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: DECEMBERMARCH 31, 20172022
-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.) |
|
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|
3001 Colorado Boulevard |
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Denton, Texas |
| 76210 |
(Address of principal executive offices) |
| (Zip Code) |
(940) 898-7500
(Registrant’s telephone number, including area code: (940) 898-7500code)
(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 registrantregistrant: (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 | ☐ | ||||||
|
| 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 125,102,746107,000,985 shares of the issuer’s common stock outstanding.
TABLE OF CONTENTS
2
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 statementsmade 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 changesare set forth in consumer and professional stylist preferences and buying trendsour 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 enhancefiscal 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;
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the highly competitive nature of, and the increasing consolidationforward-looking statements in this report. Forward-looking statements speak only as of the beauty products distribution industry;
the timingdate they are made, and acceptance of new product introductions;
shifts in the mix of products sold duringwe 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 unableobligation 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;
3
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 orupdate 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.
4
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.
5
PART I — FINANCIALFINANCIAL INFORMATION
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.
6
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) |
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| (Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 79,312 |
|
| $ | 63,759 |
|
| $ | 227,413 |
|
| $ | 400,959 |
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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 |
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|
| 307,377 |
| ||||||||
Operating lease assets |
|
| 540,801 |
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| 537,673 |
| ||||||||
Goodwill |
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| 544,418 |
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| 537,791 |
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| 539,682 |
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|
| 541,209 |
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Intangible assets, excluding goodwill, net of accumulated amortization of $124,818 at December 31, 2017 and $121,550 at September 30, 2017 |
|
| 77,740 |
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| 80,305 |
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Intangible assets, excluding goodwill, net of accumulated amortization of $40,528 at March 31, 2022, and $38,957 at September 30, 2021 |
|
| 52,994 |
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| 55,532 |
| ||||||||
Other assets |
|
| 21,067 |
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|
| 25,116 |
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| 19,990 |
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|
| 21,766 |
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Total assets |
| $ | 2,113,321 |
|
| $ | 2,099,007 |
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| $ | 2,743,003 |
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| $ | 2,847,132 |
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Liabilities and Stockholders’ Deficit |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Current maturities of long-term debt |
| $ | 104,900 |
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| $ | 96,082 |
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| $ | 182 |
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| $ | 194 |
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Accounts payable |
|
| 306,270 |
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| 307,752 |
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| 240,594 |
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| 291,632 |
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Accrued liabilities |
|
| 166,501 |
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| 166,527 |
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| 170,540 |
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| 206,155 |
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Current operating lease liabilities |
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| 160,549 |
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| 156,234 |
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Income taxes payable |
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| 12,331 |
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| 2,233 |
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| 2,404 |
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| 10,666 |
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Total current liabilities |
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| 590,002 |
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| 572,594 |
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| 574,269 |
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| 664,881 |
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Long-term debt |
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| 1,771,299 |
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| 1,771,853 |
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| 1,381,385 |
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| 1,382,530 |
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Long-term operating lease liabilities |
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| 406,658 |
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| 404,147 |
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Other liabilities |
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| 31,147 |
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| 20,140 |
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| 16,547 |
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| 29,056 |
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Deferred income tax liabilities, net |
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| 63,508 |
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| 98,036 |
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| 92,278 |
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| 85,777 |
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Total liabilities |
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| 2,455,956 |
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| 2,462,623 |
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| 2,471,137 |
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| 2,566,391 |
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Stockholders’ deficit: |
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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 |
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| 1,258 |
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| 1,296 |
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Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued |
|
| — |
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| — |
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Stockholders’ equity: |
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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 |
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| 1,069 |
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| 1,129 |
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Preferred stock, $0.01 par value. Authorized 50,000 shares; NaN issued |
|
| — |
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| — |
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Additional paid-in capital |
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| — |
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| — |
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| — |
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| 17,286 |
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Accumulated deficit |
|
| (260,999 | ) |
|
| (283,076 | ) | ||||||||
Accumulated earnings |
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| 372,265 |
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| 356,967 |
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Accumulated other comprehensive loss, net of tax |
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| (82,894 | ) |
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| (81,836 | ) |
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| (101,468 | ) |
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| (94,641 | ) |
Total stockholders’ deficit |
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| (342,635 | ) |
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| (363,616 | ) | ||||||||
Total liabilities and stockholders’ deficit |
| $ | 2,113,321 |
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| $ | 2,099,007 |
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Total stockholders’ equity |
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| 271,866 |
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| 280,741 |
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Total liabilities and stockholders’ equity |
| $ | 2,743,003 |
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| $ | 2,847,132 |
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The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
7
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
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| Three Months Ended |
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| Six Months Ended |
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|
| December 31, |
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| March 31, |
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| March 31, |
