0 million aggregate principal amount of senior secured second lien notes due 2025 (the “Senior Secured Notes”) and received $295.5 million in net proceeds from the Senior Secured Notes offering. The Notes bear interest at a rate of 8.75% and were issued at par. The Senior Secured Notes are guaranteed on a senior secured basis by the guarantors who have guaranteed obligations under our senior secured credit facilities and our existing notes. We currently intend to hold the net proceedsdebt. from this offering to maintain cash reserves on our balance sheet. If necessary, we will use the cash for working capital and general corporate purposes.
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 June 30,December 31, 2020, we were in compliance with all debt covenants and all the net assets of our consolidated subsidiaries were unrestricted from transfer.
11.10. Derivative Instruments and Hedging Activities
During the ninethree months ended June 30,December 31, 2020, we did 0t 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 June 30,December 31, 2020, the notional amount we held through these forwards, based upon exchange rates at June 30,December 31, 2020, was as follows (in thousands):
Notional Currency |
| Notional Amount |
|
| Notional Amount |
| ||
Euro |
| $ | 13,916 |
| ||||
Mexican Peso |
| $ | 6,529 |
|
|
| 10,932 |
|
Canadian Dollar |
|
| 2,340 |
|
|
| 3,767 |
|
Total |
| $ | 8,869 |
|
| $ | 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 ninethree months ended June 30,December
13
31, 2020, we recognized $1.4a $0.4 million gain into cost of goods sold on our condensed consolidated statements of earnings (loss).earnings. Based on June 30,December 31, 2020, valuations and exchange rates, we expect to reclassify gainslosses of approximately $1.8$1.3 million into cost of goods sold over the next 12 months.
Additionally during the nine months ended June 30, 2020, we de-designated certain foreign currency forwards as it became probable that the forecasted transaction would not occur as a result of the recent COVID-19 pandemic. As a result, we reclassified $1.3 million in gains from AOCL into selling, general and administration expenses. These contracts expired ratably through June 30, 2020.
Interest Rate Caps
In July 2017, we purchased 2 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 $1.0$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 (loss) were not material for the nine months ended June 30, 2020.
12. Income Tax
The effective tax rates were 9.1% and 24.6%, for the three months ended June 30, 2020 and 2019, respectively. The effective tax rate for the third quarter of the current year was negatively impacted by foreign losses which cannot be tax benefitted. The effective tax rates were 37.2% and 24.5%, for the nine months ended June 30, 2020 and 2019, respectively. The increase in the effective tax rate was primarily driven by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses, as compared to the prior period, the tax benefit of which cannot be recognized. Additionally, for the nine months ended June 30, 2019, the provision for income taxes included an income tax benefit due to an adjustment to our previously recorded transition tax on unrepatriated foreign earnings as a result of the Tax Cuts and Jobs Act.December 31, 2020.
The difference between the U.S. statutory federal income tax rate and the effective income tax rate is summarized below:
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
U.S. federal statutory income tax rate |
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
State income taxes, net of federal tax benefit |
| 2.9 |
|
|
| 3.3 |
|
|
| 3.9 |
|
|
| 3.4 |
|
Effect of foreign operations (1) |
| 4.6 |
|
|
| 0.2 |
|
|
| (0.5 | ) |
|
| 0.1 |
|
Foreign valuation allowances (1) |
| (13.0 | ) |
|
| (0.3 | ) |
|
| 10.2 |
|
|
| 0.2 |
|
Deemed repatriation tax (1) |
| (1.1 | ) |
|
| — |
|
|
| 0.4 |
|
|
| (1.1 | ) |
Other, net (1) |
| (5.3 | ) |
|
| 0.4 |
|
|
| 2.2 |
|
|
| 0.9 |
|
Effective tax rate |
| 9.1 | % |
|
| 24.6 | % |
|
| 37.2 | % |
|
| 24.5 | % |
|
|
In response to the global pandemic related to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, temporary suspension of certain payment requirements for the employer portion of social security taxes, and the creation of certain refundable employee retention credits. There was not a material impact on our income tax expense for the three or nine months ended June 30, 2020. We will continue to monitor legislative developments related to COVID-19 and will record the associated income tax impacts in the periods that guidance is finalized or when we are able to reasonably estimate an impact.
13.11. Business Segments
Segment data for the three and nine months ended June 30,December 31, 2020 and 2019, is as follows (in thousands):
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sally Beauty Supply ("SBS") |
| $ | 415,468 |
|
| $ | 575,025 |
|
| $ | 1,504,125 |
|
| $ | 1,721,238 |
|
| $ | 547,670 |
|
| $ | 569,147 |
|
Beauty Systems Group ("BSG") |
|
| 289,819 |
|
|
| 400,144 |
|
|
| 1,052,393 |
|
|
| 1,189,236 |
|
|
| 388,352 |
|
|
| 411,061 |
|
Total |
| $ | 705,287 |
|
| $ | 975,169 |
|
| $ | 2,556,518 |
|
| $ | 2,910,474 |
|
| $ | 936,022 |
|
| $ | 980,208 |
|
Earnings (loss) before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Earnings before provision for income taxes: |
|
|
|
|
|
|
|
| ||||||||||||||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 3,087 |
|
| $ | 95,763 |
|
| $ | 133,684 |
|
| $ | 272,470 |
|
| $ | 95,128 |
|
| $ | 74,225 |
|
BSG |
|
| 40,084 |
|
|
| 61,552 |
|
|
| 143,557 |
|
|
| 180,401 |
|
|
| 48,572 |
|
|
| 62,434 |
|
Segment operating earnings |
|
| 43,171 |
|
|
| 157,315 |
|
|
| 277,241 |
|
|
| 452,871 |
|
|
| 143,700 |
|
|
| 136,659 |
|
Unallocated expenses |
|
| 35,924 |
|
|
| 35,276 |
|
|
| 126,617 |
|
|
| 110,416 |
|
|
| 39,146 |
|
|
| 39,741 |
|
Restructuring |
|
| 5,816 |
|
|
| 1,908 |
|
|
| 11,541 |
|
|
| 74 |
|
|
| 232 |
|
|
| 2,531 |
|
Consolidated operating earnings |
|
| 1,431 |
|
|
| 120,131 |
|
|
| 139,083 |
|
|
| 342,381 |
|
|
| 104,322 |
|
|
| 94,387 |
|
Interest expense |
|
| 27,298 |
|
|
| 25,781 |
|
|
| 70,483 |
|
|
| 74,092 |
|
|
| 25,978 |
|
|
| 21,541 |
|
Earnings (loss) before provision for income taxes |
| $ | (25,867 | ) |
| $ | 94,350 |
|
| $ | 68,600 |
|
| $ | 268,289 |
| ||||||||
Earnings before provision for income taxes |
| $ | 78,344 |
|
| $ | 72,846 |
|
Sales between segments, which are eliminated in consolidation, were not material during the three and nine months ended June 30,December 31, 2020 and 2019.
