UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED: ~~DECEMBER~~MARCH 31, ~~2017~~2022

-OR-


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

Commission File No. 1-33145

SALLY BEAUTY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware		36-2257936
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

3001 Colorado Boulevard
Denton, Texas		76210
(Address of principal executive offices)		(Zip Code)

(940) 898-7500

(Registrant’s telephone number, including area ~~code:~~ ~~(940) 898-7500~~code)

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each classTrading SymbolName of each exchange on which registered

Common Stock, $0.01 par valueSBHThe New York Stock Exchange

Indicate by check mark whether the ~~registrant~~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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒		Accelerated filer		☐
Non-accelerated filer	☐
Smaller reporting company		☐
~~(Do not check if a smaller reporting company)~~			Emerging growth company	☐	☐

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

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

As of ~~February 2, 2018,~~April 29, 2022, there were ~~125,102,746~~107,000,985 shares of the issuer’s common stock outstanding.

TABLE OF CONTENTS

	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	2615
Item 3. Quantitative And Qualitative Disclosures About Market Risk	3321
Item 4. Controls And Procedures	3322

PART II — OTHER INFORMATION

Item 1. Legal Proceedings	3423
Item ~~1a.~~1A. Risk Factors	3423
Item ~~2. Unregistered~~2.Unregistered Sales Of Equity Securities And Use Of Proceeds	3423
Item ~~3. Defaults Upon Senior Securities~~6. Exhibits	34
~~Item 4. Mine Safety Disclosures~~	34
~~Item 5. Other Information~~	34
~~Item 6. Exhibits~~	3524

In this Quarterly Report, references to “the Company,” “Sally Beauty,” “our company,” “we,” “our,” “ours” and “us” refer to Sally Beauty Holdings, Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

cautionary notice regarding forward-looking statements

Statements in this Quarterly Report on Form 10-Q and in the documents incorporated by reference herein which are not purely historical facts or which depend upon future events may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions may also identify such forward-looking statements. Forward-looking statements may relate to, among other things, the impact on our business, operations and financial results of the novel coronavirus (“COVID-19”) pandemic.

Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were ~~made. Any forward-looking statements~~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 ~~including, but not limited to, risks and uncertainties related to:~~

~~anticipating and effectively responding to changes~~are set forth in ~~consumer and professional stylist preferences and buying trends~~our description of risk factors in ~~a timely manner;~~

Item 1A contained in our Annual Report on Form 10-K for the ~~success of our strategic initiatives, including our store refresh program and increased marketing efforts, to enhance~~fiscal year ended September 30, 2021, which should be read in conjunction with the ~~customer experience, attract new customers, drive brand awareness and improve customer loyalty;~~

~~our ability to efficiently manage and control our costs and the success of our cost control plans, including our recently implemented restructuring plans;~~

•

~~our ability to implement our restructuring plans in various jurisdictions;~~

•

~~our ability to manage the effects of our cost-reduction plans on our employees and other operations~~ ~~costs;~~

•

~~charges related to the restructuring plans;~~

•

~~possible changes in the size and components of the expected costs and charges associated with the restructuring~~ ~~plans;~~

•

~~our ability to realize the anticipated cost savings from the restructuring plans within the anticipated time frame, if at all;~~

~~the highly competitive nature of, and the increasing consolidation~~forward-looking statements in this report. Forward-looking statements speak only as of the ~~beauty products distribution industry;~~

~~the timing~~date they are made, and ~~acceptance of new product introductions;~~

~~shifts in the mix of products sold during~~we do not undertake any ~~period;~~

~~potential fluctuation in our same store sales and quarterly financial performance;~~

~~our dependence upon manufacturers who may be unwilling or unable~~obligation to ~~continue to supply products to us;~~

~~our dependence upon manufacturers who have developed or could develop their own distribution businesses which compete directly with ours;~~

the possibility of material interruptions in the supply of products by our third‑party manufacturers or distributors or increases in the prices of the products we purchase from our third‑party manufacturers or distributors;

~~products sold by us being found to be defective in labeling or content;~~

~~compliance with current laws and regulations or becoming subject to additional or more stringent laws and regulations;~~

~~the success of our e-commerce businesses;~~

~~diversion of professional products sold by Beauty Systems Group to mass retailers or other unauthorized resellers;~~

~~the operational and financial performance of our Armstrong McCall, L.P. franchise‑based business, which we refer to as Armstrong McCall;~~

~~successfully identifying acquisition candidates and successfully completing desirable acquisitions;~~

~~integrating acquired businesses;~~

~~the success of our initiatives to expand into new geographies;~~

~~the success of our existing stores, and our ability to increase sales at existing stores;~~

~~opening and operating new stores profitably;~~

~~the volume of traffic to our stores;~~

~~the impact of the general economic conditions upon our business;~~

~~the challenges of conducting business outside the United States;~~

~~the impact of Britain’s decision to leave the European Union and related or other disruptive events in the United Kingdom, the European Union or other geographies in which we conduct business;~~

~~rising labor and rental costs;~~

~~protecting our intellectual property rights, particularly our trademarks;~~

•

~~the risk that our products may infringe on the intellectual property rights of others;~~

~~successfully updating and integrating our information technology systems;~~

~~disruption in our information technology systems;~~

~~a significant data security breach, including misappropriation of our customers’, employees’ or suppliers’ confidential information, and the potential costs related thereto;~~

~~the negative impact on our reputation and loss of confidence of our customers, suppliers and others arising from a significant data security breach;~~

the costs and diversion of management’s attention required to investigate and remediate a data security breach and to continuously upgrade our information technology security systems to address evolving cyber-security threats;

~~the ultimate determination of the extent or scope of the~~ ~~potential liabilities relating to~~ ~~our past or~~update any ~~future data security incidents;~~forward-looking statement.

~~our ability to attract and retain highly skilled management and other personnel;~~

~~severe weather, natural disasters or acts of violence or terrorism;~~

~~the preparedness of our accounting and other management systems to meet financial reporting and other requirements and the upgrade of our existing financial reporting system;~~

~~being a holding company, with no operations of our own, and depending on our subsidiaries for our liquidity needs;~~

~~our ability to execute and implement our share repurchase program;~~

~~our substantial indebtedness;~~

~~the possibility that we may incur substantial additional debt, including secured debt, in the future;~~

~~restrictions and limitations in the agreements and instruments governing our debt;~~

~~generating the significant amount of cash needed to service all of our debt and refinancing all or a portion of our indebtedness or obtaining additional financing;~~

~~changes in interest rates increasing the cost of servicing or refinancing our debt; and~~

~~the costs and effects of litigation.~~

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. ~~We assume no obligation to publicly update or revise any forward-looking statements.~~

~~WHERE YOU CAN FIND MORE INFORMATION~~

~~Our quarterly financial results and other important information are available by calling our Investor Relations Department at (940) 297-3877.~~

~~We maintain a website at~~ ~~www.sallybeautyholdings.com~~ where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the Securities and Exchange Commission (“SEC”). The information contained on this website should not be considered to be a part of this or any other report filed with or furnished to the SEC.

PART I — ~~FINANCI~~ALFINANCIAL INFORMATION

Item 1. Financial Statements.

The following consolidated balance sheets as of December 31, 2017 and September 30, 2017, and the consolidated statements of earnings, consolidated statements of comprehensive income and consolidated statements of cash flows for the three months ended December 31, 2017 and 2016 are those of Sally Beauty Holdings, Inc. and its subsidiaries.

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands, except par value data)

	December 31, 2017			September 30, 2017			March 31, 2022			September 30, 2021
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	79,312		$	63,759		$	227,413		$	400,959
Trade accounts receivable, net		49,580			46,986			28,615			32,623
Accounts receivable, other		47,378			45,255			32,100			33,958
Inventory		941,146			930,855			962,563			871,349
Other current assets		46,259			55,223			50,990			44,686
Total current assets		1,163,675			1,142,078			1,301,681			1,383,575
Property and equipment, net of accumulated depreciation of $563,001 at December 31, 2017 and $546,061 at September 30, 2017		306,421			313,717
Property and equipment, net of accumulated depreciation of $800,715 at March 31, 2022, and $767,403 at September 30, 2021								287,855			307,377
Operating lease assets								540,801			537,673
Goodwill		544,418			537,791			539,682			541,209
Intangible assets, excluding goodwill, net of accumulated amortization of $124,818 at December 31, 2017 and $121,550 at September 30, 2017		77,740			80,305
Intangible assets, excluding goodwill, net of accumulated amortization of $40,528 at March 31, 2022, and $38,957 at September 30, 2021								52,994			55,532
Other assets		21,067			25,116			19,990			21,766
Total assets	$	2,113,321		$	2,099,007		$	2,743,003		$	2,847,132
Liabilities and Stockholders’ Deficit
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt	$	104,900		$	96,082		$	182		$	194
Accounts payable		306,270			307,752			240,594			291,632
Accrued liabilities		166,501			166,527			170,540			206,155
Current operating lease liabilities								160,549			156,234
Income taxes payable		12,331			2,233			2,404			10,666
Total current liabilities		590,002			572,594			574,269			664,881
Long-term debt		1,771,299			1,771,853			1,381,385			1,382,530
Long-term operating lease liabilities								406,658			404,147
Other liabilities		31,147			20,140			16,547			29,056
Deferred income tax liabilities, net		63,508			98,036			92,278			85,777
Total liabilities		2,455,956			2,462,623			2,471,137			2,566,391
Stockholders’ deficit:
Common stock, $0.01 par value. Authorized 500,000 shares; 126,166 and 129,710 shares issued and 125,799 and 129,585 shares outstanding at December 31, 2017 and September 30, 2017, respectively		1,258			1,296
Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued		—			—
Stockholders’ equity:
Common stock, $0.01 par value. Authorized 500,000 shares; 107,003 and 113,138 shares issued and 106,930 and 112,913 shares outstanding at March 31, 2022, and September 30, 2021, respectively								1,069			1,129
Preferred stock, $0.01 par value. Authorized 50,000 shares; NaN issued								—			—
Additional paid-in capital		—			—			—			17,286
Accumulated deficit		(260,999	)		(283,076	)
Accumulated earnings								372,265			356,967
Accumulated other comprehensive loss, net of tax		(82,894	)		(81,836	)		(101,468	)		(94,641	)
Total stockholders’ deficit		(342,635	)		(363,616	)
Total liabilities and stockholders’ deficit	$	2,113,321		$	2,099,007
Total stockholders’ equity								271,866			280,741
Total liabilities and stockholders’ equity							$	2,743,003		$	2,847,132

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

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Earnings

(In thousands, except per share data)

(Unaudited)

	Three Months Ended				Three Months Ended				Six Months Ended
	December 31,				March 31,				March 31,
	2017		2016		2022		2021		2022		2021
Net sales	$	994,964	$	999,609	$	911,387	$	926,328	$	1,891,638	$	1,862,350
Cost of goods sold		508,335		507,901		446,055		459,099		926,177		924,397
Gross profit		486,629		491,708		465,332		467,229		965,461		937,953
Selling, general and administrative expenses		371,286		374,251		378,871		391,087		765,121		757,257
Restructuring charges		5,210		—
Restructuring						—		631		1,099		863
Operating earnings		110,133		117,457		86,461		75,511		199,241		179,833
Interest expense		24,016		26,799		19,896		23,883		40,137		49,861
Earnings before provision for income taxes		86,117		90,658		66,565		51,628		159,104		129,972
Provision for income taxes		2,853		34,832		19,757		13,316		43,458		34,469
Net earnings	$	83,264	$	55,826	$	46,808	$	38,312	$	115,646	$	95,503
Earnings per share:
Basic	$	0.65	$	0.39	$	0.43	$	0.34	$	1.05	$	0.85
Diluted	$	0.65	$	0.39	$	0.42	$	0.34	$	1.03	$	0.84
Weighted average shares:
Weighted-average shares:
Basic		127,784		143,631		108,743		112,603		110,387		112,538
Diluted		128,645		144,860		110,540		114,342		112,207		114,028

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

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(In thousands)

(Unaudited)

Three Months Ended

December 31,

2017

2016

Net earnings

$
83,264

$
55,826

Other comprehensive income (loss):

Foreign currency translation adjustments, net of tax

(255
)

(18,668
)
Interest rate caps:

Changes in fair value

(1,130
)

—

Income taxes related to changes in fair value

327

—

Other comprehensive income (loss), net of tax

(1,058
)

(18,668
)
Total comprehensive income

$
82,206

$
37,158

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2022			2021			2022			2021
Net earnings	$	46,808		$	38,312		$	115,646		$	95,503
Other comprehensive (loss) income:
Foreign currency translation adjustments		(2,752	)		(7,890	)		(7,261	)		17,117
Interest rate caps, net of tax		-			-			278			175
Foreign exchange contracts, net of tax		(324	)		574			156			(1,020	)
Other comprehensive (loss) income, net of tax		(3,076	)		(7,316	)		(6,827	)		16,272
Total comprehensive income	$	43,732		$	30,996		$	108,819		$	111,775

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

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)

													Accumulated
							Additional						Other			Total
	Common Stock						Paid-in			Accumulated			Comprehensive			Stockholders’
	Shares			Amount			Capital			Earnings			Loss			Equity
Balance at September 30, 2021		112,913		$	1,129		$	17,286		$	356,967		$	(94,641	)	$	280,741
Net earnings		—			—			—			68,838			—			68,838
Other comprehensive loss		—			—			—			—			(3,751	)		(3,751	)
Share-based compensation		—			—			3,958			—			—			3,958
Stock issued for equity awards		795			8			7,364			—			—			7,372
Employee withholding taxes paid related to net share settlement		(56	)		(1	)		(1,136	)		—			—			(1,137	)
Repurchases and cancellations of common stock		(3,675	)		(36	)		(27,472	)		(47,492	)		—			(75,000	)
Balance at December 31, 2021		109,977		$	1,100		$	—		$	378,313		$	(98,392	)	$	281,021
Net earnings		—			—			—			46,808			—			46,808
Other comprehensive loss		—			—			—			—			(3,076	)		(3,076	)
Share-based compensation		—			—			2,032			—			—			2,032
Stock issued for equity awards		111			1			423			—			—			424
Employee withholding taxes paid related to net share settlement		(1	)		—			(15	)		—			—			(15	)
Repurchases and cancellations of common stock		(3,157	)		(32	)		(2,440	)		(52,856	)		—			(55,328	)
Balance at March 31, 2022		106,930		$	1,069		$	—		$	372,265		$	(101,468	)	$	271,866

