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, 20212022
-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 registrant: (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). Yes ☐ No ☒
As of July 23, 2021,29, 2022, there were 113,033,420107,016,939 shares of the issuer’s common stock outstanding.
TABLE OF CONTENTS
| Page |
| |
|
|
4 | |
4 | |
5 | |
6 | |
7 | |
8 | |
9 | |
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations |
|
Item 3. Quantitative And Qualitative Disclosures About Market Risk |
|
| |
|
|
| |
|
|
| |
| |
|
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, 2020,2021, 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.
WHERE YOU CAN FIND MORE INFORMATION
Our quarterly and annual 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.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
The following condensed consolidated balance sheets as of June 30, 2021, and September 30, 2020, the condensed consolidated statements of earnings (loss), condensed consolidated statements of comprehensive income (loss) and the condensed consolidated statements of stockholders’ equity (deficit) for the three and nine months ended June 30, 2021 and 2020, and the condensed consolidated statements of cash flows for the nine months ended June 30, 2021 and 2020, 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, 2021 |
|
| September 30, 2020 |
|
| June 30, 2022 |
|
| September 30, 2021 |
| ||||
|
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 270,317 |
|
| $ | 514,151 |
|
| $ | 101,318 |
|
| $ | 400,959 |
|
Trade accounts receivable, net |
|
| 44,660 |
|
|
| 35,590 |
|
|
| 31,462 |
|
|
| 32,623 |
|
Accounts receivable, other |
|
| 31,779 |
|
|
| 20,839 |
|
|
| 35,911 |
|
|
| 33,958 |
|
Inventory |
|
| 935,427 |
|
|
| 814,503 |
|
|
| 1,014,622 |
|
|
| 871,349 |
|
Other current assets |
|
| 46,928 |
|
|
| 48,014 |
|
|
| 59,806 |
|
|
| 44,686 |
|
Total current assets |
|
| 1,329,111 |
|
|
| 1,433,097 |
|
|
| 1,243,119 |
|
|
| 1,383,575 |
|
Property and equipment, net of accumulated depreciation of $764,875 at June 30, 2021, and $694,709 at September 30, 2020 |
|
| 283,033 |
|
|
| 315,029 |
| ||||||||
Property and equipment, net of accumulated depreciation of $808,298 at June 30, 2022, and $767,403 at September 30, 2021 |
|
| 289,814 |
|
|
| 307,377 |
| ||||||||
Operating lease assets |
|
| 540,480 |
|
|
| 525,634 |
|
|
| 549,493 |
|
|
| 537,673 |
|
Goodwill |
|
| 546,284 |
|
|
| 540,038 |
|
|
| 533,147 |
|
|
| 541,209 |
|
Intangible assets, excluding goodwill, net of accumulated amortization of $37,847 at June 30, 2021, and $63,491 at September 30, 2020 |
|
| 55,651 |
|
|
| 58,283 |
| ||||||||
Intangible assets, excluding goodwill, net of accumulated amortization of $40,336 at June 30, 2022, and $38,957 at September 30, 2021 |
|
| 50,386 |
|
|
| 55,532 |
| ||||||||
Other assets |
|
| 23,623 |
|
|
| 23,066 |
|
|
| 19,907 |
|
|
| 21,766 |
|
Total assets |
| $ | 2,778,182 |
|
| $ | 2,895,147 |
|
| $ | 2,685,866 |
|
| $ | 2,847,132 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
| $ | 181 |
|
| $ | 180 |
|
| $ | 167,169 |
|
| $ | 194 |
|
Accounts payable |
|
| 268,868 |
|
|
| 236,333 |
|
|
| 279,359 |
|
|
| 291,632 |
|
Accrued liabilities |
|
| 213,099 |
|
|
| 170,665 |
|
|
| 165,996 |
|
|
| 206,155 |
|
Current operating lease liabilities |
|
| 159,094 |
|
|
| 153,267 |
|
|
| 159,452 |
|
|
| 156,234 |
|
Income taxes payable |
|
| 8,963 |
|
|
| 2,917 |
|
|
| 2,985 |
|
|
| 10,666 |
|
Total current liabilities |
|
| 650,205 |
|
|
| 563,362 |
|
|
| 774,961 |
|
|
| 664,881 |
|
Long-term debt |
|
| 1,383,145 |
|
|
| 1,796,897 |
|
|
| 1,083,924 |
|
|
| 1,382,530 |
|
Long-term operating lease liabilities |
|
| 401,706 |
|
|
| 394,375 |
|
|
| 421,072 |
|
|
| 404,147 |
|
Other liabilities |
|
| 30,008 |
|
|
| 32,976 |
|
|
| 16,781 |
|
|
| 29,056 |
|
Deferred income tax liabilities, net |
|
| 90,848 |
|
|
| 92,094 |
|
|
| 93,257 |
|
|
| 85,777 |
|
Total liabilities |
|
| 2,555,912 |
|
|
| 2,879,704 |
|
|
| 2,389,995 |
|
|
| 2,566,391 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value. Authorized 500,000 shares; 113,033 and 112,824 shares issued and 112,780 and 112,405 shares outstanding at June 30, 2021, and September 30, 2020, respectively |
|
| 1,128 |
|
|
| 1,124 |
| ||||||||
Common stock, $0.01 par value. Authorized 500,000 shares; 107,017 and 113,138 shares issued and 106,963 and 112,913 shares outstanding at June 30, 2022, and September 30, 2021, respectively |
|
| 1,070 |
|
|
| 1,129 |
| ||||||||
Preferred stock, $0.01 par value. Authorized 50,000 shares; NaN issued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 13,858 |
|
|
| 1,913 |
|
|
| 2,339 |
|
|
| 17,286 |
|
Accumulated earnings |
|
| 288,818 |
|
|
| 117,109 |
|
|
| 418,832 |
|
|
| 356,967 |
|
Accumulated other comprehensive loss, net of tax |
|
| (81,534 | ) |
|
| (104,703 | ) |
|
| (126,370 | ) |
|
| (94,641 | ) |
Total stockholders’ equity |
|
| 222,270 |
|
|
| 15,443 |
|
|
| 295,871 |
|
|
| 280,741 |
|
Total liabilities and stockholders’ equity |
| $ | 2,778,182 |
|
| $ | 2,895,147 |
|
| $ | 2,685,866 |
|
| $ | 2,847,132 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
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 |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net sales |
| $ | 1,022,387 |
|
| $ | 705,287 |
|
| $ | 2,884,737 |
|
| $ | 2,556,518 |
|
| $ | 961,467 |
|
| $ | 1,022,387 |
|
| $ | 2,853,105 |
|
| $ | 2,884,737 |
|
Cost of goods sold |
|
| 507,981 |
|
|
| 383,441 |
|
|
| 1,432,378 |
|
|
| 1,330,067 |
|
|
| 471,259 |
|
|
| 507,981 |
|
|
| 1,397,436 |
|
|
| 1,432,378 |
|
Gross profit |
|
| 514,406 |
|
|
| 321,846 |
|
|
| 1,452,359 |
|
|
| 1,226,451 |
|
|
| 490,208 |
|
|
| 514,406 |
|
|
| 1,455,669 |
|
|
| 1,452,359 |
|
Selling, general and administrative expenses |
|
| 386,481 |
|
|
| 314,599 |
| �� |
| 1,143,738 |
|
|
| 1,075,827 |
|
|
| 390,961 |
|
|
| 386,481 |
|
|
| 1,156,082 |
|
|
| 1,143,738 |
|
Restructuring |
|
| 508 |
|
|
| 5,816 |
|
|
| 1,371 |
|
|
| 11,541 |
|
|
| 44 |
|
|
| 508 |
|
|
| 1,143 |
|
|
| 1,371 |
|
Operating earnings |
|
| 127,417 |
|
|
| 1,431 |
|
|
| 307,250 |
|
|
| 139,083 |
|
|
| 99,203 |
|
|
| 127,417 |
|
|
| 298,444 |
|
|
| 307,250 |
|
Interest expense |
|
| 23,452 |
|
|
| 27,298 |
|
|
| 73,313 |
|
|
| 70,483 |
|
|
| 35,977 |
|
|
| 23,452 |
|
|
| 76,113 |
|
|
| 73,313 |
|
Earnings (loss) before provision for income taxes |
|
| 103,965 |
|
|
| (25,867 | ) |
|
| 233,937 |
|
|
| 68,600 |
| ||||||||||||||||
Provision (benefit) for income taxes |
|
| 27,759 |
|
|
| (2,341 | ) |
|
| 62,228 |
|
|
| 25,543 |
| ||||||||||||||||
Net earnings (loss) |
| $ | 76,206 |
|
| $ | (23,526 | ) |
| $ | 171,709 |
|
| $ | 43,057 |
| ||||||||||||||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings before provision for income taxes |
|
| 63,226 |
|
|
| 103,965 |
|
|
| 222,331 |
|
|
| 233,937 |
| ||||||||||||||||
Provision for income taxes |
|
| 16,659 |
|
|
| 27,759 |
|
|
| 60,117 |
|
|
| 62,228 |
| ||||||||||||||||
Net earnings |
| $ | 46,567 |
|
| $ | 76,206 |
|
| $ | 162,214 |
|
| $ | 171,709 |
| ||||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.68 |
|
| $ | (0.21 | ) |
| $ | 1.52 |
|
| $ | 0.38 |
|
| $ | 0.44 |
|
| $ | 0.68 |
|
| $ | 1.48 |
|
| $ | 1.52 |
|
Diluted |
| $ | 0.66 |
|
| $ | (0.21 | ) |
| $ | 1.50 |
|
| $ | 0.37 |
|
| $ | 0.43 |
|
| $ | 0.66 |
|
| $ | 1.46 |
|
| $ | 1.50 |
|
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 112,739 |
|
|
| 112,271 |
|
|
| 112,605 |
|
|
| 114,413 |
|
|
| 106,940 |
|
|
| 112,739 |
|
|
| 109,238 |
|
|
| 112,605 |
|
Diluted |
|
| 114,927 |
|
|
| 112,271 |
|
|
| 114,274 |
|
|
| 115,370 |
|
|
| 108,526 |
|
|
| 114,927 |
|
|
| 110,907 |
|
|
| 114,274 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net earnings |
| $ | 46,567 |
|
| $ | 76,206 |
|
| $ | 162,214 |
|
| $ | 171,709 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (27,384 | ) |
|
| 6,617 |
|
|
| (34,645 | ) |
|
| 23,734 |
|
Interest rate caps, net of tax |
|
| 2,050 |
|
|
| 471 |
|
|
| 2,328 |
|
|
| 646 |
|
Foreign exchange contracts, net of tax |
|
| 432 |
|
|
| (191 | ) |
|
| 588 |
|
|
| (1,211 | ) |
Other comprehensive (loss) income, net of tax |
|
| (24,902 | ) |
|
| 6,897 |
|
|
| (31,729 | ) |
|
| 23,169 |
|
Total comprehensive income |
| $ | 21,665 |
|
| $ | 83,103 |
|
| $ | 130,485 |
|
| $ | 194,878 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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, 2021 |
| 112,913 |
|
| $ | 1,129 |
|
| $ | 17,286 |
|
| $ | 356,967 |
|
| $ | (94,641 | ) |
| $ | 280,741 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 68,838 |
|
|
| — |
|
|
| 68,838 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,751 | ) |
|
| (3,751 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 3,958 |
|
|
| — |
|
|
| — |
|
|
| 3,958 |
|
Stock issued for equity awards |
| 795 |
|
|
| 8 |
|
|
| 7,364 |
|
|
| — |
|
|
| — |
|
|
| 7,372 |
|
Employee withholding taxes paid related to net share settlement |
| (56 | ) |
|
| (1 | ) |
|
| (1,136 | ) |
|
| — |
|
|
| — |
|
|
| (1,137 | ) |
Repurchases and cancellations of common stock |
| (3,675 | ) |
|
| (36 | ) |
|
| (27,472 | ) |
|
| (47,492 | ) |
|
| — |
|
|
| (75,000 | ) |
Balance at December 31, 2021 |
| 109,977 |
|
| $ | 1,100 |
|
| $ | — |
|
| $ | 378,313 |
|
| $ | (98,392 | ) |
| $ | 281,021 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 46,808 |
|
|
| — |
|
|
| 46,808 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,076 | ) |
|
| (3,076 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,032 |
|
|
| — |
|
|
| — |
|
|
| 2,032 |
|
Stock issued for equity awards |
| 111 |
|
|
| 1 |
|
|
| 423 |
|
|
| — |
|
|
| — |
|
|
| 424 |
|
Employee withholding taxes paid related to net share settlement |
| (1 | ) |