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| 2017 |
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| 2016 |
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| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
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Net sales |
| $ | 994,964 |
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| $ | 999,609 |
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| $ | 911,387 |
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| $ | 926,328 |
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| $ | 1,891,638 |
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| $ | 1,862,350 |
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Cost of goods sold |
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| 508,335 |
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| 507,901 |
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| 446,055 |
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| 459,099 |
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| 926,177 |
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| 924,397 |
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Gross profit |
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| 486,629 |
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| 491,708 |
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| 465,332 |
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| 467,229 |
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| 965,461 |
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| 937,953 |
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Selling, general and administrative expenses |
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| 371,286 |
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| 374,251 |
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| 378,871 |
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| 391,087 |
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| 765,121 |
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| 757,257 |
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Restructuring charges |
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| 5,210 |
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|
| — |
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Restructuring |
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| — |
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| 631 |
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| 1,099 |
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| 863 |
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Operating earnings |
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| 110,133 |
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| 117,457 |
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| 86,461 |
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| 75,511 |
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| 199,241 |
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| 179,833 |
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Interest expense |
|
| 24,016 |
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| 26,799 |
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| 19,896 |
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| 23,883 |
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| 40,137 |
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| 49,861 |
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Earnings before provision for income taxes |
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| 86,117 |
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| 90,658 |
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| 66,565 |
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| 51,628 |
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| 159,104 |
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| 129,972 |
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Provision for income taxes |
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| 2,853 |
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| 34,832 |
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| 19,757 |
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| 13,316 |
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|
| 43,458 |
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|
| 34,469 |
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Net earnings |
| $ | 83,264 |
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| $ | 55,826 |
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| $ | 46,808 |
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| $ | 38,312 |
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| $ | 115,646 |
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| $ | 95,503 |
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Earnings per share: |
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Basic |
| $ | 0.65 |
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| $ | 0.39 |
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| $ | 0.43 |
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| $ | 0.34 |
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| $ | 1.05 |
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| $ | 0.85 |
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Diluted |
| $ | 0.65 |
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| $ | 0.39 |
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| $ | 0.42 |
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| $ | 0.34 |
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| $ | 1.03 |
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| $ | 0.84 |
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Weighted average shares: |
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Weighted-average shares: |
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Basic |
|
| 127,784 |
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| 143,631 |
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| 108,743 |
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| 112,603 |
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|
| 110,387 |
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| 112,538 |
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Diluted |
|
| 128,645 |
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| 144,860 |
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| 110,540 |
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| 114,342 |
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| 112,207 |
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| 114,028 |
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The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
85
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
|
| Three Months Ended |
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| December 31, |
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| 2017 |
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| 2016 |
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Net earnings |
| $ | 83,264 |
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| $ | 55,826 |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments, net of tax |
|
| (255 | ) |
|
| (18,668 | ) |
Interest rate caps: |
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Changes in fair value |
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| (1,130 | ) |
|
| — |
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Income taxes related to changes in fair value |
|
| 327 |
|
|
| — |
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Other comprehensive income (loss), net of tax |
|
| (1,058 | ) |
|
| (18,668 | ) |
Total comprehensive income |
| $ | 82,206 |
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| $ | 37,158 |
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|
| Three Months Ended |
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| Six Months Ended |
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|
| March 31, |
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| March 31, |
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|
| 2022 |
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| 2021 |
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| 2022 |
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| 2021 |
| ||||
Net earnings |
| $ | 46,808 |
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| $ | 38,312 |
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| $ | 115,646 |
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| $ | 95,503 |
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Other comprehensive (loss) income: |
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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 |
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Total comprehensive income |
| $ | 43,732 |
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| $ | 30,996 |
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| $ | 108,819 |
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| $ | 111,775 |
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The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
96
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
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| Accumulated |
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| |
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| Additional |
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| Other |
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| Total |
| |||
| Common Stock | Paid-in |
|
| Accumulated |
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| Comprehensive |
|
| Stockholders’ |
| |||||||||||
| Shares |
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| Amount |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Equity |
| ||||||
Balance at September 30, 2021 |
| 112,913 |
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| $ | 1,129 |
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| $ | 17,286 |
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| $ | 356,967 |
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| $ | (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.