												Accumulated
							Additional					Other			Total
	Common Stock						Paid-in			Accumulated		Comprehensive			Stockholders’
	Shares			Amount			Capital			Earnings		Loss			Equity
Balance at September 30, 2020		112,405		$	1,124		$	1,913		$	117,109	$	(104,703	)	$	15,443
Net earnings		—			—			—			57,191		—			57,191
Other comprehensive income		—			—			—			—		23,588			23,588
Share-based compensation		—			—			2,893			—		—			2,893
Stock issued for equity awards		158			2			(2	)		—		—			—
Employee withholding taxes paid related to net share settlement		(25	)		(1	)		(248	)		—		—			(249	)
Balance at December 31, 2020		112,538		$	1,125		$	4,556		$	174,300	$	(81,115	)	$	98,866
Net earnings		—			—			—			38,312		—			38,312
Other comprehensive loss		—			—			—			—		(7,316	)		(7,316	)
Share-based compensation		—			—			2,648			—		—			2,648
Stock issued for equity awards		141			2			2,321			—		—			2,323
Balance at March 31, 2021		112,679		$	1,127		$	9,525		$	212,612	$	(88,431	)	$	134,833

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

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended December 31,						Six Months Ended March 31,
	2017			2016			2022			2021
Cash Flows from Operating Activities:
Net earnings	$	83,264		$	55,826		$	115,646		$	95,503
Adjustments to reconcile net earnings to net cash provided by operating activities:
Adjustments to reconcile net earnings to net cash (used) provided by operating activities:
Depreciation and amortization		27,090			26,839			48,471			52,945
Share-based compensation expense		3,111			3,814			5,990			5,541
Amortization of deferred financing costs		921			789			1,865			2,326
Loss on early extinguishment of debt								—			1,390
Loss on disposal of equipment and other property								80			1,741
Deferred income taxes		(31,350	)		3,000			6,507			(365	)
Changes in (exclusive of effects of acquisitions):
Trade accounts receivable		(2,427	)		2,181			3,800			(3,437	)
Accounts receivable, other		(2,008	)		1,727			2,108			(5,544	)
Inventory		(8,055	)		(9,358	)		(95,468	)		(127,324	)
Other current assets		9,105			12,255			(6,273	)		3,588
Other assets		(290	)		(592	)		1,979			(4,307	)
Operating leases, net								3,657			(2,420	)
Accounts payable and accrued liabilities		3,764			(19,375	)		(70,217	)		101,331
Income taxes payable		10,069			13,151			(8,393	)		13,447
Other liabilities		11,010			(463	)		(12,525	)		(2,859	)
Net cash provided by operating activities		104,204			89,794
Net cash (used) provided by operating activities								(2,773	)		131,556
Cash Flows from Investing Activities:
Payments for property and equipment, net		(22,499	)		(28,008	)
Payments for property and equipment, net of proceeds								(44,109	)		(27,095	)
Acquisitions, net of cash acquired		(9,175	)		—			(318	)		(2,245	)
Net cash used by investing activities		(31,674	)		(28,008	)		(44,427	)		(29,340	)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt		126,505			58,500
Repayments of long-term debt		(119,067	)		(58,674	)		(2,841	)		(213,271	)
Payments for common stock repurchased		(64,612	)		(67,183	)		(130,328	)		—
Proceeds from exercises of stock options		275			14,280
Proceeds from equity awards								7,796			2,322
Employee withholding taxes paid related to net share settlement of equity awards								(1,151	)		(249	)
Net cash used by financing activities		(56,899	)		(53,077	)		(126,524	)		(211,198	)
Effect of foreign exchange rate changes on cash and cash equivalents		(78	)		(921	)		178			3,152
Net increase in cash and cash equivalents		15,553			7,788
Net decrease in cash and cash equivalents								(173,546	)		(105,830	)
Cash and cash equivalents, beginning of period		63,759			86,622			400,959			514,151
Cash and cash equivalents, end of period	$	79,312		$	94,410		$	227,413		$	408,321
Supplemental Cash Flow Information:
Interest paid	$	36,331		$	51,451		$	37,809		$	46,445
Income taxes paid	$	3,607		$	3,882		$	56,701		$	20,791
Capital expenditures incurred but not paid	$	2,486		$	1,672		$	3,205		$	3,255

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

Sally Beauty Holdings, Inc. and Subsidiaries

~~Condensed~~ Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. ~~Description of~~ Significant Accounting Policies

Business ~~and Basis of Presentation~~

~~Description of Business~~Operations

Sally Beauty Holdings ~~Inc.~~is an international specialty retailer and ~~its consolidated subsidiaries (“Sally Beauty” or “the Company” or “we”) sell~~distributor of professional beauty supplies ~~through its~~with operations in North America, South America and Europe. We are one of the largest distributers of professional beauty supplies in the U.S. based on store count, operating under 2 segments, Sally Beauty Supply (“SBS”) ~~retail~~and Beauty Systems Group (“BSG”). Our operations consist of company-operated stores, ~~located in~~franchise stores and several e-commerce platforms. Within BSG, we also have one of the ~~U.S., Puerto Rico, Canada, Mexico, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands, Spain, Chile and Peru. Additionally, we distribute~~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, ~~through our Beauty Systems Group (“BSG”) store operations~~while BSG targets salons and ~~a commissioned direct sales force that calls on~~ salons primarily in the U.S. and Canada, and to franchises in the southern and southwestern regions of the U.S. and in Mexico through the operations of its subsidiary Armstrong McCall. A significant number of our products are also available through a number of SBS and BSG-operated websites. Certain beauty products sold by BSG and Armstrong McCall are sold under exclusive territory agreements with the third-party manufacturers.professionals.

Basis of Presentation

The ~~accompanying~~ condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. ~~Certain~~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 ~~made~~included herein are adequate ~~to make~~for the ~~information not misleading.~~interim period presented. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017. All significant intercompany accounts and transactions have been eliminated in consolidation.~~2021. In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of ~~December~~March 31, ~~2017~~2022 and September 30, ~~2017,~~2021, and our consolidated results of operations, consolidated comprehensive income, consolidated statements of stockholders’ equity for the three and six months ended March 31, 2022 and 2021 and our consolidated cash flows for the ~~three~~for the six months ended ~~December~~March 31, ~~2017~~2022 and ~~2016.~~2021.

Principles of Consolidation

The condensed consolidated interim financial statements ~~included herein~~include all accounts of Sally Beauty Holdings, Inc. and its subsidiaries. All intercompany accounts and transactions have been prepared on a going concern basis of accounting. Each quarter, management evaluates, based on relevant conditions and events, our ability to continue as a going concern for at least one year from the date our financial statementseliminated in consolidation. All amounts are issued. Based on management’s assessment, we have concluded that substantial doubt about our ability to continue as a going concern does not exist as of the date the condensed consolidated interim financial statements included herein were issued.in U.S. Dollars.

Certain amounts for the prior fiscal periods have been reclassified to conform to the current fiscal period presentation, in connection with the retroactive adoption of two new accounting pronouncements in the current interim period. Please see Note 3 below for additional information.

~~2. Significant~~ Accounting Policies

We adhere to the same accounting policies in the preparation of our condensed consolidated interim ~~consolidated~~ financial statements as we do in the preparation of our ~~full-year~~full year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full-year assumptions. For interim financial reporting purposes, income taxes are recorded based upon our estimated annual effective income ~~tax rates.~~tax.

~~3. Accounting Changes and Recent Accounting Pronouncements~~

~~Accounting Changes~~Use of Estimates

In ~~November 2015,~~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 ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17,~~ ~~Income Taxes (Topic 740): Balance Sheet Classification~~future. Additionally, unknown future impacts of ~~Deferred Income Taxes, which requires that~~COVID-19 may impact those estimates and assumptions as well. Significant estimates and assumptions are part of our accounting for sales allowances, deferred ~~tax assets,~~revenue, valuation of inventory, amortization and depreciation, intangibles and goodwill, and other reserves. We believe these estimates and assumptions are reasonable however they are based on management’s current knowledge of events and actions and changes in facts and circumstances may result in revised estimates, and impact actual results.

Impact of COVID-19

Our operating results for the three and six months ended March 31, 2022, were adversely impacted by the COVID-19 pandemic and its continuing effects on the economy, including inflationary pressures, continued supply chain disruptions, increased freight costs, labor shortages and increased labor costs. Given the uncertainty around the continuing effects of the COVID-19 pandemic and its economic impact we cannot reasonably predict the effect they will have on future periods. If we become materially and adversely impacted, we may have to consider adjustments to our strategic plans, inventory, liquidity, operational and capital expenditure plans.

2. Revenue Recognition

Substantially all of our revenue is derived through the sale of merchandise at the point-of-sale. Revenue is recognized net of ~~related valuation allowances,~~estimated sales returns and ~~deferred tax~~sales taxes. We estimate sales returns based on historical data.

Changes to our contract liabilities, be reported as noncurrent in a classified balance sheet. We adopted the new standard retrospectively effective October 1, 2017. Accordingly, the adoption of ASU No. 2015-17 resulted in a decrease in current deferred income tax assets of $28.4 million, a decrease in current deferred income tax liabilities,which are included in accrued liabilities ~~of $2.0 million, a net increase in noncurrent deferred income tax assets, included in other assets, of $4.3 million and a net decrease in noncurrent deferred income tax liabilities of $22.1 million~~ in our ~~consolidated~~condensed balance ~~sheet~~sheets, for the periods were as follows (in thousands):

	Six Months Ended March 31,
	2022			2021
Beginning Balance	$	16,744		$	13,947
Loyalty points and gift cards issued but not redeemed, net of estimated breakage		6,214			7,998
Revenue recognized from beginning liability		(6,316	)		(6,729	)
Ending Balance	$	16,642		$	15,216

See Note 9, Segment Reporting, for additional information regarding the disaggregation of ~~September 30, 2017.~~our sales revenue.

~~In March 2016, the FASB issued ASU No. 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting~~, which amended several aspects of how share-based compensation is recorded and reported on the financial statements. For example, the new guidance will require that all the income tax effect related to share-based payments be recorded in income tax expense. We adopted these amendments effective October 1, 2017. In connection with this accounting change, we have elected to recognize share-based

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

compensation award forfeitures when they occur. Prior to the change, we recognized forfeitures based on the estimated number of awards expected to vest. As allowed, we elected to adopt retrospectively the amendment requiring that excess tax benefits (shortfalls) be reported in cash flows from operating activities in our consolidated statements of cash flows. The adoption of the amendments contained in ASU No. 2016-09 did not have a material impact on our consolidated financial statements.

~~Recent Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers~~, which will supersede Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition. A core principle of the new guidance is that an entity should measure revenue in connection with its sale of goods and services to a customer based on the consideration to which the entity expects to be entitled in exchange for each of those goods and services. The new standard must be adopted using either the retrospective or cumulative effect transition method. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. We have not yet selected a transition method. We have not yet adopted this accounting pronouncement and we do not believe, based on our assessment, that adoption will have a material effect on our consolidated results of operations and consolidated financial position. We are currently assessing the disclosure requirements contained in the new standard and anticipate being compliant with the additional disclosures about our revenue recognition practices required by the new standard.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~, which will require most leases to be reported on the balance sheet as a right-of-use asset and a lease liability. Under the new guidance, the lease liability must be measured initially based on the present value of future lease payments, subject to certain conditions. The right-of-use asset must be measured initially based on the amount of the liability, plus certain initial direct costs. The new guidance further requires that leases be classified at inception as either (a) operating leases or (b) finance leases. For operating leases, periodic expense will generally be flat (straight-line) throughout the life of the lease. For finance leases, periodic expense will decline (similar to capital leases under prior rules) over the life of the lease. The new standard must be adopted using a modified retrospective transition method. For public companies, this standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We have not yet adopted this accounting pronouncement. We have completed a preliminary assessment of the potential impact of adopting ASU No. 2016-02 on our consolidated financial statements. At December 31, 2017, adoption of ASU No. 2016-02 would have resulted in recognition of a right-of-use asset in the estimated amount of approximately $600.0 million and a lease liability for a similar amount in our consolidated balance sheet. We do not believe adoption of ASU No. 2016-02 will have a material impact on our earnings or cash flows. The amount of the right-of-use asset and the lease liability we ultimately recognize may materially differ from this preliminary estimate, including as a result of future organic growth in our business and potential acquisitions.

~~In August 2017, the FASB issued ASU No. 2017-12,~~ ~~Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities~~, which is intended to better align an entity’s risk management activities and its financial reporting for hedging relationships. ASU No. 2017-12 will change both the designation and measurement guidance for a qualifying hedging relationship and the presentation of the impact of the hedging relationship on the entity’s financial statements. In addition, ASU No. 2017-12 contains targeted improvements to ease the application of current guidance related to the assessment of hedge effectiveness and eliminates the requirement for an entity to separately measure and report hedge ineffectiveness. For public companies, these amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. We have not yet adopted the accounting pronouncement and do not believe, based on our preliminary assessment, that adoption will have a material effect on our consolidated financial statements.

