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: MARCH 31,JUNE 30, 2022
-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 AprilJuly 29, 2022, there were 107,000,985107,016,939 shares of the issuer’s common stock outstanding.
TABLE OF CONTENTS
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, 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.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except par value data)
|
| March 31, 2022 |
|
| September 30, 2021 |
|
| June 30, 2022 |
|
| September 30, 2021 |
| ||||
|
| (Unaudited) |
|
|
|
|
|
| (Unaudited) |
|
|
|
|
| ||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 227,413 |
|
| $ | 400,959 |
|
| $ | 101,318 |
|
| $ | 400,959 |
|
Trade accounts receivable, net |
|
| 28,615 |
|
|
| 32,623 |
|
|
| 31,462 |
|
|
| 32,623 |
|
Accounts receivable, other |
|
| 32,100 |
|
|
| 33,958 |
|
|
| 35,911 |
|
|
| 33,958 |
|
Inventory |
|
| 962,563 |
|
|
| 871,349 |
|
|
| 1,014,622 |
|
|
| 871,349 |
|
Other current assets |
|
| 50,990 |
|
|
| 44,686 |
|
|
| 59,806 |
|
|
| 44,686 |
|
Total current assets |
|
| 1,301,681 |
|
|
| 1,383,575 |
|
|
| 1,243,119 |
|
|
| 1,383,575 |
|
Property and equipment, net of accumulated depreciation of $800,715 at March 31, 2022, and $767,403 at September 30, 2021 |
|
| 287,855 |
|
|
| 307,377 |
| ||||||||
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 |
|
| 540,801 |
|
|
| 537,673 |
|
|
| 549,493 |
|
|
| 537,673 |
|
Goodwill |
|
| 539,682 |
|
|
| 541,209 |
|
|
| 533,147 |
|
|
| 541,209 |
|
Intangible assets, excluding goodwill, net of accumulated amortization of $40,528 at March 31, 2022, and $38,957 at September 30, 2021 |
|
| 52,994 |
|
|
| 55,532 |
| ||||||||
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 |
|
| 19,990 |
|
|
| 21,766 |
|
|
| 19,907 |
|
|
| 21,766 |
|
Total assets |
| $ | 2,743,003 |
|
| $ | 2,847,132 |
|
| $ | 2,685,866 |
|
| $ | 2,847,132 |
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
| $ | 182 |
|
| $ | 194 |
|
| $ | 167,169 |
|
| $ | 194 |
|
Accounts payable |
|
| 240,594 |
|
|
| 291,632 |
|
|
| 279,359 |
|
|
| 291,632 |
|
Accrued liabilities |
|
| 170,540 |
|
|
| 206,155 |
|
|
| 165,996 |
|
|
| 206,155 |
|
Current operating lease liabilities |
|
| 160,549 |
|
|
| 156,234 |
|
|
| 159,452 |
|
|
| 156,234 |
|
Income taxes payable |
|
| 2,404 |
|
|
| 10,666 |
|
|
| 2,985 |
|
|
| 10,666 |
|
Total current liabilities |
|
| 574,269 |
|
|
| 664,881 |
|
|
| 774,961 |
|
|
| 664,881 |
|
Long-term debt |
|
| 1,381,385 |
|
|
| 1,382,530 |
|
|
| 1,083,924 |
|
|
| 1,382,530 |
|
Long-term operating lease liabilities |
|
| 406,658 |
|
|
| 404,147 |
|
|
| 421,072 |
|
|
| 404,147 |
|
Other liabilities |
|
| 16,547 |
|
|
| 29,056 |
|
|
| 16,781 |
|
|
| 29,056 |
|
Deferred income tax liabilities, net |
|
| 92,278 |
|
|
| 85,777 |
|
|
| 93,257 |
|
|
| 85,777 |
|
Total liabilities |
|
| 2,471,137 |
|
|
| 2,566,391 |
|
|
| 2,389,995 |
|
|
| 2,566,391 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value. Authorized 500,000 shares; 107,003 and 113,138 shares issued and 106,930 and 112,913 shares outstanding at March 31, 2022, and September 30, 2021, respectively |
|
| 1,069 |
|
|
| 1,129 |
| ||||||||
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 |
|
| — |
|
|
| 17,286 |
|
|
| 2,339 |
|
|
| 17,286 |
|
Accumulated earnings |
|
| 372,265 |
|
|
| 356,967 |
|
|
| 418,832 |
|
|
| 356,967 |
|
Accumulated other comprehensive loss, net of tax |
|
| (101,468 | ) |
|
| (94,641 | ) |
|
| (126,370 | ) |
|
| (94,641 | ) |
Total stockholders’ equity |
|
| 271,866 |
|
|
| 280,741 |
|
|
| 295,871 |
|
|
| 280,741 |
|
Total liabilities and stockholders’ equity |
| $ | 2,743,003 |
|
| $ | 2,847,132 |
|
| $ | 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
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net sales |
| $ | 911,387 |
|
| $ | 926,328 |
|
| $ | 1,891,638 |
|
| $ | 1,862,350 |
|
| $ | 961,467 |
|
| $ | 1,022,387 |
|
| $ | 2,853,105 |
|
| $ | 2,884,737 |
|
Cost of goods sold |
|
| 446,055 |
|
|
| 459,099 |
|
|
| 926,177 |
|
|
| 924,397 |
|
|
| 471,259 |
|
|
| 507,981 |
|
|
| 1,397,436 |
|
|
| 1,432,378 |
|
Gross profit |
|
| 465,332 |
|
|
| 467,229 |
|
|
| 965,461 |
|
|
| 937,953 |
|
|
| 490,208 |
|
|
| 514,406 |
|
|
| 1,455,669 |
|
|
| 1,452,359 |
|
Selling, general and administrative expenses |
|
| 378,871 |
|
|
| 391,087 |
|
|
| 765,121 |
|
|
| 757,257 |
|
|
| 390,961 |
|
|
| 386,481 |
|
|
| 1,156,082 |
|
|
| 1,143,738 |
|
Restructuring |
|
| — |
|
|
| 631 |
|
|
| 1,099 |
|
|
| 863 |
|
|
| 44 |
|
|
| 508 |
|
|
| 1,143 |
|
|
| 1,371 |
|
Operating earnings |
|
| 86,461 |
|
|
| 75,511 |
|
|
| 199,241 |
|
|
| 179,833 |
|
|
| 99,203 |
|
|
| 127,417 |
|
|
| 298,444 |
|
|
| 307,250 |
|
Interest expense |
|
| 19,896 |
|
|
| 23,883 |
|
|
| 40,137 |
|
|
| 49,861 |
|
|
| 35,977 |
|
|
| 23,452 |
|
|
| 76,113 |
|
|
| 73,313 |
|
Earnings before provision for income taxes |
|
| 66,565 |
|
|
| 51,628 |
|
|
| 159,104 |
|
|
| 129,972 |
|
|
| 63,226 |
|
|
| 103,965 |
|
|
| 222,331 |
|
|
| 233,937 |
|
Provision for income taxes |
|
| 19,757 |
|
|
| 13,316 |
|
|
| 43,458 |
|
|
| 34,469 |
|
|
| 16,659 |
|
|
| 27,759 |
|
|
| 60,117 |
|
|
| 62,228 |
|
Net earnings |
| $ | 46,808 |
|
| $ | 38,312 |
|
| $ | 115,646 |
|
| $ | 95,503 |
|
| $ | 46,567 |
|
| $ | 76,206 |
|
| $ | 162,214 |
|
| $ | 171,709 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 0.43 |
|
| $ | 0.34 |
|
| $ | 1.05 |
|
| $ | 0.85 |
|
| $ | 0.44 |
|
| $ | 0.68 |
|
| $ | 1.48 |
|
| $ | 1.52 |
|
Diluted |
| $ | 0.42 |
|
| $ | 0.34 |
|
| $ | 1.03 |
|
| $ | 0.84 |
|
| $ | 0.43 |
|
| $ | 0.66 |
|
| $ | 1.46 |
|
| $ | 1.50 |
|
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 108,743 |
|
|
| 112,603 |
|
|
| 110,387 |
|
|
| 112,538 |
|
|
| 106,940 |
|
|
| 112,739 |
|
|
| 109,238 |
|
|
| 112,605 |
|
Diluted |
|
| 110,540 |
|
|
| 114,342 |
|
|
| 112,207 |
|
|
| 114,028 |
|
|
| 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 |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net earnings |
| $ | 46,808 |
|
| $ | 38,312 |
|
| $ | 115,646 |
|
| $ | 95,503 |
|
| $ | 46,567 |
|
| $ | 76,206 |
|
| $ | 162,214 |
|
| $ | 171,709 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (2,752 | ) |
|
| (7,890 | ) |
|
| (7,261 | ) |
|
| 17,117 |
|
|
| (27,384 | ) |
|
| 6,617 |
|
|
| (34,645 | ) |
|
| 23,734 |
|
Interest rate caps, net of tax |
|
| - |
|
|
| - |
|
|
| 278 |
|
|
| 175 |
|
|
| 2,050 |
|
|
| 471 |
|
|
| 2,328 |
|
|
| 646 |
|
Foreign exchange contracts, net of tax |
|
| (324 | ) |
|
| 574 |
|
|
| 156 |
|
|
| (1,020 | ) |
|
| 432 |
|
|
| (191 | ) |
|
| 588 |
|
|
| (1,211 | ) |