Disaggregation of net sales by segment
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
SBS |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Hair color |
|
| 36.6 | % |
|
| 30.2 | % |
|
| 33.8 | % |
|
| 28.9 | % |
|
| 35.4 | % |
|
| 29.4 | % |
Hair care |
|
| 16.3 | % |
|
| 20.3 | % |
|
| 19.0 | % |
|
| 20.5 | % |
|
| 18.6 | % |
|
| 19.4 | % |
Skin and nail care |
|
| 14.2 | % |
|
| 14.0 | % | ||||||||||||||||
Styling tools |
|
| 13.6 | % |
|
| 12.4 | % |
|
| 13.0 | % |
|
| 13.9 | % |
|
| 12.8 | % |
|
| 14.9 | % |
Skin and nail care |
|
| 13.3 | % |
|
| 15.5 | % |
|
| 13.8 | % |
|
| 14.9 | % | ||||||||
Salon supplies and accessories |
|
| 9.1 | % |
|
| 7.1 | % |
|
| 7.5 | % |
|
| 7.2 | % |
|
| 7.9 | % |
|
| 7.7 | % |
Textured hair products |
|
| 4.7 | % |
|
| 6.6 | % |
|
| 5.1 | % |
|
| 6.5 | % |
|
| 5.5 | % |
|
| 6.1 | % |
Other beauty items |
|
| 6.4 | % |
|
| 7.9 | % |
|
| 7.8 | % |
|
| 8.1 | % |
|
| 5.6 | % |
|
| 8.5 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
14
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
BSG |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Hair color |
|
| 42.2 | % |
|
| 40.5 | % |
|
| 39.7 | % |
|
| 39.5 | % |
|
| 40.8 | % |
|
| 37.5 | % |
Hair care |
|
| 32.5 | % |
|
| 36.1 | % |
|
| 34.2 | % |
|
| 34.6 | % |
|
| 35.0 | % |
|
| 34.5 | % |
Skin and nail care |
|
| 8.2 | % |
|
| 8.1 | % |
|
| 8.2 | % |
|
| 8.2 | % |
|
| 8.2 | % |
|
| 8.1 | % |
Styling tools |
|
| 6.2 | % |
|
| 3.4 | % |
|
| 6.4 | % |
|
| 3.5 | % |
|
| 7.1 | % |
|
| 3.6 | % |
Other beauty items |
|
| 7.0 | % |
|
| 6.6 | % |
|
| 3.9 | % |
|
| 6.3 | % |
|
| 2.6 | % |
|
| 5.8 | % |
Promotional items |
|
| 3.9 | % |
|
| 5.3 | % |
|
| 7.6 | % |
|
| 7.9 | % |
|
| 6.3 | % |
|
| 10.5 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
The following tables disaggregate our segment revenue by sales channels:
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
SBS |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Company-operated stores |
|
| 79.1 | % |
|
| 96.9 | % |
|
| 90.9 | % |
|
| 96.8 | % |
|
| 93.9 | % |
|
| 95.8 | % |
E-commerce |
|
| 20.8 | % |
|
| 2.8 | % |
|
| 8.9 | % |
|
| 2.9 | % |
|
| 6.0 | % |
|
| 4.0 | % |
Franchise stores |
|
| 0.1 | % |
|
| 0.3 | % |
|
| 0.2 | % |
|
| 0.3 | % |
|
| 0.1 | % |
|
| 0.2 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
BSG |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Company-operated stores |
|
| 63.9 | % |
|
| 68.8 | % |
|
| 68.2 | % |
|
| 69.4 | % |
|
| 69.6 | % |
|
| 69.4 | % |
Distributor sales consultants |
|
| 10.8 | % |
|
| 18.3 | % |
|
| 15.5 | % |
|
| 18.2 | % |
|
| 14.3 | % |
|
| 17.9 | % |
E-commerce |
|
| 17.4 | % |
|
| 4.9 | % |
|
| 8.9 | % |
|
| 4.8 | % |
|
| 8.5 | % |
|
| 7.3 | % |
Franchise stores |
|
| 7.9 | % |
|
| 8.0 | % |
|
| 7.4 | % |
|
| 7.6 | % |
|
| 7.6 | % |
|
| 5.4 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
14. Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidating Financial Statements
Certain 100% wholly owned domestic subsidiaries (“guarantor subsidiaries”), as defined in our credit agreements, of Sally Beauty serve as guarantors to the ABL facility, term loan B and senior notes due 2023 and 2025. The guarantees related to these debt instruments are full and unconditional, joint and several and have certain restrictions on the ability to pay restricted payments to Sally Beauty Holdings, Inc. (“parent”). Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors (“non-guarantor subsidiaries”).
The following condensed consolidating financial information represents financial information for (i) parent, (ii) Sally Holdings LLC and Sally Capital Inc., (iii) the guarantor subsidiaries; (iv) the non-guarantor subsidiaries, (v) elimination entries necessary for consolidation purposes, and (vi) Sally Beauty on a consolidated basis.
Condensed Consolidating Balance Sheet
June 30, 2020
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | 10 |
|
| $ | 771,131 |
|
| $ | 67,670 |
|
| $ | — |
|
| $ | 838,811 |
|
Trade and other accounts receivable, net |
|
| — |
|
|
| — |
|
|
| 33,856 |
|
|
| 26,447 |
|
|
| — |
|
|
| 60,303 |
|
Due from affiliates |
|
| — |
|
|
| — |
|
|
| 2,378,638 |
|
|
| — |
|
|
| (2,378,638 | ) |
|
| — |
|
Inventory |
|
| — |
|
|
| — |
|
|
| 608,147 |
|
|
| 207,485 |
|
|
| — |
|
|
| 815,632 |
|
Other current assets |
|
| 14,375 |
|
|
| 206 |
|
|
| 23,417 |
|
|
| 10,598 |
|
|
| — |
|
|
| 48,596 |
|
Property and equipment, net |
|
| 7 |
|
|
| — |
|
|
| 259,521 |
|
|
| 51,535 |
|
|
| — |
|
|
| 311,063 |
|
Operating lease assets |
|
| — |
|
|
| — |
|
|
| 381,907 |
|
|
| 132,508 |
|
|
| — |
|
|
| 514,415 |
|
Investment in subsidiaries |
|
| 1,668,707 |
|
|
| 4,473,741 |
|
|
| 361,944 |
|
|
| — |
|
|
| (6,504,392 | ) |
|
| — |
|
Goodwill and other intangible assets, net |
|
| — |
|
|
| — |
|
|
| 448,869 |
|
|
| 138,671 |
|
|
| — |
|
|
| 587,540 |
|
Other assets |
|
| 1,447 |
|
|
| 3,701 |
|
|
| 4,589 |
|
|
| 11,997 |
|
|
| — |
|
|
| 21,734 |
|
Total assets |
| $ | 1,684,536 |
|
| $ | 4,477,658 |
|
| $ | 5,272,019 |
|
| $ | 646,911 |
|
| $ | (8,883,030 | ) |
| $ | 3,198,094 |
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 15 |
|
| $ | 68 |
|
| $ | 197,442 |
|
| $ | 42,380 |
|
| $ | — |
|
| $ | 239,905 |
|
Due to affiliates |
|
| 1,747,406 |
|
|
| 554,908 |
|
|
| — |
|
|
| 76,324 |
|
|
| (2,378,638 | ) |
|
| — |
|
Accrued liabilities |
|
| 164 |
|
|
| 11,567 |
|
|
| 107,574 |
|
|
| 28,892 |
|
|
| — |
|
|
| 148,197 |
|
Income taxes payable |
|
| — |
|
|
| 2,162 |
|
|
| — |
|
|
| (855 | ) |
|
| — |
|
|
| 1,307 |
|
Long-term debt |
|
| — |
|
|
| 2,240,411 |
|
|
| 2 |
|
|
| 854 |
|
|
| — |
|
|
| 2,241,267 |
|
Long-term operating lease liabilities |
|
| — |
|
|
| — |
|
|
| 397,477 |
|
|
| 133,103 |
|
|
| — |
|
|
| 530,580 |
|
Other liabilities |
|
| 6,441 |
|
|
| — |
|
|
| 19,930 |
|
|
| 62 |
|
|
| — |
|
|
| 26,433 |
|
Deferred income tax liabilities, net |
|
| (357 | ) |
|
| (165 | ) |
|
| 75,853 |
|
|
| 4,207 |
|
|
| — |
|
|
| 79,538 |
|
Total liabilities |
|
| 1,753,669 |
|
|
| 2,808,951 |
|
|
| 798,278 |
|
|
| 284,967 |
|
|
| (2,378,638 | ) |
|
| 3,267,227 |
|
Total stockholders’ equity (deficit) |
|
| (69,133 | ) |
|
| 1,668,707 |
|
|
| 4,473,741 |
|
|
| 361,944 |
|
|
| (6,504,392 | ) |
|
| (69,133 | ) |
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,684,536 |
|
| $ | 4,477,658 |
|
| $ | 5,272,019 |
|
| $ | 646,911 |
|
| $ | (8,883,030 | ) |
| $ | 3,198,094 |
|