4.3. Fair Value Measurements

~~Our~~Financial instruments measured on recurring basis

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

(in thousands)	Classification	Fair Value Hierarchy Level	March 31, 2022		September 30, 2021
Financial Assets:
Foreign exchange contracts	Other current assets	Level 2	$	329	$	—
Interest rate caps	Other assets	Level 2		133		35
Total assets			$	462	$	35
.
Financial Liabilities:
Foreign exchange contracts	Accrued liabilities	Level 2	$	612	$	—

Financial instruments ~~consist~~not measured at fair value

Carrying amounts and the related estimated fair value of ~~cash equivalents,~~our long-term debt, excluding capital lease obligations and debt issuance costs, are as follows:

		March 31, 2022				September 30, 2021
(in thousands)	Fair Value Hierarchy Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Long-term debt, excluding capital leases
Senior notes	Level 1	$	979,961	$	1,000,636	$	979,961	$	1,019,635
Term loan B	Level 2		410,250		405,122		413,000		411,451
Total long-term debt		$	1,390,211	$	1,405,758	$	1,392,961	$	1,431,086

The table above excludes amounts, if any, trade and other accounts receivable, accounts payable, derivative instruments, including foreign exchange contracts and interest rate caps, and debt. The carrying amounts of cash equivalents, if any, trade and other accounts receivable and accounts payable approximate their respectiverelated to our ABL facility as the balance approximates fair ~~values~~value due to the short-term nature of ~~these financial instruments.~~

~~We measure on a recurring basis and disclose the~~our borrowings.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. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Consistent with this hierarchy, we categorized our financial assets and liabilities as follows (in thousands):~~

As of December 31, 2017

Total

Level 1

Level 2

Level 3

Assets

Foreign exchange contracts

$
572

$
—

$
572

$
—

Interest rate caps

4,048

—

4,048

—

Total assets

$
4,620

$
—

$
4,620

$
—

Liabilities

Long-term debt

$
1,893,765

$
946,300

$
947,465

$
—

Foreign exchange contracts

—

—

—

—

Total liabilities

$
1,893,765

$
946,300

$
947,465

$
—

As of September 30, 2017

Total

Level 1

Level 2

Level 3

Assets

Foreign exchange contracts

$
779

$
—

$
779

$
—

Interest rate caps

5,178

—

5,178

—

Total assets

$
5,957

$
—

$
5,957

$
—

Liabilities

Long-term debt

$
1,919,930

$
973,750

$
946,180

$
—

Foreign exchange contracts

207

—

207

—

Total liabilities

$
1,920,137

$
973,750

$
946,387

$
—

Long-term debt, including current maturities and borrowings under the asset-based senior secured loan facility (the “ABL facility”), if any, is carried in our consolidated financial statements at amortized cost of $1,895.0 million at December 31, 2017 and $1,887.4 million at September 30, 2017, less unamortized debt issuance costs of $18.8 million at December 31, 2017 and $19.4 million at September 30, 2017. Our senior notes ~~are valued for purposes of the disclosure above~~was measured using unadjusted quoted market ~~prices for such~~prices. The fair value of other long-term debt ~~securities. Our term loan B is generally valued for purposes of the disclosure above~~was measured using quoted market prices for similar debt securities in active ~~markets. Other long-term debt (consisting primarily of borrowings under the ABL facility, if any, and capital lease obligations) is generally valued for purposes of the disclosure above using~~markets or widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.

~~5. Accumulated~~4. Stockholders’ ~~Deficit~~Equity

Share Repurchases

In August 2017, ~~we announced that~~ our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.0 billion of its common stock, ~~over an approximate four-year period expiring on September 30,~~subject to certain limitations governed by our debt agreements. In July 2021, ~~(the “2017 Share Repurchase Program”) and terminated~~ our ~~similar~~Board of Directors approved a term extension of the share repurchase program ~~approved by~~for the four-year period ending September 30, 2025. As of March 31, 2022, we had authorization of approximately $595.8 million of additional potential share repurchases remaining under our ~~Board in 2014 (the “2014 Share Repurchase Program”). During the three months ended December 31, 2017 and 2016, we~~share repurchase program.

Information related to our shares repurchased and subsequently retired approximately 3.8 million and 2.5 million shares of our common stock at an aggregate cost of $64.5 million and $67.0 million under the 2017 Share Repurchase Program and the 2014 Share Repurchase Program, respectively. We reduced common stock and additional paid-in capital, in the aggregate, by these amounts. However,were as required by GAAP, to the extent that share repurchase amounts exceeded the balance of additional paid-in capital prior to our recording of such repurchases, we recorded the excess in accumulated deficit. We funded these share repurchases with cash from operations and borrowings under the ABL facility.follows (in thousands):

	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Number of shares repurchased		3,157		—		6,832		—
Total cost of share repurchased	$	55,328	$	—	$	130,328	$	—

Accumulated Other Comprehensive Loss

The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):

Foreign Currency Translation Adjustments

Interest Rate Caps

Total

Balance at September 30, 2017

$
(80,752
)

$
(1,084
)

$
(81,836
)
Other comprehensive loss before reclassification, net of tax

(255
)

(803
)

(1,058
)
Balance at December 31, 2017

$
(81,007
)

$
(1,887
)

$
(82,894
)

	Foreign Currency Translation Adjustments			Interest Rate Caps			Foreign Exchange Contracts			Total
Balance at September 30, 2021	$	(92,154	)	$	(2,085	)	$	(402	)	$	(94,641	)
Other comprehensive loss before reclassification, net of tax		(7,261	)		(114	)		(212	)		(7,587	)
Reclassification to net earnings, net of tax		—			392			368			760
Balance at March 31, 2022	$	(99,415	)	$	(1,807	)	$	(246	)	$	(101,468	)

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

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~6. Earnings Per Share~~5. Weighted-Average Shares

The following table sets forth the ~~computations~~reconciliation of basic and diluted ~~earnings per share~~weighted-average shares (in ~~thousands, except per share data)~~thousands):

Three Months Ended
December 31,

2017

2016

Net earnings

$
83,264

$
55,826

Weighted average basic shares

127,784

143,631

Dilutive securities:

Stock option and stock award programs

861

1,229

Weighted average diluted shares

128,645

144,860

Earnings per share:

Basic

$
0.65

$
0.39

Diluted

$
0.65

$
0.39

	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Weighted-average basic shares		108,743		112,603		110,387		112,538
Dilutive securities:
Stock option and stock award programs		1,797		1,739		1,820		1,490
Weighted-average diluted shares		110,540		114,342		112,207		114,028

Anti-dilutive options excluded from our computation of diluted shares		2,534		4,197		2,169		4,222

6. Goodwill and Intangible Assets

~~At December~~During the three months ended March 31, ~~2017~~2022, we completed our annual assessment for impairment of goodwill and ~~2016, options to purchase 5,802,107 shares~~other intangible assets. For goodwill, we used a qualitative analysis and ~~2,457,972 shares, respectively, of~~ our ~~common stock~~actual and forecasted results are exceeding the estimates from the last quantitative test. NaN material impairment losses were ~~outstanding but not included~~recognized in the current or prior periods presented in connection with our computations of diluted earnings per share, because these options were anti-dilutive. An anti-dilutive option is an option that is: (a) out-of-the-money (an option with an exercise price which is greater than the average price per share of our common stockgoodwill and other intangible assets.

Three Months Ended

March 31,

Six Months Ended

March 31,

(in thousands)

2022

2021

2022

2021

Intangible assets amortization expense

999

1,609

2,070

3,307

Additionally, during the ~~period), and (b) in-the-money (an option with an exercise price which is less than~~six months ended March 31, 2022, the ~~average price per share~~decrease in goodwill was primarily from the effects of ~~our common stock during the period) for which the sum~~foreign currency exchange rates of ~~assumed proceeds, including any unrecognized compensation expense related to such option, exceeds the average price per share for the period.~~$1.5 million.

7. ~~Share-Based Payments~~Accrued Liabilities

~~Performance-Based Awards~~

~~The following table presents a summary~~Accrued liabilities consist of the ~~activity for our performance unit awards assuming 100% payout:~~following (in thousands):

	March 31, 2022		September 30, 2021
Compensation and benefits	$	55,300	$	73,344
Interest payable		24,103		24,101
Deferred revenue		18,410		18,543
Rental obligations		10,754		10,501
Insurance reserves		5,962		5,934
Property and other taxes		2,293		3,853
Operating accruals and other		53,718		69,879
Total accrued liabilities	$	170,540	$	206,155

Performance Unit Awards

Number
of Shares
(in Thousands)

Weighted
Average Fair
Value Per
Share

Weighted
Average
Remaining
Vesting Term
(in Years)

Unvested at September 30, 2017

197

$
24.50

1.5

Granted

215

17.42

Vested

—

—

Forfeited

(6
)

24.55

Unvested at December 31, 2017

406

$
20.76

2.0

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Service-Based Awards~~

~~The following table presents a summary of the activity for our stock option awards:~~

Number of
Outstanding
Options
(in Thousands)

Weighted
Average
Exercise
Price

Weighted
Average
Remaining
Contractual
Term
(in Years)

Aggregate
Intrinsic
Value
(in Thousands)

Outstanding at September 30, 2017

5,211

$
24.12

5.6

$
3,867

Granted

1,122

17.42

Exercised

(26
)

10.52

Forfeited or expired

(145
)

24.73

Outstanding at December 31, 2017

6,162

$
22.94

6.1

$
4,732

Exercisable at December 31, 2017

3,658

$
23.61

4.6

$
3,229

~~The following table presents a summary of the activity for our Restricted Stock Awards:~~

Restricted Stock Awards

Number
of Shares
(in Thousands)

Weighted
Average Fair
Value Per
Share

Weighted
Average
Remaining
Vesting Term
(in Years)

Unvested at September 30, 2017

125

$
26.00

1.3

Granted

264

17.42

Vested

(23
)

24.18

Forfeited

—

—

Unvested at December 31, 2017

366

$
19.94

2.7

~~The following table presents a summary of the activity for our Restricted Stock Units:~~

Restricted Stock Units

Number
of Shares
(in Thousands)

Weighted
Average Fair
Value Per
Share

Weighted
Average
Remaining
Vesting Term
(in Years)

Unvested at September 30, 2017

—

$
—

—

Granted

72

17.42

Vested

—

—

Forfeited

(7
)

17.42

Unvested at December 31, 2017

65

$
17.42

0.7

8. ~~Commitments and Contingencies~~

During the fiscal year 2014, we disclosed that we had experienced a data security incident (the “2014 data security incident”). During the fiscal year 2015, we disclosed that we had experienced a second data security incident (the “2015 data security incident” and, together with the 2014 data security incident, the “data security incidents”). The costs that we have incurred to date in connection with the data security incidents include assessments by payment card networks, professional advisory fees and legal fees relating to investigating and remediating the data security incidents. In April 2017, we entered into agreements pursuant to which all existing claims and assessments by certain payment card networks were settled. We cannot provide any assurances regarding whether assessments by other payment card networks will be received.

We expect to incur additional costs and expenses related to the data security incidents in the future. These costs and expenses may result from potential additional liabilities to other payment card networks, governmental or third party investigations, proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims, and further investigatory and

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

remediation costs. While we do not anticipate these additional costs and expenses or liabilities would have a material adverse impact on our business, financial condition and operating results, these additional costs and expenses could be significant.

~~9. Short-term Borrowings and Long-term Debt~~

Our debt outstanding at December 31, 2017 was not materially different from that at September 31, 2017. At December 31, 2017, we have $381.3 million available for borrowing under the ABL facility, including the Canadian sub-facility. At December 31, 2017, we ~~are in compliance with the agreements and instruments governing our debt, including our financial covenants.~~

~~10.~~ Derivative Instruments and Hedging Activities

During the ~~three~~six months ended ~~December~~March 31, ~~2017,~~2022, we did ~~not~~0t purchase or hold any derivative instruments for trading or speculative purposes. See Note 3, Fair Value Measurements, for the classification and fair value of our derivative instruments.

Designated Cash Flow Hedges

Foreign Currency Forwards

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

Notional Currency	Notional Amount
Mexican Peso	$	13,013
Euro		8,551
Canadian Dollar		5,804
Total	$	27,368

Quarterly, the changes in fair value related to the foreign currency forwards are recorded into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold, based on inventory turns, in our condensed consolidated statements of earnings. For the six months ended March 31, 2022 and 2021, we recognized a loss of $0.4 million and a gain of $0.4 million, respectively. The effects of our foreign currency forwards were not material for the three months ended March 31, 2022 and 2021. Based on March 31, 2022 valuations and exchange rates, we expect to reclassify losses of approximately $0.1 million into cost of goods sold over the next 12 months.

Interest Rate Caps

In July 2017, we purchased ~~two~~2 interest rate caps with an initial aggregate notional amount of $550 million (the “interest rate caps”). to mitigate the exposure to higher interest rates in connection with our term loan B. The interest rate caps are comprised of individual caplets that expire onratably through June 30, 2023, and are designated ~~and qualifying~~ as cash flow hedges.

~~Non-designated Cash Flow Hedges~~

At December 31, 2017, we held foreign currency forward contracts with an aggregate notional amount of $100.6 million based upon exchange rates at December 31, 2017. These derivative instruments expire at various dates though September 30, 2018.

~~The table below presents the~~ Accordingly, changes in fair value of ~~our derivative financial instruments as well as their classification~~the interest rate caps are recorded quarterly, net of income tax, and are included in AOCL.

For the six months ended March 31, 2022 and 2021, we recognized expense of $0.4 million and $0.2 million, respectively, into interest expense on our condensed consolidated ~~balance sheets (in thousands):~~

Asset Derivatives

Liability Derivatives

Classification

December 31,
2017

September 30,
2017

Classification

December 31,
2017

September 30,
2017

Derivatives designated as hedging
instruments:

Interest rate caps

Other current assets

$
4,048

$
5,178

N/A

$
—

$
—

Derivatives not designated as hedging
instruments:

Foreign exchange contracts

Other current
assets

572

779

Accrued
liabilities

—

207

$
4,620

$
5,957

$
—

$
207

statements of earnings. The ~~effect~~effects of our ~~derivative financial instruments~~interest rate caps on our condensed consolidated statements of earnings ~~was~~were not material for the three months ended ~~December~~March 31, ~~2017~~2022 and ~~2016.~~

~~11. Income Taxes~~

~~On December 22, 2017,~~2021. Over the ~~U.S. enacted comprehensive amendments~~next 12 months, we expect to reclassify approximately $1.9 million into interest expense, which represents the Internal Revenue Code of 1986 (“U.S. Tax Reform”). Among other things, U.S. Tax Reform (a) reduces the federal statutory tax rate for corporate taxpayers, (b) provides for a deemed repatriation of undistributed foreign earnings by U.S. taxpayers and makes other fundamental changes on how foreign earnings will be taxed by the U.S. and (c) otherwise modifies corporate tax rules in significant ways. In accordance with ASC Topic No. 740, ~~Income Taxes, entities must revalue their deferred income taxes considering the new tax rates and recognize any impact~~original value of the ~~deemed repatriation of undistributed foreign earnings on their financial statements based on the enacted tax law.~~expiring caplets.