Other comprehensive (loss) income, net of tax |
|
| (3,076 | ) |
|
| (7,316 | ) |
|
| (6,827 | ) |
|
| 16,272 |
|
|
| (24,902 | ) |
|
| 6,897 |
|
|
| (31,729 | ) |
|
| 23,169 |
|
Total comprehensive income |
| $ | 43,732 |
|
| $ | 30,996 |
|
| $ | 108,819 |
|
| $ | 111,775 |
|
| $ | 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Other |
|
| Total |
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Other |
|
| Total |
| ||||||
| Common Stock | Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| Common Stock | Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| ||||||||||||||||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Equity |
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Equity |
| ||||||||||||
Balance at September 30, 2021 |
| 112,913 |
|
| $ | 1,129 |
|
| $ | 17,286 |
|
| $ | 356,967 |
|
| $ | (94,641 | ) |
| $ | 280,741 |
|
| 112,913 |
|
| $ | 1,129 |
|
| $ | 17,286 |
|
| $ | 356,967 |
|
| $ | (94,641 | ) |
| $ | 280,741 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 68,838 |
|
|
| — |
|
|
| 68,838 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 68,838 |
|
|
| — |
|
|
| 68,838 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,751 | ) |
|
| (3,751 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,751 | ) |
|
| (3,751 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 3,958 |
|
|
| — |
|
|
| — |
|
|
| 3,958 |
|
| — |
|
|
| — |
|
|
| 3,958 |
|
|
| — |
|
|
| — |
|
|
| 3,958 |
|
Stock issued for equity awards |
| 795 |
|
|
| 8 |
|
|
| 7,364 |
|
|
| — |
|
|
| — |
|
|
| 7,372 |
|
| 795 |
|
|
| 8 |
|
|
| 7,364 |
|
|
| — |
|
|
| — |
|
|
| 7,372 |
|
Employee withholding taxes paid related to net share settlement |
| (56 | ) |
|
| (1 | ) |
|
| (1,136 | ) |
|
| — |
|
|
| — |
|
|
| (1,137 | ) |
| (56 | ) |
|
| (1 | ) |
|
| (1,136 | ) |
|
| — |
|
|
| — |
|
|
| (1,137 | ) |
Repurchases and cancellations of common stock |
| (3,675 | ) |
|
| (36 | ) |
|
| (27,472 | ) |
|
| (47,492 | ) |
|
| — |
|
|
| (75,000 | ) |
| (3,675 | ) |
|
| (36 | ) |
|
| (27,472 | ) |
|
| (47,492 | ) |
|
| — |
|
|
| (75,000 | ) |
Balance at December 31, 2021 |
| 109,977 |
|
| $ | 1,100 |
|
| $ | — |
|
| $ | 378,313 |
|
| $ | (98,392 | ) |
| $ | 281,021 |
|
| 109,977 |
|
| $ | 1,100 |
|
| $ | — |
|
| $ | 378,313 |
|
| $ | (98,392 | ) |
| $ | 281,021 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 46,808 |
|
|
| — |
|
|
| 46,808 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 46,808 |
|
|
| — |
|
|
| 46,808 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,076 | ) |
|
| (3,076 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,076 | ) |
|
| (3,076 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,032 |
|
|
| — |
|
|
| — |
|
|
| 2,032 |
|
| — |
|
|
| — |
|
|
| 2,032 |
|
|
| — |
|
|
| — |
|
|
| 2,032 |
|
Stock issued for equity awards |
| 111 |
|
|
| 1 |
|
|
| 423 |
|
|
| — |
|
|
| — |
|
|
| 424 |
|
| 111 |
|
|
| 1 |
|
|
| 423 |
|
|
| — |
|
|
| — |
|
|
| 424 |
|
Employee withholding taxes paid related to net share settlement |
| (1 | ) |
|
| — |
|
|
| (15 | ) |
|
| — |
|
|
| — |
|
|
| (15 | ) |
| (1 | ) |
|
| — |
|
|
| (15 | ) |
|
| — |
|
|
| — |
|
|
| (15 | ) |
Repurchases and cancellations of common stock |
| (3,157 | ) |
|
| (32 | ) |
|
| (2,440 | ) |
|
| (52,856 | ) |
|
| — |
|
|
| (55,328 | ) |
| (3,157 | ) |
|
| (32 | ) |
|
| (2,440 | ) |
|
| (52,856 | ) |
|
| — |
|
|
| (55,328 | ) |
Balance at March 31, 2022 |
| 106,930 |
|
| $ | 1,069 |
|
| $ | — |
|
| $ | 372,265 |
|
| $ | (101,468 | ) |
| $ | 271,866 |
|
| 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
| Other |
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
| Other |
|
|
| Total |
| ||||||||||||||
| Common Stock |
| Paid-in |
|
|
| Accumulated |
|
|
|
| Comprehensive |
|
|
| Stockholders’ |
| Common Stock |
| Paid-in |
|
|
| Accumulated |
|
|
|
| Comprehensive |
|
|
| Stockholders’ |
| ||||||||||||||||||||||||||||||||
| Shares |
|
|
|
| Amount |
|
|
|
| Capital |
|
|
|
| Earnings |
|
|
| Loss |
|
|
| Equity |
| Shares |
|
|
|
| Amount |
|
|
|
| Capital |
|
|
|
| Earnings |
|
|
| Loss |
|
|
| Equity |
| ||||||||||||||||
Balance at September 30, 2020 |
| 112,405 |
| $ | 1,124 |
| $ | 1,913 |
| $ | 117,109 |
| $ | (104,703 | ) |
| $ | 15,443 |
|
| 112,405 |
| $ | 1,124 |
| $ | 1,913 |
| $ | 117,109 |
| $ | (104,703 | ) |
| $ | 15,443 |
| ||||||||||||||||||||||||||||
Net earnings |
| — |
| — |
| — |
| 57,191 |
| — |
| 57,191 |
|
| — |
| — |
| — |
| 57,191 |
| — |
| 57,191 |
| ||||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
| — |
| — |
| — |
| — |
| 23,588 |
| 23,588 |
|
| — |
| — |
| — |
| — |
| 23,588 |
| 23,588 |
| ||||||||||||||||||||||||||||||||||||||||
Share-based compensation |
| — |
| — |
| 2,893 |
| — |
| — |
| 2,893 |
|
| — |
| — |
| 2,893 |
| — |
| — |
| 2,893 |
| ||||||||||||||||||||||||||||||||||||||||
Stock issued for equity awards |
| 158 |
|
| 2 |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
| 158 |
|
| 2 |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Employee withholding taxes paid related to net share settlement |
| (25 | ) |
|
| (1 | ) |
|
| (248 | ) |
|
| — |
|
| — |
|
| (249 | ) |
| (25 | ) |
|
| (1 | ) |
|
| (248 | ) |
|
| — |
|
| — |
|
| (249 | ) | ||||||||||||||||||||||||
Balance at December 31, 2020 |
| 112,538 |
| $ | 1,125 |
| $ | 4,556 |
| $ | 174,300 |
| $ | (81,115 | ) |
| $ | 98,866 |
|
| 112,538 |
| $ | 1,125 |
| $ | 4,556 |
| $ | 174,300 |
| $ | (81,115 | ) |
| $ | 98,866 |
| ||||||||||||||||||||||||||||
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 38,312 |
|
|
|
| — |
|
|
|
| 38,312 |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 38,312 |
|
|
|
| — |
|
|
|
| 38,312 |
| ||||||||||
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,316 | ) |
|
|
| (7,316 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,316 | ) |
|
|
| (7,316 | ) | ||||||||||||||||||
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,648 |
|
|
| — |
|
|
| — |
|
|
| 2,648 |
|
| — |
|
|
| — |
|
|
| 2,648 |
|
|
| — |
|
|
| — |
|
|
| 2,648 |
| ||||||||||||||||||||
Stock issued for equity awards |
| 141 |
|
|
|
| 2 |
|
|
|
| 2,321 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,323 |
|
| 141 |
|
|
|
| 2 |
|
|
|
| 2,321 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 2,323 |
| ||||||||||
Balance at March 31, 2021 |
| 112,679 |
| $ | 1,127 |
| $ | 9,525 |
| $ | 212,612 |
| $ | (88,431 | ) |
| $ | 134,833 |
|
| 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 Cash Flows
(In thousands)
(Unaudited)
|
| Six Months Ended March 31, |
|
| Nine Months Ended June 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 115,646 |
