(Former name, former address and former fiscal year, if changed since last report): N/A

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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 29, 2022,~~April 28, 2023, there were ~~107,016,939~~107,554,671 shares of the issuer’s common stock outstanding.

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.

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,~~2022, 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.

	June 30, 2022			September 30, 2021			March 31, 2023			September 30, 2022
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	101,318		$	400,959		$	61,620		$	70,558
Trade accounts receivable, net		31,462			32,623			30,540			34,102
Accounts receivable, other		35,911			33,958			45,123			38,175
Inventory		1,014,622			871,349			1,023,656			936,374
Other current assets		59,806			44,686			48,072			53,192
Total current assets		1,243,119			1,383,575			1,209,011			1,132,401
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
Property and equipment, net of accumulated depreciation of $841,760 at March 31, 2023, and $820,811 at September 30, 2022								283,356			297,876
Operating lease assets		549,493			537,673			562,336			532,177
Goodwill		533,147			541,209			534,218			526,066
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
Intangible assets, excluding goodwill, net of accumulated amortization of $29,921 at March 31, 2023, and $26,794 at September 30, 2022								50,533			50,315
Other assets		19,907			21,766			35,660			38,032
Total assets	$	2,685,866		$	2,847,132		$	2,675,114		$	2,576,867
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	167,169		$	194		$	38,175		$	68,658
Accounts payable		279,359			291,632			265,075			275,717
Accrued liabilities		165,996			206,155			168,187			161,065
Current operating lease liabilities		159,452			156,234			154,255			157,734
Income taxes payable		2,985			10,666			4,949			4,740
Total current liabilities		774,961			664,881			630,641			667,914
Long-term debt		1,083,924			1,382,530			1,065,439			1,083,043
Long-term operating lease liabilities		421,072			404,147			444,819			424,762
Other liabilities		16,781			29,056			22,044			22,427
Deferred income tax liabilities, net		93,257			85,777			86,283			85,085
Total liabilities		2,389,995			2,566,391			2,249,226			2,283,231
Stockholders’ equity:
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		—			—
Common stock, $0.01 par value. Authorized 500,000 shares; 107,556 and 107,024 shares issued and 107,549 and 106,970 shares outstanding at March 31, 2023, and September 30, 2022, respectively								1,076			1,070
Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued								—			—
Additional paid-in capital		2,339			17,286			13,790			4,241
Accumulated earnings		418,832			356,967			531,370			440,172
Accumulated other comprehensive loss, net of tax		(126,370	)		(94,641	)		(120,348	)		(151,847	)
Total stockholders’ equity		295,871			280,741			425,888			293,636
Total liabilities and stockholders’ equity	$	2,685,866		$	2,847,132		$	2,675,114		$	2,576,867

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	June 30,				June 30,				March 31,				March 31,
	2022		2021		2022		2021		2023		2022		2023		2022
Net sales	$	961,467	$	1,022,387	$	2,853,105	$	2,884,737	$	918,712	$	911,387	$	1,875,767	$	1,891,638
Cost of goods sold		471,259		507,981		1,397,436		1,432,378		450,373		446,055		918,854		926,177
Gross profit		490,208		514,406		1,455,669		1,452,359		468,339		465,332		956,913		965,461
Selling, general and administrative expenses		390,961		386,481		1,156,082		1,143,738		389,657		378,871		781,237		765,121
Restructuring		44		508		1,143		1,371		7,274		—		17,680		1,099
Operating earnings		99,203		127,417		298,444		307,250		71,408		86,461		157,996		199,241
Interest expense		35,977		23,452		76,113		73,313		16,685		19,896		34,608		40,137
Earnings before provision for income taxes		63,226		103,965		222,331		233,937		54,723		66,565		123,388		159,104
Provision for income taxes		16,659		27,759		60,117		62,228		13,862		19,757		32,190		43,458
Net earnings	$	46,567	$	76,206	$	162,214	$	171,709	$	40,861	$	46,808	$	91,198	$	115,646
Earnings per share:
Basic	$	0.44	$	0.68	$	1.48	$	1.52	$	0.38	$	0.43	$	0.85	$	1.05
Diluted	$	0.43	$	0.66	$	1.46	$	1.50	$	0.37	$	0.42	$	0.83	$	1.03
Weighted-average shares:
Basic		106,940		112,739		109,238		112,605		107,453		108,743		107,294		110,387
Diluted		108,526		114,927		110,907		114,274		109,706		110,540		109,499		112,207

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	June 30,						June 30,						March 31,						March 31,
	2022			2021			2022			2021			2023			2022			2023			2022
Net earnings	$	46,567		$	76,206		$	162,214		$	171,709		$	40,861		$	46,808		$	91,198		$	115,646
Other comprehensive (loss) income:
Other comprehensive income (loss):
Foreign currency translation adjustments		(27,384	)		6,617			(34,645	)		23,734			9,445			(2,752	)		35,386			(7,261	)
Interest rate caps, net of tax		2,050			471			2,328			646			(2,163	)		—			(1,960	)		278
Foreign exchange contracts, net of tax		432			(191	)		588			(1,211	)		(1,017	)		(324	)		(1,927	)		156
Other comprehensive (loss) income, net of tax		(24,902	)		6,897			(31,729	)		23,169
Other comprehensive income (loss), net of tax														6,265			(3,076	)		31,499			(6,827	)
Total comprehensive income	$	21,665		$	83,103		$	130,485		$	194,878		$	47,126		$	43,732		$	122,697		$	108,819

The accompanying notes are an integral part of these condensed consolidated financial statements.

													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
Balance at September 30, 2022																				106,970		$	1,070		$	4,241		$	440,172	$	(151,847	)	$	293,636
Net earnings		—			—			—			68,838			—			68,838			—			—			—			50,337		—			50,337
Other comprehensive loss		—			—			—			—			(3,751	)		(3,751	)
Other comprehensive income																				—			—			—			—		25,234			25,234
Share-based compensation		—			—			3,958			—			—			3,958			—			—			5,135			—		—			5,135
Stock issued for equity awards		795			8			7,364			—			—			7,372			404			4			78			—		—			82
Employee withholding taxes paid related to net share settlement		(56	)		(1	)		(1,136	)		—			—			(1,137	)		(90	)		(1	)		(1,125	)		—		—			(1,126	)
Repurchases and cancellations of common stock		(3,675	)		(36	)		(27,472	)		(47,492	)		—			(75,000	)
Balance at December 31, 2021		109,977		$	1,100		$	—		$	378,313		$	(98,392	)	$	281,021
Balance at December 31, 2022																				107,284		$	1,073		$	8,329		$	490,509	$	(126,613	)	$	373,298
Net earnings		—			—			—			46,808			—			46,808			—			—			—			40,861		—			40,861
Other comprehensive loss		—			—			—			—			(3,076	)		(3,076	)
Other comprehensive income																				—			—			—			—		6,265			6,265
Share-based compensation		—			—			2,032			—			—			2,032			—			—			3,838			—		—			3,838
Stock issued for equity awards		111			1			423			—			—			424			266			3			1,638			—		—			1,641
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	)
Balance at March 31, 2022		106,930		$	1,069		$	—		$	372,265		$	(101,468	)	$	271,866
Net earnings		—			—			—			46,567			—			46,567
Other comprehensive loss		—			—			—			—			(24,902	)		(24,902	)
Share-based compensation		—			—			2,113			—			—			2,113
Stock issued for equity awards		35			1			253			—			—			254
Employee withholding taxes paid related to net share settlement		(2	)		—			(27	)		—			—			(27	)
Balance at June 30, 2022		106,963		$	1,070		$	2,339		$	418,832		$	(126,370	)	$	295,871
Balance at March 31, 2023																				107,549		$	1,076		$	13,790		$	531,370	$	(120,348	)	$	425,888