7
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.
10
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 BusinessOperations
Sally Beauty Holdings Inc.is an international specialty retailer and its consolidated subsidiaries (“Sally Beauty” or “the Company” or “we”) selldistributor of professional beauty supplies through itswith 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”) retailand Beauty Systems Group (“BSG”). Our operations consist of company-operated stores, located infranchise 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 distributelargest 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 operationswhile 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. CertainAccordingly, 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 madeincluded herein are adequate to makefor the information not misleading.interim period presented. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 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 DecemberMarch 31, 20172022 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 threefor the six months ended DecemberMarch 31, 20172022 and 2016.2021.
Principles of Consolidation
The condensed consolidated interim financial statements included hereininclude 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-yearfull 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 ChangesUse 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 Classificationfuture. Additionally, unknown future impacts of Deferred Income Taxes, which requires thatCOVID-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 taxsales 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 consolidatedcondensed balance sheetsheets, 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
11
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
OurFinancial 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 consistnot 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 valuesvalue due to the short-term nature of these financial instruments.
We measure on a recurring basis and disclose theour 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.
12
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 abovewas measured using unadjusted quoted market prices for suchprices. The fair value of other long-term debt securities. Our term loan B is generally valued for purposes of the disclosure abovewas 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 usingmarkets or widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.
5. Accumulated4. Stockholders’ DeficitEquity
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 similarBoard of Directors approved a term extension of the share repurchase program approved byfor 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, weshare 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.
13
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
6. Earnings Per Share5. Weighted-Average Shares
The following table sets forth the computationsreconciliation of basic and diluted earnings per shareweighted-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 DecemberDuring the three months ended March 31, 20172022, we completed our annual assessment for impairment of goodwill and 2016, options to purchase 5,802,107 sharesother intangible assets. For goodwill, we used a qualitative analysis and 2,457,972 shares, respectively, of our common stockactual and forecasted results are exceeding the estimates from the last quantitative test. NaN material impairment losses were outstanding but not includedrecognized 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 thansix months ended March 31, 2022, the average price per sharedecrease in goodwill was primarily from the effects of our common stock during the period) for which the sumforeign 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 PaymentsAccrued Liabilities
Performance-Based Awards
The following table presents a summaryAccrued 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 |
|
14
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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
15
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 threesix months ended DecemberMarch 31, 2017,2022, we did not0t 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 two2 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 classificationthe 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 effecteffects of our derivative financial instrumentsinterest rate caps on our condensed consolidated statements of earnings waswere not material for the three months ended DecemberMarch 31, 20172022 and 2016.
