SBH - Earnings call transcript Q3 2024 | Sally Beauty Holdings, Inc.

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Operator

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's third quarter fiscal 2024 results. [Operator Instructions] Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Jeff Harkins

Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Paulonis, Chief Executive Officer; and Marlo Cormier, Chief Financial Officer.

Litigation would call remind within may of Private I remarks that the begin, XXXX. the this of on contain Securities we like everyone to management's meaning Before Act Reform forward-looking statements Actual with results indicated forward-looking in factors, as on statements recent the important XX-K from the Risk result other various of those Form by annual our of most these a including differ may materially SEC. those discussed filings Factors and section report

our represent update call only this has website. on and made statements measures its undertake reconciliations to forward-looking today non-GAAP of obligations provided and in its we items earnings them. views and its explanation Any as company adjusting press of financial on a release no detailed The and

the to the over like Now Denise turn I'd remarks. formal to begin to call

Denise Paulonis

Thank morning, you, Jeff, good everyone. and

and third both results growth Beauty Group. across guidance We Our delivered Beauty of range. of our high segments latest end of X.X% comparable to trends sales and point business, Sally X.X% above Systems a quarter net the sales increase improving our of

continued our and Our Sally, performance reflects the at in a gaining BSG notable well momentum top improvement performance our fundamental strength we're reflecting traction strategic segment line initiatives. as from in as

strong gross guidance came in range adjusted Adjusted above was at operating margin our at and XX% margin also X.X%.

repurchases to Our business share generated quarter. to the return continue $XX us to solid operations capital by enabling from cash of in flows million, shareholders way of

up X%, second average in and Looking was consecutive sales of a transactions a grew quarter both start From quarter up in Comparable X% in at increased X.X%, row, sales X% for BSG. care respectively. up perspective, ticket by performance positive and segment. our and third the color X%. I'll were representing quarter with down category comparable comps. QX the

the markets distribution one as across will our as largest in Amika our Wow California, launch Additionally, quarter. drove of Color which fourth well key Oil, strong in performance including and brands, Moroccan we expanded

trends, see and combination We're product BSG trend may healthy, Sally's across post-pandemic. buying need reflecting innovation. to expanded the to closer distribution underlying consistent strength remain our business, the norm demand robust new although patterns stylists of the pleased salon stable of be purchasing

gains, is build As momentum XXXX. the we we we poised believe to share enter on as business capture to existing continue fiscal

leader the America, size in As our positioned are and leverage continuing the professional scale growth. fuel to for stylist North community to we well

and transactions Turning customer-centric now value of business saw and segment. Sally to our X%. sales number enhancements. X.X%, digital with increased comparable the expansions performance comparable notable We by initiatives, positive our in average a a QX including marketplace up ticket turn marketing, X% driven down

to continue changes around adjusting favorably, to resulting and in and implemented consumers purchasing end, tactics behavior we in depth the promotions, remaining higher customers and duration that QX, a see design, spending, caution of our we closely, is exercising nimble AUR. To monitoring needed. and are We responded

our to also were We that growing pleased fruit. focus on base and loyalty is retaining our bearing see

target into reactivation loyalty drove brought and the customer marketing new quarter, program. customers our During our campaigns strong

of members. XX% U.S. from million our XX sales our generated and For we loyalty at the third quarter, Sally Canada

our represent who grew shoppers, and Additionally, elite X% year-over-year. by loyalty our most members, valuable frequent

increasing innovation our all third are With for Score been on delivering X of XX The businesses, stronger. and and year initiatives Sally quarter, a our of teams a centricity, customer our efficiency core of high-margin ago. Across strong never owned Net amplifying enhancing operations. versus brand our strategic execution record has our the our of brands points growing Promoter up our

initiatives remain sales points on XXX of basis and year. For for our to our we results, to achieve from our product contributed third to XXX these contribution services over new basis quarter, track and expected points the expansion innovation, comparable full territory XXX