|
| — |
|
|
| (15 | ) |
|
| — |
|
|
| — |
|
|
| (15 | ) |
Repurchases and cancellations of common stock |
| (3,157 | ) |
|
| (32 | ) |
|
| (2,440 | ) |
|
| (52,856 | ) |
|
| — |
|
|
| (55,328 | ) |
Balance at March 31, 2022 |
| 106,930 |
|
| $ | 1,069 |
|
| $ | — |
|
| $ | 372,265 |
|
| $ | (101,468 | ) |
| $ | 271,866 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 46,567 |
|
|
| — |
|
|
| 46,567 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (24,902 | ) |
|
| (24,902 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,113 |
|
|
| — |
|
|
| — |
|
|
| 2,113 |
|
Stock issued for equity awards |
| 35 |
|
|
| 1 |
|
|
| 253 |
|
|
| — |
|
|
| — |
|
|
| 254 |
|
Employee withholding taxes paid related to net share settlement |
| (2 | ) |
|
| — |
|
|
| (27 | ) |
|
| — |
|
|
| — |
|
|
| (27 | ) |
Balance at June 30, 2022 |
| 106,963 |
|
| $ | 1,070 |
|
| $ | 2,339 |
|
| $ | 418,832 |
|
| $ | (126,370 | ) |
| $ | 295,871 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| 158 |
|
|
|
|
| 2 |
|
|
|
|
| (2 | ) |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
Employee withholding taxes paid related to net share settlement |
| (25 | ) |
|
|
|
| (1 | ) |
|
|
|
| (248 | ) |
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| (249 | ) |
Balance at December 31, 2020 |
| 112,538 |
|
|
|
| $ | 1,125 |
|
|
|
| $ | 4,556 |
|
|
|
| $ | 174,300 |
|
|
|
| $ | (81,115 | ) |
|
|
| $ | 98,866 |
|
Net earnings |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 38,312 |
|
|
|
|
| — |
|
|
|
|
| 38,312 |
|
Other comprehensive loss |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| (7,316 | ) |
|
|
|
| (7,316 | ) |
Share-based compensation |
| — |
|
|
|
|
| — |
|
|
|
|
| 2,648 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 2,648 |
|
Stock issued for equity awards |
| 141 |
|
|
|
|
| 2 |
|
|
|
|
| 2,321 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 2,323 |
|
Balance at March 31, 2021 |
| 112,679 |
|
|
|
| $ | 1,127 |
|
|
|
| $ | 9,525 |
|
|
|
| $ | 212,612 |
|
|
|
| $ | (88,431 | ) |
|
|
| $ | 134,833 |
|
Net loss |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 76,206 |
|
|
|
|
| — |
|
|
|
|
| 76,206 |
|
Other comprehensive income |
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 6,897 |
|
|
|
|
| 6,897 |
|
Share-based compensation |
| — |
|
|
|
|
| — |
|
|
|
|
| 2,617 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 2,617 |
|
Stock issued for stock options |
| 101 |
|
|
|
|
| 1 |
|
|
|
|
| 1,716 |
|
|
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 1,717 |
|
Balance at June 30, 2021 |
| 112,780 |
|
|
|
| $ | 1,128 |
|
|
|
| $ | 13,858 |
|
|
|
| $ | 288,818 |
|
|
|
| $ | (81,534 | ) |
|
|
| $ | 222,270 |
|
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, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Net earnings (loss) |
| $ | 76,206 |
|
| $ | (23,526 | ) |
| $ | 171,709 |
|
| $ | 43,057 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| 6,617 |
|
|
| 5,116 |
|
|
| 23,734 |
|
|
| (3,707 | ) |
Interest rate caps, net of tax |
|
| 471 |
|
|
| 245 |
|
|
| 646 |
|
|
| 274 |
|
Foreign exchange contracts, net of tax |
|
| (191 | ) |
|
| (286 | ) |
|
| (1,211 | ) |
|
| 1,552 |
|
Other comprehensive income (loss), net of tax |
|
| 6,897 |
|
|
| 5,075 |
|
|
| 23,169 |
|
|
| (1,881 | ) |
Total comprehensive income (loss) |
| $ | 83,103 |
|
| $ | (18,451 | ) |
| $ | 194,878 |
|
| $ | 41,176 |
|
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 (Deficit)
(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 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 38,312 |
|
|
| — |
|
|
| 38,312 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,316 | ) |
|
| (7,316 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,648 |
|
|
| — |
|
|
| — |
|
|
| 2,648 |
|
Stock issued for equity awards |
| 141 |
|
|
| 2 |
|
|
| 2,321 |
|
|
| — |
|
|
| — |
|
|
| 2,323 |
|
Balance at March 31, 2021 |
| 112,679 |
|
| $ | 1,127 |
|
| $ | 9,525 |
|
| $ | 212,612 |
|
| $ | (88,431 | ) |
| $ | 134,833 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 76,206 |
|
|
| — |
|
|
| 76,206 |
|
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,897 |
|
|
| 6,897 |
|
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,617 |
|
|
| — |
|
|
| — |
|
|
| 2,617 |
|
Stock issued for equity awards |
| 101 |
|
|
| 1 |
|
|
| 1,716 |
|
|
| — |
|
|
| — |
|
|
| 1,717 |
|
Balance at June 30, 2021 |
| 112,780 |
|
| $ | 1,128 |
|
| $ | 13,858 |
|
| $ | 288,818 |
|
| $ | (81,534 | ) |
| $ | 222,270 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
| Total |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Other |
|
|
|
| Stockholders’ |
| |||
| Common Stock |
| Paid-in |
|
|
|
| Accumulated |
|
|
|
| Comprehensive |
|
|
|
| Equity |
| ||||||||||||||
| Shares |
|
|
|
| Amount |
|
|
|
| Capital |
|
|
|
| Earnings |
|
|
|
| Loss |
|
|
|
| (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 |
|
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 equity awards |
| 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 | ) |
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, |
|
| Nine Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 171,709 |
|
| $ | 43,057 |
|
| $ | 162,214 |
|
| $ | 171,709 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 78,090 |
|
|
| 80,829 |
|
|
| 73,361 |
|
|
| 78,090 |
|
Share-based compensation expense |
|
| 8,158 |
|
|
| 9,094 |
|
|
| 8,103 |
|
|
| 8,158 |
|
Amortization of deferred financing costs |
|
| 3,280 |
|
|
| 2,965 |
|
|
| 2,702 |
|
|
| 3,280 |
|
Loss (gain) on early extinguishment of debt |
|
| 2,449 |
|
|
| (357 | ) | ||||||||
Loss on early extinguishment of debt |
|
| 16,439 |
|
|
| 2,449 |
| ||||||||
Loss on disposal of equipment and other property |
|
| 1,638 |
|
|
| 2,910 |
|
|
| 57 |
|
|
| 1,638 |
|
Deferred income taxes |
|
| (998 | ) |
|
| 600 |
|
|
| 7,702 |
|
|
| (998 | ) |
Changes in (exclusive of effects of acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| (8,612 | ) |
|
| 495 |
|
|
| 243 |
|
|
| (8,612 | ) |
Accounts receivable, other |
|
| (10,363 | ) |
|
| 45,888 |
|
|
| (3,034 | ) |
|
| (10,363 | ) |
Inventory |
|
| (108,317 | ) |
|
| 134,824 |
|
|
| (160,194 | ) |
|
| (108,317 | ) |
Other current assets |
|
| (931 | ) |
|
| (15,840 | ) |
|
| (15,577 | ) |
|
| (931 | ) |
Other assets |
|
| 1,578 |
|
|
| (691 | ) |
|
| 3,547 |
|
|
| 1,578 |
|
Operating leases, net |
|
| (1,595 | ) |
|
| — |
|
|
| 8,448 |
|
|
| (1,595 | ) |
Accounts payable and accrued liabilities |
|
| 78,250 |
|
|
| (35,572 | ) |
|
| (34,349 | ) |
|
| 78,250 |
|
Income taxes payable |
|
| 6,372 |
|
|
| (7,154 | ) |
|
| (8,169 | ) |
|
| 6,372 |
|
Other liabilities |
|
| (2,980 | ) |
|
| 13,336 |
|
|
| (12,266 | ) |
|
| (2,980 | ) |
Net cash provided by operating activities |
|
| 217,728 |
|
|
| 274,384 |
|
|
| 49,227 |
|
|
| 217,728 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment, net of proceeds |
|
| (44,888 | ) |
|
| (89,702 | ) |
|
| (67,234 | ) |
|
| (44,888 | ) |
Acquisitions, net of cash acquired |
|
| (2,351 | ) |
|
| (1,944 | ) |
|
| (665 | ) |
|
| (2,351 | ) |
Net cash used by investing activities |
|
| (47,239 | ) |
|
| (91,646 | ) |
|
| (67,899 | ) |
|
| (47,239 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| — |
|
|
| 1,087,504 |
|
|
| 283,003 |
|
|
| — |
|
Repayments of long-term debt |
|
| (418,986 | ) |
|
| (437,391 | ) | ||||||||
Repayments of long-term debt, including prepayment costs |
|
| (433,383 | ) |
|
| (418,986 | ) | ||||||||
Debt issuance costs |
|
| (1,300 | ) |
|
| (6,257 | ) |
|
| — |
|
|
| (1,300 | ) |
Payments for common stock repurchased |
|
| — |
|
|
| (61,357 | ) |
|
| (130,328 | ) |
|
| — |
|
Proceeds from equity awards |
|
| 3,790 |
|
|
| 2,722 |
|
|
| 8,050 |
|
|
| 4,039 |
|
Net cash (used) provided by financing activities |
|
| (416,496 | ) |
|
| 585,221 |
| ||||||||
Employee withholding taxes paid related to net share settlement of equity awards |
|
| (1,179 | ) |
|
| (249 | ) | ||||||||
Net cash used by financing activities |
|
| (273,837 | ) |
|
| (416,496 | ) | ||||||||
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| 2,173 |
|
|
| (643 | ) |
|
| (7,132 | ) |
|
| 2,173 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (243,834 | ) |
|
| 767,316 |
| ||||||||
Net decrease in cash and cash equivalents |
|
| (299,641 | ) |
|
| (243,834 | ) | ||||||||
Cash and cash equivalents, beginning of period |
|
| 514,151 |
|
|
| 71,495 |
|
|
| 400,959 |
|
|
| 514,151 |
|
Cash and cash equivalents, end of period |
| $ | 270,317 |
|
| $ | 838,811 |
|
| $ | 101,318 |
|
| $ | 270,317 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 86,293 |
|
| $ | 74,046 |
|
| $ | 75,660 |
|
| $ | 86,293 |
|
Income taxes paid |
| $ | 53,764 |
|
| $ | 45,292 |
|
| $ | 73,862 |
|
| $ | 53,764 |
|
Capital expenditures incurred but not paid |
| $ | 2,098 |
|
| $ | 4,469 |
|
| $ | 7,682 |
|
| $ | 2,098 |
|
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. Significant Accounting Policies
Business Operations
Sally Beauty Holdings is an international specialty retailer and distributor of professional beauty supplies with operations in North America, South America and Europe. We are one of the largest distributors of professional beauty supplies in the U.S. based on store count, operating under 2 segments, Sally Beauty Supply (“SBS”) and Beauty Systems Group (“BSG”). Our operations consist of company-operated stores, franchise stores and several e-commerce platforms. Within BSG, we also have one of the largest networks of distributor sales consultants (“DSCs”) for professional beauty products in North America, who sell directly to salons and salon professionals. SBS targets retail consumers, salons and salon professionals, while BSG targets salons and salon professionals.