Condensed Consolidating Balance Sheet
September 30, 2019
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | — |
|
| $ | 10 |
|
| $ | 41,009 |
|
| $ | 30,476 |
|
| $ | — |
|
| $ | 71,495 |
|
Trade and other accounts receivable, net |
|
| — |
|
|
| — |
|
|
| 65,746 |
|
|
| 38,793 |
|
|
| — |
|
|
| 104,539 |
|
Due from affiliates |
|
| — |
|
|
| — |
|
|
| 2,878,072 |
|
|
| — |
|
|
| (2,878,072 | ) |
|
| — |
|
Inventory |
|
| — |
|
|
| — |
|
|
| 722,830 |
|
|
| 230,077 |
|
|
| — |
|
|
| 952,907 |
|
Other current assets |
|
| 1,436 |
|
|
| 132 |
|
|
| 22,480 |
|
|
| 10,564 |
|
|
| — |
|
|
| 34,612 |
|
Property and equipment, net |
|
| 6 |
|
|
| — |
|
|
| 258,132 |
|
|
| 61,490 |
|
|
| — |
|
|
| 319,628 |
|
Investment in subsidiaries |
|
| 1,621,843 |
|
|
| 4,374,334 |
|
|
| 385,629 |
|
|
| — |
|
|
| (6,381,806 | ) |
|
| — |
|
Goodwill and other intangible assets, net |
|
| — |
|
|
| — |
|
|
| 452,645 |
|
|
| 140,192 |
|
|
| — |
|
|
| 592,837 |
|
Other assets |
|
| 1,446 |
|
|
| 3,499 |
|
|
| (581 | ) |
|
| 18,064 |
|
|
| — |
|
|
| 22,428 |
|
Total assets |
| $ | 1,624,731 |
|
| $ | 4,377,975 |
|
| $ | 4,825,962 |
|
| $ | 529,656 |
|
| $ | (9,259,878 | ) |
| $ | 2,098,446 |
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 48 |
|
| $ | — |
|
| $ | 235,940 |
|
| $ | 42,700 |
|
| $ | — |
|
| $ | 278,688 |
|
Due to affiliates |
|
| 1,672,322 |
|
|
| 1,142,324 |
|
|
| — |
|
|
| 63,426 |
|
|
| (2,878,072 | ) |
|
| — |
|
Accrued liabilities |
|
| 188 |
|
|
| 17,937 |
|
|
| 121,375 |
|
|
| 29,554 |
|
|
| — |
|
|
| 169,054 |
|
Income taxes payable |
|
| 6,055 |
|
|
| 2,161 |
|
|
| 1 |
|
|
| 119 |
|
|
| — |
|
|
| 8,336 |
|
Long-term debt |
|
| — |
|
|
| 1,593,710 |
|
|
| 1 |
|
|
| 832 |
|
|
| — |
|
|
| 1,594,543 |
|
Other liabilities |
|
| 6,441 |
|
|
| — |
|
|
| 17,639 |
|
|
| 3,677 |
|
|
| — |
|
|
| 27,757 |
|
Deferred income tax liabilities, net |
|
| — |
|
|
| — |
|
|
| 76,672 |
|
|
| 3,719 |
|
|
| — |
|
|
| 80,391 |
|
Total liabilities |
|
| 1,685,054 |
|
|
| 2,756,132 |
|
|
| 451,628 |
|
|
| 144,027 |
|
|
| (2,878,072 | ) |
|
| 2,158,769 |
|
Total stockholders’ equity (deficit) |
|
| (60,323 | ) |
|
| 1,621,843 |
|
|
| 4,374,334 |
|
|
| 385,629 |
|
|
| (6,381,806 | ) |
|
| (60,323 | ) |
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,624,731 |
|
| $ | 4,377,975 |
|
| $ | 4,825,962 |
|
| $ | 529,656 |
|
| $ | (9,259,878 | ) |
| $ | 2,098,446 |
|
Condensed Consolidating Statement of Earnings (Loss) and Comprehensive Income
Three Months Ended June 30, 2020
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 604,881 |
|
| $ | 100,406 |
|
| $ | — |
|
| $ | 705,287 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 236 |
|
|
| — |
|
|
| (236 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 319,527 |
|
|
| 64,150 |
|
|
| (236 | ) |
|
| 383,441 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 285,590 |
|
|
| 36,256 |
|
|
| — |
|
|
| 321,846 |
|
Selling, general and administrative expenses |
|
| 2,763 |
|
|
| 132 |
|
|
| 255,841 |
|
|
| 55,863 |
|
|
| — |
|
|
| 314,599 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| 5,816 |
|
|
| — |
|
|
| — |
|
|
| 5,816 |
|
Operating earnings (loss) |
|
| (2,763 | ) |
|
| (132 | ) |
|
| 23,933 |
|
|
| (19,607 | ) |
|
| — |
|
|
| 1,431 |
|
Interest expense (income) |
|
| — |
|
|
| 27,377 |
|
|
| (1 | ) |
|
| (78 | ) |
|
| — |
|
|
| 27,298 |
|
Earnings (loss) before provision for income taxes |
|
| (2,763 | ) |
|
| (27,509 | ) |
|
| 23,934 |
|
|
| (19,529 | ) |
|
| — |
|
|
| (25,867 | ) |
Provision (benefit) for income taxes |
|
| (709 | ) |
|
| (7,061 | ) |
|
| 7,208 |
|
|
| (1,779 | ) |
|
| — |
|
|
| (2,341 | ) |
Equity in earnings (loss) of subsidiaries, net of tax |
|
| (21,472 | ) |
|
| (1,024 | ) |
|
| (17,750 | ) |
|
| — |
|
|
| 40,246 |
|
|
| — |
|
Net earnings (loss) |
|
| (23,526 | ) |
|
| (21,472 | ) |
|
| (1,024 | ) |
|
| (17,750 | ) |
|
| 40,246 |
|
|
| (23,526 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| 245 |
|
|
| — |
|
|
| 4,830 |
|
|
| — |
|
|
| 5,075 |
|
Total comprehensive loss |
| $ | (23,526 | ) |
| $ | (21,227 | ) |
| $ | (1,024 | ) |
| $ | (12,920 | ) |
| $ | 40,246 |
|
| $ | (18,451 | ) |
Condensed Consolidating Statement of Earnings and Comprehensive Income
Three Months Ended June 30, 2019
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 789,534 |
|
| $ | 185,635 |
|
| $ | — |
|
| $ | 975,169 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 545 |
|
|
| — |
|
|
| (545 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 393,875 |
|
|
| 99,617 |
|
|
| (545 | ) |
|
| 492,947 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 396,204 |
|
|
| 86,018 |
|
|
| — |
|
|
| 482,222 |
|
Selling, general and administrative expenses |
|
| 2,564 |
|
|
| 123 |
|
|
| 281,520 |
|
|
| 75,976 |
|
|
| — |
|
|
| 360,183 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| 1,908 |
|
|
| — |
|
|
| — |
|
|
| 1,908 |
|
Operating earnings (loss) |
|
| (2,564 | ) |
|
| (123 | ) |
|
| 112,776 |
|
|
| 10,042 |
|
|
| — |
|
|
| 120,131 |
|
Interest expense (income) |
|
| — |
|
|
| 25,824 |
|
|
| (3 | ) |
|
| (40 | ) |
|
| — |
|
|
| 25,781 |
|
Earnings (loss) before provision for income taxes |
|
| (2,564 | ) |
|
| (25,947 | ) |
|
| 112,779 |
|
|
| 10,082 |
|
|
| — |
|
|
| 94,350 |
|
Provision (benefit) for income taxes |
|
| (659 | ) |
|
| (6,659 | ) |
|
| 28,193 |
|
|
| 2,311 |
|
|
|
|
|
|
| 23,186 |
|
Equity in earnings of subsidiaries, net of tax |
|
| 73,069 |
|
|
| 92,357 |
|
|
| 7,771 |
|
|
| — |
|
|
| (173,197 | ) |
|
| — |
|
Net earnings |
|
| 71,164 |
|
|
| 73,069 |
|
|
| 92,357 |
|
|
| 7,771 |
|
|
| (173,197 | ) |
|
| 71,164 |
|
Other comprehensive income, net of tax |
|
| — |
|
|
| 586 |
|
|
| — |
|
|
| 937 |
|
|
|
|
|
|
| 1,523 |
|
Total comprehensive income |
| $ | 71,164 |
|
| $ | 73,655 |
|
| $ | 92,357 |
|
| $ | 8,708 |
|
| $ | (173,197 | ) |
| $ | 72,687 |
|
Condensed Consolidating Statement of Earnings and Comprehensive Income
Nine Months Ended June 30, 2020
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 2,105,368 |
|
| $ | 451,150 |
|
| $ | — |
|
| $ | 2,556,518 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 1,231 |
|
|
| — |
|
|
| (1,231 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 1,075,180 |
|
|
| 256,118 |
|
|
| (1,231 | ) |
|
| 1,330,067 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 1,031,419 |
|
|
| 195,032 |
|
|
| — |
|
|
| 1,226,451 |
|
Selling, general and administrative expenses |
|
| 8,250 |