												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
Net earnings		—			—			—			57,191		—			57,191
Other comprehensive income		—			—			—			—		23,588			23,588
Share-based compensation		—			—			2,893			—		—			2,893
Stock issued for equity awards		158			2			(2	)		—		—			—
Employee withholding taxes paid related to net share settlement		(25	)		(1	)		(248	)		—		—			(249	)
Balance at December 31, 2020		112,538		$	1,125		$	4,556		$	174,300	$	(81,115	)	$	98,866
Balance at September 30, 2021																			112,913		$	1,129		$	17,286		$	356,967		$	(94,641	)	$	280,741
Net earnings		—			—			—			38,312		—			38,312			—			—			—			68,838			—			68,838
Other comprehensive loss		—			—			—			—		(7,316	)		(7,316	)		—			—			—			—			(3,751	)		(3,751	)
Share-based compensation		—			—			2,648			—		—			2,648			—			—			3,958			—			—			3,958
Stock issued for equity awards		141			2			2,321			—		—			2,323			795			8			7,364			—			—			7,372
Balance at March 31, 2021		112,679		$	1,127		$	9,525		$	212,612	$	(88,431	)	$	134,833
Net loss		—			—			—			76,206		—			76,206
Other comprehensive income		—			—			—			—		6,897			6,897
Employee withholding taxes paid related to net share settlement																			(56	)		(1	)		(1,136	)		—			—			(1,137	)
Repurchases and cancellations of common stock																			(3,675	)		(36	)		(27,472	)		(47,492	)		—			(75,000	)
Balance at December 31, 2021																			109,977		$	1,100		$	—		$	378,313		$	(98,392	)	$	281,021
Net earnings																			—			—			—			46,808			—			46,808
Other comprehensive loss																			—			—			—			—			(3,076	)		(3,076	)
Share-based compensation		—			—			2,617			—		—			2,617			—			—			2,032			—			—			2,032
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
Stock issued for equity awards																			111			1			423			—			—			424
Employee withholding taxes paid related to net share settlement																			(1	)		—			(15	)		—			—			(15	)
Repurchases and cancellations of common stock																			(3,157	)		(32	)		(2,440	)		(52,856	)		—			(55,328	)
Balance at March 31, 2022																			106,930		$	1,069		$	—		$	372,265		$	(101,468	)	$	271,866

The accompanying notes are an integral part of these condensed consolidated financial statements.

	Nine Months Ended June 30,						Six Months Ended March 31,
	2022			2021			2023			2022
Cash Flows from Operating Activities:
Net earnings	$	162,214		$	171,709		$	91,198		$	115,646
Adjustments to reconcile net earnings to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash provided (used) by operating activities:
Depreciation and amortization		73,361			78,090			50,347			48,471
Share-based compensation expense		8,103			8,158			8,973			5,990
Amortization of deferred financing costs		2,702			3,280			1,311			1,865
Loss on early extinguishment of debt		16,439			2,449			601			—
Impairment of long-lived assets, including operating lease assets								1,765			—
Loss on disposal of equipment and other property		57			1,638			2			80
Deferred income taxes		7,702			(998	)		862			6,507
Changes in (exclusive of effects of acquisitions):
Trade accounts receivable		243			(8,612	)		4,632			3,800
Accounts receivable, other		(3,034	)		(10,363	)		(5,805	)		2,108
Inventory		(160,194	)		(108,317	)		(68,355	)		(95,468	)
Other current assets		(15,577	)		(931	)		6,053			(6,273	)
Other assets		3,547			1,578			2,201			1,979
Operating leases, net		8,448			(1,595	)		(14,286	)		3,657
Accounts payable and accrued liabilities		(34,349	)		78,250			108			(70,217	)
Income taxes payable		(8,169	)		6,372			434			(8,393	)
Other liabilities		(12,266	)		(2,980	)		(393	)		(12,525	)
Net cash provided by operating activities		49,227			217,728
Net cash provided (used) by operating activities								79,648			(2,773	)
Cash Flows from Investing Activities:
Payments for property and equipment, net of proceeds		(67,234	)		(44,888	)		(42,181	)		(44,109	)
Acquisitions, net of cash acquired		(665	)		(2,351	)		—			(318	)
Net cash used by investing activities		(67,899	)		(47,239	)		(42,181	)		(44,427	)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		283,003			—			853,000			—
Repayments of long-term debt, including prepayment costs		(433,383	)		(418,986	)
Debt issuance costs		—			(1,300	)
Repayments of long-term debt								(898,093	)		(2,841	)
Payments for common stock repurchased		(130,328	)		—			—			(130,328	)
Proceeds from equity awards		8,050			4,039			1,723			7,796
Debt issuance costs								(4,726	)		—
Employee withholding taxes paid related to net share settlement of equity awards		(1,179	)		(249	)		(1,141	)		(1,151	)
Net cash used by financing activities		(273,837	)		(416,496	)		(49,237	)		(126,524	)
Effect of foreign exchange rate changes on cash and cash equivalents		(7,132	)		2,173			2,832			178
Net decrease in cash and cash equivalents		(299,641	)		(243,834	)		(8,938	)		(173,546	)
Cash and cash equivalents, beginning of period		400,959			514,151			70,558			400,959
Cash and cash equivalents, end of period	$	101,318		$	270,317		$	61,620		$	227,413
Supplemental Cash Flow Information:
Interest paid	$	75,660		$	86,293		$	35,191		$	37,809
Income taxes paid	$	73,862		$	53,764		$	32,077		$	56,701
Capital expenditures incurred but not paid	$	7,682		$	2,098		$	5,466		$	3,205

The accompanying notes are an integral part of these condensed consolidated financial statements.

Sally Beauty Holdings is an international specialty retailer and distributor of professional beauty supplies with operations in North America, South America and Europe. We are one of the largest distributors of professional beauty supplies in the U.S. based on store count, operating under 2 segments, Sally Beauty Supply (“SBS”) and Beauty Systems Group (“BSG”). Our operations consist of company-operated stores, franchise stores and several e-commerce platforms. Within BSG, we also have one of the largest networks of distributor sales consultants (“DSCs”) for professional beauty products in North America, who sell directly to salons and salon professionals. SBS targets retail consumers, salons and salon professionals, while BSG targets salons and salon professionals.

The unaudited condensed consolidated interim financial statements of Sally Beauty Holdings, Inc. and its subsidiaries 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.~~2022. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of ~~June 30, 2022,~~March 31, 2023, and September 30, ~~2021, and~~2022, our consolidated results of operations, consolidated comprehensive income and consolidated statements of stockholders’ equity for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021,~~ and our consolidated cash flows for the ~~nine~~for the six months ended ~~June 30,~~March 31, 2023 and 2022 ~~and 2021.~~.

The unaudited 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.

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.

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 reasonable; however, they are based on management’s current knowledge of events and actions, and changes in facts and circumstances may result in revised estimates and impact actual results.

Our operating results for the fiscal years 2022 and 2021 were adversely impacted by the COVID-19 pandemic and its effects on the global economy. Given the uncertainty around the continued effects of the COVID-19 pandemic and macro-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 operations, inventory, liquidity, capital expenditures and accounting estimates and reserves.

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):

		Nine Months Ended June 30,							Six Months Ended March 31,
		2022			2021				2023			2022
Beginning Balance		$	16,744		$	13,947			$	13,460		$	16,744
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		5,195			11,950		Loyalty points and gift cards issued but not redeemed, net of estimated breakage		9,327			6,214
Revenue recognized from beginning liability	Revenue recognized from beginning liability		(8,132	)		(9,391	)	Revenue recognized from beginning liability		(8,370	)		(6,316	)
Ending Balance		$	13,807		$	16,506			$	14,417		$	16,642

See Note 10, Segment Reporting, for additional information regarding the disaggregation of our sales revenue.

We measure on a recurring basis and disclose the fair value of our financial instruments under the provisions of ASC Topic 820, Fair Value Measurement, as amended (“ASC 820”). We define “fair value” as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for measuring fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

Level 1 - Quoted prices are available in active markets for identical assets or liabilities;

Level 2 - Pricing inputs are other than quoted prices in active markets, included in Level 1, that are either directly or indirectly observable; and

Level 3 - Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own model with estimates and assumptions.

Consistent with the ~~three-level~~fair value hierarchy, ~~defined in ASC Topic 820,~~ ~~Fair Value Measurement, as amended,~~ we ~~categorize~~categorized our financial assets and liabilities as ~~follows:~~follow:

(in thousands)	Classification	Fair Value Hierarchy Level	June 30, 2022		September 30, 2021		Classification	Fair Value Hierarchy Level	March 31, 2023		September 30, 2022
Financial Assets:
Foreign exchange contracts	Other current assets	Level 2	$	547	$	—
Non-designated cash flow hedges							Other current assets	Level 2	$	327	$	294
Interest rate caps	Other assets	Level 2		2,029		35	Other current assets	Level 2		—		3,860
Total assets			$	2,576	$	35			$	327	$	4,154
.
Financial Liabilities:
Foreign exchange contracts	Accrued liabilities	Level 2	$	315	$	—
Designated cash flow hedges							Accrued liabilities	Level 2	$	2,300	$	—
Non-designated cash flow hedges							Accrued liabilities	Level 2		1,887		79
Total liabilities									$	4,187	$	79

~~Financial instruments not measured at~~The fair value for interest rate caps and foreign exchange contracts were measured using widely accepted valuation techniques, such as discounted cash flow analyses and observable inputs, such as market interest rates and foreign exchange rates.