|
| $ | 95,503 |
|
| $ | 162,214 |
|
| $ | 171,709 |
|
Adjustments to reconcile net earnings to net cash (used) provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
| ||||||||
Depreciation and amortization |
|
| 48,471 |
|
|
| 52,945 |
|
|
| 73,361 |
|
|
| 78,090 |
|
Share-based compensation expense |
|
| 5,990 |
|
|
| 5,541 |
|
|
| 8,103 |
|
|
| 8,158 |
|
Amortization of deferred financing costs |
|
| 1,865 |
|
|
| 2,326 |
|
|
| 2,702 |
|
|
| 3,280 |
|
Loss on early extinguishment of debt |
|
| — |
|
|
| 1,390 |
|
|
| 16,439 |
|
|
| 2,449 |
|
Loss on disposal of equipment and other property |
|
| 80 |
|
|
| 1,741 |
|
|
| 57 |
|
|
| 1,638 |
|
Deferred income taxes |
|
| 6,507 |
|
|
| (365 | ) |
|
| 7,702 |
|
|
| (998 | ) |
Changes in (exclusive of effects of acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| 3,800 |
|
|
| (3,437 | ) |
|
| 243 |
|
|
| (8,612 | ) |
Accounts receivable, other |
|
| 2,108 |
|
|
| (5,544 | ) |
|
| (3,034 | ) |
|
| (10,363 | ) |
Inventory |
|
| (95,468 | ) |
|
| (127,324 | ) |
|
| (160,194 | ) |
|
| (108,317 | ) |
Other current assets |
|
| (6,273 | ) |
|
| 3,588 |
|
|
| (15,577 | ) |
|
| (931 | ) |
Other assets |
|
| 1,979 |
|
|
| (4,307 | ) |
|
| 3,547 |
|
|
| 1,578 |
|
Operating leases, net |
|
| 3,657 |
|
|
| (2,420 | ) |
|
| 8,448 |
|
|
| (1,595 | ) |
Accounts payable and accrued liabilities |
|
| (70,217 | ) |
|
| 101,331 |
|
|
| (34,349 | ) |
|
| 78,250 |
|
Income taxes payable |
|
| (8,393 | ) |
|
| 13,447 |
|
|
| (8,169 | ) |
|
| 6,372 |
|
Other liabilities |
|
| (12,525 | ) |
|
| (2,859 | ) |
|
| (12,266 | ) |
|
| (2,980 | ) |
Net cash (used) provided by operating activities |
|
| (2,773 | ) |
|
| 131,556 |
| ||||||||
Net cash provided by operating activities |
|
| 49,227 |
|
|
| 217,728 |
| ||||||||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment, net of proceeds |
|
| (44,109 | ) |
|
| (27,095 | ) |
|
| (67,234 | ) |
|
| (44,888 | ) |
Acquisitions, net of cash acquired |
|
| (318 | ) |
|
| (2,245 | ) |
|
| (665 | ) |
|
| (2,351 | ) |
Net cash used by investing activities |
|
| (44,427 | ) |
|
| (29,340 | ) |
|
| (67,899 | ) |
|
| (47,239 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt |
|
| (2,841 | ) |
|
| (213,271 | ) | ||||||||
Proceeds from issuance of long-term debt |
|
| 283,003 |
|
|
| — |
| ||||||||
Repayments of long-term debt, including prepayment costs |
|
| (433,383 | ) |
|
| (418,986 | ) | ||||||||
Debt issuance costs |
|
| — |
|
|
| (1,300 | ) | ||||||||
Payments for common stock repurchased |
|
| (130,328 | ) |
|
| — |
|
|
| (130,328 | ) |
|
| — |
|
Proceeds from equity awards |
|
| 7,796 |
|
|
| 2,322 |
|
|
| 8,050 |
|
|
| 4,039 |
|
Employee withholding taxes paid related to net share settlement of equity awards |
|
| (1,151 | ) |
|
| (249 | ) |
|
| (1,179 | ) |
|
| (249 | ) |
Net cash used by financing activities |
|
| (126,524 | ) |
|
| (211,198 | ) |
|
| (273,837 | ) |
|
| (416,496 | ) |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| 178 |
|
|
| 3,152 |
|
|
| (7,132 | ) |
|
| 2,173 |
|
Net decrease in cash and cash equivalents |
|
| (173,546 | ) |
|
| (105,830 | ) |
|
| (299,641 | ) |
|
| (243,834 | ) |
Cash and cash equivalents, beginning of period |
|
| 400,959 |
|
|
| 514,151 |
|
|
| 400,959 |
|
|
| 514,151 |
|
Cash and cash equivalents, end of period |
| $ | 227,413 |
|
| $ | 408,321 |
|
| $ | 101,318 |
|
| $ | 270,317 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 37,809 |
|
| $ | 46,445 |
|
| $ | 75,660 |
|
| $ | 86,293 |
|
Income taxes paid |
| $ | 56,701 |
|
| $ | 20,791 |
|
| $ | 73,862 |
|
| $ | 53,764 |
|
Capital expenditures incurred but not paid |
| $ | 3,205 |
|
| $ | 3,255 |
|
| $ | 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 distributersdistributors 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 salonssalon 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 for the 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, 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 March 31,June 30, 2022, and September 30, 2021, and our consolidated results of operations, consolidated comprehensive income, consolidated statements of stockholders’ equity for the three and sixnine months ended March 31,June 30, 2022 and 2021, and our consolidated cash flows for the for the sixnine months ended March 31,June 30, 2022 and 2021.
Principles of Consolidation
The condensed consolidated interim financial statements include all accounts of Sally Beauty Holdings, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in U.S. Dollars.
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.
Use of Estimates
In 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 future. 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 sales allowances, deferred revenue, valuation of inventory, amortization and depreciation, intangibles and goodwill, and other reserves. We believe these estimates and assumptions are reasonablereasonable; 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 threefiscal years 2022 and six months ended March 31, 2022,2021 were adversely impacted by the COVID-19 pandemic and its continuing effects on the economy, including inflationary pressures, continued supply chain disruptions, increased freight costs, labor shortages and increased labor costs.global economy. Given the uncertainty around the continuingcontinued effects of the COVID-19 pandemic and its economic impactmacro-environment, we cannot reasonably predict the effect they will have on future periods. If once again we become materially and adversely impacted, we may have to consider adjustments to our strategic plans,operations, inventory, liquidity, operationalcapital expenditures and capital expenditure plans.accounting estimates and reserves.
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 periods were as follows (in thousands):
|
|
|
|
|
| Six Months Ended March 31, |
|
|
|
|
|
| Nine Months Ended June 30, |
| ||||||||||
|
|
|
|
|
| 2022 |
|
| 2021 |
|
|
|
|
|
| 2022 |
|
| 2021 |
| ||||
Beginning Balance |
|
|
|
|
| $ | 16,744 |
|
| $ | 13,947 |
|
|
|
|
|
| $ | 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 |
|
| 6,214 |
|
|
| 7,998 |
| 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 |
|
| (6,316 | ) |
|
| (6,729 | ) | Revenue recognized from beginning liability |
|
| (8,132 | ) |
|
| (9,391 | ) | ||||||
Ending Balance |
|
|
|
|
| $ | 16,642 |
|
| $ | 15,216 |
|
|
|
|
|
| $ | 13,807 |
|
| $ | 16,506 |
|
See Note 9,10, Segment Reporting, for additional information regarding the disaggregation of our sales revenue.