|
|
| 467 |
|
|
| 858,490 |
|
|
| 208,620 |
|
|
| — |
|
|
| 1,075,827 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| 11,541 |
|
|
| — |
|
|
| — |
|
|
| 11,541 |
|
Operating earnings (loss) |
|
| (8,250 | ) |
|
| (467 | ) |
|
| 161,388 |
|
|
| (13,588 | ) |
|
| — |
|
|
| 139,083 |
|
Interest expense (income) |
|
| — |
|
|
| 70,590 |
|
|
| 4 |
|
|
| (111 | ) |
|
| — |
|
|
| 70,483 |
|
Earnings (loss) before provision for income taxes |
|
| (8,250 | ) |
|
| (71,057 | ) |
|
| 161,384 |
|
|
| (13,477 | ) |
|
| — |
|
|
| 68,600 |
|
Provision (benefit) for income taxes |
|
| (2,117 | ) |
|
| (18,239 | ) |
|
| 41,488 |
|
|
| 4,411 |
|
|
| — |
|
|
| 25,543 |
|
Equity in earnings (loss) of subsidiaries, net of tax |
|
| 49,190 |
|
|
| 102,008 |
|
|
| (17,888 | ) |
|
| — |
|
|
| (133,310 | ) |
|
| — |
|
Net earnings (loss) |
|
| 43,057 |
|
|
| 49,190 |
|
|
| 102,008 |
|
|
| (17,888 | ) |
|
| (133,310 | ) |
|
| 43,057 |
|
Other comprehensive income (loss), net of tax |
|
| — |
|
|
| 274 |
|
|
| — |
|
|
| (2,155 | ) |
|
| — |
|
|
| (1,881 | ) |
Total comprehensive income (loss) |
| $ | 43,057 |
|
| $ | 49,464 |
|
| $ | 102,008 |
|
| $ | (20,043 | ) |
| $ | (133,310 | ) |
| $ | 41,176 |
|
Condensed Consolidating Statement of Earnings and Comprehensive Income
Nine Months Ended June 30, 2019
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 2,352,348 |
|
| $ | 558,126 |
|
| $ | — |
|
| $ | 2,910,474 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 1,694 |
|
|
|
|
|
|
| (1,694 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 1,181,062 |
|
|
| 299,854 |
|
|
| (1,694 | ) |
|
| 1,479,222 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 1,172,980 |
|
|
| 258,272 |
|
|
| — |
|
|
| 1,431,252 |
|
Selling, general and administrative expenses |
|
| 8,457 |
|
|
| 489 |
|
|
| 849,140 |
|
|
| 230,711 |
|
|
| — |
|
|
| 1,088,797 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| — |
|
|
| 74 |
|
Operating earnings (loss) |
|
| (8,457 | ) |
|
| (489 | ) |
|
| 323,766 |
|
|
| 27,561 |
|
|
| — |
|
|
| 342,381 |
|
Interest expense (income) |
|
| — |
|
|
| 74,248 |
|
|
| (5 | ) |
|
| (151 | ) |
|
| — |
|
|
| 74,092 |
|
Earnings (loss) before provision for income taxes |
|
| (8,457 | ) |
|
| (74,737 | ) |
|
| 323,771 |
|
|
| 27,712 |
|
|
| — |
|
|
| 268,289 |
|
Provision (benefit) for income taxes |
|
| (2,171 | ) |
|
| (19,184 | ) |
|
| 82,671 |
|
|
| 4,357 |
|
|
|
|
|
|
| 65,673 |
|
Equity in earnings of subsidiaries, net of tax |
|
| 208,902 |
|
|
| 264,455 |
|
|
| 23,355 |
|
|
| — |
|
|
| (496,712 | ) |
|
| — |
|
Net earnings |
|
| 202,616 |
|
|
| 208,902 |
|
|
| 264,455 |
|
|
| 23,355 |
|
|
| (496,712 | ) |
|
| 202,616 |
|
Other comprehensive loss, net of tax |
|
| — |
|
|
| (4,384 | ) |
|
| — |
|
|
| (9,656 | ) |
|
| — |
|
|
| (14,040 | ) |
Total comprehensive income |
| $ | 202,616 |
|
| $ | 204,518 |
|
| $ | 264,455 |
|
| $ | 13,699 |
|
| $ | (496,712 | ) |
| $ | 188,576 |
|
Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2020
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Net cash (used) provided by operating activities |
| $ | (16,444 | ) |
| $ | (56,439 | ) |
| $ | 313,209 |
|
| $ | 34,058 |
|
| $ | — |
|
| $ | 274,384 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
| (5 | ) |
|
| — |
|
|
| (80,854 | ) |
|
| (8,881 | ) |
|
| — |
|
|
| (89,740 | ) |
Proceeds from sale of property and equipment |
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| 15 |
|
|
|
|
|
|
| 38 |
|
Acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (1,691 | ) |
|
| (253 | ) |
|
| — |
|
|
| (1,944 | ) |
Due from affiliates |
|
| — |
|
|
| — |
|
|
| 499,434 |
|
|
| — |
|
|
| (499,434 | ) |
|
| — |
|
Net cash (used) provided by investing activities |
|
| (5 | ) |
|
| — |
|
|
| 416,912 |
|
|
| (9,119 | ) |
|
| (499,434 | ) |
|
| (91,646 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| — |
|
|
| 1,087,500 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 1,087,504 |
|
Repayments of long-term debt |
|
| — |
|
|
| (437,388 | ) |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (437,391 | ) |
Debt issuance costs |
|
| — |
|
|
| (6,257 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,257 | ) |
Repurchases of common stock |
|
| (61,357 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (61,357 | ) |
Proceeds from exercises of stock options |
|
| 2,722 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,722 |
|
Due to affiliates |
|
| 75,084 |
|
|
| (587,416 | ) |
|
| — |
|
|
| 12,898 |
|
|
| 499,434 |
|
|
| — |
|
Net cash provided by financing activities |
|
| 16,449 |
|
|
| 56,439 |
|
|
| 1 |
|
|
| 12,898 |
|
|
| 499,434 |
|
|
| 585,221 |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (643 | ) |
|
| — |
|
|
| (643 | ) |
Net increase in cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| 730,122 |
|
|
| 37,194 |
|
|
| — |
|
|
| 767,316 |
|
Cash and cash equivalents, beginning of period |
|
| — |
|
|
| 10 |
|
|
| 41,009 |
|
|
| 30,476 |
|
|
| — |
|
|
| 71,495 |
|
Cash and cash equivalents, end of period |
| $ | — |
|
| $ | 10 |
|
| $ | 771,131 |
|
| $ | 67,670 |
|
| $ | — |
|
| $ | 838,811 |
|
Condensed Consolidating Statement of Cash Flows
Nine Months Ended June 30, 2019
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||
Net cash (used) provided by operating activities |
| $ | (3,949 | ) |
| $ | (63,597 | ) |
| $ | 270,637 |
|
| $ | 732 |
|
| $ | — |
|
| $ | 203,823 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
| (1 | ) |
|
| — |
|
|
| (58,607 | ) |
|
| (8,155 | ) |
|
| — |
|
|
| (66,763 | ) |
Proceeds from sale of property and equipment |
|
| — |
|
|
| — |
|
|
| 12,017 |
|
|
| 4 |
|
|
| — |
|
|
| 12,021 |
|
Acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (1,923 | ) |
|
| (840 | ) |
|
| — |
|
|
| (2,763 | ) |
Due from affiliates |
|
| — |
|
|
| — |
|
|
| (219,921 | ) |
|
| — |
|
|
| 219,921 |
|
|
| — |
|
Net cash used by investing activities |
|
| (1 | ) |
|
| — |
|
|
| (268,434 | ) |
|
| (8,991 | ) |
|
| 219,921 |
|
|
| (57,505 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| — |
|
|
| 394,000 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 394,004 |
|
Repayments of long-term debt |
|
| — |
|
|
| (561,158 | ) |
|
| (3 | ) |
|
| (1 | ) |
|
| — |
|
|
| (561,162 | ) |
Repurchases of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Proceeds from exercises of stock options |
|
| 1,787 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,787 |
|