In December 2017, the SEC provided guidance allowing registrants to record provisional amounts, during a specified measurement period, when the necessary information is not available, prepared or analyzed in reasonable detail to account

9. Segment Reporting

Segment data for the ~~impact of U.S. Tax Reform. Accordingly, we have reported the revaluation of deferred income taxes~~three and ~~the impact of the deemed repatriation on our consolidated financial statements based on provisional amounts. Specifically, in the three~~six months ended ~~December~~March 31, ~~2017, we recognized a provisional income tax benefit of $33.6 million in connection with the revaluation of our deferred income tax assets~~2022 and

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

liabilities, and a provisional income tax charge of $11.4 million for federal and state income taxes, including $10.4 million payable beyond one year, related to accumulated but undistributed earnings of our foreign operations.

For the fiscal year ending September 30, 2018, our U.S. federal statutory tax rate will be 24.5% and, for fiscal years after that, 21.0%. Among the factors that could affect the accuracy of our provisional amounts 2021, is uncertainty about the statutory tax rate applicable to our deferred income tax assets and liabilities, since the actual rate will be dependent on the timing of realization or settlement of such assets and liabilities. At December 31, 2017, we estimated the dates when such realization or settlement would occur. The actual dates when such realization or settlement occurs may be significantly different from our estimates, which could result in the ultimate revaluation of our deferred income taxes to be different from our provisional amounts. In addition, there is uncertainty about the impact of expected Internal Revenue Service (IRS) guidance intended to interpret the most complex provisions of U.S. Tax Reform. Our liability for federal and state income taxes applicable to undistributed earnings of our foreign operations may be materially different from our provisional amount as ~~a result of such future IRS guidance and interpretation and in connection with estimates related to the amount of undistributed foreign earnings and cash balances.~~

We are currently assessing the potential additional impact of U.S. Tax Reform on our business and consolidated financial statements, and expect to complete such assessment on or before September 30, 2018.

~~The difference between our U.S. federal statutory income tax rate and our effective income tax rate is summarized below:~~follows (in thousands):

	~~Three Months Ended December 31, 2017~~
~~U.S. federal statutory income tax rate~~	~~24.5~~	%
~~State income taxes, net of federal tax benefit~~	~~3.2~~
~~Effect of foreign operations~~	~~0.8~~
~~Deferred tax revaluation~~	~~(39.1)~~
~~Deemed repatriation tax~~	~~13.3~~
~~Other, net~~	~~0.6~~
~~Effective tax rate~~	~~3.3~~	%

	Three Months Ended March 31,				Six Months Ended March 31,
	2022		2021		2022		2021
Net sales:
Sally Beauty Supply ("SBS")	$	525,785	$	542,664	$	1,087,315	$	1,090,334
Beauty Systems Group ("BSG")		385,602		383,664		804,323		772,016
Total	$	911,387	$	926,328	$	1,891,638	$	1,862,350
Earnings before provision for income taxes:
Segment operating earnings:
SBS	$	80,940	$	100,063	$	181,563	$	195,191
BSG		46,008		47,843		104,554		96,415
Segment operating earnings		126,948		147,906		286,117		291,606
Unallocated expenses		40,487		71,764		85,777		110,910
Restructuring		—		631		1,099		863
Consolidated operating earnings		86,461		75,511		199,241		179,833
Interest expense		19,896		23,883		40,137		49,861
Earnings before provision for income taxes	$	66,565	$	51,628	$	159,104	$	129,972

~~12. Business Segments~~

Our business is organized into two operating and reporting segments: (i) SBS, a domestic and international chain of retail stores and a consumer-facing e-commerce website that offers professional beauty supplies to both salon professionals and retail customers in North America, Puerto Rico, and parts of Europe and South America and (ii) BSG, including its franchise-based business Armstrong McCall, a full service distributor of beauty products and supplies that offers professional beauty products directly to salons and salon professionals through its professional-only stores, e-commerce websites and its own sales force in partially exclusive geographical territories in North America.

The accounting policies of both of our reportable segments are the same as described in the summary of significant accounting policies contained in Note 2 of the “Notes to Consolidated Financial Statements” in “Item 8 - Financial Statements and Supplementary Data” contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017. Sales between segments, which are eliminated in consolidation, were not material during the three and six months ended ~~December~~March 31, ~~2017~~2022 and ~~2016.~~2021.

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Segment data for the three months ended December 31, 2017 and 2016 is as follows (in thousands):~~

Three Months Ended
December 31,

2017

2016

Net sales:

SBS

$
585,574

$
589,859

BSG

409,390

409,750

Total

$
994,964

$
999,609

Earnings before provision for income taxes:

Segment operating earnings:

SBS

$
86,594

$
92,526

BSG

64,565

63,600

Segment operating earnings

151,159

156,126

Unallocated expenses

(35,816
)

(38,669
)
Restructuring charges

(5,210
)

—

Consolidated operating earnings

110,133

117,457

Interest expense

(24,016
)

(26,799
)
Earnings before provision for income taxes

$
86,117

$
90,658

~~13. Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidating Financial Statements~~Disaggregation of net sales by segment

The following consolidating financial information presents the condensed consolidating balance sheets as of December 31, 2017 and September 30, 2017, the related condensed consolidating statements of earnings and comprehensive income and the condensed consolidating statements of cash flows for the three months ended December 31, 2017 and 2016 of: (i)tables disaggregate our segment revenues by merchandise category. We have reclassified certain prior year amounts to conform to current year presentation.

	Three Months Ended March 31,						Six Months Ended March 31,
SBS	2022			2021			2022			2021
Hair color		38.1	%		35.8	%		37.4	%		35.9	%
Hair care		24.1	%		21.7	%		24.0	%		21.4	%
Styling tools and supplies		19.2	%		22.8	%		19.7	%		22.9	%
Nail		10.6	%		10.7	%		10.5	%		10.8	%
Skin and cosmetics		7.4	%		8.3	%		7.7	%		8.3	%
Other beauty items		0.6	%		0.7	%		0.7	%		0.7	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

	Three Months Ended March 31,						Six Months Ended March 31,
BSG	2022			2021			2022			2021
Hair color		42.7	%		42.6	%		42.4	%		41.4	%
Hair care		39.9	%		38.8	%		39.9	%		39.0	%
Styling tools and supplies		11.2	%		11.2	%		11.3	%		11.8	%
Skin and cosmetics		3.5	%		4.0	%		4.0	%		4.3	%
Nail		2.3	%		2.9	%		2.1	%		3.1	%
Other beauty items		0.4	%		0.5	%		0.3	%		0.4	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

The following tables disaggregate our segment revenue by sales channels:

	Three Months Ended March 31,						Six Months Ended March 31,
SBS	2022			2021			2022			2021
Company-operated stores		93.7	%		93.0	%		94.0	%		93.5	%
E-commerce		6.3	%		6.9	%		6.0	%		6.5	%
Franchise stores		0.0	%		0.1	%		0.0	%		0.0	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

	Three Months Ended March 31,						Six Months Ended March 31,
BSG	2022			2021			2022			2021
Company-operated stores		66.6	%		70.2	%		67.1	%		69.9	%
Distributor sales consultants		14.0	%		13.7	%		13.8	%		14.0	%
E-commerce		12.4	%		9.1	%		12.0	%		8.8	%
Franchise stores		7.0	%		7.0	%		7.1	%		7.3	%
Total		100.0	%		100.0	%		100.0	%		100.0	%

10. Subsequent Event

On April 29, 2022, we announced that our wholly-owned subsidiaries, Sally ~~Beauty~~ Holdings ~~Inc., or the “Parent;” (ii) Sally Holdings~~LLC (“Holdings”) and Sally Capital Inc. ~~(iii)~~(together with Holdings, the ~~guarantor subsidiaries; (iv)~~“Issuers”), issued a notice of redemption (the “Redemption Notice”), to redeem on May 31, 2022, the ~~non-guarantor subsidiaries; (v) elimination entries necessary for consolidation purposes; and (vi) Sally Beauty on a condensed consolidated basis.~~

~~Investments in subsidiaries are accounted for using the equity method for purposes~~entire $300.00 million aggregate principal amount of the ~~consolidating presentation.~~8.750% Senior Secured Second Lien Notes due 2025 (“Notes”) which remain outstanding. The ~~principal elimination entries relate to investments in subsidiaries and intercompany balances and transactions. Separate financial statements and other disclosures with respect~~redemption is being made pursuant to the ~~subsidiary guarantors have~~terms of the Indenture dated April 24, 2020, at a redemption price equal to 104.375% of the principal amount of the Notes plus accrued but unpaid interest to, but not ~~been provided because we believe~~including, the ~~following information is sufficient since the guarantor subsidiaries are 100% indirectly owned by the Parent and all guarantees are full and unconditional.~~

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Condensed Consolidating Balance Sheet~~

~~December 31, 2017~~

~~(In thousands)~~

redemption date.

Parent

Sally
Holdings LLC
and Sally
Capital Inc.

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Eliminations

Sally Beauty
Holdings,
Inc. and
Subsidiaries

Assets

Cash and cash equivalents

$
—

$
10

$
31,839

$
47,463

$
—

$
79,312

Trade and other accounts receivable, net

—

—

64,152

32,806

—

96,958

Due from affiliates

—

—

2,360,280

—

(2,360,280
)

—

Inventory

—

—

714,682

226,464

—

941,146

Other current assets

1,280

817

27,856

16,306

—

46,259

Property and equipment, net

11

—

225,891

80,519

—

306,421

Investment in subsidiaries

1,195,373

3,820,552

374,002

—

(5,389,927
)

—

Goodwill and other intangible assets, net

—

—

465,755

156,403

—

622,158

Other assets

1,050

7,171

(7,852
)

20,698

—

21,067

Total assets

$
1,197,714

$
3,828,550

$
4,256,605

$
580,659

$
(7,750,207
)

$
2,113,321

Liabilities and Stockholders’ (Deficit) Equity

Accounts payable

$
36

$
—

$
234,878

$
71,356

$
—

$
306,270

Due to affiliates

1,519,033

750,442

—

90,805

(2,360,280
)

—

Accrued liabilities

362

6,170

125,852

34,117

—

166,501

Income taxes payable

10,566

1,678

—

87

—

12,331

Long-term debt

—

1,874,887

4

1,308

—

1,876,199

Other liabilities

10,371

—

17,027

3,749

—

31,147

Deferred income tax liabilities, net

(19
)

—

58,292

5,235

—

63,508

Total liabilities

1,540,349

2,633,177

436,053

206,657

(2,360,280
)

2,455,956

Total stockholders’ (deficit) equity

(342,635
)

1,195,373

3,820,552

374,002

(5,389,927
)

(342,635
)
Total liabilities and stockholders’ (deficit) equity

$
1,197,714

$
3,828,550

$
4,256,605

$
580,659

$
(7,750,207
)

$
2,113,321

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Condensed Consolidating Balance Sheet~~

~~September 30, 2017~~

~~(In thousands)~~

Parent

Sally
Holdings LLC
and Sally
Capital Inc.

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Eliminations

Sally Beauty
Holdings,
Inc. and
Subsidiaries

Assets

Cash and cash equivalents

$
—

$
10

$
22,090

$
41,659

$
—

$
63,759

Trade and other accounts receivable, net

200

—

59,992

32,049

—

92,241

Due from affiliates

—

—

2,289,371

—

(2,289,371
)

—

Inventory

—

—

709,890

220,965

—

930,855

Other current assets

11,763

813

26,144

16,503

—

55,223

Property and equipment, net

12

—

230,069

83,636

—

313,717

Investment in subsidiaries

1,110,891

3,717,999

386,681

—

(5,215,571
)

—

Goodwill and other intangible assets, net

—

—

468,118

149,978

—

618,096

Other assets

1,538

8,116

(7,837
)

23,299

—

25,116

Total assets

$
1,124,404

$
3,726,938

$
4,184,518

$
568,089

$
(7,504,942
)

$
2,099,007

Liabilities and Stockholders’ (Deficit) Equity

Accounts payable

$
251

$
4

$
243,818

$
63,679

$
—

$
307,752

Due to affiliates

1,487,484

727,856

—

74,031

(2,289,371
)

—

Accrued liabilities

285

20,108

113,628

32,506

—

166,527

Income taxes payable

—

1,624

—

609

—

2,233

Long-term debt

—

1,866,455

1

1,479

—

1,867,935

Other liabilities

—

—

16,008

4,132

—

20,140

Deferred income tax liabilities, net

—

—

93,064

4,972

—

98,036

Total liabilities

1,488,020

2,616,047

466,519

181,408

(2,289,371
)

2,462,623

Total stockholders’ (deficit) equity

(363,616
)

1,110,891

3,717,999

386,681

(5,215,571
)

(363,616
)
Total liabilities and stockholders’ (deficit) equity

$
1,124,404

$
3,726,938

$
4,184,518

$
568,089

$
(7,504,942
)

$
2,099,007

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Earnings and Comprehensive Income~~

~~Three Months Ended December 31, 2017~~

~~(In thousands)~~

Parent

Sally
Holdings LLC
and Sally
Capital Inc.

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Eliminations

Sally Beauty
Holdings,
Inc. and
Subsidiaries

Net sales

$
—

$
—

$
796,532

$
198,432

$
—

$
994,964

Related party sales

—

—

446

—

(446
)

—

Cost of products sold and distribution expenses

—

—

403,810

104,971

(446
)

508,335

Gross profit

—

—

393,168

93,461

—

486,629

Selling, general and administrative expenses

2,606

179

284,467

84,034

—

371,286

Restructuring charges

—

—

5,210

—

—

5,210

Operating earnings (loss)

(2,606
)

(179
)

103,491

9,427

—

110,133

Interest expense

—

24,014

—

2

—

24,016

Earnings (loss) before provision for income taxes

(2,606
)

(24,193
)

103,491

9,425

—

86,117

Provision (benefit) for income taxes

(251
)

(6,925
)

(7,915
)

17,944

—

2,853

Equity in earnings of subsidiaries, net of tax

85,619

102,887

(8,519
)

—

(179,987
)

—

Net earnings (loss)

83,264

85,619

102,887

(8,519
)

(179,987
)

83,264

Other comprehensive loss, net of tax

—

(803
)

—

(255
)

—

(1,058
)
Total comprehensive income (loss)

$
83,264

$
84,816

$
102,887

$
(8,774
)

$
(179,987
)

$
82,206

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Earnings and Comprehensive Income~~

~~Three Months Ended December 31, 2016~~

~~(In thousands)~~

Parent

Sally
Holdings LLC
and Sally
Capital Inc.