The carrying amounts of cash equivalents, trade and other accounts receivable and accounts payable and borrowing under our ABL facility approximate their respective fair values due to the short-term nature of these financial instruments.Carrying amounts and the related estimated fair value of our long-term debt, excluding ~~capital~~finance lease obligations, ~~and~~ debt issuance costs and original issue discounts, are as follows:

		June 30, 2022				September 30, 2021					March 31, 2023				September 30, 2022
(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	$	679,961	$	638,313	$	979,961	$	1,019,635	Level 1	$	679,961	$	668,062	$	679,961	$	639,163
Term loan B	Level 2		408,875		403,764		413,000		411,451
Term loan B due 2024										Level 2		—		—		407,500		398,331
Term loan B due 2030										Level 2		400,000		398,500		—		—
Total long-term debt		$	1,088,836	$	1,042,077	$	1,392,961	$	1,431,086		$	1,079,961	$	1,066,562	$	1,087,461	$	1,037,494

~~The table above excludes amounts, if any, related to our ABL facility as the balance approximates fair value due to the short-term nature of our borrowings.~~The fair value of the ~~senior notes was measured using unadjusted quoted market prices. The fair value of Term Loan~~term loan B was measured using quoted market prices for similar debt securities in active markets or widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.

In August 2017, our Board of Directors (“Board”) approved a share repurchase program authorizing ~~the Company~~us 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 ~~June 30, 2022,~~March 31, 2023, we had authorization of approximately $595.8 million of additional potential share repurchases remaining under our share repurchase program.

~~Information related to~~ For the three and six months ended March 31, 2023, we did not repurchase shares under our share repurchase program. For the three and six months ended March 31, 2022, we repurchased 3.1 million and 6.8 million shares ~~repurchased~~of common stock, respectively, at a total cost of $55.0 million and ~~subsequently retired were as follows (in thousands):~~$130.3 million, respectively.

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	)
Balance at September 30, 2022													$	(153,128	)	$	1,960		$	(679	)	$	(151,847	)
Other comprehensive loss before reclassification, net of tax		(34,645	)		1,073			400			(33,172	)		35,386			817			(1,815	)		34,388
Reclassification to net earnings, net of tax		—			1,255			188			1,443			—			(2,777	)		(112	)		(2,889	)
Balance at June 30, 2022	$	(126,799	)	$	243		$	186		$	(126,370	)
Balance at March 31, 2023													$	(117,742	)	$	—		$	(2,606	)	$	(120,348	)

The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings was not material.

The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021		2023		2022		2023		2022
Weighted-average basic shares		106,940		112,739		109,238		112,605		107,453		108,743		107,294		110,387
Dilutive securities:
Stock option and stock award programs		1,586		2,188		1,669		1,669		2,253		1,797		2,205		1,820
Weighted-average diluted shares		108,526		114,927		110,907		114,274		109,706		110,540		109,499		112,207

Anti-dilutive options excluded from our computation of diluted shares		2,406		2,188		2,385		1,670		1,964		2,534		1,964		2,169

During ~~our second fiscal quarter,~~the three months ended March 31, 2023, we completed our annual ~~assessment~~assessments for impairment of goodwill and indefinite-lived intangible assets. For our goodwill testing, we ~~used~~performed a qualitative analysis and ~~our actual and forecasted results are exceeding the estimates from the last~~determined that there was no indication of impairment requiring further quantitative ~~test. Additionally,~~ ~~we considered potential triggering events and determined there were none for the three months ended June 30, 2022.~~ ~~NaN~~testing. No material impairment losses were recognized in the current or prior periods presented in connection with our goodwill and ~~other~~ intangible assets.

Three Months Ended

June 30,

Nine Months Ended

June 30,

Three Months Ended

March 31,

Six Months Ended

March 31,

(in thousands)

2022

2021

2022

2021

2023

2022

2023

2022

Intangible assets amortization expense

977

1,648

3,047

4,956

866

999

1,875

2,070

Additionally, during the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, the ~~decreases~~changes in goodwill and other intangibles ~~were primarily from the~~included effects of foreign currency exchange rates of ~~$8.3~~$8.2 million and ~~$2.2~~$2.1 million, respectively.

	June 30, 2022		September 30, 2021		March 31, 2023		September 30, 2022
Compensation and benefits	$	67,664	$	73,344	$	66,868	$	58,693
Deferred revenue		16,216		18,543		18,980		18,810
Rental obligations		11,187		10,501		12,766		10,701
Insurance reserves		6,098		5,934		6,111		5,742
Property and other taxes						3,022		4,161
Interest payable		3,722		24,101		13,699		13,445
Property and other taxes		2,497		3,853
Operating accruals and other		58,612		69,879		46,741		49,513
Total accrued liabilities	$	165,996	$	206,155	$	168,187	$	161,065

At March 31, 2023, our ABL facility had $34.0 million in outstanding borrowingsand $448.7 million available for borrowing, including the Canadian sub-facility, subject to borrowing base limitation, as reduced by outstanding letters of credit.

~~8. Short-term Borrowings~~On February 28, 2023, we announced that our wholly-owned subsidiaries, Sally Holdings LLC (“Sally Holdings”) and ~~Long-term Debt~~

~~During~~Sally Capital, Inc. (“Sally Capital” and, together with Sally Holdings, the ~~three months ended~~“Borrowers”), and certain of our other direct and indirect subsidiaries entered into a credit agreement with Bank of America, N.A., as Administrative Agent and Collateral Agent, and the lenders and other parties thereto providing for a term loan B facility (“TLB 2030”) in an aggregate principal amount equal to $400.0 million, the net proceeds of which were used to repay an existing term loan B facility (“TLB 2024”). The TLB 2030 will bear interest at a floating rate equal to, at the Borrowers option, either the Adjusted Term SOFR Rate from time to time in effect plus 2.50% or an adjusted base rate plus 1.50%, payable quarterly on March 31, June 30, ~~2022, we issued~~September 30 and December 31 of each year. The TLB 2030 matures on the earlier of (i) February 28, 2030 and (ii) the date that is 91 days prior to the stated maturity of the Borrowers’ 2025 Senior Unsecured Notes (the “2025 Senior Unsecured Notes”) unless all amounts exceeding $200.0 million of the 2025 Senior Unsecured Notes are refinanced or repaid according to certain conditions (the “Maturity Date”). The principal of the TLB 2030 is repayable in quarterly installments equal to 0.25% of the original principal amount of the TLB 2030, with a ~~notice of redemption (the “Redemption Notice”),~~final installment equal to ~~redeem on May 31, 2022,~~ the entire ~~$300~~remaining outstanding principal amount due on the Maturity Date. TLB 2030 was issued at a discount of 0.75% and we incurred $4.7 million in issuance costs; both of which are being amortized using the effective interest method.

The TLB 2030 is secured by a first-priority lien in and upon substantially all of the assets of the Company and its domestic subsidiaries other than the accounts, inventory (and the proceeds thereof) and other assets that secure Sally Holdings’ existing ABL facility on a first-priority basis (the “ABL Priority Collateral”). Additionally, the TLB 2030 is secured by a second-priority lien in and upon the ABL Priority Collateral. The TLB 2030 does not contain any financial maintenance covenants and is subject to a covenant package that is substantially consistent with the covenant package governing the 2025 Senior Unsecured Notes. The TLB 2030 is subject to customary asset sale mandatory prepayment provisions and excess cash flow mandatory prepayment provisions. The TLB 2030 is subject to a prepayment premium of 1.0% of the principal amount thereof upon any refinancing or amendment thereof that results in a reduced effective yield (subject to certain exceptions) within six months following the closing. Thereafter, the TLB 2030 may be prepaid without penalty or premium, other than customary breakage costs for prepayments that are made prior to the last date of an interest period.

The repayment of our TLB 2024, in the aggregate outstanding principal amount of ~~the 8.75% Senior Secured Second Lien Notes due 2025 (“8.75% Senior Notes”). The redemption~~$406.1 million, was made pursuant to the terms of the ~~Indenture~~indenture dated ~~April 24, 2020,~~February 28, 2017, at ~~a redemption price equal to 104.375% of the principal amount of the 8.75% Senior Notes~~par plus interest accrued but unpaid ~~interest~~up to, ~~but~~though not including, the ~~redemption~~repayment 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,~~repayment, we recognized a loss on the extinguishment of debt of ~~$16.4~~$0.6 million within interest expense, which included ~~a redemption premium of $13.1 million and~~ the write-off of unamortized discount and deferred financing costs of ~~$3.3~~$0.2 million. and $0.4 million, respectively.