3. Fair Value Measurements
Financial 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) |
| Classification |
| Fair Value Hierarchy Level |
| March 31, 2022 |
|
| September 30, 2021 |
|
| Classification |
| Fair Value Hierarchy Level |
| June 30, 2022 |
|
| September 30, 2021 |
| ||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Other current assets |
| Level 2 |
| $ | 329 |
|
| $ | — |
|
| Other current assets |
| Level 2 |
| $ | 547 |
|
| $ | — |
|
Interest rate caps |
| Other assets |
| Level 2 |
|
| 133 |
|
|
| 35 |
|
| Other assets |
| Level 2 |
|
| 2,029 |
|
|
| 35 |
|
Total assets |
|
|
|
|
| $ | 462 |
|
| $ | 35 |
|
|
|
|
|
| $ | 2,576 |
|
| $ | 35 |
|
. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Accrued liabilities |
| Level 2 |
| $ | 612 |
|
| $ | — |
|
| Accrued liabilities |
| Level 2 |
| $ | 315 |
|
| $ | — |
|
Financial instruments not measured at fair value
Carrying amounts and the related estimated fair value of our long-term debt, excluding capital lease obligations and debt issuance costs, are as follows:
|
|
|
| March 31, 2022 |
|
| September 30, 2021 |
|
|
|
| June 30, 2022 |
|
| September 30, 2021 |
| ||||||||||||||||||||
(in thousands) |
| Fair Value Hierarchy Level |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
|
| Fair Value Hierarchy Level |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||||||
Long-term debt, excluding capital leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
| Level 1 |
| $ | 979,961 |
|
| $ | 1,000,636 |
|
| $ | 979,961 |
|
| $ | 1,019,635 |
|
| Level 1 |
| $ | 679,961 |
|
| $ | 638,313 |
|
| $ | 979,961 |
|
| $ | 1,019,635 |
|
Term loan B |
| Level 2 |
|
| 410,250 |
|
|
| 405,122 |
|
|
| 413,000 |
|
|
| 411,451 |
|
| Level 2 |
|
| 408,875 |
|
|
| 403,764 |
|
|
| 413,000 |
|
|
| 411,451 |
|
Total long-term debt |
|
|
| $ | 1,390,211 |
|
| $ | 1,405,758 |
|
| $ | 1,392,961 |
|
| $ | 1,431,086 |
|
|
|
| $ | 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 other long-term debtTerm 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.
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. In July 2021, our Board of Directors approved a term extension of the share repurchase program for the four-year period ending September 30, 2025. As of March 31,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 March 31, |
|
| Six Months Ended March 31, |
|
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
|
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||||||
Number of shares repurchased |
|
| 3,157 |
|
|
| — |
|
|
| 6,832 |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 6,832 |
|
|
| — |
|
|
Total cost of share repurchased |
| $ | 55,328 |
|
| $ | — |
|
| $ | 130,328 |
|
| $ | — |
|
|
| $ | — |
|
| $ | — |
|
| $ | 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 |
|
|
| Foreign Currency Translation Adjustments |
|
| Interest Rate Caps |
|
| Foreign Exchange Contracts |
|
| Total |
|
| ||||||||
Balance at September 30, 2021 |
| $ | (92,154 | ) |
| $ | (2,085 | ) |
| $ | (402 | ) |
| $ | (94,641 | ) |
|
| $ | (92,154 | ) |
| $ | (2,085 | ) |
| $ | (402 | ) |
| $ | (94,641 | ) |
|
Other comprehensive loss before reclassification, net of tax |
|
| (7,261 | ) |
|
| (114 | ) |
|
| (212 | ) |
|
| (7,587 | ) |
|
|
| (34,645 | ) |
|
| 1,073 |
|
|
| 400 |
|
|
| (33,172 | ) |
|
Reclassification to net earnings, net of tax |
|
| — |
|
|
| 392 |
|
|
| 368 |
|
|
| 760 |
|
|
|
| — |
|
|
| 1,255 |
|
|
| 188 |
|
|
| 1,443 |
|
|
Balance at March 31, 2022 |
| $ | (99,415 | ) |
| $ | (1,807 | ) |
| $ | (246 | ) |
| $ | (101,468 | ) |
| |||||||||||||||||
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.
5. Weighted-Average Shares
The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands):
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| |||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Weighted-average basic shares |
|
| 108,743 |
|
|
| 112,603 |
|
|
| 110,387 |
|
|
| 112,538 |
|
|
| 106,940 |
|
|
| 112,739 |
|
|
| 109,238 |
|
|
| 112,605 |
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and stock award programs |
|
| 1,797 |
|
|
| 1,739 |
|
|
| 1,820 |
|
|
| 1,490 |
|
|
| 1,586 |
|
|
| 2,188 |
|
|
| 1,669 |
|
|
| 1,669 |
|
Weighted-average diluted shares |
|
| 110,540 |
|
|
| 114,342 |
|
|
| 112,207 |
|
|
| 114,028 |
|
|
| 108,526 |
|
|
| 114,927 |
|
|
| 110,907 |
|
|
| 114,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from our computation of diluted shares |
|
| 2,534 |
|
|
| 4,197 |
|
|
| 2,169 |
|
|
| 4,222 |
|
|
| 2,406 |
|
|
| 2,188 |
|
|
| 2,385 |
|
|
| 1,670 |
|
6. Goodwill and Intangible Assets
During the three months ended March 31, 2022,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 test. 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.
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Intangible assets amortization expense |
| $ | 999 |
|
| $ | 1,609 |
|
| $ | 2,070 |
|
| $ | 3,307 |
|
| $ | 977 |
|
| $ | 1,648 |
|
| $ | 3,047 |
|
| $ | 4,956 |
|
Additionally, during the sixnine months ended March 31,June 30, 2022, the decreasedecreases in goodwill wasand other intangibles were primarily from the effects of foreign currency exchange rates of $1.5 million.$8.3 million and $2.2 million, respectively.
7. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
| March 31, 2022 |
|
| September 30, 2021 |
| ||
Compensation and benefits |
| $ | 55,300 |
|
| $ | 73,344 |
|
Interest payable |
|
| 24,103 |
|
|
| 24,101 |
|
Deferred revenue |
|
| 18,410 |
|
|
| 18,543 |
|
Rental obligations |
|
| 10,754 |
|
|
| 10,501 |
|
Insurance reserves |
|
| 5,962 |
|
|
| 5,934 |
|
Property and other taxes |
|
| 2,293 |
|
|
| 3,853 |
|
Operating accruals and other |
|
| 53,718 |
|
|
| 69,879 |
|
Total accrued liabilities |
| $ | 170,540 |
|
| $ | 206,155 |
|
|
|
|
|
|
|
|
|
|
|
| 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, 2022, our ABL facility had $167.0 million in outstanding borrowingsand $314.2 million available for borrowing, including the Canadian sub-facility, subject to the conditions contained therein.
9. Derivative Instruments and Hedging Activities
During the sixnine months ended March 31,June 30, 2022, we did 0t purchase or hold any derivative instruments for trading or speculative purposes. See Note 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 March 31,June 30, 2022, we held forwards, which expire ratably through September 30, 2022, with a notional amount, based upon exchange rates at March 31,June 30, 2022, as follows (in thousands):
Notional Currency |
| Notional Amount |
|
| Notional Amount |
| ||
Mexican Peso |
| $ | 13,013 |
|
| $ | 6,478 |
|
Euro |
|
| 8,551 |
|
|
| 4,084 |
|
Canadian Dollar |
|
| 5,804 |
|
|
| 2,619 |
|
Total |
| $ | 27,368 |
|
| $ | 13,181 |
|
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, in our condensed consolidated statements of earnings. For the sixnine months ended March 31,June 30, 2022 and 2021, we recognized a loss of $0.4$0.2 million and a gain of $0.4$0.1 million, respectively. The effects of our foreign currency forwards were not material for the three months ended March 31,June 30, 2022 and 2021. Based on March 31,June 30, 2022, valuations and exchange rates, we expect to reclassify lossesgains of approximately $0.1$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.
For the sixnine months ended March 31,June 30, 2022 and 2021, we recognized expense of $0.4$1.3 million and $0.2$0.8 million, respectively, into interest expense on our condensed consolidated statements of earnings. The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three months ended March 31,June 30, 2022 and 2021. Over the next 12 months, we expect to reclassify approximately $1.9$0.7 million into interest expense, which represents the original value of the expiring caplets.