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 included herein are adequate to makefor the information not misleading.interim period presented. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.2021. 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, 20212022, and September 30, 2020,2021, and our consolidated results of operations, consolidated comprehensive income, and consolidated statements of stockholders’ equity for the three and nine months ended June 30, 2022 and 2021, and 2020, our consolidated cash flows for the nine months ended June 30, 20212022 and 2020.2021.
Our operating results for the threePrinciples of Consolidation
The condensed consolidated interim financial statements include all accounts of Sally Beauty Holdings, Inc. and nine months ended June 30, 2021, may not be indicative of the results that may be expected for the full fiscal year ending September 30, 2021,its subsidiaries. All intercompany accounts and transactions have been eliminated in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic on future periods. Due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.consolidation. All amounts are in U.S. Dollars.
2. Significant Accounting Policies
We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full-year assumptions. For interim financial reporting purposes, income taxes are recorded based upon our estimated annual effective income tax rates.tax.
3. Recent Accounting PronouncementsUse of Estimates
In December 2019,order to present our financial statements in conformity with GAAP, we are required to make certain estimates and assumptions that impact our interim financial statements and supplementary disclosures. These estimates may use forecasted financial information based on reasonable information available, however are subject to change in the FASB issued ASU No. 2019-12 which simplifies thefuture. Additionally, unknown future impacts of COVID-19 may impact those estimates and assumptions as well. Significant estimates and assumptions are part of our accounting for income taxes by removing an exception related tosales allowances, deferred revenue, valuation of inventory, amortization and depreciation, intangibles and goodwill, and other reserves. We believe these estimates and assumptions are reasonable; however, they are based on management’s current knowledge of events and actions, and changes in facts and circumstances may result in revised estimates and impact actual results.
Impact of COVID-19
Our operating results for 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 2022 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,2021 were adversely impacted by the COVID-19 pandemic and a modified retrospective basis dependentits effects on the specific change. We are currently evaluatingglobal economy. Given the impactuncertainty around the continued effects of this update, but based on our preliminary assessmentthe COVID-19 pandemic and macro-environment, we do not believe that adoption of this updatecannot reasonably predict the effect they will have a material impact on future periods. If once again we become materially and adversely impacted, we may have to consider adjustments to our results of operations, or financial position.inventory, liquidity, capital expenditures and accounting estimates and reserves.
4.
2. 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, which are included in accrued liabilities in our condensed consolidated balance sheets, for the periodperiods were as follows (in thousands):
September 30, 2020 |
|
|
|
|
| $ | 13,947 |
| ||||||||||||
|
|
|
|
|
| Nine Months Ended June 30, |
| |||||||||||||
|
|
|
|
|
| 2022 |
|
| 2021 |
| ||||||||||
Beginning Balance |
|
|
|
|
| $ | 16,744 |
|
| $ | 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 |
|
| 11,950 |
| Loyalty points and gift cards issued but not redeemed, net of estimated breakage |
|
| 5,195 |
|
|
| 11,950 |
| ||||||
Revenue recognized from beginning liability | Revenue recognized from beginning liability |
|
| (9,391 | ) | Revenue recognized from beginning liability |
|
| (8,132 | ) |
|
| (9,391 | ) | ||||||
June 30, 2021 |
|
|
|
|
| $ | 16,506 |
| ||||||||||||
Ending Balance |
|
|
|
|
| $ | 13,807 |
|
| $ | 16,506 |
|
See Note 11,10, Business SegmentsSegment Reporting, for additional information regarding the disaggregation of our sales revenue.
5.3. Fair Value Measurements
Fair valueFinancial instruments measured 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):follows:
|
| Classification |
| Fair Value Hierarchy Level |
| June 30, 2021 |
|
| September 30, 2020 |
| ||||||||||||||
(in thousands) |
| Classification |
| Fair Value Hierarchy Level |
| June 30, 2022 |
|
| September 30, 2021 |
| ||||||||||||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents |
| Cash and cash equivalents |
| Level 1 |
| $ | — |
|
| $ | 194,612 |
| ||||||||||||
Foreign exchange contracts |
| Other current assets |
| Level 2 |
|
| 1 |
|
|
| — |
|
| Other current assets |
| Level 2 |
| $ | 547 |
|
| $ | — |
|
Interest rate caps |
| Other assets |
| Level 2 |
|
| 54 |
|
|
| 27 |
|
| Other assets |
| Level 2 |
|
| 2,029 |
|
|
| 35 |
|
Total assets |
|
|
|
|
| $ | 55 |
|
| $ | 194,639 |
|
|
|
|
|
| $ | 2,576 |
|
| $ | 35 |
|
. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Accrued liabilities |
| Level 2 |
| $ | 535 |
|
| $ | — |
|
| Accrued liabilities |
| Level 2 |
| $ | 315 |
|
| $ | — |
|
OtherFinancial instruments not measured at fair value disclosures
Carrying amounts and the related estimated fair value of our long-term debt, excluding capital lease obligations and debt issuance costs, are as follows:
|
|
|
| June 30, 2021 |
|
| September 30, 2020 |
|
|
|
| June 30, 2022 |
|
| September 30, 2021 |
| ||||||||||||||||||||
|
| Fair Value Hierarchy Level |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||||||||||||||||||||
(in thousands) |
| Fair Value Hierarchy Level |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||||||||||||||||||||
Long-term debt, excluding capital leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
| Level 1 |
| $ | 979,961 |
|
| $ | 1,029,810 |
|
| $ | 1,177,380 |
|
| $ | 1,217,707 |
|
| Level 1 |
| $ | 679,961 |
|
| $ | 638,313 |
|
| $ | 979,961 |
|
| $ | 1,019,635 |
|
Term loan B |
| Level 2 |
|
| 414,375 |
|
|
| 413,339 |
|
|
| 635,788 |
|
|
| 619,397 |
|
| Level 2 |
|
| 408,875 |
|
|
| 403,764 |
|
|
| 413,000 |
|
|
| 411,451 |
|
Total long-term debt |
|
|
| $ | 1,394,336 |
|
| $ | 1,443,149 |
|
| $ | 1,813,168 |
|
| $ | 1,837,104 |
|
|
|
| $ | 1,088,836 |
|
| $ | 1,042,077 |
|
| $ | 1,392,961 |
|
| $ | 1,431,086 |
|
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.The fair value of the senior notes was measured using unadjusted quoted market prices. The fair value of Term Loan B was measured using quoted market prices for similar debt securities in active markets or widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.
6.4. Stockholders’ Equity
Share Repurchases
In August 2017, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.0 billion of its common stock, subject to certain limitations governed by our debt agreements, over an approximateagreements. In July 2021, our Board of Directors approved a term extension of the share repurchase program for the four-year period expiring onending September 30, 2021. See Note 13, Subsequent Event, for more information on2025. As of June 30, 2022, we had authorization of approximately $595.8 million of additional potential share repurchases remaining under our share repurchase program.
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 June 30, |
|
| Nine Months Ended June 30, |
|
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||||||
Number of shares repurchased |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,702 |
|
|
| — |
|
|
| — |
|
|
| 6,832 |
|
|
| — |
|
|
Total cost of share repurchased |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 61,357 |
|
| $ | — |
|
| $ | — |
|
| $ | 130,328 |
|
| $ | — |
|
|
Accumulated Other Comprehensive Loss
The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):
|
| Foreign Currency Translation Adjustments |
|
| Interest Rate Caps |
|
| Foreign Exchange Contracts |
|
| Total |
|
| ||||
Balance at September 30, 2020 |
| $ | (102,111 | ) |
| $ | (3,003 | ) |
| $ | 411 |
|
| $ | (104,703 | ) |
|
Other comprehensive income (loss) before reclassification, net of tax |
|
| 23,734 |
|
|
| (196 | ) |
|
| (1,072 | ) |
|
| 22,466 |
|
|
Reclassification to net earnings, net of tax |
|
| — |
|
|
| 842 |
|
|
| (139 | ) |
|
| 703 |
|
|
Balance at June 30, 2021 |
| $ | (78,377 | ) |
| $ | (2,357 | ) |
| $ | (800 | ) |
| $ | (81,534 | ) |
|
|
| Foreign Currency Translation Adjustments |
|
| Interest Rate Caps |
|
| Foreign Exchange Contracts |
|
| Total |
|
| ||||
Balance at September 30, 2021 |
| $ | (92,154 | ) |
| $ | (2,085 | ) |
| $ | (402 | ) |
| $ | (94,641 | ) |
|
Other comprehensive loss before reclassification, net of tax |
|
| (34,645 | ) |
|
| 1,073 |
|
|
| 400 |
|
|
| (33,172 | ) |
|
Reclassification to net earnings, net of tax |
|
| — |
|
|
| 1,255 |
|
|
| 188 |
|
|
| 1,443 |
|
|
Balance at June 30, 2022 |
| $ | (126,799 | ) |
| $ | 243 |
|
| $ | 186 |
|
| $ | (126,370 | ) |
|
The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings was not material.
7.5. 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 June 30, |
|
| Nine Months Ended June 30, |
| |||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Weighted-average basic shares |
|
| 112,739 |
|
|
| 112,271 |
|
|
| 112,605 |
|
|
| 114,413 |
|
|
| 106,940 |
|
|
| 112,739 |
|
|
| 109,238 |
|
|
| 112,605 |
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and stock award programs |
|
| 2,188 |
|
|
| — |
|
|
| 1,669 |
|
|
| 957 |
|
|
| 1,586 |
|
|
| 2,188 |
|
|
| 1,669 |
|
|
| 1,669 |
|
Weighted-average diluted shares |
|
| 114,927 |
|
|
| 112,271 |
|
|
| 114,274 |
|
|
| 115,370 |
|
|
| 108,526 |
|
|
| 114,927 |
|
|
| 110,907 |
|
|
| 114,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from our computation of diluted shares |
|
| 2,188 |
|
|
| 4,976 |
|
|
| 1,670 |
|
|
| 4,887 |
|
|
| 2,406 |
|
|
| 2,188 |
|
|
| 2,385 |
|
|
| 1,670 |
|
Potentially dilutive stock option and stock award programs excluded from our computation of diluted shares |
|
| — |
|
|
| 941 |
|
|
| — |
|
|
| — |
|
8.6. Goodwill and Intangible Assets
During the three months ended March 31, 2021,our second fiscal quarter, we completed our annual assessment for impairment of goodwill and otherindefinite-lived intangible assets. For goodwill, we used a qualitative analysis and our actual and forecasted results are exceeding the estimates from the last quantitative testtest. Additionally, .we considered potential triggering events and determined there were none for the three months ended June 30, 2022. 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, 2021 and 2020, amortization expense related to other intangible assets was $1.6 million and $2.2 million, respectively, and for the nine months ended June 30, 2021 and 2020, amortization expense was $5.0 million and $6.8 million, respectively.