~~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.~~

During the ~~nine~~six months ended ~~June 30, 2022,~~March 31, 2023, we did 0tnot 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.

We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on forecasted inventory purchases in U.S. dollars by our foreign subsidiaries. At ~~June 30, 2022,~~March 31, 2023, we held forwards, which expire ratably through September 30, ~~2022,~~2023, with a notional amount, based upon exchange rates at ~~June 30, 2022,~~March 31, 2023, as follows (in thousands):

Notional Currency	Notional Amount		Notional Amount
Mexican Peso	$	6,478	$	12,846
Euro		4,084		7,699
Canadian Dollar		2,619		6,284
Total	$	13,181	$	26,829

Quarterly, the changes in fair value related to ~~the~~these 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 ~~nine~~three months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we recognized ~~a loss~~losses of $0.2 million and $0.1 million, respectively. For the six months ended March 31, 2023 and 2022, we recognized a gain of $0.1 million ~~respectively. The effects~~and a loss of ~~our foreign currency forwards were not material for the three months ended June 30, 2022 and 2021.~~$0.4 million, respectively. Based on ~~June 30, 2022,~~March 31, 2023, valuations and exchange rates, we expect to reclassify ~~gains~~losses of approximately ~~$1.6~~$3.1 million into cost of goods sold over the next 12 months.

In July 2017, we purchased 2two 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.~~TLB 2024. The interest rate caps ~~are~~were comprised of individual caplets that ~~expire~~were expiring ratably through June 30, 2023, and ~~are~~were designated as cash flow hedges. Accordingly, the changes in fair value of the interest rate caps ~~are~~were recorded quarterly, net of income tax, and ~~are~~ included in AOCL.

During the three months ended March 31, 2023, we early settled both interest rate caps due to the forecasted transactions being hedged no longer occurring as a result of the repayment of our TLB 2024. In connection with the early settlement, we received approximately $2.7 million, which represented the fair value at the time of settlement. Furthermore, we released the remaining AOCL balances related to the interest rate caps into interest expense. For the ~~nine~~three months ended ~~June 30, 2022 and 2021,~~March 31, 2023, we recognized ~~expense~~income of ~~$1.3~~$2.8 million ~~and $0.8 million, respectively,~~ into interest expense on our condensed consolidated statements of ~~earnings.~~earnings related to the caps. The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three months ended ~~June 30,~~March 31, 2022. For the six months ended March 31, 2023 and 2022, we recognized income of $2.8 million and ~~2021. Over the next 12 months, we expect to reclassify approximately $0.7~~expense of $0.4 million, respectively, into interest expense on our condensed consolidated statements of earnings related to the caps.

We also use foreign exchange contracts to mitigate our exposure to exchange rate changes in connection with certain intercompany balances not permanently invested. At March 31, 2023, we held forwards, which ~~represents~~expire on various dates in the ~~original~~first month of both the third and fourth fiscal quarters of fiscal year 2023, with a notional amount, based upon exchange rates at March 31, 2023, as follows (in thousands):

We record changes in fair value and realized gains or losses related to these foreign currency forwards into selling, general and administrative expenses. For the three months ended March 31, 2023 and 2022, the effects of these foreign exchange contracts on our condensed consolidated financial statements were losses of $1.5 million and $0.2 million, respectively. For the ~~expiring caplets.~~six months ended March 31, 2023 and 2022, the effects of these foreign exchange contracts on our condensed consolidated financial statements were a loss of $1.1 million and a gain of $0.1 million, respectively.

Segment data for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2023 and 2022, ~~and 2021,~~ is as follows (in thousands):

	Three Months Ended June 30,				Nine Months Ended June 30,				Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021		2023		2022		2023		2022
Net sales:
Sally Beauty Supply ("SBS")	$	551,725	$	602,681	$	1,639,040	$	1,693,015	$	530,246	$	525,785	$	1,079,718	$	1,087,315
Beauty Systems Group ("BSG")		409,742		419,706		1,214,065		1,191,722		388,466		385,602		796,049		804,323
Total	$	961,467	$	1,022,387	$	2,853,105	$	2,884,737	$	918,712	$	911,387	$	1,875,767	$	1,891,638
Earnings before provision for income taxes:
Segment operating earnings:
SBS	$	88,792	$	116,784	$	270,355	$	311,975	$	92,134	$	80,940	$	191,308	$	181,563
BSG		56,067		55,265		160,621		151,680		37,260		46,008		86,907		104,554
Segment operating earnings		144,859		172,049		430,976		463,655		129,394		126,948		278,215		286,117
Unallocated expenses		45,612		44,124		131,389		155,034		50,712		40,487		102,539		85,777
Restructuring		44		508		1,143		1,371		7,274		—		17,680		1,099
Consolidated operating earnings		99,203		127,417		298,444		307,250		71,408		86,461		157,996		199,241
Interest expense		35,977		23,452		76,113		73,313		16,685		19,896		34,608		40,137
Earnings before provision for income taxes	$	63,226	$	103,965	$	222,331	$	233,937	$	54,723	$	66,565	$	123,388	$	159,104

Sales between segments, which are eliminated in consolidation, were not material during the three and ~~nine~~six months ended ~~June 30, 2022~~March 31, 2023 and ~~2021.~~2022.

The following tables disaggregate our segment revenues by merchandise category. We have reclassified certain prior year amounts within BSG to conform to current year presentation.

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
SBS	2022			2021			2022			2021			2023			2022			2023			2022
Hair color		38.3	%		36.4	%		37.7	%		36.1	%		39.8	%		38.1	%		39.2	%		37.4	%
Hair care		23.5	%		22.1	%		23.8	%		21.6	%		24.3	%		24.1	%		23.9	%		24.0	%
Styling tools and supplies		18.8	%		21.3	%		19.4	%		22.4	%		17.9	%		19.2	%		18.7	%		19.7	%
Nail		11.3	%		10.9	%		10.8	%		10.8	%		10.0	%		10.6	%		10.2	%		10.5	%
Skin and cosmetics		7.6	%		8.5	%		7.6	%		8.4	%		7.5	%		7.4	%		7.4	%		7.7	%
Other beauty items		0.5	%		0.8	%		0.7	%		0.7	%		0.5	%		0.6	%		0.6	%		0.7	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
SBS	2022			2021			2022			2021			2023			2022			2023			2022
Company-operated stores		94.0	%		94.2	%		94.0	%		93.7	%		93.6	%		93.7	%		93.6	%		94.0	%
E-commerce		6.0	%		5.7	%		6.0	%		6.2	%		6.4	%		6.3	%		6.4	%		6.0	%
Franchise stores		0.0	%		0.1	%		0.0	%		0.1	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

	Three Months Ended June 30,						Nine Months Ended June 30,						Three Months Ended March 31,						Six Months Ended March 31,
BSG	2022			2021			2022			2021			2023			2022			2023			2022
Company-operated stores		66.6	%		69.2	%		66.9	%		69.7	%		67.5	%		66.6	%		66.9	%		67.1	%
E-commerce														13.7	%		12.4	%		13.7	%		12.0	%
Distributor sales consultants		13.9	%		14.1	%		13.9	%		14.0	%		11.4	%		14.0	%		12.0	%		13.8	%
E-commerce		11.6	%		8.8	%		11.8	%		8.8	%
Franchise stores		7.9	%		7.9	%		7.4	%		7.5	%		7.4	%		7.0	%		7.4	%		7.1	%
Total		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Restructuring expenses, included in Cost of Goods Sold (“COGS”) and Restructuring for the three and six months ended March 31, 2023 and 2022 are as follows (in thousands):

In the fourth quarter of fiscal year 2022, our Board approved the Distribution Center Consolidation and Store Optimization Plan (“the Plan”) authorizing the closure of 330 SBS stores and 35 BSG stores, and the closure of two BSG distribution centers in Clackamas, Oregon and Pottsville, Pennsylvania.

We believe that consolidating the operation of these two distribution centers into our larger distribution centers will increase product availability, shorten delivery times and reduce overall costs. Stores identified for early closure were part of a strategic evaluation which included a market analysis of certain locations where we believe we will be able to recapture demand at other nearby store locations and improve overall profitability. By optimizing our store base, we are further focusing on our customers’ shopping experience and our product offerings.

As of March 31, 2023, we have closed 329 SBS stores and 28 BSG stores as part of the Plan and closed the two BSG distributions centers. The Plan will continue to be executed throughout fiscal year 2023 and into the first half of fiscal year 2024, and therefore it may include future charges related to store closures such as exit costs, lease negotiation penalties, termination benefits and adjustments to estimates.