well. consistent Wow in At a Neuro Money helping BSG, innovation, from and product products new from hair us express are conscious and as Color customer and the Paul trend Mitchell perform epres like are perspective, Looking engagement. a Mist fueling segment beauty. and both excitement, while strong BSG From coloring drive other at Sally Briogeo bonding including remains dryers growth XXXX is blonding, well to continuing launches as pipeline and

from collaborations At Building care. we XX%. Sally, Nature our across enhancing brands, and innovation was In QX, rooted segment Beauty with marketing activation responding sales consumers Sally Inspired Pride country. to QX, Global mood momentum the grooming and success brand are in owned in by our on on skin including the during own for the plantheory, celebrated campaign, mindful focused brand men's and penetration Month

Turning customer centricity. now to

concepts newest In from Starting top-of-funnel QX, momentum. engaged XX% to this Colorist with XX% building QX Sally. are up OnDemand. services work service is who customers Our were Licensed and and That's of new performing tells dividend. in our and us in paying

to $XX, up Additionally, per in ticket $XX average color over the consultations averaged from increased week, X,XXX value QX. and

in building to gain with performance us Amazon which and another as meet tell we as growth launch also the incremental continues initiative traction they recently, Most since this will serve Instacart marketplace where added awareness. Our to results strong QX. early driving this Walmart DoorDash, well across consumer are important is in platform and

Wrapping Happy up with Beauty.

the on mall transaction including stores, experiment strength focus and compromising cosmetics stores markets initiatives, reach, continue beauty while value. a in experience. not profiles well our new initial of on broaden season. well our As in traffic-driving some initial This at will locations, our customers X engaging Dallas category track in prior pilots. as open that pilot start additional which learnings concept our focusing demographic we're for X transactions the holiday in social. average includes units increased of on further an and expands value seeing And to strip on XX test we're demand From pilot Phoenix fragrance. done we and strong to the this Building to the There's with price from an notable the have exposure a points center as on perspective, looking per to reminder, an locations

focused initiatives, towards to continue driving we our and our As on profitability also long-term advance core progressing algorithm. are growth we strategic

In the had our our a which Fuel to efficiency base help an plan, target. review component cost build of profitability internally, addition for we and Growth important underway third-party we our on is we to expert us engaged deliver how work

on continue expense million this gross to generate benefits XXXX. We We implement support to by bottom run benefit of rate will track line. engage structure approaching help fiscal us initiative our third-party to $XXX important remain end margin, cumulative the that and

driving essential across execution ongoing our part deliver line our growth, for the effort quarter improving year top throughout organization we're an fiscal the of to final experience our for engaging focused to focus, the see and pleased collective our As ability dedication. we enter This of our on I'd trends like and we P&L. culture teams remain profitable thank to is their customers. an and

As always, and our we remain for growth committed creation long-term agenda value to our shareholders.

to the I'll Marlo the discuss to turn Now over financials. call

Marlo Cormier

morning, Denise, everyone. you, and Thank good

results Our in our performance BSG third were segment. line positive highlighted top by quarter both and Sally

gross a just as our underlying BSG, from positive as resulting results margin sales Solid of reflect Denise consecutive renewed that above latest delivered well third The guidance range. our growth comparable adjusted quarter strategic initiatives which strengths at at outlined. operating momentum margins Sally and

total $XX consolidated net sales comparable quarter sales. million e-commerce sales consolidated XX% were of represented Third X.X%, grew of X.X%. increased net and sales while $XXX Global million

we came solid XX%, profit, last gross at at in flat gross Looking delivered year. again margins, to which

year gross absorption. year, noncash year's that adjusted and from costs last ago inventory cost the we Excluding to basis of last distribution a plan resulting the store optimization unfavorable center lower efficiencies, executed That's partially by related XX XX%. and supply distribution margin chain true-up write-down up consolidation offset versus reflects and points fixed freight was

as to million, can $XX expenses higher planned million $XXX for spend, and quarter QX a other expenses totaled upper program. roughly This marketing. SG&A year-over-year versus ago million Growth up including be $X.X in The to funnel our of offset as labor primarily adjusted from resulting as compensation-related increase we flat Fuel Third was advertising partially year savings anticipated. by and traced increases well