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Intangible assets amortization expense |
| $ | 977 |
|
| $ | 1,648 |
|
| $ | 3,047 |
|
| $ | 4,956 |
|
Additionally, during the nine months ended June 30, 2021,2022, the increasedecreases in goodwill wasand other intangibles were primarily from the effects of foreign currency exchange rates of $6.1 million.$8.3 million and $2.2 million, respectively.
7. Accrued Liabilities
9.Accrued liabilities consist of the following (in thousands):
|
| June 30, 2022 |
|
| September 30, 2021 |
| ||
Compensation and benefits |
| $ | 67,664 |
|
| $ | 73,344 |
|
Deferred revenue |
|
| 16,216 |
|
|
| 18,543 |
|
Rental obligations |
|
| 11,187 |
|
|
| 10,501 |
|
Insurance reserves |
|
| 6,098 |
|
|
| 5,934 |
|
Interest payable |
|
| 3,722 |
|
|
| 24,101 |
|
Property and other taxes |
|
| 2,497 |
|
|
| 3,853 |
|
Operating accruals and other |
|
| 58,612 |
|
|
| 69,879 |
|
Total accrued liabilities |
| $ | 165,996 |
|
| $ | 206,155 |
|
|
|
|
|
|
|
|
|
|
8. Short-term Borrowings and Long-term Debt
During the three months ended June 30, 2022, we issued a notice of redemption (the “Redemption Notice”), to redeem on May 31, 2022, the entire $300 million aggregate outstanding principal amount of the 8.75% Senior Secured Second Lien Notes due 2025 (“8.75% Senior Notes”). The redemption was made pursuant to the terms of the Indenture dated April 24, 2020, at a redemption price equal to 104.375% of the principal amount of the 8.75% Senior Notes plus accrued but unpaid interest to, but not including, the redemption date. On May 31, 2022, we redeemed these 8.75% Senior Notes with excess cash on hand and $150.0 million in borrowings from our ABL facility. In connection with the redemption, we recognized a loss on the extinguishment of debt of $16.4 million within interest expense, which included a redemption premium of $13.1 million and the write-off of unamortized deferred financing costs of $3.3 million.
At June 30, 2021, there were 0 outstanding borrowings under2022, our ABL facility had $167.0 million in outstanding borrowings and we had $481.7$314.2 million available for borrowing, thereunder, including ourthe Canadian sub-facility, subject to the conditions contained therein. During the three months ended June 30, 2021, we entered into a third amendment to our ABL facility which extended the maturity to May 11, 2026. In connection with the amendment, we incurred $1.3 million in debt issuance costs that will be amortized over the life of the ABL facility.
During the three months ended March 31, 2021, we paid the remaining $213.2 million of aggregate outstanding principal on our term loan B fixed tranche at par, excluding accrued interest. In connection with the debt repayment, we recognized a $1.4 million loss on the extinguishment of debt from the write-off of unamortized deferred financing costs.
On April 1, 2021, we called the entire outstanding balance of $197.4 million of our 5.50% senior notes due 2023 at par plus a premium. In connection with the repayment, we recognized losses on extinguishment of debt in the aggregate amount of $2.8 million, which included a $1.8 million call premium and the write-off of $1.0 million in unamortized deferred financing costs.
On June 30, 2021, we elected to repay $8.3 million of aggregate outstanding principal on our term loan B variable tranche. This optional prepayment did not have any early prepayment penalties. In connection with the prepayment, we recognized a loss on extinguishment of debt of $0.1 million from the write-off of unamortized deferred financing costs. As of June 30, 2021, we still have $414.4 million remaining on our term loan B variable tranche.
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, 2021, we were in compliance with all debt covenants, and all the net assets of our consolidated subsidiaries were unrestricted from transfer.
10.9. Derivative Instruments and Hedging Activities
During the nine months ended June 30, 2021,2022, we did 0t purchase or hold any derivative instruments for trading or speculative purposes. See Note 5,3, 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, 2021, the2022, we held forwards, which expire ratably through September 30, 2022, with a notional amount, we held through these forwards, based upon exchange rates at June 30, 2021, was2022, as follows (in thousands):
Notional Currency |
| Notional Amount |
|
| Notional Amount |
| ||
Mexican Peso |
| $ | 6,478 |
| ||||
Euro |
| $ | 4,558 |
|
|
| 4,084 |
|
Mexican Peso |
|
| 3,698 |
| ||||
Canadian Dollar |
|
| 1,393 |
|
|
| 2,619 |
|
Total |
| $ | 9,649 |
|
| $ | 13,181 |
|
We record quarterly, net of income tax,Quarterly, the changes in fair value related to the foreign currency forwards are recorded into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold, based on inventory turns.turns, in our condensed consolidated statements of earnings. For the three and nine months ended June 30, 2022 and 2021, we recognized a loss of $0.3$0.2 million and a gain of $0.1 million, respectively, into costrespectively. The effects of goods sold on our condensed consolidated statements of earnings.foreign currency forwards were not material for the three months ended June 30, 2022 and 2021. Based on June 30, 20212022, valuations and exchange rates, we expect to reclassify lossesgains of approximately $1.0$1.6 million into cost of goods sold over the next 12 months.
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
For the next 12nine months ended June 30, 2022 and 2021, we expect to reclassify approximately $1.6recognized expense of $1.3 million and $0.8 million, respectively, into interest expense which represents the original valueon our condensed consolidated statements of the expiring caplets.
earnings. The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three and nine months ended June 30, 2022 and 2021. Over the next 12 months, we expect to reclassify approximately $0.7 million into interest expense, which represents the original value of the expiring caplets.
11. Business Segments
10. Segment Reporting
Segment data for the three and nine months ended June 30, 20212022 and 2020,2021, is as follows (in thousands):
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sally Beauty Supply ("SBS") |
| $ | 602,681 |
|
| $ | 415,468 |
|
| $ | 1,693,015 |
|
| $ | 1,504,125 |
|
| $ | 551,725 |
|
| $ | 602,681 |
|
| $ | 1,639,040 |
|
| $ | 1,693,015 |
|
Beauty Systems Group ("BSG") |
|
| 419,706 |
|
|
| 289,819 |
|
|
| 1,191,722 |
|
|
| 1,052,393 |
|
|
| 409,742 |
|
|
| 419,706 |
|
|
| 1,214,065 |
|
|
| 1,191,722 |
|
Total |
| $ | 1,022,387 |
|
| $ | 705,287 |
|
| $ | 2,884,737 |
|
| $ | 2,556,518 |
|
| $ | 961,467 |
|
| $ | 1,022,387 |
|
| $ | 2,853,105 |
|
| $ | 2,884,737 |
|
Earnings (loss) before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 116,784 |
|
| $ | 3,087 |
|
| $ | 311,975 |
|
| $ | 133,684 |
|
| $ | 88,792 |
|
| $ | 116,784 |
|
| $ | 270,355 |
|
| $ | 311,975 |
|
BSG |
|
| 55,265 |
|
|
| 40,084 |
|
|
| 151,680 |
|
|
| 143,557 |
|
|
| 56,067 |
|
|
| 55,265 |
|
|
| 160,621 |
|
|
| 151,680 |
|
Segment operating earnings |
|
| 172,049 |
|
|
| 43,171 |
|
|
| 463,655 |
|
|
| 277,241 |
|
|
| 144,859 |
|
|
| 172,049 |
|
|
| 430,976 |
|
|
| 463,655 |
|
Unallocated expenses |
|
| 44,124 |
|
|
| 35,924 |
|
|
| 155,034 |
|
|
| 126,617 |
|
|
| 45,612 |
|
|
| 44,124 |
|
|
| 131,389 |
|
|
| 155,034 |
|
Restructuring |
|
| 508 |
|
|
| 5,816 |
|
|
| 1,371 |
|
|
| 11,541 |
|
|
| 44 |
|
|
| 508 |
|
|
| 1,143 |
|
|
| 1,371 |
|
Consolidated operating earnings |
|
| 127,417 |
|
|
| 1,431 |
|
|
| 307,250 |
|
|
| 139,083 |
|
|
| 99,203 |
|
|
| 127,417 |
|
|
| 298,444 |
|
|
| 307,250 |
|
Interest expense |
|
| 23,452 |
|
|
| 27,298 |
|
|
| 73,313 |
|
|
| 70,483 |
|
|
| 35,977 |
|
|
| 23,452 |
|
|
| 76,113 |
|
|
| 73,313 |
|
Earnings (loss) before provision for income taxes |
| $ | 103,965 |
|
| $ | (25,867 | ) |
| $ | 233,937 |
|
| $ | 68,600 |
| ||||||||||||||||
Earnings before provision for income taxes |
| $ | 63,226 |
|
| $ | 103,965 |
|
| $ | 222,331 |
|
| $ | 233,937 |
|
Sales between segments, which are eliminated in consolidation, were not material during the three and nine months ended June 30, 20212022 and 2020.2021.
Disaggregation of net sales by segment
The following tables disaggregate our segment revenues by merchandise category. We have reclassified certain prior year amounts to conform to current year presentation.