9.10. Segment Reporting
Segment data for the three and sixnine months ended March 31,June 30, 2022 and 2021, is as follows (in thousands):
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sally Beauty Supply ("SBS") |
| $ | 525,785 |
|
| $ | 542,664 |
|
| $ | 1,087,315 |
|
| $ | 1,090,334 |
|
| $ | 551,725 |
|
| $ | 602,681 |
|
| $ | 1,639,040 |
|
| $ | 1,693,015 |
|
Beauty Systems Group ("BSG") |
|
| 385,602 |
|
|
| 383,664 |
|
|
| 804,323 |
|
|
| 772,016 |
|
|
| 409,742 |
|
|
| 419,706 |
|
|
| 1,214,065 |
|
|
| 1,191,722 |
|
Total |
| $ | 911,387 |
|
| $ | 926,328 |
|
| $ | 1,891,638 |
|
| $ | 1,862,350 |
|
| $ | 961,467 |
|
| $ | 1,022,387 |
|
| $ | 2,853,105 |
|
| $ | 2,884,737 |
|
Earnings before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 80,940 |
|
| $ | 100,063 |
|
| $ | 181,563 |
|
| $ | 195,191 |
|
| $ | 88,792 |
|
| $ | 116,784 |
|
| $ | 270,355 |
|
| $ | 311,975 |
|
BSG |
|
| 46,008 |
|
|
| 47,843 |
|
|
| 104,554 |
|
|
| 96,415 |
|
|
| 56,067 |
|
|
| 55,265 |
|
|
| 160,621 |
|
|
| 151,680 |
|
Segment operating earnings |
|
| 126,948 |
|
|
| 147,906 |
|
|
| 286,117 |
|
|
| 291,606 |
|
|
| 144,859 |
|
|
| 172,049 |
|
|
| 430,976 |
|
|
| 463,655 |
|
Unallocated expenses |
|
| 40,487 |
|
|
| 71,764 |
|
|
| 85,777 |
|
|
| 110,910 |
|
|
| 45,612 |
|
|
| 44,124 |
|
|
| 131,389 |
|
|
| 155,034 |
|
Restructuring |
|
| — |
|
|
| 631 |
|
|
| 1,099 |
|
|
| 863 |
|
|
| 44 |
|
|
| 508 |
|
|
| 1,143 |
|
|
| 1,371 |
|
Consolidated operating earnings |
|
| 86,461 |
|
|
| 75,511 |
|
|
| 199,241 |
|
|
| 179,833 |
|
|
| 99,203 |
|
|
| 127,417 |
|
|
| 298,444 |
|
|
| 307,250 |
|
Interest expense |
|
| 19,896 |
|
|
| 23,883 |
|
|
| 40,137 |
|
|
| 49,861 |
|
|
| 35,977 |
|
|
| 23,452 |
|
|
| 76,113 |
|
|
| 73,313 |
|
Earnings before provision for income taxes |
| $ | 66,565 |
|
| $ | 51,628 |
|
| $ | 159,104 |
|
| $ | 129,972 |
|
| $ | 63,226 |
|
| $ | 103,965 |
|
| $ | 222,331 |
|
| $ | 233,937 |
|
Sales between segments, which are eliminated in consolidation, were not material during the three and sixnine months ended March 31,June 30, 2022 and 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 March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
SBS |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Hair color |
|
| 38.1 | % |
|
| 35.8 | % |
|
| 37.4 | % |
|
| 35.9 | % |
|
| 38.3 | % |
|
| 36.4 | % |
|
| 37.7 | % |
|
| 36.1 | % |
Hair care |
|
| 24.1 | % |
|
| 21.7 | % |
|
| 24.0 | % |
|
| 21.4 | % |
|
| 23.5 | % |
|
| 22.1 | % |
|
| 23.8 | % |
|
| 21.6 | % |
Styling tools and supplies |
|
| 19.2 | % |
|
| 22.8 | % |
|
| 19.7 | % |
|
| 22.9 | % |
|
| 18.8 | % |
|
| 21.3 | % |
|
| 19.4 | % |
|
| 22.4 | % |
Nail |
|
| 10.6 | % |
|
| 10.7 | % |
|
| 10.5 | % |
|
| 10.8 | % |
|
| 11.3 | % |
|
| 10.9 | % |
|
| 10.8 | % |
|
| 10.8 | % |
Skin and cosmetics |
|
| 7.4 | % |
|
| 8.3 | % |
|
| 7.7 | % |
|
| 8.3 | % |
|
| 7.6 | % |
|
| 8.5 | % |
|
| 7.6 | % |
|
| 8.4 | % |
Other beauty items |
|
| 0.6 | % |
|
| 0.7 | % |
|
| 0.7 | % |
|
| 0.7 | % |
|
| 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 March 31, |
|
| Six Months Ended March 31, |
| ||||||||||
BSG |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Hair color |
|
| 42.7 | % |
|
| 42.6 | % |
|
| 42.4 | % |
|
| 41.4 | % |
Hair care |
|
| 39.9 | % |
|
| 38.8 | % |
|
| 39.9 | % |
|
| 39.0 | % |
Styling tools and supplies |
|
| 11.2 | % |
|
| 11.2 | % |
|
| 11.3 | % |
|
| 11.8 | % |
Skin and cosmetics |
|
| 3.5 | % |
|
| 4.0 | % |
|
| 4.0 | % |
|
| 4.3 | % |
Nail |
|
| 2.3 | % |
|
| 2.9 | % |
|
| 2.1 | % |
|
| 3.1 | % |
Other beauty items |
|
| 0.4 | % |
|
| 0.5 | % |
|
| 0.3 | % |
|
| 0.4 | % |
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 March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
SBS |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Company-operated stores |
|
| 93.7 | % |
|
| 93.0 | % |
|
| 94.0 | % |
|
| 93.5 | % |
|
| 94.0 | % |
|
| 94.2 | % |
|
| 94.0 | % |
|
| 93.7 | % |
E-commerce |
|
| 6.3 | % |
|
| 6.9 | % |
|
| 6.0 | % |
|
| 6.5 | % |
|
| 6.0 | % |
|
| 5.7 | % |
|
| 6.0 | % |
|
| 6.2 | % |
Franchise stores |
|
| 0.0 | % |
|
| 0.1 | % |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 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 March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
BSG |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||||
Company-operated stores |
|
| 66.6 | % |
|
| 70.2 | % |
|
| 67.1 | % |
|
| 69.9 | % |
|
| 66.6 | % |
|
| 69.2 | % |
|
| 66.9 | % |
|
| 69.7 | % |
Distributor sales consultants |
|
| 14.0 | % |
|
| 13.7 | % |
|
| 13.8 | % |
|
| 14.0 | % |
|
| 13.9 | % |
|
| 14.1 | % |
|
| 13.9 | % |
|
| 14.0 | % |
E-commerce |
|
| 12.4 | % |
|
| 9.1 | % |
|
| 12.0 | % |
|
| 8.8 | % |
|
| 11.6 | % |
|
| 8.8 | % |
|
| 11.8 | % |
|
| 8.8 | % |
Franchise stores |
|
| 7.0 | % |
|
| 7.0 | % |
|
| 7.1 | % |
|
| 7.3 | % |
|
| 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 | % |
10. Subsequent Event
On April 29, 2022, we announced that our wholly-owned subsidiaries, Sally Holdings LLC (“Holdings”) and Sally Capital Inc. (together with Holdings, the “Issuers”), issued a notice of redemption (the “Redemption Notice”), to redeem on May 31, 2022, the entire $300.00 million aggregate principal amount of the 8.750% Senior Secured Second Lien Notes due 2025 (“Notes”) which remain outstanding. The redemption is being 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 Notes plus accrued but unpaid interest to, but not including, the redemption date.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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, 2021.
Executive Overview
Our results inIn the secondthird quarter of fiscal year 2022, we delivered a solid financial performance with increases in gross margin net earnings and diluted earnings per share,growth in both segments compared to the same period last year. We achieved allAdditionally during the quarter, we repaid the entire $300 million dollar balance on our 8.75% Senior Notes and continued to invest for growth through many of thisour initiatives, despite volatile market conditions and its impact on our topline performance. With a healthy balance sheet, a strong operating infrastructure and the ongoingloyalty of our core customers, we believe we are well positioned to continue navigating the macro-environment challenges surrounding the COVID-19 Omicron variant, supply chain, and inflationary pressures, which have impacted customer behavior and purchasing power. However, by continuing to focusremain focused on our four strategic pillars;pillars: leveraging our digital platform, driving loyalty and personalization, delivering product innovation and optimizing our supply chain, we believe we are well-positioned to navigate these macro headwinds and continue to drive growth in both of our businesses, retail and professional.chain.
HighlightsFinancial Summary for the Three Months Ended March 31,June 30, 2022
| • | Consolidated net sales for the three months ended |
| • | Consolidated comparable sales |
| • | Consolidated gross profit for the three months ended |
| • | Consolidated operating earnings for the three months ended |
| • | For the three months ended |
| • | For the three months ended |
| • | Cash provided by operations was |
• | 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
ThroughoutDuring the current quarter andfiscal year, we continued to experienceexperienced disruptions to our business as a result of the COVID-19 pandemic and continuedwe continue to take certain actions in order to protect our customers and associates. In particular, our store operations were disrupted by the Omicron variant duecontinue to employee illnesses primarilyface challenges and disruptions related to COVID-19 surges and spikes in December and January and we continued to incur additional costs associated with testing and vaccinations, disinfectant cleanings in connection with positive cases in stores and support centers, and the write-down of obsolete personal-protective equipment inventory.
Due to general labor shortages in the U.S., especially among retail and hourly employees, we have also experienced staffing shortages at our U.S. stores and an increase in our compensation costs in order to attract and retain associates.infection levels. While the situation has been improving,shown signs of stabilization, we cannot reasonably predict the effects of new variants or expect these positiveimproving trends to continue. Therefore, our future performance may partially depend on impacts of COVID-19 such as decreased customer in-store traffic, new waves of infection,temporary store closures, and continued labor and supply chain disruptions, developing variants, changes in guidance from international and domestic authorities, and availability and timing of vaccines.disruptions.
Refer to Item 1A. “Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2021, for further discussion on the risks and uncertainties created by COVID-19.