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Eliminations

Sally Beauty
Holdings,
Inc. and
Subsidiaries

Net sales

$
—

$
—

$
816,051

$
183,558

$
—

$
999,609

Related party sales

—

—

748

—

(748
)

—

Cost of products sold and distribution expenses

—

—

411,323

97,326

(748
)

507,901

Gross profit

—

—

405,476

86,232

—

491,708

Selling, general and administrative expenses

2,549

137

296,724

74,841

—

374,251

Operating earnings (loss)

(2,549
)

(137
)

108,752

11,391

—

117,457

Interest expense

—

26,749

—

50

—

26,799

Earnings (loss) before provision for income taxes

(2,549
)

(26,886
)

108,752

11,341

—

90,658

Provision (benefit) for income taxes

(990
)

(10,443
)

41,998

4,267

—

34,832

Equity in earnings of subsidiaries, net of tax

57,385

73,828

7,074

—

(138,287
)

—

Net earnings

55,826

57,385

73,828

7,074

(138,287
)

55,826

Other comprehensive loss, net of tax

—

—

—

(18,668
)

—

(18,668
)
Total comprehensive income (loss)

$
55,826

$
57,385

$
73,828

$
(11,594
)

$
(138,287
)

$
37,158

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Cash Flows~~

~~Three Months Ended December 31, 2017~~

~~(In thousands)~~

Parent

Sally
Holdings LLC
and Sally
Capital Inc.

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Eliminations

Sally Beauty
Holdings,
Inc. and
Subsidiaries

Net cash provided (used) by operating activities

$
32,788

$
(30,211
)

$
100,319

$
1,308

$
—

$
104,204

Cash Flows from Investing Activities:

Payments for property and equipment, net

—

—

(19,664
)

(2,835
)

—

(22,499
)
Acquisitions, net of cash acquired

—

—

—

(9,175
)

—

(9,175
)
Due from affiliates

—

—

(70,909
)

—

70,909

—

Net cash used by investing activities

—

—

(90,573
)

(12,010
)

70,909

(31,674
)
Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

—

126,500

5

—

—

126,505

Repayments of long-term debt

—

(118,875
)

(2
)

(190
)

—

(119,067
)
Repurchases of common stock

(64,612
)

—

—

—

—

(64,612
)
Proceeds from exercises of stock options

275

—

—

—

—

275

Due to affiliates

31,549

22,586

—

16,774

(70,909
)

—

Net cash (used) provided by financing activities

(32,788
)

30,211

3

16,584

(70,909
)

(56,899
)
Effect of foreign exchange rate changes on cash and
cash equivalents

—

—

—

(78
)

—

(78
)
Net increase in cash and cash equivalents

—

—

9,749

5,804

—

15,553

Cash and cash equivalents, beginning of period

—

10

22,090

41,659

—

63,759

Cash and cash equivalents, end of period

$
—

$
10

$
31,839

$
47,463

$
—

$
79,312

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~Condensed Consolidating Statement of Cash Flows~~

~~Three Months Ended December 31, 2016~~

~~(In thousands)~~

Parent

Sally
Holdings LLC
and Sally
Capital Inc.

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Eliminations

Sally Beauty
Holdings,
Inc. and
Subsidiaries

Net cash provided (used) by operating activities

$
27,303

$
(41,347
)

$
104,449

$
(611
)

$
—

$
89,794

Cash Flows from Investing Activities:

Payments for property and equipment, net

—

—

(20,883
)

(7,125
)

—

(28,008
)
Due from affiliates

—

—

(68,741
)

—

68,741

—

Net cash used by investing activities

—

—

(89,624
)

(7,125
)

68,741

(28,008
)
Cash Flows from Financing Activities:

Proceeds from issuance of long-term debt

—

58,500

—

—

—

58,500

Repayments of long-term debt

—

(58,500
)

(4
)

(170
)

—

(58,674
)
Repurchases of common stock

(67,183
)

—

—

—

—

(67,183
)
Proceeds from exercises of stock options

14,280

—

—

—

—

14,280

Due to affiliates

25,600

31,418

—

11,723

(68,741
)

—

Net cash (used) provided by financing activities

(27,303
)

31,418

(4
)

11,553

(68,741
)

(53,077
)
Effect of foreign exchange rate changes on cash and
cash equivalents

—

—

—

(921
)

—

(921
)
Net (decrease) increase in cash and cash equivalents

—

(9,929
)

14,821

2,896

—

7,788

Cash and cash equivalents, beginning of period

—

28,372

22,368

35,882

—

86,622

Cash and cash equivalents, end of period

$
—

$
18,443

$
37,189

$
38,778

$
—

$
94,410

~~Sally Beauty Holdings, Inc. and Subsidiaries~~

~~Condensed Notes to Consolidated Financial Statements~~

~~(Unaudited)~~

~~14. Restructuring Plans~~

~~2017 Restructuring Plan~~

In January 2017, our Board of Directors approved a comprehensive restructuring plan (the “2017 Restructuring Plan”) for our businesses that included a number of organizational efficiency initiatives and other cost reduction opportunities. The 2017 Restructuring Plan comprised the closure of four administrative offices in the U.S. and Canada, reductions in both salaried and hourly workforce and certain other cost reduction activities. At September 30, 2017, the initiatives contemplated by the 2017 Restructuring Plan were substantially completed.

~~The liability related to the 2017 Restructuring Plan, which is included in accrued liabilities in our consolidated balance sheets, is as follows (in thousands):~~

Restructuring Activity

Liability at
September 30,
2017

Expenses

Expenses Paid or Otherwise Settled

Adjustments

Liability at
December 31,
2017

Workforce reductions

$
1,860

$
—

$
1,072

$
—

$
788

Facility closures

1,747

—

781

—

966

Other

235

—

235

—

—

Total

$
3,842

$
—

$
2,088

$
—

$
1,754

~~2018 Restructuring Plan~~

In November 2017, our Board approved a restructuring plan (the “2018 Restructuring Plan”) focused primarily on significantly improving the profitability of our international businesses, with particular focus on our European operations. We estimate that we will incur total aggregate charges of approximately $13 million to $14 million related primarily to potential employee separation costs. We anticipate substantially completing the 2018 Restructuring Plan in the fiscal year 2018.

~~The liability related to the 2018 Restructuring Plan, which is included in accrued liabilities in our consolidated balance sheets, is as follows (in thousands):~~

Restructuring Activity

Liability at
September 30,
2017

Expenses

Expenses Paid or Otherwise Settled

Adjustments

Liability at
December 31,
2017

Workforce reductions

$
—

$
4,260

$
3,376

$
—

$
884

Other

—

950

328

—

622

Total

$
—

$
5,210

$
3,704

$
—

$
1,506

~~Expenses incurred in the three months ended December 31, 2017 represent costs incurred by SBS ($4.5 million) and corporate ($0.7 million).~~

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

~~This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty.~~ This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017, including~~2021.

Executive Overview

Our results in the ~~Risk Factors section,~~second quarter of 2022 delivered a solid financial performance with increases in gross margin, net earnings and ~~information contained elsewhere in this Quarterly Report, including~~diluted earnings per share, compared to the interim condensed consolidated financial statements and condensed notes to those financial statements. This Management’s Discussion and Analysis of Financial Condition and Results of Operations section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements,” included at the beginningsame period last year. We achieved all of this ~~Quarterly Report for a discussion~~despite the ongoing macro-environment challenges surrounding the COVID-19 Omicron variant, supply chain, and inflationary pressures, which have impacted customer behavior and purchasing power. However, by continuing to focus on our four strategic pillars; leveraging our digital platform, driving loyalty and personalization, delivering product innovation and optimizing our supply chain, we believe we are well-positioned to navigate these macro headwinds and continue to drive growth in both of ~~the uncertainties, risks~~our businesses, retail and ~~assumptions associated with these forward-looking statements that could cause results to differ materially from those reflected in such forward-looking statements.~~

~~The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year.~~professional.

Highlights for the Three Months Ended ~~December~~March 31, ~~2017:~~2022

•

Consolidated net sales for the three months ended March 31, 2022, decreased $14.9 million, or 1.6%, to $911.4 million, compared to the three months ended March 31, 2021;

•

Consolidated comparable sales increased 0.2% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021;

•

Consolidated gross profit for the three months ended March 31, 2022, decreased $1.9 million, or 0.4%, to $465.3 million, compared to the three months ended March 31, 2021. Gross margin increased 70 basis points to 51.1% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021;

•

Consolidated operating earnings for the three months ended March 31, 2022, increased $11.0 million, or 14.5%, to $86.5 million, compared to the three months ended March 31, 2021. Operating margin increased 130 bps to 9.5% for the three months ended March 31, 2022, compared to the three months ended March 31, 2021;

•

For the three months ended March 31, 2022, our consolidated net earnings increased $8.5 million, or 22.2%, to $46.8 million, compared to the three months ended March 31, 2021;

•

For the three months ended March 31, 2022, our diluted earnings per share was $0.42 compared to $0.34 for the three months ended March 31, 2021; and

•

Cash provided by operations was $2.8 million for the three months ended March 31, 2022, compared to cash provided by operations of $92.6 million for the three months ended March 31, 2021.

Impact of COVID-19 on Our Business

Throughout the current quarter and year we continued to experience disruptions to our business as a result of the COVID-19 pandemic and continued to take certain actions in order to protect our customers and associates. In particular, our store operations were disrupted by the Omicron variant due to employee illnesses primarily in December and January and we continued to incur additional costs associated with testing and vaccinations, disinfectant cleanings in connection with positive cases in stores and support centers, and the write-down of obsolete personal-protective equipment inventory.

Due to general labor shortages in the U.S., especially among retail and hourly employees, we have also experienced staffing shortages at our U.S. stores and an increase in our compensation costs in order to attract and retain associates. While the situation has been improving, we cannot reasonably predict the effects of new variants or expect these positive trends to continue. Therefore, our future performance may partially depend on impacts of COVID-19 such as decreased customer in-store traffic, new waves of infection, labor and supply chain disruptions, developing variants, changes in guidance from international and domestic authorities, and availability and timing of vaccines.

Refer to Item 1A. “Risk Factors” in our Form 10-K for the ~~three months~~fiscal year ended ~~December 31, 2017, decreased $4.6 million, or 0.5%,~~September 30, 2021, for further discussion on the risks and uncertainties created by COVID-19.

Global Supply Chain and Inflationary Impact

There continues to ~~$995.0 million,~~be volatility in the global supply chain as shipment delays continue to impact ports, inflationary pressures are exacerbated by global political instability, and consumer demand continues to evolve as a lingering effect from the COVID-19 pandemic. In the current quarter we continued to experience elevated distribution costs as these shifts in demand and supply have led to longer lead times and delays, and carriers are faced with increased costs associated with capacity imbalances between ports as well as overall prolonged transportation challenges. Moreover, the war in Ukraine has created additional uncertainty in the global markets, which have seen a rise in fuel prices, and is another factor impacting distribution costs. Due to these events, we have seen an increase in our inbound freight costs and extended inventory in transit times. Inflationary pressures also impacted customer behavior which resulted in lower traffic and conversion in the current quarter.

Comparable Sales

We have recently launched many digital initiatives to support our omni-channel strategies to provide customers an enhanced shopping experience. As such, we believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the ~~three months ended December 31, 2016;~~

~~Consolidated net~~prior period. Our comparable sales include sales from ~~company-operated~~ stores that have been ~~open~~operating for 14 months or longer ~~which we refer to~~ as ~~same store sales, decreased 2.2% for the three months ended December 31, 2017, compared to an increase of 0.4% for the three months ended December 31, 2016;~~

Consolidated gross profit for the three months ended December 31, 2017 decreased $5.1 million, or 1.0%, to $486.6 million compared to the three months ended December 31, 2016. Gross margin decreased 30 basis points to 48.9% for the three months ended December 31, 2017, compared to the three months ended December 31, 2016;

During the three months ended December 31, 2017, we incurred approximately $5.2 million in expenses, including severance and related expenses of $4.3 million and other costs of $0.9 million, in connection with the 2018 Restructuring Plan announced in November 2017;

Consolidated operating earnings for the three months ended December 31, 2017 decreased $7.3 million, or 6.2%, to $110.1 million compared to the three months ended December 31, 2016. Operating margin decreased 70 basis points to 11.1% for the three months ended December 31, 2017, compared to the three months ended December 31, 2016;

Consolidated net earnings increased $27.4 million, or 49.1%, to $83.3 million for the three months ended December 31, 2017 compared to the three months ended December 31, 2016. As a percentage of net sales, net earnings increased 280 basis points to 8.4% for the three months ended December 31, 2017, compared to the three months ended December 31, 2017;

In December 2017, the United States enacted comprehensive amendments to the Internal Revenue Code of 1986 (“U.S. Tax Reform”). In connection therewith, we recorded a net provisional benefit of approximately $22.2 million and our U.S. federal statutory tax rate decreased to 24.5%;

~~Diluted earnings per share for the three months ended December 31, 2017, were $0.65, compared to $0.39 for the three months ended December 31, 2016;~~

~~Cash provided by operations was $104.2 million for the three months ended December 31, 2017, compared to $89.8 million for the three months ended December 31, 2016;~~

~~During the three months ended December 31, 2017, we repurchased and subsequently retired approximately 3.8 million shares of our common stock at an aggregate cost of approximately $64.5 million; and~~

In December 2017, we acquired certain assets and business operations of H. Chalut Ltee, a 21-store professional-only distributor of beauty supplies operating in Quebec, Canada, for approximately $8.8 million.