Fuel and Growth. in pretax this and XXXX. making progress fiscal up are our We benefit the cumulative million million on $XXX margin to we $XX to approximately achieve SG&A remain We're of pleased in year to with track with with benefits gross plan for

and we now end, with XXXX typical to and million project, benefit type is this this from work $XX margin. in fiscal come to X/X the of nature of capture timing of evolves the As expect To gross as come SG&A matures. X/X in benefit from the

from shift previously of SG&A gross margin. slight our XX% There's and split anticipated a XX%

As was Adjusted $X.XX. has for Fuel our including margin year-to-date. to incur to Strong full sales third XX.X% charges expect the performance $XX realized Fuel in diluted coupled million for adjusted X.X%. XXXX, with came that year drove we pretax a with EPS $XX reminder, been and cash margin for quarter Growth program, fiscal and of associated million at in operating margins, gross adjusted program across Growth EBITDA up

Customers in to performance a decline and X% marketing Net segment year net the performance $XX results. initiatives ago. in comparable expansions were were for our to QX. X% were including quarter. sales segment Moving a up improved at At constant currency, territory, efforts, up sales Sally responded enhancements. million and represented Sally e-commerce versus following Beauty sales see slightly positive X.X% We with sales pleased also to digital of strategic market

up essentially Beauty and nails X%. to flat up prior Sally care were X% while were Sally up up was For was nails X%, At Canada, X% the U.S. Global the segment, up X%. care was color was color and and year,

partially at XX% points Segment our unfavorable in million Denise margin was supply members. last basis our up efficiencies in As came generated sales our margins, mentioned, stronger XX U.S. Canada we cost and by at XX.X%, of year, absorption. reflecting product chain and segment Sally Sally XXX operating fixed Gross XX.X%. loyalty to from offset margin

driven This was and XX.X%. at Gross the innovation. the basis, reflects Moving due which X.X%, sales well mix. That's distribution product partially color up efficiencies. a $XX BSG were down up a supply currency as lower XXX operating margin BSG On X.X%. year e-commerce representing increased by momentum constant XX% benefits margin, for X%. BSG higher perspective, as was ago, segment while a by care now segment, fixed rate and chain to primarily From versus was points quarter. sales XX.X%. expanded net million, Segment our up was as well sales was of X% Comparable in unfavorable sales participation offset were absorption net brand continued appreciation margin a cost basis the our was customer sales of where product as to category

sheet $XX our under outstanding $XX asset-based the cash revolving cash and to million Turning of We ended and flow. third of and the line million quarter credit. with balance cash equivalents

at debt leverage stood X.Xx. net ratio Our

XXX plus spreads which SOFR During is healthy SOFR value The annual return the invest to us from reduction line of through overall to quarter, slightly we Loan $X repriced and interest in our with Term point Cash reflects translates an inventory the providing initiatives behind was our million. flow with remained basis plus our expectations approximately successfully $X repurchases. to strategic over savings XXX. B XX Quarter-end strong, in share from and billion, flexibility to shareholders additional operations the expense position.

flow stock operating plan. $XX During XXX,XXX share at $XX free cash under repurchase And of approximately an cash shares our and million of cost QX, aggregate million. operating of of flow $XX we we repurchased million generated

net approximately guidance. margin million to the year X.X%, operating sales approximately reiterate sales and our year expectations of to million. year-to-date performance, of approximately of expenditures strength approximately Turning totaling $XXX $XXX the pleased to follows: we adjusted margin now and in range capital XX.X% flow comparable operating XX%, gross as are flat, of full our Based full cash on

we that at at Looking quarter, top BSG. continue Beauty Sally anticipate momentum fourth both the will and line

to margin to net operating the to on basis. we expect range More in year-over-year consolidated with X% Additionally, rate of slightly growth operating specifically, dollars sales be expand expect comparable a we margin up better. X% and sales

to SG&A to gross the similar expect QX. dollars be slightly to margin rate favorable in We QX and be QX to