Global Supply Chain and Inflationary Impact
There continues to be volatility in the global supply chain as shipment delays continue to impact ports, inflationary pressures are exacerbated by global political instability, and consumer demand continues to evolve as a lingering effect from the COVID-19 pandemic. In the current quarter we continued to experience elevated distribution costs as these shifts in demand and supply have led to longer lead times and delays, and carriers are faced with increased costs associated with capacity imbalances between ports as well as overall prolonged transportation challenges. Moreover, the war in Ukraine has created additional uncertainty in the global markets, which have seen a rise in fuel prices, and is another factor impacting distribution costs. Due to these events, we have seen an increase in our inbound freight costs and extended inventory in transit times. Inflationary pressures also impacted customer behavior which resulted in lower traffic and conversion in the current quarter.
Comparable Sales
We have recently launched manyThe Company’s initiative to invest in our digital initiatives toplatforms 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 last day of a month and e-commerce revenue. Additionally, our 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 comparable sales calculation until 14 months after the acquisition. Our calculation of comparable sales might not be the same as other retailers as the calculation varies across the 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 March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
| ||||||||||||||||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 525,785 |
|
| $ | 542,664 |
|
| $ | (16,879 | ) |
|
| (3.1 | )% |
| $ | 1,087,315 |
|
| $ | 1,090,334 |
|
| $ | (3,019 | ) |
|
| (0.3 | )% |
| $ | 551,725 |
|
| $ | 602,681 |
|
| $ | (50,956 | ) |
|
| (8.5 | )% |
| $ | 1,639,040 |
|
| $ | 1,693,015 |
|
| $ | (53,975 | ) |
|
| (3.2 | )% |
BSG |
|
| 385,602 |
|
|
| 383,664 |
|
|
| 1,938 |
|
|
| 0.5 | % |
|
| 804,323 |
|
|
| 772,016 |
|
|
| 32,307 |
|
|
| 4.2 | % |
|
| 409,742 |
|
|
| 419,706 |
|
|
| (9,964 | ) |
|
| (2.4 | )% |
|
| 1,214,065 |
|
|
| 1,191,722 |
|
|
| 22,343 |
|
|
| 1.9 | % |
Consolidated |
| $ | 911,387 |
|
| $ | 926,328 |
|
| $ | (14,941 | ) |
|
| (1.6 | )% |
| $ | 1,891,638 |
|
| $ | 1,862,350 |
|
| $ | 29,288 |
|
|
| 1.6 | % |
| $ | 961,467 |
|
| $ | 1,022,387 |
|
| $ | (60,920 | ) |
|
| (6.0 | )% |
| $ | 2,853,105 |
|
| $ | 2,884,737 |
|
| $ | (31,632 | ) |
|
| (1.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 309,262 |
|
| $ | 317,161 |
|
| $ | (7,899 | ) |
|
| (2.5 | )% |
| $ | 637,434 |
|
| $ | 632,973 |
|
| $ | 4,461 |
|
|
| 0.7 | % |
| $ | 322,815 |
|
| $ | 349,167 |
|
| $ | (26,352 | ) |
|
| (7.5 | )% |
| $ | 960,249 |
|
| $ | 982,139 |
|
| $ | (21,890 | ) |
|
| (2.2 | )% |
BSG |
|
| 156,070 |
|
|
| 150,068 |
|
|
| 6,002 |
|
|
| 4.0 | % |
|
| 328,027 |
|
|
| 304,980 |
|
|
| 23,047 |
|
|
| 7.6 | % |
|
| 167,393 |
|
|
| 165,239 |
|
|
| 2,154 |
|
|
| 1.3 | % |
|
| 495,420 |
|
|
| 470,220 |
|
|
| 25,200 |
|
|
| 5.4 | % |
Consolidated |
| $ | 465,332 |
|
| $ | 467,229 |
|
| $ | (1,897 | ) |
|
| (0.4 | )% |
| $ | 965,461 |
|
| $ | 937,953 |
|
| $ | 27,508 |
|
|
| 2.9 | % |
| $ | 490,208 |
|
| $ | 514,406 |
|
| $ | (24,198 | ) |
|
| (4.7 | )% |
| $ | 1,455,669 |
|
| $ | 1,452,359 |
|
| $ | 3,310 |
|
|
| 0.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
| 58.8 | % |
|
| 58.4 | % |
| 40 |
|
| bps |
|
|
| 58.6 | % |
|
| 58.1 | % |
| 50 |
|
| bps |
|
|
| 58.5 | % |
|
| 57.9 | % |
| 60 |
|
| bps |
|
|
| 58.6 | % |
|
| 58.0 | % |
| 60 |
|
| bps |
| ||||||||
BSG |
|
| 40.5 | % |
|
| 39.1 | % |
| 140 |
|
| bps |
|
|
| 40.8 | % |
|
| 39.5 | % |
| 130 |
|
| bps |
|
|
| 40.9 | % |
|
| 39.4 | % |
| 150 |
|
| bps |
|
|
| 40.8 | % |
|
| 39.5 | % |
| 130 |
|
| bps |
| ||||||||
Consolidated |
|
| 51.1 | % |
|
| 50.4 | % |
| 70 |
|
| bps |
|
|
| 51.0 | % |
|
| 50.4 | % |
| 60 |
|
| bps |
|
|
| 51.0 | % |
|
| 50.3 | % |
| 70 |
|
| bps |
|
|
| 51.0 | % |
|
| 50.3 | % |
| 70 |
|
| bps |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 80,940 |
|
| $ | 100,063 |
|
| $ | (19,123 | ) |
|
| (19.1 | )% |
| $ | 181,563 |
|
| $ | 195,191 |
|
| $ | (13,628 | ) |
|
| (7.0 | )% |
| $ | 88,792 |
|
| $ | 116,784 |
|
| $ | (27,992 | ) |
|
| (24.0 | )% |
| $ | 270,355 |
|
| $ | 311,975 |
|
| $ | (41,620 | ) |
|
| (13.3 | )% |
BSG |
|
| 46,008 |
|
|
| 47,843 |
|
|
| (1,835 | ) |
|
| (3.8 | )% |
|
| 104,554 |
|
|
| 96,415 |
|
|
| 8,139 |
|
|
| 8.4 | % |
|
| 56,067 |
|
|
| 55,265 |
|
|
| 802 |
|
|
| 1.5 | % |
|
| 160,621 |
|
|
| 151,680 |
|
|
| 8,941 |
|
|
| 5.9 | % |
Segment operating earnings |
|
| 126,948 |
|
|
| 147,906 |
|
|
| (20,958 | ) |
|
| (14.2 | )% |
|
| 286,117 |
|
|
| 291,606 |
|
|
| (5,489 | ) |
|
| (1.9 | )% |
|
| 144,859 |
|
|
| 172,049 |
|
|
| (27,190 | ) |
|
| (15.8 | )% |
|
| 430,976 |
|
|
| 463,655 |
|
|
| (32,679 | ) |
|
| (7.0 | )% |
Unallocated expenses and restructuring (a) |
|
| 40,487 |
|
|
| 72,395 |
|
|
| (31,908 | ) |
|
| (44.1 | )% |
|
| 86,876 |
|
|
| 111,773 |
|
|
| (24,897 | ) |
|
| (22.3 | )% |
|
| 45,656 |
|
|
| 44,632 |
|
|
| 1,024 |
|
|
| 2.3 | % |
|
| 132,532 |
|
|
| 156,405 |
|
|
| (23,873 | ) |
|
| (15.3 | )% |
Consolidated operating earnings |
|
| 86,461 |
|
|
| 75,511 |
|
|
| 10,950 |
|
|
| 14.5 | % |
|
| 199,241 |
|
|
| 179,833 |
|
|
| 19,408 |
|
|
| 10.8 | % |
|
| 99,203 |
|
|
| 127,417 |
|
|
| (28,214 | ) |
|
| (22.1 | )% |
|
| 298,444 |
|
|
| 307,250 |
|
|
| (8,806 | ) |
|
| (2.9 | )% |
Interest expense |
|
| 19,896 |
|
|
| 23,883 |
|
|
| (3,987 | ) |
|
| (16.7 | )% |
|
| 40,137 |
|
|
| 49,861 |
|
|
| (9,724 | ) |
|
| (19.5 | )% |
|
| 35,977 |
|
|
| 23,452 |
|
|
| 12,525 |
|
|
| 53.4 | % |
|
| 76,113 |
|
|
| 73,313 |
|
|
| 2,800 |
|
|
| 3.8 | % |
Earnings before provision for income taxes |
|
| 66,565 |
|
|
| 51,628 |
|
|
| 14,937 |
|
|
| 28.9 | % |
|
| 159,104 |
|
|
| 129,972 |
|
|
| 29,132 |
|
|
| 22.4 | % |
|
| 63,226 |
|
|
| 103,965 |
|
|
| (40,739 | ) |
|
| (39.2 | )% |
|
| 222,331 |
|
|
| 233,937 |
|
|
| (11,606 | ) |
|
| (5.0 | )% |
Provision for income taxes |
|
| 19,757 |
|
|
| 13,316 |
|
|
| 6,441 |
|
|
| 48.4 | % |
|
| 43,458 |
|
|
| 34,469 |
|
|
| 8,989 |
|
|
| 26.1 | % |
|
| 16,659 |
|
|
| 27,759 |
|
|
| (11,100 | ) |
|
| (40.0 | )% |
|
| 60,117 |
|
|
| 62,228 |
|
|
| (2,111 | ) |
|
| (3.4 | )% |
Net earnings |
| $ | 46,808 |
|
| $ | 38,312 |
|
| $ | 8,496 |
|
|
| 22.2 | % |
| $ | 115,646 |
|
| $ | 95,503 |
|
| $ | 20,143 |
|
|
| 21.1 | % |
| $ | 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,499 |
|
|
| 3,625 |
|
|
| (126 | ) |
|
| (3.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,468 |
|
|
| 3,611 |
|
|
| (143 | ) |
|
| (4.0 | )% |
BSG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,363 |
|
|
| 1,379 |
|
|
| (16 | ) |
|
| (1.2 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,361 |
|
|
| 1,367 |
|
|
| (6 | ) |
|
| (0.4 | )% |
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,862 |
|
|
| 5,004 |
|
|
| (142 | ) |
|
| (2.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 4,829 |
|
|
| 4,978 |
|
|
| (149 | ) |
|
| (3.0 | )% |
Comparable sales growth (decline) (b): | Comparable sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Comparable sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SBS |
|
| (0.5 | )% |
|
| 3.7 | % |
| (420) |
|
| bps |
|
|
| 2.0 | % |
|
| (0.2 | )% |
| 220 |
|
| bps |
|
|
| (5.0 | )% |
|
| 43.1 | % |
| (4,810) |
|
| bps |
|
|
| (0.5 | )% |
|
| 11.8 | % |
| (1,235) |
|
| bps |
| ||||||||
BSG |
|
| 1.3 | % |
|
| 8.0 | % |
| (670) |
|
| bps |
|
|
| 4.9 | % |
|
| 0.2 | % |
| 470 |
|
| bps |
|
|
| (1.6 | )% |
|
| 43.0 | % |