The liability related to the Plan, which is included in accounts payable and accrued liabilities on our consolidated balance sheets, is as follows:

In April 2023, we entered into an interest rate swap transaction to help mitigate the risk of our floating rate debt. The notional amount of the swap is $200 million with an effective date of April 28, 2023 and a termination date of April 30, 2026. Under the terms of the swap, we will pay a fixed rate of interest of 3.705% and will receive a floating rate of interest equal to one-month SOFR. The floating rate will be reset monthly and net settlements of interest due to/from the counterparty will also occur monthly. To the extent the floating rate of interest exceeds the fixed rate of interest, we will receive net interest settlements, which will be recorded as a reduction to interest expense. If the fixed rate of interest exceeds the floating rate of interest, we will be required to pay net settlements to the counterparty and will record those net payments in interest expense.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty for the periods covered by this Quarterly Report. 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.~~2022, including the Risk Factors sections therein, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and notes to those financial statements.

InFor fiscal 2023, we are focusing on three key strategic initiatives to drive growth and profitability:

We believe focusing in these areas will position our company for future growth and further enhance our ability to meet our customers where they are.

During the fiscal year, SBS launched its first Studio by Sally pilot store in Denton, Texas and has identified other locations for its additional pilot stores expected to open this fiscal year. The Studio by Sally pilot store program will have a digital-first focus, from digital check-in to digital education throughout the store and beyond, including personalized appointments at our in-store salons with licensed stylists who will train and educate consumers on how to personally achieve their desired results. We believe that we will be able to expand the Studio by Sally concept to 100 locations throughout the U.S. over the next three to four fiscal years if successful.

Additionally, earlier this fiscal year, BSG launched a new strategic partnership with Salon HQ to help its professional stylist customers grow their business. Salon HQ is a customizable digital storefront platform that gives stylists the ability to curate a product selection from thousands of BSG merchandise choices, and enables their clients to purchase directly from their shops without the stylists having to finance and carry inventory.

We believe growing our SBS owned brands, through innovation and marketing, will provide improved margins, strengthen our long-term relationships with existing customers and help attract new customers. During the fiscal year, we have invested more into marketing of our owned brands and launched the first and second phases of our new owned branded vegan hair repair product line – bondbar – that’s SLS/SLES-free, paraben-free, phthalate-free and cruelty-free. These initiatives delivered an increase in our owned brands sales penetration, resulting in increased SBS profit margins.

Furthermore during the second quarter, some of our BSG vendors began launching new and exciting product lines, including Paul Mitchell’s new permanent hair color line for gray coverage – the color 10 – that is a formulated using sustainably sourced beeswax, and Wella’s new hair care line – Ultimate Repair – which helps nourish and repair damaged hair. We are thrilled to be able to provide these new innovative products to salons and stylists, and look forward to providing more of our BSG vendor’s new innovative products in our third ~~quarter~~quarter.

At the end of fiscal year 2022, we ~~delivered solid gross margin growth~~announced our plan to close 330 SBS stores, 35 BSG stores and two BSG distribution centers. Based on our strategic evaluation, we believe that we will able to recapture approximately half of the demand of closed stores in ~~both segments compared to~~other nearby store locations and improve overall profitability. During the ~~same period last year. Additionally during the~~first quarter, we ~~repaid~~completed the ~~entire $300 million dollar balance~~closure of our two BSG distributions centers and the majority of our planned store closures. Additionally, we have re-optimized our store supply chain network based on our ~~8.75% Senior Notes~~new store fleet. As of March 31, 2023, we have closed 329 SBS stores and ~~continued to invest~~28 BSG stores as part of the Plan and are currently meeting our sales recapture expectations.

See Note 11, Restructuring, in Item 1 of this quarterly report for ~~growth through many of our initiatives, despite volatile market conditions and its impact~~more information on ~~our topline performance. With a healthy balance sheet, a strong operating infrastructure and~~ the loyalty of our core customers, we believe we are well positioned to continue navigating the macro-environment and remain focused on our four strategic pillars: leveraging our digital platform, driving loyalty and personalization, delivering product innovation and optimizing our supply chain.Plan.

Global inflationary pressures continue to ~~impact~~influence consumer ~~spending~~and stylist behavior ~~and~~along with the cost for products and services. ~~Moreover, there is still volatility~~In the U.S. and Canada, we are seeing our SBS customers color their hair less frequently and reduce the size of their basket when they shop with us, while at BSG we are seeing stylists purchasing closer to the time they use products. Additionally, inflationary pressures have impacted wages, especially among retail and hourly employees, as we have experienced an increase in ~~the global supply chain, while freight carriers are faced with higher fuel prices.~~our labor costs in order to attract and retain associates. 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.costs. 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.~~inflation.

InFurthermore, in a measure to curb inflation, the U.S. Federal Reserve has ~~continued to increase~~increased the federal funds effective rate. In turn, these increases have raised the cost of debt borrowings. We currently have ~~approximately $575.9~~$434.0 million in variable rate debt ~~with $408.9 million hedged with interest rate caps to help mitigate the impact of raising rates. Future~~outstanding and future increases in the federal funds effective rate could have a material adverse impact to our cost of ~~debt,~~borrowing, including any future changes in our debt structure.

During the fiscal year, we experienced disruptions to our business as a result of the COVID-19 pandemic and we continue to take certain actions in order to protect our customers and associates. In particular, our store operations continue to face challenges and disruptions related to COVID-19 surges and spikes in infection levels. While the situation has shown signs of stabilization, we cannot reasonably predict the effects of new variants or expect improving trends to continue. Therefore, our future performance may partially depend on impacts of COVID-19 such as decreased customer in-store traffic, temporary store closures, and continued labor and supply chain disruptions.

~~Refer to Item 1A. “Risk Factors” in our Form 10-K for the fiscal year ended September 30, 2021, for further discussion on the risks and uncertainties created by COVID-19.~~

~~The Company’s initiative to invest in our digital platforms support our omni-channel strategies to provide customers an enhanced shopping experience. As such, we~~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, 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.

The following table sets forth, for the periods indicated, information concerning key measures we rely on to evaluate our operating performance (dollars in thousands):

	Three Months Ended June 30,												Nine Months Ended June 30,													Three Months Ended March 31,												Six Months Ended March 31,
	2022			2021			Increase (Decrease)						2022			2021			Increase (Decrease)							2023			2022			Increase (Decrease)						2023			2022			Increase (Decrease)
Net sales:
SBS	$	551,725		$	602,681		$	(50,956	)		(8.5	)%	$	1,639,040		$	1,693,015		$	(53,975	)		(3.2	)%		$	530,246		$	525,785		$	4,461			0.8	%	$	1,079,718		$	1,087,315		$	(7,597	)		(0.7	)%
BSG		409,742			419,706			(9,964	)		(2.4	)%		1,214,065			1,191,722			22,343			1.9	%			388,466			385,602			2,864			0.7	%		796,049			804,323			(8,274	)		(1.0	)%
Consolidated	$	961,467		$	1,022,387		$	(60,920	)		(6.0	)%	$	2,853,105		$	2,884,737		$	(31,632	)		(1.1	)%		$	918,712		$	911,387		$	7,325			0.8	%	$	1,875,767		$	1,891,638		$	(15,871	)		(0.8	)%

Gross profit:
SBS	$	322,815		$	349,167		$	(26,352	)		(7.5	)%	$	960,249		$	982,139		$	(21,890	)		(2.2	)%		$	317,117		$	309,262		$	7,855			2.5	%	$	640,592		$	637,434		$	3,158			0.5	%
BSG		167,393			165,239			2,154			1.3	%		495,420			470,220			25,200			5.4	%			151,222			156,070			(4,848	)		(3.1	)%		316,321			328,027			(11,706	)		(3.6	)%
Consolidated	$	490,208		$	514,406		$	(24,198	)		(4.7	)%	$	1,455,669		$	1,452,359		$	3,310			0.2	%		$	468,339		$	465,332		$	3,007			0.6	%	$	956,913		$	965,461		$	(8,548	)		(0.9	)%

Segment gross margin:
SBS		58.5	%		57.9	%	60			bps				58.6	%		58.0	%	60			bps					59.8	%		58.8	%	100			bps				59.3	%		58.6	%	70			bps
BSG		40.9	%		39.4	%	150			bps				40.8	%		39.5	%	130			bps					38.9	%		40.5	%	(160)			bps				39.7	%		40.8	%	(110)			bps
Consolidated		51.0	%		50.3	%	70			bps				51.0	%		50.3	%	70			bps					51.0	%		51.1	%	(10)			bps				51.0	%		51.0	%	—			bps