Additionally, X%. fourth be margin approximately operating quarter adjusted that we anticipate will

the fourth $XX in Lastly, to million. investments be approximately in we quarter expect repurchases share

the quarter our reflecting are trends Entering that well focused as strategic In pillars, progress of as our for XXXX, summary, both in final on with remain we segments, and are initiatives. results fiscal Growth including third quarter from pleased results Fuel driving initiative. our our our we improving business growth

time morning. We appreciate this your

to operator Q&A. for the the ask I'll call Now open

Operator

The Oliver Instructions] question [Operator from is from Chen first Cowen. TD

Oliver Chen

mixed. been sentiment Consumer has

you -- of category hair, as of potential terms been the finally, well expect if color. tariffs, if the lot nail Do that it's that you Or we're Has and any election have know, you trends your have banners to monitoring in around Also, low. are As the seeing? were partners and/or and it of impact And the very remain to regarding question now? a be label. and/or in a middle what pressured those manifested currently are what call-outs in difficult would And each past getting thoughts then at you related saw thoughts helpful that categories all affect we're of modeling, might love on those as banners? on you You any different sourcing? as lot your as similar? thoughts they private things

Denise Paulonis

that I Sally. don't some questions, will change. we of me near-term I'm benefit seeing jump innovation. it out in we're and to expanded This the trends BSG break and any do Marlo is product for Denise. the as BSG, in. start market, distribution seeing demand catalyst sure I'll see with salon between stabilized. always and We're Overall quite let

believe that client forward their that look So in salon is with enjoying shopping BSG that, really to I and continue. for experience

Sally two behavior the driven themes need. is all year, primarily and by watched On frugal That is we've remaining purchasing consistent side, customer right?

to the and the our through are, the process but where also increased leaning of promotion meet strategies QX with AUR initiatives and adjusting the through impact also they into seeing able some to We're improving strategic sensitive We of to be be our pretty We've the side. kind seen and very that in stable. do manage environment. price of they on pleased promotional were inflationary coming Sally to our customers really we what watch in as consumer

marketplaces, Licensed So OnDemand. Colorist

all businesses both to into our ahead, of into quarter. of months So as positive when from environment, QX the feel of good deliver step looking that, back the we we're forward fourth the comps we trajectory those about

it navigating And trends, marketing rates closely like customer very to inflationary our the what that we allow customer is the is We're to that watching perhaps to comes what to and that or gain will always us feel watch results pleased And there of influence most other call-outs, category do it to and will terms able I top-of-funnel investing, thing with being seen always within sensitive customers we're I fold. control drive to we've in the the that. to keep see we're happen and performance When it's what new the through. And of we're it's reactivated marketing, we Sally, trajectory. things feeling election, to some we hair, macro. expect we're think continue coming about think as to in, on by innovation color and well. positive that good and in both new Nails really fueled into come

So perspective, be don't what change to expect from right all, from now. a there seeing we're substantial all I in category a

your then what think the in And comes of I And the XX% about at on day, last from sourcing. end source we Asia. of question

it's think and So with us. well We for for about a as -- that might how that it's of nearly our it's who sure small providers it. to exposure. some we be to we're it's work not more material have us, pretty part be distributed pretty it as And closely. exposure freight our percentage equation, nearly costs, We of others watch manufacturing while

Operator

next question Korinne Sandler. The Piper from from Wolfmeyer is

Korinne Wolfmeyer

I'd like out fiscal to expectations guidance on little a the and you bit touch QX. laid the for

a came expectations. delivered fiscal of they guidance in QX. ahead your good and your You Noted in pretty here margins

behind would leave Or bit Is expectations shifts your in you seeing helpful. color of leaving cause the any reasoning unchanged? the So shifts or is you just would demand cost any a be it it trends that little what there unchanged? structure full Are to in year conservatism?