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
SBS |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Hair color |
|
| 35.6 | % |
|
| 36.6 | % |
|
| 35.3 | % |
|
| 33.8 | % |
|
| 38.3 | % |
|
| 36.4 | % |
|
| 37.7 | % |
|
| 36.1 | % |
Hair care |
|
| 18.9 | % |
|
| 16.3 | % |
|
| 18.8 | % |
|
| 19.0 | % |
|
| 23.5 | % |
|
| 22.1 | % |
|
| 23.8 | % |
|
| 21.6 | % |
Skin and nail care |
|
| 14.6 | % |
|
| 13.3 | % |
|
| 12.2 | % |
|
| 13.8 | % | ||||||||||||||||
Styling tools |
|
| 11.6 | % |
|
| 13.6 | % |
|
| 14.3 | % |
|
| 13.0 | % | ||||||||||||||||
Salon supplies and accessories |
|
| 7.6 | % |
|
| 9.1 | % |
|
| 7.7 | % |
|
| 7.5 | % | ||||||||||||||||
Textured hair products |
|
| 5.8 | % |
|
| 4.7 | % |
|
| 5.9 | % |
|
| 5.1 | % | ||||||||||||||||
Styling tools and supplies |
|
| 18.8 | % |
|
| 21.3 | % |
|
| 19.4 | % |
|
| 22.4 | % | ||||||||||||||||
Nail |
|
| 11.3 | % |
|
| 10.9 | % |
|
| 10.8 | % |
|
| 10.8 | % | ||||||||||||||||
Skin and cosmetics |
|
| 7.6 | % |
|
| 8.5 | % |
|
| 7.6 | % |
|
| 8.4 | % | ||||||||||||||||
Other beauty items |
|
| 5.9 | % |
|
| 6.4 | % |
|
| 5.8 | % |
|
| 7.8 | % |
|
| 0.5 | % |
|
| 0.8 | % |
|
| 0.7 | % |
|
| 0.7 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||
BSG |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Hair color |
|
| 45.1 | % |
|
| 42.2 | % |
|
| 43.2 | % |
|
| 39.7 | % |
Hair care |
|
| 36.6 | % |
|
| 32.5 | % |
|
| 36.5 | % |
|
| 34.2 | % |
Skin and nail care |
|
| 6.8 | % |
|
| 8.2 | % |
|
| 7.3 | % |
|
| 8.2 | % |
Styling tools |
|
| 6.3 | % |
|
| 6.2 | % |
|
| 6.5 | % |
|
| 6.4 | % |
Other beauty items |
|
| 2.6 | % |
|
| 7.0 | % |
|
| 2.5 | % |
|
| 3.9 | % |
Promotional items |
|
| 2.6 | % |
|
| 3.9 | % |
|
| 4.0 | % |
|
| 7.6 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||
BSG |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Hair color |
|
| 42.3 | % |
|
| 44.3 | % |
|
| 42.4 | % |
|
| 42.4 | % |
Hair care |
|
| 40.0 | % |
|
| 37.2 | % |
|
| 39.9 | % |
|
| 38.4 | % |
Styling tools and supplies |
|
| 11.4 | % |
|
| 11.6 | % |
|
| 11.2 | % |
|
| 11.7 | % |
Skin and cosmetics |
|
| 3.4 | % |
|
| 3.7 | % |
|
| 3.9 | % |
|
| 4.1 | % |
Nail |
|
| 2.5 | % |
|
| 2.7 | % |
|
| 2.3 | % |
|
| 2.9 | % |
Other beauty items |
|
| 0.4 | % |
|
| 0.5 | % |
|
| 0.3 | % |
|
| 0.5 | % |
Total |
|
| 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 June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
SBS |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Company-operated stores |
|
| 94.2 | % |
|
| 79.1 | % |
|
| 93.7 | % |
|
| 90.9 | % |
|
| 94.0 | % |
|
| 94.2 | % |
|
| 94.0 | % |
|
| 93.7 | % |
E-commerce |
|
| 5.7 | % |
|
| 20.8 | % |
|
| 6.2 | % |
|
| 8.9 | % |
|
| 6.0 | % |
|
| 5.7 | % |
|
| 6.0 | % |
|
| 6.2 | % |
Franchise stores |
|
| 0.1 | % |
|
| 0.1 | % |
|
| 0.1 | % |
|
| 0.2 | % |
|
| 0.0 | % |
|
| 0.1 | % |
|
| 0.0 | % |
|
| 0.1 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 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 June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
BSG |
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Company-operated stores |
|
| 69.2 | % |
|
| 63.9 | % |
|
| 69.7 | % |
|
| 68.2 | % |
|
| 66.6 | % |
|
| 69.2 | % |
|
| 66.9 | % |
|
| 69.7 | % |
Distributor sales consultants |
|
| 14.1 | % |
|
| 10.8 | % |
|
| 14.0 | % |
|
| 15.5 | % |
|
| 13.9 | % |
|
| 14.1 | % |
|
| 13.9 | % |
|
| 14.0 | % |
E-commerce |
|
| 8.8 | % |
|
| 17.4 | % |
|
| 8.8 | % |
|
| 8.9 | % |
|
| 11.6 | % |
|
| 8.8 | % |
|
| 11.8 | % |
|
| 8.8 | % |
Franchise stores |
|
| 7.9 | % |
|
| 7.9 | % |
|
| 7.5 | % |
|
| 7.4 | % |
|
| 7.9 | % |
|
| 7.9 | % |
|
| 7.4 | % |
|
| 7.5 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
12. Income Tax
For the three months ended June 30, 2021 and 2020, our effective tax rates were 26.7% and 9.1%, respectively. The effective tax rate for the third quarter of the prior year was negatively impacted by foreign losses for which a tax benefit could not be recognized. For the nine months ended June 30, 2021 and 2020, our effective tax rates were 26.6% and 37.2%, respectively. The decrease in the effective tax rate was primarily due to greater losses in the prior year from foreign subsidiaries for which a tax benefit could not be recognized and the establishment of a valuation allowance in a foreign subsidiary in the prior year.
Refer to the following rate reconciliation for more details relating to the period over period differences in the effective tax rate:
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| June 30, |
|
| June 30, |
| ||||||||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
U.S. federal statutory income tax rate |
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
State income taxes, net of federal tax benefit |
| 3.2 |
|
|
| 2.9 |
|
|
| 3.3 |
|
|
| 3.9 |
|
Effect of foreign operations |
| 1.1 |
|
|
| 4.6 |
|
|
| 0.9 |
|
|
| (0.5 | ) |
Foreign valuation allowances (1) |
| 0.5 |
|
|
| (13.0 | ) |
|
| 0.3 |
|
|
| 10.2 |
|
Deemed repatriation tax (1) |
| — |
|
|
| (1.1 | ) |
|
| — |
|
|
| 0.4 |
|
Other, net (1) |
| 0.9 |
|
|
| (5.3 | ) |
|
| 1.1 |
|
|
| 2.2 |
|
Effective tax rate |
| 26.7 | % |
|
| 9.1 | % |
|
| 26.6 | % |
|
| 37.2 | % |
|
|
13. Subsequent Event
In 2017 the Board of Directors approved a share repurchase program authorizing us to repurchase up to $1.0 billion of our common stock through September 30, 2021. On July 22, 2021, the Board approved a term extension of the share repurchase program for the four-year period ending September 30, 2025. Under the extension we are authorized to purchase our common stock up to the amount remaining under the Board’s 2017 authorization, which is currently $726.1 million.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty. This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and our other filings with2021.
Executive Overview
In the Securities and Exchange Commission, includingthird quarter of fiscal year 2022, we delivered solid gross margin growth in both segments compared to the Risk Factors sections therein, and information contained elsewhere in this Quarterly Report, includingsame period last year. Additionally during 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 orquarter, we repaid the entire fiscal year, in particular as$300 million dollar balance on our 8.75% Senior Notes and continued to invest for growth through many of our initiatives, despite volatile market conditions and its impact on our topline performance. With a resulthealthy balance sheet, a strong operating infrastructure and the loyalty of our core customers, we believe we are well positioned to continue navigating the uncertainty of the continued effects of the COVID-19 pandemicmacro-environment and remain focused on future periods.our four strategic pillars: leveraging our digital platform, driving loyalty and personalization, delivering product innovation and optimizing our supply chain.
HighlightsFinancial Summary for the Three Months Ended June 30, 20212022
| • | Consolidated net sales for the three months ended June 30, |
| • | Consolidated |
| • | Consolidated gross profit for the three months ended June 30, |
| • | Consolidated operating earnings for the three months ended June 30, |
| • | For the three months ended June 30, |
| • | For the three months ended June 30, |
| • | Cash provided by operations was $52.0 million for the three months ended June 30, 2022, compared to $86.2 million for the three months ended June 30, |
| • | During the period, we redeemed the entire outstanding principal amount of our 8.75% Senior Notes at a redemption price equal to 104.375%. As a result, we recorded a loss on debt extinguishment of $16.4 million within interest expense on our condensed consolidated statements of earnings. |
Trends Impacting Our Business
Global inflationary pressures continue to impact consumer spending behavior and the cost for products and services. Moreover, there is still volatility in the global supply chain, while freight carriers are faced with higher fuel prices. During the current quarter and fiscal year, these headwinds have resulted in lower traffic and conversion in our business and increases in certain operating costs, including inbound freight and delivery expenses. Additionally, due to general labor shortages in the U.S. during the year, especially among retail and hourly employees, we have experienced an increase in our compensation costs in order to attract and retain associates. We continue to monitor these challenges and implement measures to help mitigate their impacts, including managing our inventory levels to reduce out-of-stock items, adjusting our promotional activities, optimizing our store base and expanding our partnerships with delivery service providers. Although these initiatives have helped mitigate ongoing macro-headwinds we cannot reasonably predict the long-term effects of inflation and supply chain disruptions.
In a measure to curb inflation, the U.S. Federal Reserve has continued to increase the federal funds effective rate. In turn, these increases have raised the cost of debt borrowings. We currently have approximately $575.9 million in variable rate debt, with $408.9 million hedged with interest rate caps to help mitigate the impact of raising rates. Future increases in the federal funds effective rate could have a material adverse impact to our cost of debt, including any future changes in our debt structure.
Impact of COVID-19 on Our Business
During the fiscal year, we experienced disruptions to our business as a result of the COVID-19 pandemic and Business Strategy Update
COVID-19 restrictions onwe continue to take certain actions in order to protect our globalcustomers and associates. In particular, our store operations continuedcontinue to easeface challenges and disruptions related to COVID-19 surges and spikes in infection levels. While the current quarter. However, duesituation has shown signs of stabilization, we cannot reasonably predict the effects of new variants or expect improving trends to the continued uncertainty over the duration and severity of the economic and operationalcontinue. Therefore, our future performance may partially depend on impacts of COVID-19 such as decreased customer in-store traffic, temporary store closures, and continued labor and supply chain disruptions.
Refer to Item 1A. “Risk Factors” in our Form 10-K for the adverse impactfiscal year ended September 30, 2021, for further discussion on the risks and uncertainties created by COVID-19.
Comparable Sales
The Company’s initiative to invest in our digital platforms support our omni-channel strategies to provide customers an enhanced shopping experience. As such, we believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period. Our comparable sales include sales from stores that have been operating for 14 months or longer as of the pandemic may continue further intolast day of a month and e-commerce revenue. Additionally, comparable sales include sales to franchisees and full service sales. Our comparable sales excludes the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquisitions are excluded from our fiscal year 2021 and possibly beyond, and it maycomparable sales calculation until 14 months after the acquisition. Our calculation of comparable sales might not be material.
Furthermore, we continue to make progress against our key business initiatives, which includes leveraging and optimizing our elevated digital capabilities, growing our customer engagement and loyalty, and implementing the final steps in our successful transformation journey, which remains on track to be substantially completed bysame as other retailers as the end ofcalculation varies across the year.retail industry.