Due to affiliates |
|
| 2,163 |
|
|
| 230,755 |
|
|
| — |
|
|
| (12,997 | ) |
|
| (219,921 | ) |
|
| — |
|
Net cash (used) provided by financing activities |
|
| 3,950 |
|
|
| 63,597 |
|
|
| 1 |
|
|
| (12,998 | ) |
|
| (219,921 | ) |
|
| (165,371 | ) |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (387 | ) |
|
| — |
|
|
| (387 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| 2,204 |
|
|
| (21,644 | ) |
|
| — |
|
|
| (19,440 | ) |
Cash and cash equivalents, beginning of period |
|
| — |
|
|
| 10 |
|
|
| 29,050 |
|
|
| 48,235 |
|
|
| — |
|
|
| 77,295 |
|
Cash and cash equivalents, end of period |
| $ | — |
|
| $ | 10 |
|
| $ | 31,254 |
|
| $ | 26,591 |
|
| $ | — |
|
| $ | 57,855 |
|
15.12. Restructuring
Restructuring expense for the three and nine months ended June 30,December 31, 2020 and 2019, are as follows (in thousands):
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||
Project Surge |
| $ | 70 |
|
| $ | — |
|
| $ | 1,430 |
|
| $ | — |
|
| $ | 190 |
|
| $ | 1,253 |
|
Transformation Plan |
|
| 5,746 |
|
|
| 1,908 |
|
|
| 10,111 |
|
|
| 74 |
|
|
| 42 |
|
|
| 1,278 |
|
Total expense |
| $ | 5,816 |
|
| $ | 1,908 |
|
| $ | 11,541 |
|
| $ | 74 |
|
| $ | 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, 2019 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at June 30, 2020 |
|
| Liability at September 30, 2020 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at December 31, 2020 |
| ||||||||||
Workforce reductions |
| $ | — |
|
| $ | 1,068 |
|
| $ | 1,068 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 150 |
|
| $ | 150 |
|
| $ | — |
|
| $ | — |
|
Other |
|
| — |
|
|
| 362 |
|
|
| 362 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40 |
|
|
| 40 |
|
|
| — |
|
|
| — |
|
Total |
| $ | — |
|
| $ | 1,430 |
|
| $ | 1,430 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 190 |
|
| $ | 190 |
|
| $ | — |
|
| $ | — |
|
15
Expenses incurred during the ninethree months ended June 30,December 31, 2020, represent costs incurred by SBS of $1.3 million and corporate of $0.1$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, 2019 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at June 30, 2020 |
|
| Liability at September 30, 2020 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at December 31, 2020 |
| ||||||||||
Workforce reductions |
| $ | 654 |
|
| $ | 5,562 |
|
| $ | 4,660 |
|
| $ | — |
|
| $ | 1,556 |
|
| $ | 65 |
|
| $ | 7 |
|
| $ | 72 |
|
| $ | — |
|
| $ | — |
|
Consulting |
|
| 204 |
|
|
| 1,426 |
|
|
| 1,630 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||
Other |
|
| 70 |
|
|
| 3,123 |
|
|
| 3,193 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 35 |
|
|
| 35 |
|
|
| — |
|
|
| — |
|
Total |
| $ | 928 |
|
| $ | 10,111 |
|
| $ | 9,483 |
|
| $ | — |
|
| $ | 1,556 |
|
| $ | 65 |
|
| $ | 42 |
|
| $ | 107 |
|
| $ | — |
|
| $ | — |
|
Expenses incurred during the ninethree months ended June 30,December 31, 2020, represent costs incurred by SBS of $5.1$0.1 million.
13. Subsequent Event
On January 5, 2021, we announced that we fully repaid the outstanding balance of $213.2 million BSGon 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 $1.8 million and corporatedebt from the write-off of $3.2 million. Additionally, other expenses in the table above includes a non-cash asset impairment of $1.8 million related to the re-measurement of certain long-lived assets and operating lease assets. These assets had a carrying value of $5.4 million and were adjusted down to their estimated fair values. The fair value measurements for these purposes were based on unobservable inputs (Level 3).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, 2019,2020, 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.pandemic on future periods.
Highlights for the Three Months Ended June 30, 2020:December 31, 2020
| • | During the three months ended |
| • | Consolidated net sales for the three months ended |
| • |
|
| • |
|
| Consolidated gross profit for the three months ended |
| • | Consolidated operating earnings for the three months ended |
| • |
|
| • | For the three months ended |
|
|
| • |
|
Impact of COVID-19 on Our Business and Business Strategy Update
Our results of operations forAs mentioned above, we continued to see the three months ended June 30, 2020, were significantly impacted by the effectsimpact of COVID-19 on our sales into our first fiscal quarter as we experienced a rolling shut down of customer-facing operations at all global stores startinghad temporary store closures in mid-March through mid-April, followed by the rolling restart ofinternational markets, restricted store operations from mid-April until the end of June. Store re-openings were triggered by local regulation; the adoption of our new COVID-19 related safety protocols involving store cleaning, masks,capacity in certain markets and gloves; limiting the number of customerssalon shut-downs in stores at one time; in-store social distancing guidelines;California and the recall from furlough of sufficient store staff. As of June 30, 2020, we have re-opened substantially all global customer-facing store operations, other than parts of Canada for part of the quarter.
However, we continued to make progress against our network in Mexicokey business initiatives, which include leveraging and South America,optimizing our elevated digital capabilities, growing customer engagement and saw strong consumerloyalty, and professional demandcompleting the final steps in our re-opened stores.
As part of our re-opening, we also announced that we recalled all furloughed associates in the field and at the headquarters in the U.S. and Canada, effective as of June 8, 2020, except for associates working in the limited number of stores which remained closed at that time. Additional associates in Europe and Latin America will return in our fourth quarter.
As a result of COVID-19, we reprioritized oursuccessful transformation plans to accelerate key digital and supply chain initiatives, and pivoted to cash management and expense reduction. We have resumed our work on the implementation of a new merchandising system and the start-up of the new North Texas distribution node, but continue to pause on efforts such as our national brand relaunch. Additionally, due to the evolving COVID-19 pandemic and the related business uncertainty, we continue to defer non-digital capital investments and address our short-term cost structure.