Denise Paulonis

answer to Happy that. Yes.

we line the QX in improvement well top reflects Our year-over-year bottom as in QX. that strength and as guidance expect really of

we're is feel providing. the the just we we're that like in, Given macro good guidance

bit adjusted were the were think profit brand. right QX, you we profit with of We the deliver Sally in the we to I upon most modestly direction about If ahead to of what us the look color, a was top adjusted lot a we're really being improvement that initiatives in little positive and that also strategic the with build line in path ahead around looking reported. is operating QX, margin. on important our positive And mean, pleased we and to when

we're place just any don't material the us change see in is to think in believe market. reading out I We now. for trend, but So what's there right guidance the right hold

Korinne Wolfmeyer

rate sounded Got it. a Very helpful. take situation pointed how like Can it a on higher about color, than touch little seen give Is kind then in out the you promo more And then promos if fiscal BSG. you what is could it It bit into quarter. any of Is just in quarter? like what you more the incrementally last promo improving? unchanged? called last out QX? was thinking heading this environment you've you are And there

Denise Paulonis

pleased as mentioned, had. front, sales we've BSG the trend the we're On strong with I really that

As we see by impact of has higher well. us that than fund rate funded promotions QX. a as it, to of that's is historically. what The one piece take our customer part our to only similar of we we've And that appreciation in seen QX been and in very the sale was promotional that vendors, partially

are buy activity aren't but heightened people want So to in we advantage and of seeing we any promotion. that there, take seeing

managing a unit seeing in going they're But pretty good in feel how we coming we're BSG we're to at that spot. as that. the healthy customers believe and what moment, about sales environment, So into trends are keep the and reacting we're sitting

about being still frugal. talked side, customers Sally on we the then bit And a little we see the fact that

this direction we're lot LCOD in in give our were being frequency. their What can drive is see our do also with we've what and reactivated is and tried new value quarter marketing activity. great and need. drive right to value in the pleased head performance them strategy Our We coming we improve of promotional customer of in But they sensitive. still core ways that customers aware but to still AUR buying promotionally a very

type doing sides QX. We we're and stores. think quantity trends So consistent more the of we're on both both getting discounts traffic-driving are into to less be as entering people discounts sets feeling

And now. and planning what so right working with we're that's for

Operator

from from Tong Raymond And question is the next James. Olivia

Olivia Tong Cheang

think following your any the the as tightness change And would there versus about quarter even about the in forward? have some progressed, quarter of your talked And about notwithstanding commentary then wallet particularly being that, perhaps hair on fiscal we bit And go generally, of we talk the 'XX, in you just sentiment the I little love to any Can hear was difference start light appliances, the as sub-$XXX industry of market. appliance then rate? SBS? a there. more exit manufacturers plans today, particularly in in challenging, more in as general

Denise Paulonis

Absolutely.

So of build start saw saw and throughout on through a strategic I'll nice we impact the quarter. momentum our SBS quarter. what went the initiatives and We we to as

with So and we to marketplaces newly as Performance continue DoorDash online coming in to launched our be hone marketing, impact there. well, drive program, tracked able Instacart well.