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 June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2021 |
|
| 2020 |
|
| Increase (Decrease) |
|
| 2021 |
|
| 2020 |
|
| Increase (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
| ||||||||||||||||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 602,681 |
|
| $ | 415,468 |
|
| $ | 187,213 |
|
|
| 45.1 | % |
| $ | 1,693,015 |
|
| $ | 1,504,125 |
|
| $ | 188,890 |
|
|
| 12.6 | % |
| $ | 551,725 |
|
| $ | 602,681 |
|
| $ | (50,956 | ) |
|
| (8.5 | )% |
| $ | 1,639,040 |
|
| $ | 1,693,015 |
|
| $ | (53,975 | ) |
|
| (3.2 | )% |
BSG |
|
| 419,706 |
|
|
| 289,819 |
|
|
| 129,887 |
|
|
| 44.8 | % |
|
| 1,191,722 |
|
|
| 1,052,393 |
|
|
| 139,329 |
|
|
| 13.2 | % |
|
| 409,742 |
|
|
| 419,706 |
|
|
| (9,964 | ) |
|
| (2.4 | )% |
|
| 1,214,065 |
|
|
| 1,191,722 |
|
|
| 22,343 |
|
|
| 1.9 | % |
Consolidated |
| $ | 1,022,387 |
|
| $ | 705,287 |
|
| $ | 317,100 |
|
|
| 45.0 | % |
| $ | 2,884,737 |
|
| $ | 2,556,518 |
|
| $ | 328,219 |
|
|
| 12.8 | % |
| $ | 961,467 |
|
| $ | 1,022,387 |
|
| $ | (60,920 | ) |
|
| (6.0 | )% |
| $ | 2,853,105 |
|
| $ | 2,884,737 |
|
| $ | (31,632 | ) |
|
| (1.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 349,167 |
|
| $ | 202,460 |
|
| $ | 146,707 |
|
|
| 72.5 | % |
| $ | 982,139 |
|
| $ | 800,517 |
|
| $ | 181,622 |
|
|
| 22.7 | % |
| $ | 322,815 |
|
| $ | 349,167 |
|
| $ | (26,352 | ) |
|
| (7.5 | )% |
| $ | 960,249 |
|
| $ | 982,139 |
|
| $ | (21,890 | ) |
|
| (2.2 | )% |
BSG |
|
| 165,239 |
|
|
| 119,386 |
|
|
| 45,853 |
|
|
| 38.4 | % |
|
| 470,220 |
|
|
| 425,934 |
|
|
| 44,286 |
|
|
| 10.4 | % |
|
| 167,393 |
|
|
| 165,239 |
|
|
| 2,154 |
|
|
| 1.3 | % |
|
| 495,420 |
|
|
| 470,220 |
|
|
| 25,200 |
|
|
| 5.4 | % |
Consolidated |
| $ | 514,406 |
|
| $ | 321,846 |
|
| $ | 192,560 |
|
|
| 59.8 | % |
| $ | 1,452,359 |
|
| $ | 1,226,451 |
|
| $ | 225,908 |
|
|
| 18.4 | % |
| $ | 490,208 |
|
| $ | 514,406 |
|
| $ | (24,198 | ) |
|
| (4.7 | )% |
| $ | 1,455,669 |
|
| $ | 1,452,359 |
|
| $ | 3,310 |
|
|
| 0.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
| 57.9 | % |
|
| 48.7 | % |
| 920 |
|
| bps |
|
|
| 58.0 | % |
|
| 53.2 | % |
| 480 |
|
| bps |
|
|
| 58.5 | % |
|
| 57.9 | % |
| 60 |
|
| bps |
|
|
| 58.6 | % |
|
| 58.0 | % |
| 60 |
|
| bps |
| ||||||||
BSG |
|
| 39.4 | % |
|
| 41.2 | % |
| (180) |
|
| bps |
|
|
| 39.5 | % |
|
| 40.5 | % |
| (100) |
|
| bps |
|
|
| 40.9 | % |
|
| 39.4 | % |
| 150 |
|
| bps |
|
|
| 40.8 | % |
|
| 39.5 | % |
| 130 |
|
| bps |
| ||||||||
Consolidated |
|
| 50.3 | % |
|
| 45.6 | % |
| 470 |
|
| bps |
|
|
| 50.3 | % |
|
| 48.0 | % |
| 230 |
|
| bps |
|
|
| 51.0 | % |
|
| 50.3 | % |
| 70 |
|
| bps |
|
|
| 51.0 | % |
|
| 50.3 | % |
| 70 |
|
| bps |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 116,784 |
|
| $ | 3,087 |
|
| $ | 113,697 |
|
|
| 3683.1 | % |
| $ | 311,975 |
|
| $ | 133,684 |
|
| $ | 178,291 |
|
|
| 133.4 | % |
| $ | 88,792 |
|
| $ | 116,784 |
|
| $ | (27,992 | ) |
|
| (24.0 | )% |
| $ | 270,355 |
|
| $ | 311,975 |
|
| $ | (41,620 | ) |
|
| (13.3 | )% |
BSG |
|
| 55,265 |
|
|
| 40,084 |
|
|
| 15,181 |
|
|
| 37.9 | % |
|
| 151,680 |
|
|
| 143,557 |
|
|
| 8,123 |
|
|
| 5.7 | % |
|
| 56,067 |
|
|
| 55,265 |
|
|
| 802 |
|
|
| 1.5 | % |
|
| 160,621 |
|
|
| 151,680 |
|
|
| 8,941 |
|
|
| 5.9 | % |
Segment operating earnings |
|
| 172,049 |
|
|
| 43,171 |
|
|
| 128,878 |
|
|
| 298.5 | % |
|
| 463,655 |
|
|
| 277,241 |
|
|
| 186,414 |
|
|
| 67.2 | % |
|
| 144,859 |
|
|
| 172,049 |
|
|
| (27,190 | ) |
|
| (15.8 | )% |
|
| 430,976 |
|
|
| 463,655 |
|
|
| (32,679 | ) |
|
| (7.0 | )% |
Unallocated expenses and restructuring (a) |
|
| 44,632 |
|
|
| 41,740 |
|
|
| 2,892 |
|
|
| 6.9 | % |
|
| 156,405 |
|
|
| 138,158 |
|
|
| 18,247 |
|
|
| 13.2 | % |
|
| 45,656 |
|
|
| 44,632 |
|
|
| 1,024 |
|
|
| 2.3 | % |
|
| 132,532 |
|
|
| 156,405 |
|
|
| (23,873 | ) |
|
| (15.3 | )% |
Consolidated operating earnings |
|
| 127,417 |
|
|
| 1,431 |
|
|
| 125,986 |
|
|
| 8804.1 | % |
|
| 307,250 |
|
|
| 139,083 |
|
|
| 168,167 |
|
|
| 120.9 | % |
|
| 99,203 |
|
|
| 127,417 |
|
|
| (28,214 | ) |
|
| (22.1 | )% |
|
| 298,444 |
|
|
| 307,250 |
|
|
| (8,806 | ) |
|
| (2.9 | )% |
Interest expense |
|
| 23,452 |
|
|
| 27,298 |
|
|
| (3,846 | ) |
|
| (14.1 | )% |
|
| 73,313 |
|
|
| 70,483 |
|
|
| 2,830 |
|
|
| 4.0 | % |
|
| 35,977 |
|
|
| 23,452 |
|
|
| 12,525 |
|
|
| 53.4 | % |
|
| 76,113 |
|
|
| 73,313 |
|
|
| 2,800 |
|
|
| 3.8 | % |
Earnings (loss) before provision for income taxes |
|
| 103,965 |
|
|
| (25,867 | ) |
|
| 129,832 |
|
|
| (501.9 | )% |
|
| 233,937 |
|
|
| 68,600 |
|
|
| 165,337 |
|
|
| 241.0 | % | ||||||||||||||||||||||||||||||||
Provision (benefit) for income taxes |
|
| 27,759 |
|
|
| (2,341 | ) |
|
| 30,100 |
|
|
| (1285.8 | )% |
|
| 62,228 |
|
|
| 25,543 |
|
|
| 36,685 |
|
|
| 143.6 | % | ||||||||||||||||||||||||||||||||
Net earnings (loss) |
| $ | 76,206 |
|
| $ | (23,526 | ) |
| $ | 99,732 |
|
|
| (423.9 | )% |
| $ | 171,709 |
|
| $ | 43,057 |
|
| $ | 128,652 |
|
|
| 298.8 | % | ||||||||||||||||||||||||||||||||
Earnings before provision for income taxes |
|
| 63,226 |
|
|
| 103,965 |
|
|
| (40,739 | ) |
|
| (39.2 | )% |
|
| 222,331 |
|
|
| 233,937 |
|
|
| (11,606 | ) |
|
| (5.0 | )% | ||||||||||||||||||||||||||||||||
Provision for income taxes |
|
| 16,659 |
|
|
| 27,759 |
|
|
| (11,100 | ) |
|
| (40.0 | )% |
|
| 60,117 |
|
|
| 62,228 |
|
|
| (2,111 | ) |
|
| (3.4 | )% | ||||||||||||||||||||||||||||||||
Net earnings |
| $ | 46,567 |
|
| $ | 76,206 |
|
| $ | (29,639 | ) |
|
| (38.9 | )% |
| $ | 162,214 |
|
| $ | 171,709 |
|
| $ | (9,495 | ) |
|
| (5.5 | )% | ||||||||||||||||||||||||||||||||
|
| . |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| . |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,611 |
|
|
| 3,691 |
|
|
| (80 | ) |
|
| (2.2 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,468 |
|
|
| 3,611 |
|
|
| (143 | ) |
|
| (4.0 | )% |
BSG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,367 |
|
|
| 1,371 |
|
|
| (4 | ) |
|
| (0.3 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,361 |
|
|
| 1,367 |
|
|
| (6 | ) |
|
| (0.4 | )% |
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,978 |
|
|
| 5,062 |
|
|
| (84 | ) |
|
| (1.7 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,829 |
|
|
| 4,978 |
|
|
| (149 | ) |
|
| (3.0 | )% |
Same store sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||
Comparable sales growth (decline) (b): | Comparable sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
SBS |
|
| 43.3 | % |
|
| (25.9 | )% |
| 6,920 |
|
| bps |
|
|
| 12.6 | % |
|
| (11.3 | )% |
| 2,390 |
|
| bps |
|
|
| (5.0 | )% |
|
| 43.1 | % |
| (4,810) |
|
| bps |
|
|
| (0.5 | )% |
|
| 11.8 | % |
| (1,235) |
|
| bps |
| ||||||||
BSG |
|
| 47.8 | % |
|
| (27.9 | )% |
| 7,570 |
|
| bps |
|
|
| 14.5 | % |
|
| (11.2 | )% |
| 2,570 |
|
| bps |
|
|
| (1.6 | )% |
|
| 43.0 | % |
| (4,460) |
|
| bps |
|
|
| 2.6 | % |
|
| 12.0 | % |
| (941) |
|
| bps |
| ||||||||
Consolidated |
|
| 44.7 | % |
|
| (26.6 | )% |
| 7,130 |
|
| bps |
|
|
| 13.2 | % |
|
| (11.3 | )% |
| 2,450 |
|
| bps |
|
|
| (3.6 | )% |
|
| 43.1 | % |
| (4,670) |
|
| bps |
|
|
| 0.8 | % |
|
| 11.9 | % |
| (1,110) |
|
| bps |
|
(a) | Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our condensed consolidated statements of earnings. |
(b) |
|
Results of Operations
The Three Months Ended June 30, 2021,2022, compared to the Three Months Ended June 30, 20202021
Net Sales
Consolidated. Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $18.7 million, or 2.6% of consolidated net sales.
SBS. The increasedecrease in net sales for SBS was primarily driven by the following (in thousands):
Same store sales |
| $ | 173,984 |
| ||||
Other (a) |
|
| (1,986 | ) | ||||
Comparable sales |
| $ | (28,522 | ) | ||||
Sales outside comparable sales (a) |
|
| (10,568 | ) | ||||
Foreign currency exchange |
|
| 15,215 |
|
|
| (11,866 | ) |
Total |
| $ | 187,213 |
|
| $ | (50,956 | ) |
| (a) |
|
SBS experiencedThe decrease in SBS’s net sales was driven by lower comparable sales, the negative impact from foreign exchange rates and the impact of closed stores. SBS’s comparable sales decrease was driven by fewer transactions as a result of lower store traffic, while the average ticket was relatively unchanged, resulting from lower average unit volume offset by higher average unit volumeretail prices, led by our color and care categories.
BSG. The decrease in net sales for BSG was primarily driven by the following (in thousands):
Comparable sales |
| $ | (6,597 | ) |
Sales outside comparable sales (a) |
|
| (2,185 | ) |
Foreign currency exchange |
|
| (1,182 | ) |
Total |
| $ | (9,964 | ) |
(a) | Includes stores opened for less than 14 months, net of stores closures |
The decrease in BSG’s net sales was primarily due to lower comparable sales, the reopeningimpact of all of our customer-facing store operations in the U.S. and Canada, improving consumer confidence in the U.S.closed stores and the easingnegative impact from the Canadian foreign exchange rate. BSG’s comparable sales was driven by fewer transactions as a result of COVID-19 restrictions across international territories. Forlower store traffic, partially offset by an increase in average ticket, resulting from higher average unit retail prices, led by color, care and styling tools categories, partially offset by lower unit volume.