~~Overview~~

~~Description of Business~~

We operate primarily through two reportable segments: Sally Beauty Supply (“SBS”) and Beauty Systems Group (“BSG”). We believe we are the largest open-line distributor of professional beauty supplies in the U.S. based on store count. As of December 31, 2017, through SBS and BSG, we had 4,993 company-operated stores and supplied 184 franchised stores in North America and select South American and European countries. Within BSG, we also have one of the ~~largest networks~~last day of ~~distributor~~a month and e-commerce revenue. Additionally, our comparable sales ~~consultants for professional beauty products~~include sales to franchisees and full service sales. Our comparable sales excludes the effect of changes in ~~North America. We offer a wide variety~~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 ~~leading third-party branded and exclusive-label professional beauty supplies, including hair color products, hair care products, styling tools, skin and nail care products and~~comparable sales might not be the same as other retailers as the calculation varies across the retail industry.

~~beauty items. SBS targets retail consumers and salon professionals, while BSG exclusively targets salons and salonprofessionals. Neither the sales nor the product assortment for SBS or BSG are generally seasonal in nature.~~

~~Restructuring Plans~~Overview

During the three months ended December 31, 2017, we recognized restructuring charges of approximately $5.2 million in connection with the 2018 Restructuring Plan, including severance and related expenses of approximately $4.3 million and expenses related to other cost-reduction initiatives of $0.9 million. We anticipate substantially completing the 2018 Restructuring Plan in fiscal year 2018. We expect to realize annualized pre-tax benefits in the range of $12 million to $14 million from the 2018 Restructuring Plan, with an estimated benefit of approximately $8 million realized in fiscal year 2018. See Note 14 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.

~~U.S. Tax Reform~~

On December 22, 2017, the U.S. enacted comprehensive amendments to the Internal Revenue Code of 1986 (“U.S. Tax Reform”). See Note 11 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the impact of the US. Tax Reform on our financial statements.

~~Data Security Incidents~~

As previously disclosed, we experienced a data security incident during fiscal year 2014 and a second data security incident during fiscal year 2015 (together, the “data security incidents”). In the fiscal years 2016 and 2015, we incurred $14.6 million and $5.6 million, respectively, of expenses in connection with the data security incidents. In the fiscal year 2017, we settled prior assessments by two payment card networks for $9.3 million. We expect to incur additional costs and expenses related to the data security incidents in future periods. These costs and expenses may result from potential additional liabilities to other payment card networks, governmental or third party investigations, proceedings or litigation and legal and other fees necessary to defend against any potential liabilities or claims, and further investigatory and remediation costs. As of December 31, 2017, the scope of these additional costs and expenses, or a range thereof, beyond amounts management has determined to be probable, cannot be reasonably estimated and, while we do not anticipate these additional costs and expenses or liabilities would have a material adverse impact on our business, financial condition and operating results, these additional costs and expenses could be significant.

Key Operating Metrics

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

	Three Months Ended December 31,												Three Months Ended March 31,												Six Months Ended March 31,
	2017			2016			Increase (Decrease)						2022			2021			Increase (Decrease)						2022			2021			Increase (Decrease)
Net sales:
SBS	$	585,574		$	589,859		$	(4,285	)	(0.7	)%		$	525,785		$	542,664		$	(16,879	)		(3.1	)%	$	1,087,315		$	1,090,334		$	(3,019	)		(0.3	)%
BSG		409,390			409,750			(360	)	(0.1	)%			385,602			383,664			1,938			0.5	%		804,323			772,016			32,307			4.2	%
Consolidated	$	994,964		$	999,609		$	(4,645	)	(0.5	)%		$	911,387		$	926,328		$	(14,941	)		(1.6	)%	$	1,891,638		$	1,862,350		$	29,288			1.6	%

Gross profit:
SBS	$	319,785		$	324,183		$	(4,398	)	(1.4	)%		$	309,262		$	317,161		$	(7,899	)		(2.5	)%	$	637,434		$	632,973		$	4,461			0.7	%
BSG		166,844			167,525			(681	)	(0.4	)%			156,070			150,068			6,002			4.0	%		328,027			304,980			23,047			7.6	%
Consolidated	$	486,629		$	491,708		$	(5,079	)	(1.0	)%		$	465,332		$	467,229		$	(1,897	)		(0.4	)%	$	965,461		$	937,953		$	27,508			2.9	%

Segment gross margin:
SBS		54.6	%		55.0	%	(40) bps							58.8	%		58.4	%	40			bps				58.6	%		58.1	%	50			bps
BSG		40.8	%		40.9	%	(10) bps							40.5	%		39.1	%	140			bps				40.8	%		39.5	%	130			bps
Consolidated		48.9	%		49.2	%	(30) bps							51.1	%		50.4	%	70			bps				51.0	%		50.4	%	60			bps

Selling, general and administrative expenses	$	371,286		$	374,251		$	(2,965	)	(0.8	)%
Restructuring charges	$	5,210		$	—		$	5,210		100.0	%

Operating earnings:
Net earnings:
Segment operating earnings:
SBS	$	86,594		$	92,526		$	(5,932	)	(6.4	)%		$	80,940		$	100,063		$	(19,123	)		(19.1	)%	$	181,563		$	195,191		$	(13,628	)		(7.0	)%
BSG		64,565			63,600			965		1.5	%			46,008			47,843			(1,835	)		(3.8	)%		104,554			96,415			8,139			8.4	%
Segment operating earnings		151,159			156,126			(4,967	)	(3.2	)%			126,948			147,906			(20,958	)		(14.2	)%		286,117			291,606			(5,489	)		(1.9	)%
Unallocated expenses and restructuring charges (a)		(41,026	)		(38,669	)		2,357		6.1	%
Unallocated expenses and restructuring^(a)														40,487			72,395			(31,908	)		(44.1	)%		86,876			111,773			(24,897	)		(22.3	)%
Consolidated operating earnings	$	110,133		$	117,457		$	(7,324	)	(6.2	)%			86,461			75,511			10,950			14.5	%		199,241			179,833			19,408			10.8	%

Segment operating margin:
SBS		14.8	%		15.7	%	(90) bps
BSG		15.8	%		15.5	%	30 bps
Consolidated		11.1	%		11.8	%	(70) bps
Interest expense														19,896			23,883			(3,987	)		(16.7	)%		40,137			49,861			(9,724	)		(19.5	)%
Earnings before provision for income taxes														66,565			51,628			14,937			28.9	%		159,104			129,972			29,132			22.4	%
Provision for income taxes														19,757			13,316			6,441			48.4	%		43,458			34,469			8,989			26.1	%
Net earnings													$	46,808		$	38,312		$	8,496			22.2	%	$	115,646		$	95,503		$	20,143			21.1	%
													.
Number of stores at end-of-period (including franchises):												Number of stores at end-of-period (including franchises):
SBS		3,787			3,815			(28	)	(0.7	)%															3,499			3,625			(126	)		(3.5	)%
BSG		1,390			1,340			50		3.7	%															1,363			1,379			(16	)		(1.2	)%
Consolidated		5,177			5,155			22		0.4	%															4,862			5,004			(142	)		(2.8	)%
Same store sales growth (decline) (b)
Comparable sales growth (decline)^(b):												Comparable sales growth (decline)^(b):
SBS		(2.6	)%		(0.6	)%	(200) bps							(0.5	)%		3.7	%	(420)			bps				2.0	%		(0.2	)%	220			bps
BSG		(1.3	)%		2.6	%	(390) bps							1.3	%		8.0	%	(670)			bps				4.9	%		0.2	%	470			bps
Consolidated		(2.2	)%		0.4	%	(260) bps							0.2	%		5.4	%	(520)			bps				3.2	%		(0.1	)%	330			bps

(a)	Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our condensed consolidated statements of earnings. ~~Restructuring charges relate to the 2018 Restructuring Plan announced in November 2017.~~

(b)

~~For the purpose of calculating our same store~~Our comparable sales ~~metrics, we compare the current period~~include sales ~~for~~from stores ~~open~~that have been operating for 14 months or longer as of the last day of a month ~~with the~~and e-commerce revenue. Additionally, our comparable sales ~~for these stores for the~~include sales to franchisees and full service sales. Our comparable ~~period in the prior fiscal year. Our same store~~ sales ~~are calculated in constant dollars and include internet-based sales (which are not material for each of the periods presented) and~~excludes the effect of ~~store expansions, if applicable, but do not generally include the~~changes in foreign exchange rates and sales from stores ~~that have been~~ relocated until 14 months after the relocation. ~~The sales~~Revenue from ~~stores acquired~~acquisitions are excluded from our ~~same store~~comparable sales calculation until 14 months after the acquisition. Prior to fiscal year 2022, we reported Same Store Sales. For fiscal year 2022, we are reporting Comparable Sales, which includes sales to franchisees and full service sales. We have recast prior year amounts to conform to the change. See “Comparable Sales” discussion above for further information.

Results of Operations

The Three Months Ended ~~December~~March 31, ~~2017~~2022, compared to the Three Months Ended ~~December~~March 31, ~~2016~~2021

Net Sales

~~Consolidated~~SBS. ~~Consolidated~~ The decrease in net sales ~~decreased $4.6 million, or 0.5%~~ for SBS was primarily driven by the ~~three months ended December 31, 2017,~~following (in thousands):

Comparable sales	$	(2,580	)
Sales outside comparable sales ^(a)		(10,409	)
Foreign currency exchange		(3,890	)
Total	$	(16,879	)

(a)

Includes stores opened for less than 14 months, net of stores closures

The decrease in net sales was driven by lower unit volume, primarily due to operating fewer stores compared to the three months ended December 31, 2016. Consolidated net sales for the three months ended December 31, 2017, are inclusive of a positive impact from changes in foreign currency exchange rates of $11.8 million, or 1.2% of consolidated net sales.

~~Sally Beauty Supply~~. ~~Net sales for SBS decreased $4.3 million, or 0.7%, for the three months ended December 31, 2017, compared~~same period last year, lower traffic and conversion due to the three months ended December 31, 2016. Net sales for SBS for the three months ended December 31, 2017, are inclusive of a positive impact from changes in foreign currency exchange rates of approximately $10.3 million, or 1.7% of the segment’s net sales.

In the SBS segment, sales of company-operated stores that have been open for 14 months or longer decreased approximately $5.1 million and net sales from stores that have been open for less than 14 months decreased approximately $1.8 million. Net sales from other sales channels, which include catalog and internet sales of our Sinelco Group subsidiaries and incremental sales from businesses acquired in the preceding 12 months, increased $2.6 million compared to the three months ended December 31, 2016.

The decrease in SBS’s net sales reflects lower unit volume, including as a result of lower customer traffic primarily in the U.S., partially offset by the positive impact from changes in foreign currency exchange rates and an increase in average unit prices, resulting primarily from selective price increases in certain geographical areas of the U.S. and a change in product mix (to higher-priced products) resulting from shifts in customer preferences.

~~Beauty Systems Group~~. Net sales for BSG decreased $0.4 million, or 0.1%, for the three months ended December 31, 2017, compared to the three months ended December 31, 2016. BSG’s net sales for the three months ended December 31, 2017, are inclusive of a positive impact from changes in foreign currency exchange rates of approximately $1.5 million, or 0.4% of the segment’s net sales.

In the BSG segment, sales by our distributor sales consultants decreased approximately $2.6 million compared to three months ended December 31, 2016, while sales from stores that have been open for less than 14 months increased approximately $1.9 million. Net sales from other BSG sales channels, which include sales of company-operated stores that have been open for 14 months or longer, sales to our franchisees and incremental sales from businesses acquired in the preceding 12 months, in the aggregate increased approximately $0.3 million compared to the three months ended December 31, 2016.

~~The decrease in BSG’s net sales is primarily the result of a decrease in unit volume (notwithstanding~~ the impact of ~~incremental sales from 46 company-operated stores opened or acquired during~~COVID-19, supply chaindisruptions, the ~~last 12 months),~~lapping of stimulus gains in the prior year, and inflationary pressures impacting consumer behavior, along with the negative impact of foreign exchange rates. This decrease was partially offset by an increase in average unit prices, ~~(resulting~~led by our color and care categories.

BSG. The increase in net sales for BSG was primarily ~~from~~driven by the ~~introduction of certain third-party brands with higher~~following (in thousands):

Comparable sales	$	4,737
Sales outside comparable sales ^(a)		(2,741	)
Foreign currency exchange		(58	)
Total	$	1,938

(a)

Includes stores opened for less than 14 months, net of stores closures

The increase in net sales was driven by an increase in comparable sales, primarily due to an increase in average unit prices and from strong e-commerce growth. These increases were offset by a decrease in overall unit volume due to operating fewer stores compared to the ~~preceding 12 months).~~same period last year.

Gross Profit

~~Consolidated~~SBS. ~~Consolidated~~ SBS’s gross profit decreased ~~$5.1 million, or 1.0%,~~ for the three months ended ~~December~~March 31, ~~2017, compared to the three months ended December 31, 2016, due principally to lower~~2022, as a result of a decrease in net sales, ~~and lower~~partially offset by a higher gross ~~margins in both reportable segments, as more fully described below. Consolidated~~margin. SBS’s gross margin ~~decreased 30 basis points to 48.9%~~increased primarily as a result of pricing leverage and a decrease in write-downs of obsolete personal-protective equipment, partially offset by higher distribution and freight costs and an unfavorable sales mix shift between the U.S. and international markets.

BSG. BSG’s gross profit increased for the three months ended ~~December~~March 31, ~~2017, compared to 49.2% for the three months ended December 31, 2016.~~

~~Sally Beauty Supply~~. ~~SBS’s gross profit decreased $4.4 million, or 1.4%, for the three months ended December 31, 2017, compared to the three months ended December 31, 2016, principally as a result of lower net sales~~2022, driven by an improvement in pricing leverage and a ~~lower gross margin. SBS’s gross margin decreased 40 basis points to 54.6% for the three months ended December 31, 2017, compared to 55.0% for the three months ended December 31, 2016. This~~ decrease ~~reflects a change~~ in ~~geographic sales mix, as a result~~write-downs of ~~lower-margin non-U.S. sales making up a greater portion of total segment sales and the net impact of prior year price increases~~obsolete personal-protective equipment, partially offset by ~~selective price reductions in the three months ended December 31, 2017, compared to the three months ended December 31, 2016.~~

~~Beauty Systems Group~~. BSG’s gross profit decreased $0.7 million, or 0.4%, for the three months ended December 31, 2017, compared to the three months ended December 31, 2016, principally as a result of lower net sales and lower gross margin. BSG’s gross margin decreased 10 basis points to 40.8% for of the three months ended December 31, 2017, compared to 40.9% for the three months ended December 31, 2016, primarily as a result of higher distribution ~~shipping~~ and ~~handling expenses.~~freight costs.