Net earnings:
Segment operating earnings:
SBS	$	88,792		$	116,784		$	(27,992	)		(24.0	)%	$	270,355		$	311,975		$	(41,620	)		(13.3	)%		$	92,134		$	80,940		$	11,194			13.8	%	$	191,308		$	181,563		$	9,745			5.4	%
BSG		56,067			55,265			802			1.5	%		160,621			151,680			8,941			5.9	%			37,260			46,008			(8,748	)		(19.0	)%		86,907			104,554			(17,647	)		(16.9	)%
Segment operating earnings		144,859			172,049			(27,190	)		(15.8	)%		430,976			463,655			(32,679	)		(7.0	)%			129,394			126,948			2,446			1.9	%		278,215			286,117			(7,902	)		(2.8	)%
Unallocated expenses and restructuring^(a)		45,656			44,632			1,024			2.3	%		132,532			156,405			(23,873	)		(15.3	)%			57,986			40,487			17,499			43.2	%		120,219			86,876			33,343			38.4	%
Consolidated operating earnings		99,203			127,417			(28,214	)		(22.1	)%		298,444			307,250			(8,806	)		(2.9	)%			71,408			86,461			(15,053	)		(17.4	)%		157,996			199,241			(41,245	)		(20.7	)%
Interest expense		35,977			23,452			12,525			53.4	%		76,113			73,313			2,800			3.8	%			16,685			19,896			(3,211	)		(16.1	)%		34,608			40,137			(5,529	)		(13.8	)%
Earnings before provision for income taxes		63,226			103,965			(40,739	)		(39.2	)%		222,331			233,937			(11,606	)		(5.0	)%			54,723			66,565			(11,842	)		(17.8	)%		123,388			159,104			(35,716	)		(22.4	)%
Provision for income taxes		16,659			27,759			(11,100	)		(40.0	)%		60,117			62,228			(2,111	)		(3.4	)%			13,862			19,757			(5,895	)		(29.8	)%		32,190			43,458			(11,268	)		(25.9	)%
Net earnings	$	46,567		$	76,206		$	(29,639	)		(38.9	)%	$	162,214		$	171,709		$	(9,495	)		(5.5	)%		$	40,861		$	46,808		$	(5,947	)		(12.7	)%	$	91,198		$	115,646		$	(24,448	)		(21.1	)%
	.																									.
Number of stores at end-of-period (including franchises):
Number of stores at end-of-period (including franchises)^(b):																									Number of stores at end-of-period (including franchises)^(b):
SBS														3,468			3,611			(143	)		(4.0	)%															3,143			3,499			(356	)		(10.2	)%
BSG														1,361			1,367			(6	)		(0.4	)%															1,341			1,363			(22	)		(1.6	)%
Consolidated														4,829			4,978			(149	)		(3.0	)%															4,484			4,862			(378	)		(7.8	)%
Comparable sales growth (decline)^(b):
Comparable sales growth (decline):																									Comparable sales growth (decline):
SBS		(5.0	)%		43.1	%	(4,810)			bps				(0.5	)%		11.8	%	(1,235)			bps					9.1	%		(0.5	)%	960			bps				6.0	%		2.0	%	400			bps
BSG		(1.6	)%		43.0	%	(4,460)			bps				2.6	%		12.0	%	(941)			bps					1.3	%		1.3	%	—			bps				(0.2	)%		4.9	%	(510)			bps
Consolidated		(3.6	)%		43.1	%	(4,670)			bps				0.8	%		11.9	%	(1,110)			bps					5.7	%		0.2	%	550			bps				3.3	%		3.2	%	10			bps

The Three Months Ended ~~June 30, 2022,~~March 31, 2023, compared to the Three Months Ended ~~June 30, 2021~~March 31, 2022

SBS. The ~~decrease~~increase in net sales for SBS was primarily driven by the following (in thousands):

Comparable sales	$	(28,522	)	$	43,868
Sales outside comparable sales ^(a)		(10,568	)		(34,456	)
Foreign currency exchange		(11,866	)		(4,951	)
Total	$	(50,956	)	$	4,461

The increase in SBS’s comparable sales was a result of a growth in our average unit retail, primarily from inflationary impacts and pricing leverage, and an increase in transactions, driven by recapturing approximately half of the sales from stores closed in connection with the Plan and the lapping of the prior year’s impact from Omicron and supply chain challenges.

BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):

~~The decrease in SBS’s net sales was driven by lower~~BSG’s comparable sales reflected the ~~negative~~lapping of the prior year’s impact from ~~foreign exchange rates~~supply challenges 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 volumeOmicron, partially offset by ~~higher~~the impacts of the current economic environment on stylist shopping behaviors. These impacts resulted in an increase in our 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):~~

The decrease in BSG’s net sales was primarily due to lower comparable sales, the impact of closed stores and the negative impact from the Canadian foreign exchange rate. 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.units per transaction.

SBS. SBS’s gross profit ~~decreased~~increased for the three months ended ~~June 30, 2022,~~March 31, 2023, as a result of ~~a decrease~~an increase in net sales ~~partially offset by~~and a higher gross margin. SBS’s gross margin ~~increased primarily~~grew as a result of ~~an improvement in~~ pricing leverage, ~~partially offset by higher distribution~~increased penetration of our owned brand products and ~~freight costs.~~adjustments to our expected obsolescence reserve related to the Plan.

BSG. BSG’s gross profit ~~increased~~decreased for the three months ended ~~June 30, 2022, driven by an improvement in pricing leverage,~~March 31, 2023, as a result of a lower gross margin, partially offset by ~~higher~~an increase in net sales. BSG’s gross margin decline was driven by lower product margin resulting from an unfavorable sales channel mix, between stores and lower-margin Regis e-commerce sales, and a shift in some distribution center costs from selling, general and ~~freight costs.~~administrative expenses into gross margin.

SBS. SBS’s selling, general and administrative expenses ~~increased $1.6~~decreased $3.3 million, or ~~0.7%~~1.5%, for the three months ended ~~June 30, 2022. The increase was driven by higher compensation~~March 31, 2023 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~~included a favorable impact offrom foreign exchange rates of ~~$4.6~~$2.2 million.As a percentage of SBS net sales, SG&A for the three months ended March 31, 2023 was 42.4% compared to 43.4% for the three months ended March 31, 2022. The decrease as a percentage of sales was primarily driven by cost savings from the closure of stores as part of the Plan, partially offset by increased labor and personnel costs and higher advertising expense.

BSG. BSG’s selling, general and administrative expenses increased ~~$1.4~~$3.9 million, or ~~1.2%~~3.5%, for the three months ended ~~June 30,~~March 31, 2023. As a percentage of BSG net sales, SG&A for the three months ended March 31, 2023 was 29.3% compared to 28.5% for the three months ended March 31, 2022. The increase as a percentage of sales was driven primarily by ~~higher delivery expense of $1.3 million as a result of increased fuel prices~~increases in labor and personnel costs.

Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased ~~$1.5~~$10.2 million, or ~~3.4%~~25.3%, for the three months ended ~~June 30, 2022,~~March 31, 2023, primarily due to ~~higher~~increased labor and personnel costs and information technology ~~expense.~~expense.

For the three months ended March 31, 2023, we incurred $7.3 million in restructuring charges related to our Distribution Center Consolidation and Store Optimization Plan. See Note 11, Restructuring, in Item 1 of this quarterly report for more information on the Plan.

The ~~increase~~decrease in interest expense is ~~primarily~~ due to the interest savings from the repayment of our 8.75% Senior Notes ~~which resulted~~due 2025 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 wasfiscal year 2022, partially offset by higher interest expense on our variable rate debt resulting from the increase in borrowing rates and outstanding amounts under our ABL facility. Additionally, we released the $2.2 million in net gains held in AOCL related to our interest ~~savings~~rate caps due to the early settlement of ~~$2.3 million from~~the derivatives driven by the repayment of ~~the 8.75% Senior Notes. See “Liquidity and Capital Resources” below for additional information.~~our TLB 2024.

The effective tax rates were ~~26.3%~~25.3% and ~~26.7%~~29.7%, for the three months ended ~~June 30,~~March 31, 2023, and 2022, respectively. The decrease in the effective tax rate was primarily due to the tax impact of share-based compensation which was beneficial this quarter, but detrimental in the prior year quarter, and ~~2021, respectively.~~greater losses in the prior year quarter for which a tax benefit could not be recognized.