On April 15, 2020, we amended our ABL facility to increase the revolving commitment thereunder from $500.0 million to $600.0 million, establish a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increase pricing on the revolving loans and modify certain covenant and reporting terms. To further strengthen our liquidity, on April 24, 2020, we closed on $300.0 million of 8.75% senior secured second-lien notes due 2025. journey.
The effects of the COVID-19 pandemic and related responses had a materialnoticeable impact on the entirety of our first quarter fiscal 2020 third quarteryear 2021 results of operations and cash flows and financial position.flows. Furthermore, due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the material adverse impact of the pandemic will likelymay continue for the remainder of our fiscal 2020 year and may continuefurther into our fiscal year 2021 year and possibly beyond.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 June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended December 31, |
| |||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
| |||||||||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 415,468 |
|
| $ | 575,025 |
|
| $ | (159,557 | ) |
|
| (27.7 | )% |
| $ | 1,504,125 |
|
| $ | 1,721,238 |
|
| $ | (217,113 | ) |
|
| (12.6 | )% |
| $ | 547,670 |
|
| $ | 569,147 |
|
| $ | (21,477 | ) |
|
| (3.8 | )% |
BSG |
|
| 289,819 |
|
|
| 400,144 |
|
|
| (110,325 | ) |
|
| (27.6 | )% |
|
| 1,052,393 |
|
|
| 1,189,236 |
|
|
| (136,843 | ) |
|
| (11.5 | )% |
|
| 388,352 |
|
|
| 411,061 |
|
|
| (22,709 | ) |
|
| (5.5 | )% |
Consolidated |
| $ | 705,287 |
|
| $ | 975,169 |
|
| $ | (269,882 | ) |
|
| (27.7 | )% |
| $ | 2,556,518 |
|
| $ | 2,910,474 |
|
| $ | (353,956 | ) |
|
| (12.2 | )% |
| $ | 936,022 |
|
| $ | 980,208 |
|
| $ | (44,186 | ) |
|
| (4.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 202,460 |
|
| $ | 320,998 |
|
| $ | (118,538 | ) |
|
| (36.9 | )% |
| $ | 800,517 |
|
| $ | 952,958 |
|
| $ | (152,441 | ) |
|
| (16.0 | )% |
| $ | 315,811 |
|
| $ | 308,989 |
|
| $ | 6,822 |
|
|
| 2.2 | % |
BSG |
|
| 119,386 |
|
|
| 161,224 |
|
|
| (41,838 | ) |
|
| (26.0 | )% |
|
| 425,934 |
|
|
| 478,294 |
|
|
| (52,360 | ) |
|
| (10.9 | )% |
|
| 154,913 |
|
|
| 165,859 |
|
|
| (10,946 | ) |
|
| (6.6 | )% |
Consolidated |
| $ | 321,846 |
|
| $ | 482,222 |
|
| $ | (160,376 | ) |
|
| (33.3 | )% |
| $ | 1,226,451 |
|
| $ | 1,431,252 |
|
| $ | (204,801 | ) |
|
| (14.3 | )% |
| $ | 470,724 |
|
| $ | 474,848 |
|
| $ | (4,124 | ) |
|
| (0.9 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
| 48.7 | % |
|
| 55.8 | % |
| (710) |
|
| bps |
|
|
| 53.2 | % |
|
| 55.4 | % |
| (220) |
|
| bps |
|
|
| 57.7 | % |
|
| 54.3 | % |
| 340 |
|
| bps |
| ||||||
BSG |
|
| 41.2 | % |
|
| 40.3 | % |
| 90 |
|
| bps |
|
|
| 40.5 | % |
|
| 40.2 | % |
| 30 |
|
| bps |
|
|
| 39.9 | % |
|
| 40.3 | % |
| (40) |
|
| bps |
| ||||||
Consolidated |
|
| 45.6 | % |
|
| 49.5 | % |
| (390) |
|
| bps |
|
|
| 48.0 | % |
|
| 49.2 | % |
| (120) |
|
| bps |
|
|
| 50.3 | % |
|
| 48.4 | % |
| 190 |
|
| bps |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 3,087 |
|
| $ | 95,763 |
|
| $ | (92,676 | ) |
|
| (96.8 | )% |
| $ | 133,684 |
|
| $ | 272,470 |
|
| $ | (138,786 | ) |
|
| (50.9 | )% |
| $ | 95,128 |
|
| $ | 74,225 |
|
| $ | 20,903 |
|
|
| 28.2 | % |
BSG |
|
| 40,084 |
|
|
| 61,552 |
|
|
| (21,468 | ) |
|
| (34.9 | )% |
|
| 143,557 |
|
|
| 180,401 |
|
|
| (36,844 | ) |
|
| (20.4 | )% |
|
| 48,572 |
|
|
| 62,434 |
|
|
| (13,862 | ) |
|
| (22.2 | )% |
Segment operating earnings |
|
| 43,171 |
|
|
| 157,315 |
|
|
| (114,144 | ) |
|
| (72.6 | )% |
|
| 277,241 |
|
|
| 452,871 |
|
|
| (175,630 | ) |
|
| (38.8 | )% |
|
| 143,700 |
|
|
| 136,659 |
|
|
| 7,041 |
|
|
| 5.2 | % |
Unallocated expenses and restructuring (a) |
|
| 41,740 |
|
|
| 37,184 |
|
|
| 4,556 |
|
|
| 12.3 | % |
|
| 138,158 |
|
|
| 110,490 |
|
|
| 27,668 |
|
|
| 25.0 | % |
|
| 39,378 |
|
|
| 42,272 |
|
|
| (2,894 | ) |
|
| (6.8 | )% |
Consolidated operating earnings |
|
| 1,431 |
|
|
| 120,131 |
|
|
| (118,700 | ) |
|
| (98.8 | )% |
|
| 139,083 |
|
|
| 342,381 |
|
|
| (203,298 | ) |
|
| (59.4 | )% |
|
| 104,322 |
|
|
| 94,387 |
|
|
| 9,935 |
|
|
| 10.5 | % |
Interest expense |
|
| 27,298 |
|
|
| 25,781 |
|
|
| 1,517 |
|
|
| 5.9 | % |
|
| 70,483 |
|
|
| 74,092 |
|
|
| (3,609 | ) |
|
| (4.9 | )% |
|
| 25,978 |
|
|
| 21,541 |
|
|
| 4,437 |
|
|
| 20.6 | % |
Earnings (loss) before provision for income taxes |
|
| (25,867 | ) |
|
| 94,350 |
|
|
| (120,217 | ) |
|
| (127.4 | )% |
|
| 68,600 |
|
|
| 268,289 |
|
|
| (199,689 | ) |
|
| (74.4 | )% | ||||||||||||||||
Provision (benefit) for income taxes |
|
| (2,341 | ) |
|
| 23,186 |
|
|
| (25,527 | ) |
|
| (110.1 | )% |
|
| 25,543 |
|
|
| 65,673 |
|
|
| (40,130 | ) |
|
| (61.1 | )% | ||||||||||||||||
Net earnings (loss) |
| $ | (23,526 | ) |
| $ | 71,164 |
|
| $ | (94,690 | ) |
|
| (133.1 | )% |
| $ | 43,057 |
|
| $ | 202,616 |
|
| $ | (159,559 | ) |
|
| (78.7 | )% | ||||||||||||||||
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): | Number of stores at end-of-period (including franchises): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of stores at end-of-period (including franchises): |
|
|
|
|
|
|
|
|
| ||||||||||||
SBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,691 |
|
|
| 3,705 |
|
|
| (14 | ) |
|
| (0.4 | )% |
|
| 3,645 |
|
|
| 3,703 |
|
|
| (58 | ) |
|
| (1.6 | )% |
BSG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,371 |
|
|
| 1,384 |
|
|
| (13 | ) |
|
| (0.9 | )% |
|
| 1,384 |
|
|
| 1,369 |
|
|
| 15 |
|
|
| 1.1 | % |
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,062 |
|
|
| 5,089 |
|
|
| (27 | ) |
|
| (0.5 | )% |
|
| 5,029 |
|
|
| 5,072 |
|
|
| (43 | ) |
|
| (0.8 | )% |
Same store sales growth (decline) (b): | Same store sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Same store sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SBS |
|
| (25.9 | )% |
|
| (0.6 | )% |
| (2,530) |
|
| bps |
|
|
| (11.3 | )% |
|
| (0.1 | )% |
| (1,120) |
|
| bps |
|
|
| (3.3 | )% |
|
| (1.1 | )% |
| (220) |
|
| bps |
| ||||||
BSG |
|
| (27.9 | )% |
|
| 1.4 | % |
| (2,930) |
|
| bps |
|
|
| (11.2 | )% |
|
| — |
|
| (1,120) |
|
| bps |
|
|
| (4.6 | )% |
|
| 1.2 | % |
| (580) |
|
| bps |
| ||||||
Consolidated |
|
| (26.6 | )% |
|
| 0.1 | % |
| (2,670) |
|
| bps |
|
|
| (11.3 | )% |
|
| (0.1 | )% |
| (1,120) |
|
| bps |
|
|
| (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 |
(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 June 30,December 31, 2020, compared to the Three Months Ended June 30,December 31, 2019
Net Sales
Consolidated. Consolidated net sales include a negativepositive impact from changes in foreign currency exchange rates of $3.2$3.5 million, or 0.5%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 |
| $ | (139,836 | ) |
| $ | (17,525 | ) |
Sales outside same store sales |
|
| (17,171 | ) | ||||
Other (a) |
|
| (7,033 | ) | ||||
Foreign currency exchange |
|
| (2,550 | ) |
|
| 3,081 |
|
Total |
| $ | (159,557 | ) |
| $ | (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 all ourcertain customer-facing store operations in various markets globally due to the effects of COVID-19 partially offset by strong demand upon re-opening.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 |