Selling, General and Administrative Expenses

~~Consolidated~~SBS. ~~Consolidated~~ SBS’s selling, general and administrative expenses ~~decreased $3.0~~increased $11.2 million, or ~~0.8%~~5.2%, for the three months ended ~~December~~March 31, ~~2017, compared~~2022. The increase was driven primarily by higher compensation and compensation-related expenses of $8.9 million, driven by general economic inflationary conditions and to ~~the three months ended December 31, 2016, primarily~~store re-openings in certain international markets, as ~~a result of cost-reduction initiatives,~~well as ~~discussed below. Consolidated~~higher store facility costs associated with those re-openings.

BSG. BSG’s selling, general and administrative expenses ~~as a percentage of net sales, were 37.3% for the three months ended December 31, 2017, compared to 37.4% for the three months ended December 31, 2016.~~

~~Sally Beauty Supply~~. ~~SBS’s selling and general and administrative expenses~~ increased ~~$1.5~~$7.8 million, or ~~0.7%~~7.7%, for the three months ended ~~December~~March 31, ~~2017, compared to the three months ended December 31, 2016. This~~2022. The increase ~~reflects~~was driven primarily by higher ~~compensation and compensation-related expenses of $2.8 million (including the impact of wage increases for sales staff at existing stores), higher rent~~delivery expense of ~~$1.4~~$1.9 million and higher depreciation of $0.8 million resulting from capital expenditures mainly in connection with store refreshes and information technology upgrades made in the prior 12 months. These increases were partially offset by lower advertising expense of $2.0 million and a reduction of estimated casualty losses of $1.3 million in connection with natural disasters that occurred in the fourth quarter of our fiscal year 2017.

~~Beauty Systems Group~~. ~~BSG’s selling and general and administrative expenses decreased $1.6 million, or 1.6%, for the three months ended December 31, 2017, compared to the three months ended December 31, 2016, primarily~~ as a result of ~~cost-reduction initiatives, partially offset by~~supply chain disruptions and the ~~incremental~~cost of fuel. Additionally, there were increases in depreciation expense of $1.0 million, credit card fees of $0.9 million and other increases in variable operating ~~expenses associated with 46 net additional company-operated stores (including 21 stores acquired in December 2017).~~expenses.

~~Unallocated Selling, General and Administrative Expenses.~~Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs ~~(such as payroll, share-based compensation, employee benefits and travel expense for corporate staff, certain professional fees and corporate governance expenses)~~ that have not been charged to our reporting segments, decreased ~~$2.9~~$31.3 million, or ~~7.4%~~43.6%, for the three months ended ~~December~~March 31, ~~2017, compared~~2022, primarily due to the recognition of $31.2 million donation expense related to personal-protective equipment inventory in the prior period.

Interest Expense

The decrease in interest expense is primarily due to the lower outstanding debt principal for the three months ended ~~December~~March 31, ~~2016.~~2022, as a result of the pay-down of our senior notes due 2023 and our term loan B fixed tranche during fiscal year 2021. Additionally, we recognized $1.4 million of loss on debt extinguishment in connection with the pay-down of our term loan B fixed tranche in the prior period with no comparable amounts in the current period. See “Liquidity and Capital Resources” below for additional information.

Provision for Income Taxes

The effective tax rates were 29.7% and 25.8%, for the three months ended March 31, 2022, and 2021, respectively. The increase in the effective tax rate was primarily due to the impact of the write-off of deferred tax assets related to share-based compensation in connection with expired stock options.

The Six Months Ended March 31, 2022, compared to the Six Months Ended March 31, 2021

Net Sales

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

Comparable sales	$	20,704
Sales outside comparable sales ^(a)		(18,791	)
Foreign currency exchange		(4,932	)
Total	$	(3,019	)

(a)

Includes stores opened for less than 14 months, net of stores closures

The decrease in net sales was driven by lower unit volume, primarily due to operating fewer stores compared to the same period last year, and the negative impact of foreign exchange rates. This decrease ~~reflects lower corporate~~was partially offset by an increase in comparable sales, reflecting stronger customer demand in the first fiscal quarter, and higher average unit prices, led by our color and care categories.

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

Comparable sales	$	36,394
Sales outside comparable sales ^(a)		(5,283	)
Foreign currency exchange		1,196
Total	$	32,307

(a)

Includes stores opened for less than 14 months, net of stores closures

Gross Profit

SBS. SBS’s gross profit increased for the six months ended March 31, 2022, as a result of a higher gross margin, primarily due to pricing leverage and a decrease in obsolete personal-protective equipment write-downs, partially offset by higher distribution and freight costs.

BSG. BSG’s gross profit increased for the six months ended March 31, 2022, driven by an increase in sales, and improvement of pricing leverage, coupled with a decrease in personal-protective equipment write-downs.

Selling, General and Administrative Expenses

SBS. SBS’s selling, general and administrative expenses increased $18.1 million, or 4.1%, for the six months ended March 31, 2022. The increase was driven primarily by higher compensation and compensation-related expenses of ~~$1.7~~$18.6 million, as a result of general economic inflationary conditions and store re-openings in certain international markets.

BSG. BSG’s selling, general and administrative expenses increased $14.9 million, or 7.1%, for the six months ended March 31, 2022. The increase was driven primarily by an increase in delivery expense of $2.5 million, compensation and compensation-related expenses of $2.3 million, depreciation expense of $1.9 million, advertising expense of $1.6 million, technology expense of $1.1 million and ~~lower share-based compensation~~other increases in variable operating expenses.

Unallocated. Unallocated selling, general and administrative expenses, ~~of $0.7 million.~~

~~Restructuring Charges~~

~~During~~which represent certain corporate costs that have not been charged to our reporting segments, decreased $25.1 million, or 22.7%, for the ~~three~~six months ended ~~December~~March 31, ~~2017, we incurred~~2022, driven by the recognition of $31.2 million donation expense related to personal-protective equipment inventory in the prior period, partially offset by an increase in information technology expense of $2.7 million.

Restructuring

For the six months ended March 31, 2022, restructuring charges in connection with our previously communicated Transformation Plan increased $0.2 million, to $1.1 million for the current year.

Interest Expense

The decrease in interest expense is primarily due to the lower outstanding debt principal for the six months ended March 31, 2022, as a result of ~~approximately $5.2~~the pay-down of our senior notes due 2023 and our term loan B fixed tranche during fiscal year 2021. Additionally, we recognized $1.4 million of loss on debt extinguishment in connection with the ~~2018 Restructuring Plan, including $4.3 million in severance and related expenses and other costs~~pay-down of ~~$0.9 million. See Note 14 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about~~ our ~~restructuring plans.~~

~~Interest Expense~~

Interest expense decreased $2.8 million to $24.0 million for the three months ended December 31, 2017, compared to the three months ended December 31, 2016, primarily from our redemption of certain senior notes in July 2017 with the proceeds from a new term loan B fixed tranche in the prior period with ~~lower interest rates. The decrease was offset~~no comparable amounts in ~~part by incremental interest expense of $0.7 million in connection with borrowings under~~ the ~~ABL facility.~~current period. See “Liquidity and Capital Resources” below for additional information.

Provision for Income Taxes

The ~~provision for income taxes was $2.9 million and $34.8 million, resulting in an~~ effective tax ~~rate of 3.3%~~rates were 27.3% and ~~38.4%~~26.5%, for the ~~three~~six months ended ~~December~~March 31, ~~2017~~2022 and ~~2016,~~2021, respectively. The ~~decrease~~increase in the effective tax rate was primarily due ~~primarily~~ to an increase in foreign losses, for which we do not receive a tax benefit, and the ~~impact~~write-off of ~~U.S. Tax Reform. More specifically,~~deferred tax assets related to share-based compensation in connection therewith, we recognized a provisional income tax benefit of $33.6 million resulting from the revaluation of our deferred income tax assets and liabilities and a provisional income tax charge of $11.4 million for federal and state income taxes applicable to accumulated but undistributed earnings of our foreign operations. See Note 11 of the Condensed Notes to Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about the impact of U.S. Tax Reform on our financial statements.

~~Net Earnings and Diluted Earnings per Share~~

As a result of the foregoing, consolidated net earnings increased $27.4 million, or 49.1%, to $83.3 million for the three months ended December 31, 2017, compared to $55.8 million for the three months ended December 31, 2016. Diluted earnings per share for the three months ended December 31, 2017 were $0.65 compared to $0.39 for the three months ended December 31, 2016.with expired stock option awards.

Liquidity and Capital Resources

We broadly define liquidity as our ability to generate sufficient cash, from internal and external sources, to meet our contractual obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.Overview

We are highly leveraged and a substantial portion of our liquidity needs ~~will~~ arise from debt service on our outstanding indebtedness and from funding the costs of our operations, working capital, capital expenditures, debt repayment and share repurchases. Working capital (current assets less current liabilities) increased ~~$4.2~~$8.7 million, to ~~$573.7~~$727.4 million at ~~December~~March 31, ~~2017,~~2022, compared to ~~$569.5~~$718.7 million at September 30, ~~2017, resulting~~2021, primarily from increased inventory as a result of restocking to normal levels of demand following prior year shipping delays, and our risk mitigation strategy to protect against potential, continued supply chain disruptions, and the reduction in accounts payable and accrued liabilities, due to the timing of payments. These increases ~~in cash and cash equivalents and inventory,~~were partially offset by a decrease in ~~other current~~

~~assets~~cash and an increase in income taxes payable. As a holding company, Sally Beauty depends on its subsidiaries, including Sally Holdings, to distribute funds to it so that it may pay its obligations and expenses. The ability of Sally Beauty’s subsidiaries to make such distributions will be subject to their operating results, cash requirements and financial condition and their compliance with relevant laws, and covenants and financial ratios related to their existing or future indebtedness, including covenants restricting Sally Holdings’ ability to pay dividends to Sally Beauty. If, as a consequence of these limitations, the Company cannot receive sufficient distributions from its subsidiaries, it may not be able to meet its obligations to fund general corporate expenses.

The Company may from time to time repurchase or otherwise retire or refinance its debt (through its subsidiaries or otherwise) and take other steps to reduce or refinance its debt. These actions may include open market repurchases of its notes or other retirements of outstanding debt. The amount of debt that may be repurchased, or refinanced or otherwise retired, if any, will be determined in the sole discretion of our Board of Directors and will depend on market conditions, trading levels of the Company’s debt from time to time, the Company’s cash position and other considerations.equivalents.

At ~~December~~March 31, ~~2017,~~2022, cash and cash equivalents were ~~$79.3~~$227.4 million. Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), ~~funds~~cash expected to be generated by operations and funds available under ~~the~~our ABL facility will be sufficient to ~~meet~~fund working capital requirements, ~~fund share repurchases and~~ potential acquisitions, ~~and finance~~ anticipated capital expenditures, including information technology upgrades and store ~~openings,~~remodels, and debt repayments over the next 12twelve months. We have continued to focus on reducing our debt levels and shares outstanding through repurchases, while also being proactive in maintaining our financial flexibility.

We utilize our ABL facility for the issuance of letters of credit, ~~for~~ certain working capital and liquidity needs, and to manage normal fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, interest payments due on our indebtedness, paying down other debt and share repurchases. During the ~~three~~six months ended ~~December~~March 31, 2017, total borrowings outstanding have ranged from $77.5 million up to $133.0 million and the average daily balance outstanding was $100.5 million. During the three months ended December 31, 2017, the weighted average interest rate on2022, we did not draw funds under our ~~borrowings under the~~ ABL ~~facility was 3.0%. The amounts drawn are generally paid down with cash provided by our operating activities.~~facility. As of ~~December~~March 31, ~~2017, Sally Holdings~~2022, we had ~~$381.3~~$481.1 million available for borrowings under ~~the~~our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

We are a holding company and do not have any material assets or operations other than ownership of equity interests in our subsidiaries. The agreements and instruments governing the debt of Sally Holdings and its subsidiaries contain material limitations on their ability to pay dividends and other restricted payments to us which, in turn, constitute material limitations Amounts drawn on our ~~ability to pay dividends and other payments to~~ABL facility are generally paid down with cash provided by our ~~stockholders.~~operating activities.

Share Repurchase Programs

During the ~~three~~six months ended ~~December~~March 31, ~~2017 and 2016,~~2022, we repurchased ~~and subsequently retired approximately 3.8 million shares and 2.5~~6.8 million shares of our common stock ~~under Board approved share repurchase programs at an aggregate cost of $64.5~~for $130.3 million ~~and $67.0 million, respectively. We funded these share repurchases~~ with existing cash ~~balances, cash from operations and borrowings under the ABL facility.~~balances. As of ~~December~~March 31, ~~2017,~~2022, we had authorization of approximately ~~$935.5~~$595.8 million of additional potential share repurchases remaining under ~~the 2017 Share Repurchase Program. Future~~our share ~~repurchases of our common stock are expected to be funded with existing cash balances, funds generated by operations and funds available under the ABL facility.~~repurchase program.

~~Historical~~ Cash Flows

Historically, our primary source of cash has been net funds provided by operating activities and, when necessary, borrowings under our ABL facility. ~~The~~Historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions.

Net Cash (Used) Provided by Operating Activities

~~Net cash provided by~~The $134.3 million decrease in operating activities ~~during~~was driven by the ~~three months ended December 31, 2017 increased $14.4 million~~reduction in accounts payable and accrued liabilities primarily due to ~~$104.2 million,~~the timing of payments, partially offset by lower inventory purchases compared to the ~~three~~six months ended ~~December~~March 31, ~~2016, mainly due to~~2021 and an increase in net changes in the components of working capital of $9.9 million and a favorable impact of $9.8 million on our provision for income taxes resulting primarily from a lower U.S. federal statutory tax rate, partially offset by a decrease in earnings before provision for income taxes. As a result of U.S. Tax Reform, our U.S. federal statutory tax rate will be 24.5% for fiscal year 2018.earnings.