The ~~Nine~~Six Months Ended ~~June 30, 2022,~~March 31, 2023, compared to the ~~Nine~~Six Months Ended ~~June 30, 2021~~March 31, 2022

SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):

Comparable sales	$	(7,818	)	$	59,822
Sales outside comparable sales ^(a)		(29,027	)		(50,676	)
Foreign currency exchange		(17,130	)		(16,743	)
Total	$	(53,975	)	$	(7,597	)

~~The decrease in~~ SBS’s ~~net~~comparable sales increase 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~~growth in our average unit retail, ~~prices, led~~primarily from inflationary impacts, pricing leverage and the lapping of Omicron and supply chain challenges. Comparable sales were also positively impacted by ~~our color and care categories.~~ recapturing of approximately half of the sales from stores closed in connection with the Plan.

BSG. The ~~increase~~decrease in net sales for BSG was primarily driven by the following (in thousands):

Comparable sales	$	29,797		$	(1,340	)
Sales outside comparable sales ^(a)		(7,468	)		(2,225	)
Foreign currency exchange		14			(4,709	)
Total	$	22,343		$	(8,274	)

~~The increase~~BSG’s comparable sales faced headwinds from elevated demand in ~~BSG’s net sales was driven by higher comparable sales,~~the prior year from the easing of COVID-19 restrictions and the impacts of the current economic environment which resulted in fewer transactions and units per transaction, partially offset by ~~the impact of closed stores. BSG’s comparable sales~~an increase ~~was driven by a higher average ticket, resulting from higher~~in our average unit ~~retail prices, led by color, care and styling toolscategories, partially offset by lower average unit volume.~~retail.

SBS. SBS’s gross profit ~~decreased~~increased for the ~~nine~~six months ended ~~June 30, 2022, driven by~~March 31, 2023, as a ~~decrease in sales,~~result of a higher gross margin, partially offset by ~~a higher gross margin.~~lower net sales. SBS’s gross margin ~~increase was driven by improvement~~grew as a result of pricing leverage, increased penetration of our owned brand products and ~~fewer write-downs of obsolete personal-protective equipment, partially offset by higher distribution and freight costs and an unfavorable sales mix shift between~~adjustments to our expected obsolescence reserve related to the ~~U.S. and international markets, resulting from the closing of certain international operations in the prior year due to COVID-19.~~Plan.

BSG. BSG’s gross profit ~~increased~~decreased for the ~~nine~~six months ended ~~June 30, 2022, driven by an increase in~~March 31, 2023, as a result of lower net sales and a ~~higher~~lower gross margin. BSG’s gross margin ~~increase~~decline was driven by ~~improvement of pricing leverage~~lower product margin resulting from an unfavorable sales channel mix, between stores and ~~fewer write-downs of personal-protective equipment during the current year,~~lower-margin Regis e-commerce sales, and a shift in some distribution center costs from selling, general and administrative expenses into gross margin, partially offset by ~~higher distribution and freight costs.~~ adjustments to our expected obsolescence reserve related to the Plan.

SBS. SBS’s selling, general and administrative expenses ~~increased $19.7~~decreased $6.6 million, or ~~2.9%~~1.4%, for the ~~nine~~six months ended ~~June 30, 2022. The increase was driven by higher compensation~~March 31, 2023 and ~~compensation-related expenses of $17.5 million, as~~included a ~~result of higher wages within general labor markets and store re-openings in certain international markets, and the unfavorable~~favorable impact from foreign exchange rates of ~~$7.1~~$6.8 million. ~~These headwinds were~~As a percentage of SBS net sales, SG&A for the six months ended March 31, 2023 was 41.6% compared to 41.9% for the six months ended March 31, 2022. The decrease as a percentage of sales was primarily driven by cost savings from the closure of stores in connection with the Plan, partially offset by ~~lower delivery expenses of $2.9 million, as a result of lower e-commerce sales,~~an increase in labor and ~~lower facility costs of $2.2 million, as a result of operating fewer stores.~~personnel costs.

BSG. BSG’s selling, general and administrative expenses increased ~~$16.3~~$5.9 million, or ~~5.1%~~2.7%, for the ~~nine~~six months ended ~~June 30,~~March 31, 2023. As a percentage of BSG net sales, SG&A for the six months ended March 31, 2023 was 28.8% compared to 27.8% for the six months ended March 31, 2022. The increase as a percentage of sales was driven primarily by ~~higher delivery expense~~deleveraging as a result of ~~$3.8 million, depreciation~~lower net sales as well as increases in labor and amortization of $3.5 million, advertising expense of $2.1 million, credit card fees of $1.4 million, utility expenses of $1.0 million and compensation and compensation-related expenses of $0.9 million.personnel costs.

Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, ~~decreased $23.6~~increased $16.8 million, or ~~15.3%~~19.5%, for the ~~nine~~six months ended ~~June 30, 2022, as a result of lower COVID-19~~March 31, 2023, primarily due to increased labor and personnel costs and information technology expenses ~~of $26.4 million, including~~.

For the ~~impact of $31.2~~six months ended March 31, 2023, we incurred $17.7 million in ~~donation expense~~restructuring charges related to the Plan. For the six months ended March 31, 2022, restructuring charges in connection with our prior transformation plan were immaterial. See Note 11, Restructuring, in Item 1 of this quarterly report for more information on the ~~prior year, partially offset by higher information technology expense of $3.4 million.~~ Plan.

The ~~increase~~decrease in interest expense is ~~primarily~~ due to interest savings from the repayment of our 8.75% Senior Notes ~~which resulted~~due 2025 in ~~a loss~~fiscal year 2022, partially offset by higher interest expense on our variable rate debt resulting from ~~debt extinguishment of $16.4~~the increase in borrowing rates and outstanding amounts under our ABL facility. Additionally, we released the $2.2 million ~~during the nine months ended June 30, 2022, compared to loss from debt extinguishment of $4.3 million~~in net gains held in AOCL related to our interest rate caps due to the early settlement of the derivatives driven by the repayment of our ~~senior notes due 2023 and~~TLB 2024 in our ~~term loan B fixed tranche during the prior period. This was partially offset by the interest savings in connection with these repayments for $10.2 million during the~~second fiscal ~~year. See “Liquidity and Capital Resources” below for additional information.~~quarter.

The effective tax rates were ~~27.0%~~26.1% and ~~26.6%~~27.3%, for the ~~nine~~six months ended ~~June 30,~~March 31, 2023, and 2022, ~~and 2021,~~ respectively. The decrease in the effective tax rate was primarily due to greater losses in the prior year for which a tax benefit could not be recognized.

Our ~~capital structure contains a mix~~principal sources of ~~debt~~liquidity are from cash and ~~equity,~~cash equivalents, cash from operations and aour ABL facility. A substantial portion of our liquidity needs arise ~~from our outstanding indebtedness and~~ from funding the costs of our operations, working capital, capital expenditures, debt ~~repayment~~interest and principal payment. Additionally, under our share ~~repurchases.~~ repurchase program, see below for more details, we will from time-to-time repurchase shares of our common stock on the open market to return value to our shareholders. At March 31, 2023, we had $510.3 million in our liquidity pool, which includes $448.7 million available for borrowings under our ABL facility and cash and cash equivalents of $61.6 million.

Working capital (current assets less current liabilities) ~~decreased $250.5~~increased $113.9 million, to ~~$468.2~~$578.4 million at ~~June 30, 2022,~~March 31, 2023, compared to ~~$718.7~~$464.5 million at September 30, ~~2021.~~2022. This ~~decrease~~increase was driven by higher inventory balances, resulting from inflationary cost increases and the ~~repayment~~impact of ~~our 8.75% Senior Notes through the use~~foreign exchange rates of ~~excess cash~~$21.7 million, and ~~additional~~a decrease in borrowing onoutstanding under 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 the inflationary cost increases on our purchases and additional inventory relating to BSG's distribution partnership with Regis to service their salons account.

~~At June 30, 2022, cash and cash equivalents were $101.3 million.~~ We 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 our working capital ~~requirements, potential acquisitions, anticipated~~and capital ~~expenditures, including information technology upgrades and store remodels, and debt repayments~~expenditure requirements over the next twelve months. ~~We have continued~~

The change in net cash provided by operating activities for the six months ended March 31, 2023, compared to ~~focus~~the net cash used by operating activities for the six months ended March 31, 2022, was driven by the timing of inventory purchases and vendor payments, primarily from the impact of global supply chain issues in the prior year, and the decrease in net sales.

The decrease in net cash used by investing activities for the six months ended March 31, 2023, compared to the six months ended March 31, 2022, was driven by fewer capital expenditures related to store improvements and information technology.

The decrease in net cash used by financing activities for the six months ended March 31, 2023, compared to the six months ended March 31, 2022, was primarily a result of no share repurchases in the current year and the net reduction in our outstanding debt principal.