| $ | (75,464 | ) |
|
| (12,795 | ) |
Sales outside same store sales |
|
| (34,258 | ) | ||||
Other (a) |
|
| 2,502 |
| ||||
Foreign currency exchange |
|
| (603 | ) |
|
| 422 |
|
Total |
| $ | (110,325 | ) |
| $ | (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 all of ourcertain 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. TheThese negative impact of the temporary closuresimpacts 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 June 30,December 31, 2020, primarily due to lower net sales in both segments and a lower gross margin in SBS,BSG, partially offset by a higher gross margin in BSG. While point-of-sale margin was stronger across both segments versus the prior year, driven by fewer promotions and favorable shift in product mix, it was more than offset by on-shelf inventory clearance efforts related to slow moving inventory plus a non-cash write down of inventory of $27.1 million and a reduction in vendor allowances from fewer promotions and reduced inventory purchases.SBS.
SBS. SBS’s gross profit decreasedincreased for the three months ended June 30,December 31, 2020, as a result of a higher gross margin, partially offset by lower net sales and a lower gross margin.sales. SBS’s gross margin decreasedincreased primarily as a result of the combination of lower vendor allowances and from aggressive inventory clearance efforts at the end of the quarter, partially offset by the positive impact from fewer promotions and favorable product mix.promotions.
BSG. BSG’s gross profit decreased for the three months ended June 30,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 ahigher capitalized inventory costs from lower net sales, partially offset by a higher gross margin. BSG’s gross margin increased primarily as a result of fewer promotions and higher margin product mix, partially offset by lower vendor allowances from fewer promotions and reduced inventory purchases and inventory clearance actions.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 furloughed employees, lower compensation and compensation-related expenses and advertising and promotional expenses, rent abatements 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 store expenses for personal protective equipment.costs from businesses acquired in the past 12 months. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 77050 basis points to 44.6%39.1% for the three months ended June 30, 2020. This deleveraging was driven by lost sales as a result ofDecember 31, 2020, due to the impact of COVID-19.decrease in sales.
SBS. SBS’s selling, general and administrative expenses decreased $25.9$14.1 million, or 11.5%6.0%, for the three months ended June 30,December 31, 2020, primarily due to our response to COVID-19. The decrease was driven by lower compensation and compensation-related expenses of $45.5$12.0 million (primarily as a result of previously announced furloughs), lower rent expense of $6.3 million (driven by rent abatements) and lower advertising expenses of $5.0$4.9 million. These decreases were partially offset by an increase in shipping costs of $23.3$3.0 million, resulting primarily from increased e-commerce volume, and incremental store expense for personal protective equipment.equipment and cleaning protocols related to COVID-19 safety procedures.
BSG. BSG’s selling, general and administrative expenses decreased $20.4increased $2.9 million, or 20.4%2.8%, for the three months ended June 30, 2020,December 31, 2020. The increase was driven primarily due to our response to COVID-19. The decrease was drivenby 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 $21.5 million, primarily as a result of previously announced furloughs, and lower advertising expenses of $3.9$1.5 million. These decreases were partially offset by an increase in shipping costs of $4.7 million, resulting primarily from increased e-commerce volume.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increaseddecreased $0.6 million, or 1.8%1.5%, for the three months ended June 30,December 31, 2020, primarily from lower costs associated with disaster payments and other costs incurredtravel in response to COVID-19, partially offset by lower compensation expenses resulting from furloughed employees.COVID-19.
Restructuring
For the three months ended June 30,December 31, 2020, we incurred restructuring charges of $5.8$0.2 million primarily in connection with the Transformation Plan.Project Surge. For the three months ended June 30,December 31, 2019, we recognized charges of $1.9$2.5 million in connection with Project Surge and the supply chain modernization plan.Transformation Plan. See Note 1512, 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 higherincremental 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 principal balance on our ABL facility and the newly issued Senior Secured Notes.term loan B fixed tranche of $0.9 million. See “Liquidity and Capital Resources” below for additional information.
Provision (Benefit) for Income Taxes
The effective tax rates were 9.1%27.0% and 24.6%26.9%, for the three months ended June 30,December 31, 2020, and 2019, respectively. The effective tax rate for the third quarter of the current year was negatively impacted by foreign losses which cannot be tax benefitted.
The Nine Months Ended June 30, 2020, compared to the Nine Months Ended June 30, 2019
Net Sales
Consolidated. Consolidated net sales include a negative impact from changes in foreign currency exchange rates of $7.3 million, or 0.3% of consolidated net sales.
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Same store sales |
| $ | (183,005 | ) |
Sales outside same store sales |
|
| (27,498 | ) |
Foreign currency exchange |
|
| (6,610 | ) |
Total |
| $ | (217,113 | ) |
SBS experienced lower unit volume caused by the temporary closure of all of our customer-facing store operations due to the effects of COVID-19, lower customer traffic and the reduction in company-operated stores during the last 12 months. The segment also experienced a lapped non-recurring benefit from the prior year. These headwinds were partially offset by increased e-commerce sales andan increase in average unit prices. The increase in the average unit prices was a result of targeted price increases earlier in the year, a change in product mix to higher-priced products and a promotional efficiency effort, partially offset by implementation related technology disruptions in the first fiscal quarter which led to incorrect POS pricing, elevated promotional discounts and higher loyalty program redemptions.
BSG. The decrease in net sales for BSG was primarily driven by the following (in thousands):
Same store sales |
| $ | (91,544 | ) |
Sales outside same store sales |
|
| (44,614 | ) |
Foreign currency exchange |
|
| (685 | ) |
Total |
| $ | (136,843 | ) |
BSG experienced lower unit volume primarily as a result of the temporary closure of all of our customer-facing store operations in the U.S. and Canada due to the effects of COVID-19. The negative effects of these temporary closures were partially offset by increased e-commerce sales and an increase in average unit prices resulting primarily from lower promotional activity and the introduction of certain third-party brands with higher average unit prices in the preceding 12 months.