throughout that quarter. positives saw the we So

will positives We going believe QX. continue be into to those

a those us to low strategic our So guidance and our feel have to good really November about have XXXX, until contributing environment, we're algorithm. that get But It call. macro that. providing When to finding be a initiatives way dynamic start the way to we're through we initiatives path more. our balance single-digit call but is we're not on today the look confident right clearly, this on earnings to

for down full that XXX seeing pace the to XXXX, will expect in good the macro the and we're the feel that continues we which headed path. at that a assuming today, points be benefit, strategic about good of XXXX initiatives, year So XXX basis

on get category. then So hair to finally, And more appliance to the we come November call one. earnings our that as

it were dryer to hair on break. and response really we've out it's the that really versus becomes a Mitchell more have We I and and and take places because with to -- one about our stylists What that if we they out that might think dynamic seen it's a a hair side, QX advantage that. when a Neuro lean something great BSG in it's on the category dryer most it the into comes when in a BSG discretionary and of spend lean had buy necessary they it John line. those bit for that innovation Paul willing talked came new more innovation saw was side spend is benefiting it and people, they

people inflationary that of So more without innovations catalyst. little in we're we category as to might a but primarily excited where by the types think the moving, that those performance buying clearly, is keep an people need now right pressure have environment bit

Olivia Tong Cheang

And then contributor products. new following Understood. this on That's obviously a just up year. been solid

next hair look To months, new of the You new relative some months? consumables XX product side. that the guys last activity new dryer what lot into on you to pipeline and you to extent a mentioned have like the the insight is the the XX

Denise Paulonis

And Oil about feeling we We're Moroccan to there good expanded continue talked about we it. just just remarks, prepared our into on be, as California.

the that we pipeline believe us BSG territory up in that side we the well new on underlying some call. product to new coming trajectory nice Clearly, nothing that on gains, brands do really So our the specifically business. But products of of scale combination that gains good of have sets that we have to expansion, And a is share to see distribution there distribution health and have. this continue of already feel leverage in. the with we we

Operator

next Ashley question. Helgans for Jefferies from up is

Ashley Helgans

segment? then can curious And efficiencies. Sally called in some little Supply segment to we stabilization a some salons. improvement I'm I also on Beauty you dive just you can saw supply in if just chain the any these the quarter. margins. know Congrats Maybe leverage efficiencies the out with the gross of you that deeper due BSG in

like in appointment we like levels where curious frequency terms Just spend. and are historical versus of

Marlo Cormier

for gross start with I'll thanks with -- the the Yes. question. start and I'll margin question. the

part program supply Fuel We XXXX. is for are And million through of our for we're we had seeing that some come that chain of part Growth our efforts. nice and businesses target our gains our seeing for our $XX across that on both

we're is the and that some see margin. offset So that mix to difference side, brand but product from on fixed margin pressure we that the an The BSG we cost some is both see, between across also putting segments. BSG from unfavorable mainly product Sally where on getting absorption the

Denise Paulonis

salon chain are salon up and if in most and fact smaller think the stabilization, to BSG to see, there. terms I people then stylists salons related the of about and will of of compare see We -- to independent is really the our conscious the hard would something. in always stylists back industry the trade of are back in good I'll course generally about healthy. regular go but group. those think good we health is is probably But we're point as down but so say pretty what pleased of core this it of salon what trends, to of back, we're people a what approaching people If exposure that is or there's with have or underlying business. I it's we go little types and business where fit, feeling pace our that pre-COVID in the feel coming we And But it's territory trajectory they in that be Where stylists a a are about for talking more less would services there.

news. different we're that's aren't as on what and building go our So assumptions hearing forward well

Operator

closing no this with queue. time, in remarks. Please questions are there continue And further at any

Denise Paulonis

our importantly, and today. I most internally back everyone pleased strategic our headed. the we're to initiatives, team. want us couldn't want I cross-functional for progress be letting to joining strong where Well, and on And is dramatically with more Really thank collaboration I execution from great step quarter, thank

shareholders. of look committed finish quarter on remain a our fourth longer-term As long-term And updating as getting our few well. Thanks. profitable to months. We we always, all in in appreciate we forward to growth everyone just our as algorithm we

Operator

that Thank Thank you. conference your conclude for teleconference. does for for using And participation and AT&T today. you our

now may disconnect. You

Sally Beauty (SBH) 8 Aug 242024 Q3 Earnings call transcript