On February 28, 2023, we entered into a seven-year term loan facility agreement in the aggregate principal amount of $400.0 million and used the proceeds to subsequently repay our previously existing term loan facility. See Note 8, Short-term Borrowings and Long-term Debt, in Item 1 of this quarterly report for more information.

At March 31, 2023, we had $1,114.0 million in outstanding debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $10.7 million. Our debt consists of $680.0 million in 2025 Senior Notes outstanding, $400.0 million remaining on ~~reducing~~ our ~~debt levels~~term loan and ~~shares~~$34.0 million in outstanding ~~through repurchases, while also being proactive in maintaining~~borrowings under our ~~financial flexibility.~~ABL facility.

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 nine months ended June 30, 2022, the weighted average interest rate on our borrowings under the ABL facility was 2.9%. As of June 30, 2022, we had $167.0 million outstanding and $314.2 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit. Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities.

During the ~~nine~~six months ended ~~June 30, 2022, we repurchased 6.8 million shares of~~March 31, 2023, the weighted average interest rate on our common stock for $130.3 million with existing cash balances. As of June 30, 2022, we had authorization of approximately $595.8 million of additional potential share repurchases remaining under our share repurchase program.

~~Historically, our primary source of cash has been net funds provided by operating activities and, when necessary,~~ borrowings under ~~our~~the 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 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~~facility was driven by the reduction in our accrued liabilities, primarily due to the timing of personal-protective equipment donations and a lower bonus accrual, as well as higher inventory purchases compared to the nine months ended June 30, 2021.

Net cash used by investing activities during the nine months ended June 30, 2022, increased $20.7 million to $67.9 million, compared to the nine months ended June 30, 2021. This was driven by additional investments in technology and store leasehold improvements.

Net cash used by financing activities for the nine months ended June 30, 2022, decreased $142.7 million to $273.8 million, as a result of lower net debt repayments during the fiscal year, compared to prior fiscal year, partially offset by share repurchases during the nine months ended June 30, 2022.

At June 30, 2022, we had $1,255.8 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $4.7 million. Our debt consisted of $680.0 million in senior notes outstanding, $408.9 million remaining on our term loan and $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.~~5.5%.

We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.

~~We currently have~~ ~~5.625%~~Our 2025 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 of our subsidiaries to ~~pay~~make certain restrictive payments to Sally Beauty. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors.

The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these combined entities has been eliminated.

The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of ~~June 30, 2022,~~March 31, 2023, and September 30, ~~2021 (in thousands):~~2022:

	June 30, 2022		September 30, 2021
(in thousands)					March 31, 2023		September 30, 2022
Inventory	$	790,561	$	662,802	$	768,531	$	714,477
Intercompany receivable	$	—	$	67,337	$	5,287	$	—
Current assets	$	920,021	$	1,069,266	$	879,479	$	827,155
Total assets	$	2,061,778	$	2,198,990	$	2,032,568	$	1,982,982
Current liabilities					$	517,349	$	549,415
Intercompany payable	$	15,168	$	—	$	—	$	4,431
Current liabilities	$	653,989	$	422,137
Total liabilities	$	2,178,657	$	2,343,946	$	2,046,853	$	2,085,169

The following table presents the summarized statement of ~~income~~earnings information for ~~nine~~the Issuers and the Guarantors for six months ended ~~June 30, 2022~~March 31, 2023 (in thousands):

Net sales	$	2,317,150	$	1,523,975
Gross profit	$	1,193,543	$	784,446
Earnings before provision for income taxes	$	184,505	$	96,854
Net Earnings	$	137,808	$	72,906

Under our current share repurchase program, we may from time-to-time repurchase our common stock on the open market. During the six months ended March 31, 2023, no shares were repurchased in connection with our share repurchase program. During the six months ended March 31, 2022, we repurchased 6.8 million shares of our common stock for $130.3 million under our share repurchase program. See Note 4, Stockholders’ Equity, for more information about our share repurchase program.

~~There~~Other than the repayment of our TLB 2024 and entering into the TLB 2030 as discussed above, there have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 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):2022.

At ~~June 30, 2022,~~March 31, 2023 and September 30, ~~2021,~~2022, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.

There have been no material changes to our critical accounting estimates or assumptions since September 30, ~~2021.~~2022.

There have been no recent accounting pronouncements issued that will have a material impact to our business.

As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates and government actions. ~~There have been no~~Since September 30, 2022, the only material ~~changes to~~change in our market risks relates to interest rate risks resulting from ~~September 30, 2021.~~ the early settlement of our interest rate caps which previously helped mitigate our exposure to interest rates changes on our prior term loan B. In April 2023, we entered into an interest rate swap. See Note 12, Subsequent Event, for more information. At March 31, 2023, we had $434.0 million in outstanding floating interest rate debt, and a 1.0 percentage point interest rate increase would negatively impact our annual interest expense and cash flows by $4.3 million.

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.~~2022.

Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 30, 2022.~~March 31, 2023. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.

Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Quarterly Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this Quarterly Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis and to maintain them as dynamic systems that change as conditions warrant.

Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of ~~June 30, 2022,~~March 31, 2023, 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.

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.

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,~~2022, 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.

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.

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)

	Page
PART I — FINANCIAL INFORMATION

Item 1. Financial Statements	4

Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Earnings	5
Condensed Consolidated Statements of Comprehensive Income	6
Condensed Consolidated Statements of Stockholders’ Equity	7
Condensed Consolidated Statements of Cash Flows	8
Notes to Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations	1517
Item 3. Quantitative And Qualitative Disclosures About Market Risk	2224
Item 4. Controls And Procedures	2224

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	2325
Item 1A. Risk Factors	2325
Item 6. Exhibits	2426

(in thousands)	Liability at September 30, 2022		SBS Expense		BSG Expense			Cash Payments			Non-Cash Amounts			Liability at March 31, 2023
Closing costs - leases ^(a)	$	—	$	7,389	$	1,307		$	(5,463	)	$	(1,043	)	$	2,190
Closing costs - payroll expenses ^(b)		—		1,540		979			(2,458	)		—			61
Impairment - property and equipment ^(c)		—		1,276		193			—			(1,469	)		—
Inventory transfer costs		—		1,158		322			(1,372	)		—			108
Impairment - operating lease assets ^(c)		—		350		244			—			(594	)		—
Other closure costs ^(d)		1,291		2,978		(56	)		(2,659	)		—			1,554
Total	$	1,291	$	14,691	$	2,989		$	(11,952	)	$	(3,106	)	$	3,913


	•	Enhancing our customer centricity;
	•	Growing high margin owned brands at Sally Beauty and amplifying innovation; and

	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	)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Large accelerated filer	☒		Accelerated filer	☐	Non-accelerated filer	☐
Smaller reporting company	☐		Emerging growth company	☐

Notional Currency	Notional Amount
British Pound	$	51,936
Canadian Dollar		13,491
Euro		21,173
Mexican Peso		26,175
Total	$	112,775

Comparable sales	$	4,769
Sales outside comparable sales ^(a)		171
Foreign currency exchange		(2,076	)
Total	$	2,864

Comparable sales	$	(6,597	)
Sales outside comparable sales ^(a)		(2,185	)
Foreign currency exchange		(1,182	)
Total	$	(9,964	)

Exhibit No.		Description

3.1		Third Restated Certificate of Incorporation of Sally Beauty Holdings, Inc., dated January 30, 2014, which is incorporated herein by reference from Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on January 30, 2014

3.2		Amended and Restated Bylaws of Sally Beauty Holdings, Inc., dated April 26, 2017, which is incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 28, 2017

10.1		~~Separation agreement between Pamela Kohn~~Credit Agreement, dated as of February 28, 2023, by and among Sally Holdings LLC, Sally Capital, Inc., Bank of America, N.A., as Administrative Agent and Collateral Agent, and the Company effective as of May 31, 2022*lenders and other parties, which is incorporated herein by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 1, 2023

22		List of Subsidiary Guarantors*

31.1		Rule 13a-14(a)/15d-14(a) Certification of Denise Paulonis*

31.2		Rule 13a-14(a)/15d-14(a) Certification of Marlo M. Cormier*

32.1		Section 1350 Certification of Denise Paulonis*

32.2		Section 1350 Certification of Marlo M. Cormier*

101		The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2022,~~March 31, 2023, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Stockholders’ Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements.

104		The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended ~~June 30, 2022,~~March 31, 2023, formatted in Inline XBRL (contained in Exhibit 101).

		SALLY BEAUTY HOLDINGS, INC.
		(Registrant)

Date: ~~August~~May 4, ~~2022~~2023

	By:	/s/ Marlo M. Cormier
		Marlo M. Cormier
		Senior Vice President, Chief Financial Officer
		For the Registrant and as its Principal Financial Officer