Net Cash Used by Investing Activities

Net cash used by investing activities during the ~~three~~six months ended ~~December~~March 31, ~~2017~~2022, increased ~~$3.7~~$15.1 million to ~~$31.7~~$44.4 million, compared to the ~~three~~six months ended ~~December~~March 31, ~~2016.~~2021. This ~~increase reflects cash used for acquisitions, net~~change was primarily a result of ~~cash acquired, in the three months ended December 31, 2017 of $9.2 million, partially offset by lower capital expenditures of $5.5 million related primarily~~

~~to SBS store openings and lower~~additional investments in information technology ~~upgrades in the three months ended December 31, 2017, compared to three months ended December 31, 2016, as information technology upgrade projects were completed.~~and store improvements.

Net Cash Used by Financing Activities

Net cash used by financing activities for the six months ended March 31, 2022, decreased $84.7 million to $126.5 million, as a result of the debt pay-down during the ~~three~~six months ended ~~December~~March 31, ~~2017 increased $3.8 million to $56.9 million, compared to the three months ended December 31, 2016, due primarily to a decrease~~2021 and an increase in ~~proceeds from exercises of~~ stock options ~~of $14.0 million. This decrease was~~exercised, partially offset by ~~higher net debt proceeds, primarily from borrowings under the ABL facility, and by a decrease in cash paid for~~ share repurchases ~~of $2.6 million.~~during the six months ended March 31, 2022.

~~U.S. Tax Reform~~

On December 22, 2017, U.S. Tax Reform was signed into law. U.S. Tax Reform, among other things, (a) reduces the federal statutory tax rate for corporate taxpayers, (b) provides for a deemed repatriation of undistributed foreign earnings by U.S. taxpayersDebt and makes other fundamental changes on how foreign earnings will be taxed by the U.S. and (c) otherwise modifies corporate tax rules in significant ways. We are currently assessing the potential additional impact of U.S. Tax Reform on our business and liquidity.

~~Long-Term Debt~~Guarantor Financial Information

At ~~December~~March 31, ~~2017,~~2022, we had ~~borrowings~~$1,390.2 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of ~~$99.0 million outstanding under our ABL facility. In addition, we had $950.0~~$8.6 million. Our debt consisted of $980.0 million of senior notes outstanding and a term loan B with an outstanding principal balance of ~~$848.6~~$410.3 million. ~~See “Item 7. Management’s Discussion and Analysis~~As of ~~Financial Condition and Results of Operations — Liquidity and Capital Resources -~~ ~~Long-term Debt” and Note 12 of the “Notes to Consolidated Financial Statements” in “Item 8. Financial Statements and Supplementary Data” contained in~~March 31, 2022, there were no outstanding borrowings under our ~~Annual Report on Form 10-K for the fiscal year ended September 30, 2017 for more information about our debt obligations.~~ABL facility.

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

Guarantor Financial Information

We currently have 5.625% Senior Notes due 2025 outstanding. These notes were issued by our wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc. (the “Issuers”), and registered with the Securities and Exchange Commission under a shelf registration statement.

The notes are unsecured debt instruments guaranteed by us and certain of our wholly-owned domestic subsidiaries (together, the “Guarantors”) and have certain restrictions on the ability to ~~comply with~~pay restrictive payments to Sally Beauty. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors.

The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these ~~covenants in future periods will depend on our ongoing financial~~combined entities has been eliminated.

The following table presents the summarized balance sheets information for the Issuers and ~~operating performance, which in turn will be subject to economic conditions~~the Guarantors as of March 31, 2022 and ~~to financial, market and competitive factors, many~~September 30, 2021 (in thousands):

	March 31, 2022		September 30, 2021
Inventory	$	735,272	$	662,802
Intercompany receivable	$	-	$	67,337
Current assets	$	976,855	$	1,069,266
Total assets	$	2,098,588	$	2,198,990
Intercompany payable	$	13,531	$	-
Current liabilities	$	331,459	$	422,137
Total liabilities	$	2,258,947	$	2,343,946

The following table presents the summarized statement of which are beyond our control. Further, our ability to comply with these covenants in future periods will also depend substantially on the pricing of our products, our success at implementing cost-reduction initiatives and our ability to successfully implement our overall business strategy.

~~Capital Requirements~~

~~During the three~~income information for six months ended ~~December~~March 31, ~~2017, capital expenditures were approximately $16.6 million, including amounts incurred but not paid at December 31, 2017 (approximately $2.5 million).~~2022 (in thousands):

Net sales	$	1,532,316
Gross profit	$	787,970
Earnings before provision for income taxes	$	132,691
Net Earnings	$	98,176

Contractual Obligations

There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, ~~2017.~~2021.

Off-Balance Sheet Financing Arrangements

At ~~December~~March 31, ~~2017~~2022, and September 30, ~~2017,~~2021, we had no off-balance sheet financing arrangements other than ~~operating leases incurred in the ordinary course of our business, and~~ outstanding letters of credit related to inventory purchases and self-insurance programs.

~~Inflation~~

We do not believe inflation has had a material effect on our results of operations. However, during the past few years, we have experienced and an increase in labor and real estate costs in the U.S. Employee compensation and rent expenses represent our two most significant operating expense categories. A material increase in labor or real estate costs in the future, particularly for an extended period of time, could have a material adverse effect on our results of operations.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements. Actual results may differ from these estimates. We believe these estimates and assumptions are reasonable. We consider accounting policies to be critical when they require us to make assumptions about matters that are highly uncertain at the time the accounting estimate is made and when different estimates that our management reasonably could have used have a material effect on the presentation of our financial condition, changes in financial condition or results of operations.

Our critical accounting estimates, as described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017, include the valuation of inventory, vendor rebates and concessions, retention of risk, income taxes, assessment of long-lived assets and intangible assets for impairment and share-based payments. There have been no material changes to our critical accounting estimates or assumptions since September 30, ~~2017.~~2021.

~~Accounting Changes and~~ Recent Accounting Pronouncements

~~See Note 3 of the Condensed Notes~~There have been no recent accounting pronouncements issued that will have a material impact to ~~Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.~~our business.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates and government actions. There have been no material changes to our market risks from September 30, ~~2017.~~ 2021. See ~~“Item~~our disclosures about

market risks contained in Item 7A. ~~Quantitative~~“Quantitative and Qualitative Disclosures ~~About~~about Market Risk” ~~contained~~ in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017 for more information.~~2021.

Item 4. Controls and Procedures

Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~December~~March 31, ~~2017.~~2022. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.

Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this ~~report.~~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 ~~report.~~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 ~~December~~March 31, ~~2017,~~2022, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — ~~OTHE~~ROTHER INFORMATION

Item 1. Legal Proceedings

We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.

We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.

Item 1A. Risk Factors

In addition to the other information set forth in this ~~report,~~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, ~~2017,~~2021, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors disclosed in such Annual Report. The risks described in such Annual Report and herein are not the only risks facing our company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

~~(a) Not applicable~~

~~(b) Not applicable~~

~~The following table provides information about the Company’s repurchases of shares of its common stock during the three months ended December 31, 2017:~~

Fiscal Period

Total Number of Shares Purchased (1)

Average Price Paid per Share

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2)

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs

October 1 through October 31, 2017

869,116

$
18.14

869,116

$
984,238,464

November 1 through November 30, 2017

2,060,928

16.13

2,060,928

950,994,895

December 1 through December 31, 2017

917,519

16.87

917,519

935,520,250

Total this quarter

3,847,563

$
16.76

3,847,563

$
935,520,250

Fiscal Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 - January 30, 2022		-	$	-		-	$	651,120,625
February 1 - February 28, 2022		2,234,514		17.68		2,234,514		611,606,688
March 1 - March 31, 2022		922,460		17.14		922,460		595,792,425
Total this quarter		3,156,974	$	17.53		3,156,974	$	595,792,425

~~(1)~~

(1)

The table above does not include ~~7,403~~808 shares of the Company’s common stock surrendered by grantees during the ~~three months ended December 31, 2017~~quarter to satisfy tax withholding obligations due upon the vesting of equity-based awards under the Company’s share-based compensation plans.

~~(2)~~

(2)

In ~~August 2017,~~July 2021, we announced that our Board of Directors had approved a term extension our a share repurchase program authorizing us to repurchase up to $1.0 billion of our common stock over an approximate four-year period expiring on September 30, ~~2021.~~2025.

~~Item 3. Defaults Upon Senior Securities~~

~~Not applicable~~

~~Item 4. Mine Safety Disclosures~~

~~Not applicable~~

~~Item 5. Other Information~~

~~(a) Not applicable~~

~~(b) Not applicable~~

Item 6. E~~xhibits~~Exhibits

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~~22		Separation Agreement dated January 26, 2018 between Sally Beauty Holdings, Inc. and Matthew O. Haltom, which is incorporated herein by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 26, 2018List of Subsidiary Guarantors*

31.1		Rule 13a-14(a)/15d-14(a) Certification of Christian A. BrickmanDenise Paulonis

31.2		Rule 13a-14(a)/15d-14(a) Certification of Donald T. GrimesMarlo M. Cormier

32.1		Section 1350 Certification of Christian A. BrickmanDenise Paulonis

32.2		Section 1350 Certification of Donald T. GrimesMarlo M. Cormier

101		The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended ~~December~~March 31, ~~2017,~~2022, formatted in ~~XBRL (Extensible~~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 ~~(v)~~(vi) the ~~Condensed~~ Notes to Condensed Consolidated Financial Statements.

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

* Included herewith

~~SIGNATURES~~SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		SALLY BEAUTY HOLDINGS, INC.
		(Registrant)

Date: ~~February 8, 2018~~May 5, 2022

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

3625

	As of December 31, 2017
	Total		Level 1		Level 2		Level 3
Assets
Foreign exchange contracts	$	572	$	—	$	572	$	—
Interest rate caps		4,048		—		4,048		—
Total assets	$	4,620	$	—	$	4,620	$	—
Liabilities
Long-term debt	$	1,893,765	$	946,300	$	947,465	$	—
Foreign exchange contracts		—		—		—		—
Total liabilities	$	1,893,765	$	946,300	$	947,465	$	—

	As of September 30, 2017
	Total		Level 1		Level 2		Level 3
Assets
Foreign exchange contracts	$	779	$	—	$	779	$	—
Interest rate caps		5,178		—		5,178		—
Total assets	$	5,957	$	—	$	5,957	$	—
Liabilities
Long-term debt	$	1,919,930	$	973,750	$	946,180	$	—
Foreign exchange contracts		207		—		207		—
Total liabilities	$	1,920,137	$	973,750	$	946,387	$	—

Performance Unit Awards	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2017		197		$	24.50		1.5
Granted		215			17.42
Vested		—			—
Forfeited		(6	)		24.55
Unvested at December 31, 2017		406		$	20.76		2.0

	Number of Outstanding Options (in Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Outstanding at September 30, 2017		5,211		$	24.12		5.6	$	3,867
Granted		1,122			17.42
Exercised		(26	)		10.52
Forfeited or expired		(145	)		24.73
Outstanding at December 31, 2017		6,162		$	22.94		6.1	$	4,732
Exercisable at December 31, 2017		3,658		$	23.61		4.6	$	3,229

Restricted Stock Awards	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2017		125		$	26.00		1.3
Granted		264			17.42
Vested		(23	)		24.18
Forfeited		—			—
Unvested at December 31, 2017		366		$	19.94		2.7

Restricted Stock Units	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2017		—		$	—		—
Granted		72			17.42
Vested		—			—
Forfeited		(7	)		17.42
Unvested at December 31, 2017		65		$	17.42		0.7

	Asset Derivatives					Liability Derivatives
	Classification	December 31, 2017		September 30, 2017		Classification	December 31, 2017		September 30, 2017
Derivatives designated as hedging instruments:
Interest rate caps	Other current assets	$	4,048	$	5,178	N/A	$	—	$	—
Derivatives not designated as hedging instruments:
Foreign exchange contracts	Other current assets		572		779	Accrued liabilities		—		207
		$	4,620	$	5,957		$	—	$	207

	Parent			Sally Holdings LLC and Sally Capital Inc.		Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Consolidating Eliminations			Sally Beauty Holdings, Inc. and Subsidiaries
Assets
Cash and cash equivalents	$	—		$	10	$	31,839		$	47,463	$	—		$	79,312
Trade and other accounts receivable, net		—			—		64,152			32,806		—			96,958
Due from affiliates		—			—		2,360,280			—		(2,360,280	)		—
Inventory		—			—		714,682			226,464		—			941,146
Other current assets		1,280			817		27,856			16,306		—			46,259
Property and equipment, net		11			—		225,891			80,519		—			306,421
Investment in subsidiaries		1,195,373			3,820,552		374,002			—		(5,389,927	)		—
Goodwill and other intangible assets, net		—			—		465,755			156,403		—			622,158
Other assets		1,050			7,171		(7,852	)		20,698		—			21,067
Total assets	$	1,197,714		$	3,828,550	$	4,256,605		$	580,659	$	(7,750,207	)	$	2,113,321
Liabilities and Stockholders’ (Deficit) Equity
Accounts payable	$	36		$	—	$	234,878		$	71,356	$	—		$	306,270
Due to affiliates		1,519,033			750,442		—			90,805		(2,360,280	)		—
Accrued liabilities		362			6,170		125,852			34,117		—			166,501
Income taxes payable		10,566			1,678		—			87		—			12,331
Long-term debt		—			1,874,887		4			1,308		—			1,876,199
Other liabilities		10,371			—		17,027			3,749		—			31,147
Deferred income tax liabilities, net		(19	)		—		58,292			5,235		—			63,508
Total liabilities		1,540,349			2,633,177		436,053			206,657		(2,360,280	)		2,455,956
Total stockholders’ (deficit) equity		(342,635	)		1,195,373		3,820,552			374,002		(5,389,927	)		(342,635	)
Total liabilities and stockholders’ (deficit) equity	$	1,197,714		$	3,828,550	$	4,256,605		$	580,659	$	(7,750,207	)	$	2,113,321

Restructuring Activity	Liability at September 30, 2017		Expenses		Expenses Paid or Otherwise Settled		Adjustments		Liability at December 31, 2017
Workforce reductions	$	1,860	$	—	$	1,072	$	—	$	788
Facility closures		1,747		—		781		—		966
Other		235		—		235		—		—
Total	$	3,842	$	—	$	2,088	$	—	$	1,754