| (4,460) |
|
| bps |
|
|
| 2.6 | % |
|
| 12.0 | % |
| (941) |
|
| bps |
| ||||||||
Consolidated |
|
| 0.2 | % |
|
| 5.4 | % |
| (520) |
|
| bps |
|
|
| 3.2 | % |
|
| (0.1 | )% |
| 330 |
|
| 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) | Our comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and e-commerce revenue. Additionally, our 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 comparable sales calculation until 14 months after the acquisition. Prior to fiscal year 2022, we reported Same Store Sales. For fiscal year 2022, we are reporting Comparable Sales, which includes sales to franchisees and full service sales. We have recast prior year amounts to conform to the change. See “Comparable Sales” discussion above for further information. |
Results of Operations
The Three Months Ended March 31,June 30, 2022, compared to the Three Months Ended March 31,June 30, 2021
Net Sales
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Comparable sales |
| $ | (2,580 | ) |
| $ | (28,522 | ) |
Sales outside comparable sales (a) |
|
| (10,409 | ) |
|
| (10,568 | ) |
Foreign currency exchange |
|
| (3,890 | ) |
|
| (11,866 | ) |
Total |
| $ | (16,879 | ) |
| $ | (50,956 | ) |
| (a) | Includes stores opened for less than 14 months, net of stores closures |
The 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 retail 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 operating fewer stores compared to the same period last year, lower traffic and conversion due tocomparable sales, the impact of COVID-19, supply chaindisruptions, the lapping of stimulus gains in the prior year,closed stores and inflationary pressures impacting consumer behavior, along with the negative impact offrom the Canadian foreign exchange rates. This decreaserate. BSG’s comparable sales was driven by fewer transactions as a result of lower 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, 2022, as a result of 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. 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, led by our color and care categories.
BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):
Comparable sales |
| $ | 4,737 |
|
| $ | 29,797 |
|
Sales outside comparable sales (a) |
|
| (2,741 | ) |
|
| (7,468 | ) |
Foreign currency exchange |
|
| (58 | ) |
|
| 14 |
|
Total |
| $ | 1,938 |
|
| $ | 22,343 |
|
| (a) | Includes stores opened or acquired for less than 14 months, net of stores closures |
The increase in BSG’s net sales was driven by an increase inhigher comparable sales, primarily due to anpartially offset by the impact of closed stores. BSG’s comparable sales increase inwas driven by a higher average ticket, resulting from higher average unit retail prices, led by color, care and from strong e-commerce growth. These increases werestyling toolscategories, partially offset by a decrease in overalllower average unit volume due to operating fewer stores compared to the same period last year.volume.
Gross Profit
SBS. SBS’s gross profit decreased for the threenine months ended March 31,June 30, 2022, as a result ofdriven by a decrease in net sales, partially offset by a higher gross margin. SBS’s gross margin increased primarily as a resultincrease was driven by improvement of pricing leverage and a decrease infewer write-downs of obsolete personal-protective equipment, partially offset by higher distribution and freight costs and an unfavorable sales mix shift between the U.S. and international markets.markets, resulting from the closing of certain international operations in the prior year due to COVID-19.
BSG. BSG’s gross profit increased for the threenine months ended March 31,June 30, 2022, driven by an increase in sales and a higher gross margin. BSG’s gross margin increase was driven by improvement inof pricing leverage and a decrease infewer write-downs of obsolete personal-protective equipment during the current year, partially offset by higher distribution and freight costs.
Selling, General and Administrative Expenses
SBS. SBS’s selling, general and administrative expenses increased $11.2$19.7 million, or 5.2%2.9%, for the threenine months ended March 31,June 30, 2022. The increase was driven primarily by higher compensation and compensation-related expenses of $8.9$17.5 million, driven byas a result of higher wages within general economic inflationary conditionslabor markets and to store re-openings in certain international markets, and the unfavorable impact from foreign exchange rates of $7.1 million. These headwinds were partially offset by lower delivery expenses of $2.9 million, as well as higher storea result of lower e-commerce sales, and lower facility costs associated with those re-openings.of $2.2 million, as a result of operating fewer stores.
BSG. BSG’s selling, general and administrative expenses increased $7.8$16.3 million, or 7.7%5.1%, for the threenine months ended March 31,June 30, 2022. The increase was driven primarily by higher delivery expense of $1.9$3.8 million, as a resultdepreciation and amortization of supply chain disruptions and the cost of fuel. Additionally, there were increases in depreciation$3.5 million, advertising expense of $1.0$2.1 million, credit card fees of $0.9$1.4 million, utility expenses of $1.0 million and other increases in variable operating expenses.compensation and compensation-related expenses of $0.9 million.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $31.3$23.6 million, or 43.6%15.3%, for the threenine months ended March 31,June 30, 2022, primarily due toas a result of lower COVID-19 expenses of $26.4 million, including the recognitionimpact of $31.2 million in donation expense related to personal-protective equipment inventory in the prior period.year, partially offset by higher information technology expense of $3.4 million.
Interest Expense
The decreaseincrease in interest expense is primarily due to the lower outstandingrepayment of our 8.75% Senior Notes, which resulted in a loss from debt principal forextinguishment of $16.4 million during the threenine months ended March 31,June 30, 2022, as a resultcompared to loss from debt extinguishment of the pay-down$4.3 million related to our repayment of our senior notes due 2023 and our term loan B fixed tranche during fiscal year 2021. Additionally, we recognized $1.4 million of loss on debt extinguishmentthe prior period. This was partially offset by the interest savings in connection with these repayments for $10.2 million during the pay-down of our term loan B fixed tranche in the prior period with no comparable amounts in the current period.fiscal year. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The effective tax rates were 29.7%27.0% and 25.8%26.6%, for the threenine months ended March 31,June 30, 2022 and 2021, respectively. The increase in the effective tax rate was primarily due to the impact of the write-off of deferred tax assets related to share-based compensation in connection with expired stock options.
The Six Months Ended March 31, 2022, compared to the Six Months Ended March 31, 2021
Net Sales
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Comparable sales |
| $ | 20,704 |
|
Sales outside comparable sales (a) |
|
| (18,791 | ) |
Foreign currency exchange |
|
| (4,932 | ) |
Total |
| $ | (3,019 | ) |
|
|
The decrease in net sales was driven by lower unit volume, primarily due to operating fewer stores compared to the same period last year, and the negative impact of foreign exchange rates. This decrease was partially offset by an increase in comparable sales, reflecting stronger customer demand in the first fiscal quarter, and higher average unit prices, led by our color and care categories.
BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):
Comparable sales |
| $ | 36,394 |
|
Sales outside comparable sales (a) |
|
| (5,283 | ) |
Foreign currency exchange |
|
| 1,196 |
|
Total |
| $ | 32,307 |
|
|
|
The increase in net sales was driven by an increase in comparable sales, primarily due to an increase in average unit prices and from strong e-commerce growth. These increases were offset by a decrease in overall unit volume due to operating fewer stores compared to the same period last year.
Gross Profit
SBS. SBS’s gross profit increased for the six months ended March 31, 2022, as a result of a higher gross margin, primarily due to pricing leverage and a decrease in obsolete personal-protective equipment write-downs, partially offset by higher distribution and freight costs.
BSG. BSG’s gross profit increased for the six months ended March 31, 2022, driven by an increase in sales, and improvement of pricing leverage, coupled with a decrease in personal-protective equipment write-downs.
Selling, General and Administrative Expenses
SBS. SBS’s selling, general and administrative expenses increased $18.1 million, or 4.1%, for the six months ended March 31, 2022. The increase was driven primarily by higher compensation and compensation-related expenses of $18.6 million, as a result of general economic inflationary conditions and store re-openings in certain international markets.
BSG. BSG’s selling, general and administrative expenses increased $14.9 million, or 7.1%, for the six months ended March 31, 2022. The increase was driven primarily by an increase in delivery expense of $2.5 million, compensation and compensation-related expenses of $2.3 million, depreciation expense of $1.9 million, advertising expense of $1.6 million, technology expense of $1.1 million and other increases in variable operating expenses.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $25.1 million, or 22.7%, for the six months ended March 31, 2022, driven by the recognition of $31.2 million donation expense related to personal-protective equipment inventory in the prior period, partially offset by an increase in information technology expense of $2.7 million.
Restructuring
For the six months ended March 31, 2022, restructuring charges in connection with our previously communicated Transformation Plan increased $0.2 million, to $1.1 million for the current year.
Interest Expense
The decrease in interest expense is primarily due to the lower outstanding debt principal for the six months ended March 31, 2022, as a result of the pay-down of our senior notes due 2023 and our term loan B fixed tranche during fiscal year 2021. Additionally, we recognized $1.4 million of loss on debt extinguishment in connection with the pay-down of our term loan B fixed tranche in the prior period with no comparable amounts in the current period. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The effective tax rates were 27.3% and 26.5%, for the six months ended March 31, 2022 and 2021, respectively. The increase in the effective tax rate was primarily due to an increase in foreign losses, for which we do not receive a tax benefit, and the write-off of deferred tax assets related to share-based compensation in connection with expired stock option awards.
Liquidity and Capital Resources
Overview
We are highly leveragedOur 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) increased $8.7decreased $250.5 million, to $727.4$468.2 million at March 31,June 30, 2022, compared to $718.7 million at September 30, 2021, primarily from increased2021. This decrease was 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 was further reduced by stock repurchases during the fiscal year. The decrease to working capital was partially offset by higher inventory as a result of restockingthe inflationary cost increases on our purchases and additional inventory relating to normal levels of demand following prior year shipping delays, and our risk mitigation strategyBSG's distribution partnership with Regis to protect against potential, continued supply chain disruptions, and the reduction in accounts payable and accrued liabilities, due to the timing of payments. These increases were partially offset by a decrease in cash and cash equivalents.service their salons account.
At March 31,June 30, 2022, cash and cash equivalents were $227.4$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), cash 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 twelve months. We have continued to focus on 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 share repurchases. During the sixnine months ended March 31,June 30, 2022, we did not draw fundsthe weighted average interest rate on our borrowings under ourthe ABL facility.facility was 2.9%. As of March 31,June 30, 2022, we had $481.1$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.
Share Repurchase Programs
During the sixnine months ended March 31,June 30, 2022, we repurchased 6.8 million shares of our common stock for $130.3 million with existing cash balances. As of March 31,June 30, 2022, we had authorization of approximately $595.8 million of additional potential share repurchases remaining under our share repurchase program.
Cash Flows
Historically, our primary source of cash has been net funds provided by operating activities and, when necessary, borrowings under our ABL facility. Historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions.
Net Cash (Used) Provided by Operating Activities
The $134.3Net cash provided by operating activities during the nine months ended June 30, 2022, decreased $168.5 million to $49.2 million, compared to the nine months ended June 30, 2021. This decrease in operating activities was driven by the reduction in accounts payable andour accrued liabilities, primarily due to the timing of payments, partially offset bypersonal-protective equipment donations and a lower bonus accrual, as well as higher inventory purchases compared to the sixnine months ended March 31, 2021 and an increase in net earnings.June 30, 2021.
Net Cash Used by Investing Activities
Net cash used by investing activities during the sixnine months ended March 31,June 30, 2022, increased $15.1$20.7 million to $44.4$67.9 million, compared to the sixnine months ended March 31,June 30, 2021. This change was primarily a result ofdriven by additional investments in information technology and store leasehold improvements.
Net Cash Used by Financing Activities
Net cash used by financing activities for the sixnine months ended March 31,June 30, 2022, decreased $84.7$142.7 million to $126.5$273.8 million, as a result of thelower net debt pay-downrepayments during the six months ended March 31, 2021 and an increase in stock options exercised,fiscal year, compared to prior fiscal year, partially offset by share repurchases during the sixnine months ended March 31,June 30, 2022.
Debt and Guarantor Financial Information
At March 31,June 30, 2022, we had $1,390.2$1,255.8 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $8.6$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 $410.3 million. As of March 31, 2022, there were noand $167.0 million in outstanding borrowings under our ABL facility. During the fiscal year, we called and redeemed our 8.75%
Senior Notes, at a redemption price equal to 104.375% of the principal amount, through a combination of excess cash and borrowings under our ABL facility.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.
Guarantor Financial Information
We currently have 5.625% Senior Notes due 2025 outstanding. These 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 March 31,June 30, 2022, and September 30, 2021 (in thousands):
|
| March 31, 2022 |
|
| September 30, 2021 |
|
| June 30, 2022 |
|
| September 30, 2021 |
| ||||
Inventory |
| $ | 735,272 |
|
| $ | 662,802 |
|
| $ | 790,561 |
|
| $ | 662,802 |
|
Intercompany receivable |
| $ | - |
|
| $ | 67,337 |
|
| $ | — |
|
| $ | 67,337 |
|
Current assets |
| $ | 976,855 |
|
| $ | 1,069,266 |
|
| $ | 920,021 |
|
| $ | 1,069,266 |
|
Total assets |
| $ | 2,098,588 |
|
| $ | 2,198,990 |
|
| $ | 2,061,778 |
|
| $ | 2,198,990 |
|
Intercompany payable |
| $ | 13,531 |
|
| $ | - |
|
| $ | 15,168 |
|
| $ | — |
|
Current liabilities |
| $ | 331,459 |
|
| $ | 422,137 |
|
| $ | 653,989 |
|
| $ | 422,137 |
|
Total liabilities |
| $ | 2,258,947 |
|
| $ | 2,343,946 |
|
| $ | 2,178,657 |
|
| $ | 2,343,946 |
|
The following table presents the summarized statement of income information for sixnine months ended March 31,June 30, 2022 (in thousands):
Net sales |
|
|
| $ | 1,532,316 |
|
|
|
| $ | 2,317,150 |
|
Gross profit |
|
|
| $ | 787,970 |
|
|
|
| $ | 1,193,543 |
|
Earnings before provision for income taxes |
|
|
| $ | 132,691 |
|
|
|
| $ | 184,505 |
|
Net Earnings |
|
|
| $ | 98,176 |
|
|
|
| $ | 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, 2021.2021, except for the repayment of our 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 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 March 31,June 30, 2022, and September 30, 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, 2021.
Recent Accounting Pronouncements
There have been no recent accounting pronouncements issued that will have a material impact to 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, 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, 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 March 31,June 30, 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 March 31,June 30, 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.
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, 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 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Fiscal Period |
| Total Number of Shares Purchased (1) |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||||
January 1 - January 30, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | 651,120,625 |
|
February 1 - February 28, 2022 |
|
| 2,234,514 |
|
|
| 17.68 |
|
|
| 2,234,514 |
|
|
| 611,606,688 |
|
March 1 - March 31, 2022 |
|
| 922,460 |
|
|
| 17.14 |
|
|
| 922,460 |
|
|
| 595,792,425 |
|
Total this quarter |
|
| 3,156,974 |
|
| $ | 17.53 |
|
|
| 3,156,974 |
|
| $ | 595,792,425 |
|
|
|
|
|
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 |
| |
|
|
|
31.2 |
| |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101 |
| The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended |
|
|
|
104 |
| The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended |
* Included herewith
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 |
25