Gross Profit
SBS. SBS’s gross profit decreased for the three months ended June 30, 2021, there was minimal impact from temporary closures of certain customer-facing store operations2022, as a result of COVID-19. Additionally, a decrease in net sales, partially offset by a higher gross margin. SBS’s gross margin increased primarily as a result of an improvement in pricing leverage, partially offset by higher distribution and freight costs.
BSG. BSG’s gross profit increased for the three months ended June 30, 2022, driven by an improvement in pricing leverage, partially offset by higher distribution and freight costs.
Selling, General and Administrative Expenses
SBS experienced an. SBS’s selling, general and administrative expenses increased $1.6 million, or 0.7%, for the three months ended June 30, 2022. The increase was driven by higher compensation and compensation-related expenses of $5.4 million, resulting from higher wages within general labor markets, and higher information technology expenses of $1.2 million, partially offset by the favorable impact of foreign exchange rates of $4.6 million.
BSG. BSG’s selling, general and administrative expenses increased $1.4 million, or 1.2%, for the three months ended June 30, 2022. The increase was driven primarily by higher delivery expense of $1.3 million as a result of increased fuel prices
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $1.5 million, or 3.4%, for the three months ended June 30, 2022, primarily due to higher information technology expense.
Interest Expense
The increase in interest expense is primarily due to the repayment of our 8.75% Senior Notes, which resulted in a loss from debt extinguishment of $16.4 million from an early call premium of $13.1 million and the write-off of unamortized debt issuance costs of $3.3 million in the current quarter. This increase was partially offset by the interest savings of $2.3 million from the repayment of the 8.75% Senior Notes. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The effective tax rates were 26.3% and 26.7%, for the three months ended June 30, 2022, and 2021, respectively.
The Nine Months Ended June 30, 2022, compared to the Nine Months Ended June 30, 2021
Net Sales
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Comparable sales |
| $ | (7,818 | ) |
Sales outside comparable sales (a) |
|
| (29,027 | ) |
Foreign currency exchange |
|
| (17,130 | ) |
Total |
| $ | (53,975 | ) |
(a) | Includes stores opened for less than 14 months, net of stores closures |
The decrease in SBS’s net sales was driven by the impact of store closures, the negative impact of foreign exchange rates and lower comparable sales. SBS’s comparable sales were lower due to fewer transactions, impacted by lower traffic, and a lower average ticket, resulting from lower average unit volume, partially offset by higher average unit retail prices, resulting from a change in product mix to higher-priced products.led by our color and care categories.
BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):
Same store sales |
| $ | 91,644 |
|
Distributor sales consultants |
|
| 16,230 |
|
Sales to franchisees |
|
| 10,133 |
|
Other (a) |
|
| 8,419 |
|
Foreign currency exchange |
|
| 3,461 |
|
Total |
| $ | 129,887 |
|
Comparable sales |
| $ | 29,797 |
|
Sales outside comparable sales (a) |
|
| (7,468 | ) |
Foreign currency exchange |
|
| 14 |
|
Total |
| $ | 22,343 |
|
| (a) |
|
BSG experiencedThe increase in BSG’s net sales was driven by higher unit volume primarily due to reopening of all of our customer-facing store operations in the U.S. and Canada and higher operating capacities in salons from the easing of COVID-19 restrictions. This wascomparable sales, partially offset by the impact of closed stores. BSG’s comparable sales increase was driven by a decrease inhigher average ticket, resulting from higher average unit price primarily due to increased promotionsretail prices, led by color, care and customer discounts.
Gross Profit
Consolidated.styling tools Consolidated gross profit increased for the three months ended June 30, 2021, due to higher net sales in both segments and a higher gross margin in SBS,categories, partially offset by a lower gross margin in BSG. average unit volume.
Gross Profit
SBS. SBS’s gross profit increaseddecreased for the threenine months ended June 30, 2021, as2022, driven by a result of an increasedecrease in net sales, andpartially offset by a higher gross margin. SBS’s gross margin increased primarily as a resultincrease was driven by improvement of the impactpricing leverage and fewer write-downs of the prior year’s non-cash inventory write down and inventory clearance efforts,obsolete personal-protective equipment, partially offset by higher distribution and freight costs and an unfavorable sales volumemix shift between the U.S. and international markets, resulting from the lower margin Europeanclosing of certain international operations as a percentage of total segment sales compared toin the prior year.year due to COVID-19.
BSG. BSG’s gross profit increased for the threenine months ended June 30, 2021, as a result of2022, driven by an increase in net sales partially offset byand a lowerhigher gross margin. BSG’s gross margin decreased primarily as a resultincrease was driven by improvement of pricing leverage and fewer write-downs of personal-protective equipment during the current year, partially offset by higher sales volume from large volume/lower margin full service customers that rebounded from the COVID-19 impact in the prior year.distribution and freight costs.
Selling, General and Administrative Expenses
Consolidated. Consolidated selling, general and administrative expenses increased primarily as a result of higher compensation and compensation-related expenses, rent expense and advertising expenses. These increases were driven by the impact of COVID-19 in the prior year. Consolidated selling, general and administrative expenses, as a percentage of net sales, decreased 680 basis points to 37.8% for the three months ended June 30, 2021, due to the increase in sales.
SBS. SBS’s selling, general and administrative expenses increased $33.0$19.7 million, or 16.6%2.9%, for the threenine months ended June 30, 2021.2022. The increase was driven primarily by higher compensation and compensation-related expenses of $49.7$17.5 million, resultingas a result of higher wages within general labor markets and store re-openings in certain international markets, and the unfavorable impact from furloughs due to COVID-19 in the prior year. Additionally, rent expense increased $6.9 million, due to rent abatements in the prior year.foreign exchange rates of $7.1 million. These expensesheadwinds were partially offset by lower delivery expenseexpenses of $21.5$2.9 million, due toas a result of lower e-commerce volume compared to the three months ended June 30, 2020.sales, and lower facility costs of $2.2 million, as a result of operating fewer stores.
BSG. BSG’s selling, general and administrative expenses increased $30.7$16.3 million, or 38.7%5.1%, for the threenine months ended June 30, 2021.2022. The increase was driven primarily by higher delivery expense of $3.8 million, depreciation and amortization of $3.5 million, advertising expense of $2.1 million, credit card fees of $1.4 million, utility expenses of $1.0 million and compensation and compensation-related expenses of $23.3 million, resulting from furloughs due to COVID-19 in the prior year. Additionally, rent expense increased $3.9 million, due to rent abatements in the prior year, and advertising expenses increased $1.7$0.9 million.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $8.2decreased $23.6 million, or 22.8%, for the three months ended June 30, 2021, primarily due to higher compensation and compensation-related expenses of $14.9 million as a result of employees furloughed in the prior year. This increase was partially offset by lower COVID-19 expense in the current period.
Restructuring
For the three months ended June 30, 2021, restructuring charges in connection with our previously communicated Project Surge and the Transformation Plan decreased $5.3 million to $0.5 million as we have substantially completed these restructuring plans.
Interest Expense
The decrease in interest expense is primarily due to the lower outstanding debt principal for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. We recognized lower interest expense as a result of the repayments of our term loan B fixed tranche of $3.0 million and senior notes due 2023 of $2.7 million. Additionally, the lower outstanding principal balance on our ABL facility resulted in lower interest expense of $2.6 million. These decreases were partially offset by debt extinguishment costs of $2.9 million and incremental interest on the senior notes issued in April 2020 of $1.7 million. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The effective tax rates were 26.7% and 9.1%, for the three months ended June 30, 2021, and 2020, respectively. The effective tax rate for the three months ended June 30, 2020 was negatively impacted by foreign losses which cannot be tax benefitted. For the three months ended June 30, 2020, the impact of these and certain other tax impacting items is opposite the customary relationship due to the loss before the provision for income taxes that was incurred. A lower effective tax rate is not beneficial in situations where a pre-tax book loss has been incurred. See Note 12, Income Tax, for more information on our effective tax rate.
The Nine Months Ended June 30, 2021, compared to the Nine Months Ended June 30, 2020
Net Sales
Consolidated. Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $29.6 million, or 1.2% of consolidated net sales.
SBS. The increase in net sales for SBS was primarily driven by the following (in thousands):
Same store sales |
| $ | 180,779 |
|
Other (a) |
|
| (15,803 | ) |
Foreign currency exchange |
|
| 23,914 |
|
Total |
| $ | 188,890 |
|
|
|
SBS experienced an increase in average unit prices as a result of a reduction in promotional activity and increased sales of higher-priced products. Additionally, SBS experienced higher unit volume primarily due to the reopening of all of our customer-facing store operations in the U.S. and Canada, improving consumer confidence in the U.S. and the easing of COVID-19 restrictions across international territories.
BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):
Same store sales |
| $ | 102,694 |
|
Sales to franchisees |
|
| 11,094 |
|
Distributor sales consultants |
|
| 6,372 |
|
Other (a) |
|
| 13,452 |
|
Foreign currency exchange |
|
| 5,717 |
|
Total |
| $ | 139,329 |
|
|
|
BSG experienced higher unit volume and an increase in average unit prices. The higher unit volume was primarily due to the impact of reopening of customer-facing store operations in the U.S. and Canada. For the nine months ended June 30, 2021, we experienced additional temporary closures and restricted capacity of certain customer-facing store operations in various markets in the U.S. and Canada, as well as salon closures in parts of California and Canada due to the effects of COVID-19 during the fiscal year. The increase in the average unit price was primarily driven by lower promotional activity.
Gross Profit
Consolidated. Consolidated gross profit increased for the nine months ended June 30, 2021, due to higher net sales in both segments and a higher gross margin in SBS, partially offset by a lower gross margin in BSG.
SBS. SBS’s gross profit increased for the nine months ended June 30, 2021, as a result of increased net sales and a higher gross margin. SBS’s gross margin increased primarily as a result of fewer promotions, partially offset by the write-down of personal-protective equipment inventory.
BSG. BSG’s gross profit decreased for the nine months ended June 30, 2021, as a result of a lower gross margin, partially offset by increased net sales. BSG’s gross margin decreased primarily as a result of the write-down of personal-protective equipment inventory, partially offset by fewer promotions.
Selling, General and Administrative Expenses
Consolidated. Consolidated selling, general and administrative expenses increased primarily as a result of the impact of prior year cost saving initiatives in response to COVID-19, including furloughs and the suspension or elimination of all non-critical projects and non-essential spend. Additionally, the increase was due to higher COVID-19 expenses, primarily from donation expense related to personal-protective equipment inventory, rent expense and incremental costs from businesses acquired in the past 12 months. Consolidated selling, general and administrative expenses, as a percentage of net sales, decreased 250 basis points to 39.6% for the nine months ended June 30, 2021, due to the increase in sales.
SBS. SBS’s selling, general and administrative expenses increased $3.3 million, or 0.5%15.3%, for the nine months ended June 30, 2021. The increase was driven primarily by higher compensation and compensation-related2022, as a result of lower COVID-19 expenses of $33.5$26.4 million, resulting from furloughs due to COVID-19including the impact of $31.2 million in the prior year. The increase was partially offset by lower deliverydonation expense of $17.3 million due to lower e-commerce volume compared to the nine months ended June 30, 2020, advertising expenses of $7.0 million and incremental store expense for personal protective equipment in the prior year.