Gross Profit
Consolidated. Consolidated gross profit decreased for the nine months ended June 30, 2020, primarily due to lower net sales in both segments and a lower gross margin in SBS, partially offset by a higher gross margin in BSG.
SBS. SBS’s gross profit decreased for the nine months ended June 30, 2020, primarily as a result of a lower net sales and a lower gross margin. SBS’s gross margin decreased primarily as a result of aggressive inventory clearance actions in the current quarter, the implementation related technology disruptions in the first quarterand non-recurring benefits that we lapped from the prior year, partially offset by fewer promotions.
BSG. BSG’s gross profit decreased for the nine months ended June 30, 2020, primarily as a result of lower net sales, partially offset by a higher gross margin. BSG’s gross margin increased primarily from a shift in the purchased product mix and fewer promotions, partially offset by aggressive inventory clearance actions in the current quarter.
Selling, General and Administrative Expenses
Consolidated. Consolidated selling, general and administrative expenses decreased primarily as a result of lower compensation and compensation-related expenses, partially offset by costs associated with disaster payments and in response to COVID-19 and higher shipping costs. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 470 basis points to 42.1% for the nine months ended June 30, 2020. This deleveraging was driven by lost sales as a result of the impact of COVID-19.
SBS. SBS’s selling, general and administrative expenses decreased $13.7 million, or 2.0%, for the nine months ended June 30, 2020. This increase reflects lower compensation and compensation-related expense of $43.1 million, primarily as a result of previously announced furloughs. This decrease was partially offset by an increase in shipping costs of $27.6 million, resulting primarily from increased e-commerce volume.
BSG. BSG’s selling, general and administrative expenses decreased $15.5 million, or 5.2%, for the nine months ended June 30, 2020. This increase reflects lower compensation and compensation-related expense of $21.3 million, primarily as a result of previously announced furloughs. This decrease was partially offset by an increase in shipping costs of $5.9 million, resulting primarily from increased e-commerce volume.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $16.2 million, or 14.7%, for the nine months ended June 30, 2020, primarily from costs associated with disaster payments in response to COVID-19, partially offset by lower compensation expenses resulting from furloughed employees.
Restructuring
For the nine months ended June 30, 2020, we incurred restructuring charges of $11.5 million in connection with Project Surge and the Transformation Plan. For the nine months ended June 30, 2019, we recognized charges of $6.7 million in connection with the supply chain modernization plan, partially offset by a $6.6 million gain from selling our secondary headquarters and fulfillment center in Denton, Texas, and the 2018 Restructuring Plan. See Note 15 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 decrease in interest expense is primarily from lower outstanding principal balances on our term loan B and our senior notes during the first and second quarters, partially offset by a higher average outstanding ABL balance during the nine months ended June 30, 2020 and the newly issued Senior Secured Notes. See “Liquidity and Capital Resources” below for additional information.
Provision (Benefit) for Income Taxes
The effective tax rates were 37.2% and 24.5%, for the nine months ended June 30, 2020, and 2019, respectively. The increase in the effective tax rate was primarily driven by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses, as compared to the prior period, which cannot be tax benefitted. Additionally, for the nine months ended June 30, 2019, the provision for income taxes included an income tax benefit due to an adjustment to our previously recorded transition tax on unrepatriated foreign earnings as a result of the Tax Cuts and Jobs Act.
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 $118.1$85.8 million, to $825.6$955.5 million at June 30,December 31, 2020, compared to $707.5$869.7 million at September 30, 2019,2020, resulting primarily from the impact of the adoption of the new lease standard.an increase in inventory. The increase in inventory resulted from investments in key products to reach desired inventory levels.
At June 30,December 31, 2020, cash and cash equivalents were $838.8$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, finance 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, for 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 ninethree months ended June 30,December 31, 2020, the weighted-average interest rate on our borrowings under the ABL facility was 2.85%. During late March, in support of our operations and out of an abundance of caution, we preemptively drewdid not borrow on our ABL facility as a result of COVID-19. The amounts drawn are generally paid down with cash provided by our operating activities.facility. As of June 30,December 31, 2020, we had $81.0$461.0 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.
During the nine months ended June 30, 2020, we entered into an amendment to Amounts drawn on our ABL facility to, among other things, increase the revolving commitment thereunder from $500.0 million to $600.0 million, establish a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increase pricing on the revolving loans and modify certain covenant and reporting terms. We also issued $300.0 million of Senior Secured Notes in a private offering in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended. are generally paid down with cash provided by our operating activities.
Share Repurchase Programs
During the three months ended June 30,December 31, 2020, we did not repurchase any common stock. During the nine months ended June 30, 2020, we repurchased and subsequently retired approximately 4.7 million shares of our common stock at an aggregate cost of $61.4 million. We funded these share repurchases with existing cash balances, cash from operations and borrowings under the ABL facility. As of June 30,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 non-essential cash expenditures and preserve our cash balances.expenditures.
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the ninethree months ended June 30,December 31, 2020, increased $70.6decreased $23.3 million to $274.4$39.0 million, compared to the ninethree months ended June 30,December 31, 2019, mainly due to the reduction inincreased inventory purchases, as a result of COVID-19in connection with inventory investments to improve stock levels for key products, and the timing of our vendor receivables, partially offset by the decreasean increase in net earnings.our accounts payable in connection with increased inventory purchases.
20
Net Cash Used by Investing Activities
Net cash used by investing activities during the ninethree months ended June 30,December 31, 2020, increased $34.1decreased $25.3 million to $91.6$17.5 million, compared to the ninethree months ended June 30,December 31, 2019. This change was primarily a result of higherour focus on reduced capital expenditures, related to our investments in information technology, and the sale of our secondary headquarters and fulfillment center in the prior year with no comparable sale in this year.expenditures.
Net Cash Provided (Used)Used by Financing Activities
The change inNet cash used by financing activities cash flowsduring 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 primarily a resultdriven by the absence of additionaldebt borrowings out of an abundance of caution in connection with COVID-19,and minimal repayments during the current quarter and not repurchasing our common stock under our ABL facilityshare repurchase program.
Long-Term Debt and the issuance of $300.0 million in new Senior Secured Notes and partially offset by the repurchase of $61.4 million of our common stock.
Long-Term DebtGuarantor Financial Information
At June 30,December 31, 2020, we had $2,258.7$1,813.2 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $17.4$14.8 million. Our debt consisted of $1,177.4 million of senior notes outstanding and a term loan B with an outstanding principal balance of $685.8 million and $395.5 million$635.8 million. As of December 31, 2020, there were no outstanding principal borrowings outstanding under our ABL facility.
See Note 10, Short-term Borrowings and Long-term Debt, for more information on our debt.
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, 2019.2020.
Off-Balance Sheet Financing Arrangements
At June 30,December 31, 2020, and September 30, 2019,2020, 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, 2019.2020.
Accounting Changes and 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates and government actions. There have been no material changes to our market risks from September 30, 2019.2020. See our disclosures about market risks contained in Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.2020.
Item 4. Controls and Procedures
Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30,December 31, 2020. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Quarterly Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.
Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this Quarterly Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and
by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis and to maintain them as dynamic systems that change as conditions warrant.
Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of June 30,December 31, 2020, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
22
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors contained in Item 1A. “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors disclosed in such Annual Report and such Quarterly Report. The risks described in such Annual Report and Quarterly Report and herein are not the only risks facing our company.
Item 6. Exhibits
Exhibit No. |
| Description |
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3.1 |
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3.2 |
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| |
| ||
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31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of Christian A. Brickman* |
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31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of |
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|
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32.1 |
| |
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32.2 |
| Section 1350 Certification of |
|
|
|
101 |
| The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended |
|
|
|
104 |
| The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended |
* Included herewith
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| SALLY BEAUTY HOLDINGS, INC. |
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| (Registrant) |
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Date: |
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| By: |
| /s/ |
|
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|
|
|
|
| Senior Vice President, Chief Financial Officer and |
|
|
| For the Registrant and as its Principal Financial Officer |
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