BSG. BSG’s selling, general and administrative expenses increased $36.2 million, or 12.8%, for the nine months ended June 30, 2021. The increase was driven primarily by higher compensation and compensation-related expenses of $20.5 million, resulting from furloughs due to COVID-19 in the prior year. Additionally, the increase was due to higher rent expense of $5.6 million, primarily due to rent abatements in the prior year, shipping costs and incremental costs from businesses acquired in the past 12 months.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $28.4 million, or 22.4%, for the nine months ended June 30, 2021, primarily due topartially offset by higher compensation and compensation-related expenses of $24.9 million as a result of employees furloughed in the prior year, and higher COVID-19 expense in the current period primarily from donation expense related to personal-protective equipment inventory of $29.8 million, compared to COVID-19information technology expense of $23.4 million in the prior year.$3.4 million.
Restructuring
For the nine months ended June 30, 2021, restructuring charges in connection with our previously communicated Project Surge and the Transformation Plan decreased $10.2 million to $1.4 million as we have substantially completed these restructuring plans.
Interest Expense
The increase in interest expense is primarily due to incremental interest on the repayment of our 8.75% Senior Notes, which resulted in a loss from debt extinguishment of $16.4 million during the nine months ended June 30, 2022, compared to loss from debt extinguishment of $4.3 million related to our repayment of our senior notes issued in April 2020 of $14.8 milliondue 2023 and debt extinguishment costs of $4.5 million, partially offset by the impact of the repayments of our term loan B fixed tranche during the prior period. This was partially offset by the interest savings in January 2021 of $7.0connection with these repayments for $10.2 million andduring the senior notes due 2023 in April 2021 of $2.7 million. Additionally, the lower outstanding principal balance on our ABL facility resulted in lower interest expense of $3.3 million and the lower interest rates on our term loan B variable tranche of $4.0 million.fiscal year. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The effective tax rates were 26.6%27.0% and 37.2%26.6%, for the nine months ended June 30, 2022 and 2021, and 2020, respectively. The decrease in the effective tax rate was primarily due to greater losses in the prior year from foreign subsidiaries for which a tax benefit could not be recognized and the establishment of a valuation allowance in a foreign subsidiary in the prior year. See Note 12, Income Tax, for more information on our effective tax rate.
Liquidity and Capital Resources
We are highly leveragedOverview
Our capital structure contains a mix of debt and equity, and a substantial portion of our liquidity needs arise from debt service on our outstanding indebtedness and from funding the costs of our operations, working capital, capital expenditures, debt repayment and share repurchases. Working capital (current assets less current liabilities) decreased $190.8$250.5 million, to $678.9$468.2 million at June 30, 2021,2022, compared to $869.7$718.7 million at September 30, 2020, resulting primarily from a2021. This decrease inwas driven by the repayment of our 8.75% Senior Notes through the use of excess cash and additional borrowing on our ABL facility. Additionally, cash equivalents fromwas further reduced by stock repurchases during the repayments of outstanding long-term debt and increasedfiscal year. The decrease to working capital was partially offset by higher inventory as a result of improving COVID-19 conditions.the inflationary cost increases on our purchases and additional inventory relating to BSG's distribution partnership with Regis to service their salons account.
At June 30, 2021,2022, cash and cash equivalents were $270.3$101.3 million. Based upon the current level of operations and anticipated growth, weWe anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), fundscash expected to be generated by operations, and funds available under our ABL facility will be sufficient to fund working capital requirements, potential acquisitions, anticipated capital expenditures, including information technology upgrades and store remodels, and debt repayments over the next 12twelve months. DueWe have continued to the improving COVID-19 conditions, we have shifted our focus toon reducing our debt levels and shares outstanding through repurchases, while also being proactive in maintaining our financial flexibility.
We utilize our ABL facility for the issuance of letters of credit, certain working capital and liquidity needs, and to manage normal fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, interest payments due on our indebtedness, paying down other debt and opportunistic share repurchases. During the nine months ended June 30, 2021, we did not borrow2022, the weighted average interest rate on our borrowings under ourthe ABL facility.facility was 2.9%. As of June 30, 2021,2022, we had $481.7$167.0 million outstanding and $314.2 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit. Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities. During the three months ended June 30, 2021, we entered into a third amendment to our ABL facility which extended the maturity date to May 11, 2026.
Share Repurchase Programs
During the nine months ended June 30, 2021,2022, we did not repurchase anyrepurchased 6.8 million shares of our common stock.stock for $130.3 million with existing cash balances. As of June 30, 2021,2022, we had authorization of approximately $726.1$595.8 million of additional potential share repurchases remaining under the 2017 Share Repurchase Program. See Note 13, Subsequent Event, for additional information on our 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,Historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions, we have shifted our focus in the short-term to reduce cash expenditures.acquisitions.
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the nine months ended June 30, 2021,2022, decreased $56.7$168.5 million to $217.7$49.2 million, compared to the nine months ended June 30, 2020, mainly due to increases in vendor receivables and inventory, partially offset by increased net income and higher accounts payable. The increase in inventory and accounts payable2021. This decrease was driven by the reduction in our accrued liabilities, primarily due to the timing of personal-protective equipment donations and a lower bonus accrual, as well as higher inventory purchases and payments as we restockcompared to new levels of demand. Additionally, the increase in vendor receivables was driven by higher sales in the threenine months ended June 30, 2021.
Net Cash Used by Investing Activities
Net cash used by investing activities during the nine months ended June 30, 2021, decreased $44.42022, increased $20.7 million to $47.2$67.9 million, compared to the nine months ended June 30, 2020.2021. This change was primarily a result of our focus on reduced capital expenditures.driven by additional investments in technology and store leasehold improvements.
Net Cash (Used) ProvidedUsed by Financing Activities
Net cash used by financing activities for the nine months ended June 30, 2022, decreased $142.7 million to $273.8 million, as a result of lower net debt repayments during the fiscal year, compared to prior fiscal year, partially offset by share repurchases during the nine months ended June 30, 2021 resulted primarily from the repayments on our term loan B fixed tranche, the senior notes due 2023 and term loan B variable tranche. During the nine months ended June 30, 2020, we had a source of cash from financing activities primarily from the borrowings on our ABL and the issuance of senior notes as a response to COVID-19, partially offset by share repurchases.2022.
Long-Term Debt and Guarantor Financial Information
At June 30, 2021,2022, we had $1,394.3$1,255.8 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $11.7$4.7 million. Our debt consisted of $980.0$680.0 million ofin senior notes outstanding, and a$408.9 million remaining on our term loan with an outstanding principal balance of $414.4 million. As of June 30, 2021, there were noand $167.0 million in outstanding borrowings under our ABL facility.
During the fiscal year, we paidcalled and redeemed our 8.75%
Senior Notes, at a redemption price equal to 104.375% of the remaining $213.2 millionprincipal amount, through a combination of aggregate outstanding principal onexcess cash and borrowings under our term loan B fixed tranche, the $197.4 million outstanding on our senior notes due 2023 and $8.3 million on our term loan B variable tranche.ABL facility.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.
See Note 9, Short-term Borrowings and Long-term Debt, 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 thatcurrently have been registered under such regulation. Currently, our issued securities consist of the 5.625% Senior Notes due 2025 outstanding. This debt instrument wasThese notes were issued by our wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc. (the “Issuers”), and registered with the Securities and Exchange Commission under a shelf registration statement.
The 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 June 30, 20212022, and September 30, 20202021 (in thousands):
|
| June 30, 2021 |
|
| September 30, 2020 |
|
| June 30, 2022 |
|
| September 30, 2021 |
| ||||
Inventory |
| $ | 711,847 |
|
| $ | 615,092 |
|
| $ | 790,561 |
|
| $ | 662,802 |
|
Intercompany receivable |
| $ | 80,114 |
|
| $ | 75,892 |
|
| $ | — |
|
| $ | 67,337 |
|
Current assets |
| $ | 995,974 |
|
| $ | 1,166,250 |
|
| $ | 920,021 |
|
| $ | 1,069,266 |
|
Total assets |
| $ | 2,101,376 |
|
| $ | 2,281,896 |
|
| $ | 2,061,778 |
|
| $ | 2,198,990 |
|
Intercompany payable |
| $ | 15,168 |
|
| $ | — |
| ||||||||
Current liabilities |
| $ | 384,423 |
|
| $ | 325,380 |
|
| $ | 653,989 |
|
| $ | 422,137 |
|
Total liabilities |
| $ | 2,311,335 |
|
| $ | 2,657,033 |
|
| $ | 2,178,657 |
|
| $ | 2,343,946 |
|
The following table presents the summarized statement of income information for nine months ended June 30, 20212022 (in thousands):
Net sales |
|
|
| $ | 2,391,586 |
|
|
|
| $ | 2,317,150 |
|
Gross profit |
|
|
| $ | 1,212,180 |
|
|
|
| $ | 1,193,543 |
|
Earnings before provision for income taxes |
|
|
| $ | 201,462 |
|
|
|
| $ | 184,505 |
|
Net Earnings |
|
|
| $ | 149,269 |
|
|
|
| $ | 137,808 |
|
Contractual Obligations
There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2020, other than2021, except for the extinguishmentrepayment of our term loan B fixed tranche,8.75% Senior Notes and the additional ABL borrowings. In connection with these events, our contractual obligations contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, should be adjusted as discussed above.follows (in thousands):
|
| Payments Due by Period |
| |||||||||||||||||
|
| Less than 1 year |
|
| 1-3 years |
|
| 3 - 5 years |
|
| More than 5 years |
|
| Total |
| |||||
Long-term debt obligations, including interest |
| $ | 122,186 |
|
| $ | (20,540 | ) |
| $ | (339,375 | ) |
| $ | — |
|
| $ | (237,729 | ) |
Off-Balance Sheet Financing Arrangements
At June 30, 2021,2022, and September 30, 2020,2021, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates or assumptions since September 30, 2020.2021.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, of the NotesThere have been no recent accounting pronouncements issued that will have a material impact to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.our business.
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, 2020.2021. 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, 2020.2021.
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, 2021.2022. 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, 2021,2022, 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.
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.
The District Attorney’s office for the County of San Joaquin together with District Attorneys for other counties in California (together, the “District Attorneys”), recently concluded an investigation regarding our hazardous waste handling and disposal practices in California. On May 26, 2021, we and the District Attorneys agreed on a stipulated judgment of approximately $1.6 million in civil penalties to resolve the matter in California state court. We also agreed to spend $25,000 on a supplemental environment project and reimburse approximately $0.3 million in costs. The resolution of this matter did not have a material impact to our operations.
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, 2020,2021, 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. The risks described in such Annual Report and herein are not the only risks facing our company.
Item 6. Exhibits
Exhibit No. |
| Description |
|
|
|
3.1 |
| |
|
|
|
3.2 |
| |
|
|
|
10.1 | Separation agreement between Pamela Kohn and the Company effective as of May 31, 2022* | |
22 |
| |
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of |
|
|
|
31.2 |
| |
|
|
|
32.1 |
| Section 1350 Certification of |
|
|
|
32.2 |
| |
|
|
|
101 |
| The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, |
|
|
|
104 |
| The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, |
* Included herewith
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. |
|
|
| (Registrant) |
|
|
|
|
Date: |
|
|
|
|
|
|
|
| By: |
| /s/ Marlo M. Cormier |
|
|
| Marlo M. Cormier |
|
|
| Senior Vice President, Chief Financial Officer |
|
|
| For the Registrant and as its Principal Financial Officer |
2625