11. Income Taxes
On December 22, 2017,2021. Over the U.S. enacted comprehensive amendmentsnext 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 impactoriginal 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 taxesthree and the impact of the deemed repatriation on our consolidated financial statements based on provisional amounts. Specifically, in the threesix months ended DecemberMarch 31, 2017, we recognized a provisional income tax benefit of $33.6 million in connection with the revaluation of our deferred income tax assets2022 and
16
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 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 DecemberMarch 31, 20172022 and 2016.2021.
17
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 StatementsDisaggregation 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 HoldingsLLC (“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 purposesentire $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 respectredemption is being made pursuant to the subsidiary guarantors haveterms 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 believeincluding, the following information is sufficient since the guarantor subsidiaries are 100% indirectly owned by the Parent and all guarantees are full and unconditional.
18
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 |
|
19
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 |
|
20
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 |
|
21
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 |
|
22
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 |
|
23
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 |
|
24
Sally Beauty Holdings, Inc. and Subsidiaries
Condensed Notes to Consolidated Financial Statements
(Unaudited)
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).
25
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, including2021.
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, includingdiluted 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 discussiondespite 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, risksour 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 DecemberMarch 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 monthsfiscal 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 netprior period. Our comparable sales include sales from company-operated stores that have been openoperating 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 networkslast day of distributora month and e-commerce revenue. Additionally, our comparable sales consultants for professional beauty productsinclude sales to franchisees and full service sales. Our comparable sales excludes the effect of changes in North America. We offer a wide varietyforeign 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 andcomparable 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 PlansOverview
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.
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, |
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| Three Months Ended March 31, |
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| Six Months Ended March 31, |
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| 2017 |
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| 2016 |
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| Increase (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
|
| 2022 |
|
| 2021 |
|
| Increase (Decrease) |
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Net sales: |
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|
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 | % |
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Gross profit: |
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|
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|
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|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
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 | % |
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Segment gross margin: |
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|
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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 |
| |||||
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Selling, general and administrative expenses |
| $ | 371,286 |
|
| $ | 374,251 |
|
| $ | (2,965 | ) |
|
| (0.8 | )% | ||||||||||||||||||||||||||||||||
Restructuring charges |
| $ | 5,210 |
|
| $ | — |
|
| $ | 5,210 |
|
|
| 100.0 | % | ||||||||||||||||||||||||||||||||
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Operating earnings: |
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| ||||||||||||||||||||||||||||||||
Net earnings: |
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| ||||||||||||||||
Segment operating earnings: |
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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: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
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 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| . |
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|
|
|
|
|
|
|
|
|
|
| |
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) |
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| ||||||||||||||||||||||||||||||||
Comparable sales growth (decline) (b): | Comparable sales growth (decline) (b): |
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| ||||||||||||||||||
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. |
(b) |
|
Results of Operations
The Three Months Ended DecemberMarch 31, 20172022, compared to the Three Months Ended DecemberMarch 31, 20162021
Net Sales
ConsolidatedSBS. 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, comparedsame 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 duringCOVID-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, (resultingled by our color and care categories.
BSG. The increase in net sales for BSG was primarily fromdriven by the introduction of certain third-party brands with higherfollowing (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
ConsolidatedSBS. Consolidated SBS’s gross profit decreased $5.1 million, or 1.0%, for the three months ended DecemberMarch 31, 2017, compared to the three months ended December 31, 2016, due principally to lower2022, as a result of a decrease in net sales, and lowerpartially offset by a higher gross margins in both reportable segments, as more fully described below. Consolidatedmargin. 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 DecemberMarch 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 sales2022, 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 resultwrite-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 increasesobsolete 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
ConsolidatedSBS. Consolidated SBS’s selling, general and administrative expenses decreased $3.0increased $11.2 million, or 0.8%5.2%, for the three months ended DecemberMarch 31, 2017, compared2022. 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, primarilystore re-openings in certain international markets, as a result of cost-reduction initiatives,well as discussed below. Consolidatedhigher 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 DecemberMarch 31, 2017, compared to the three months ended December 31, 2016. This2022. The increase reflectswas 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 rentdelivery 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 bysupply chain disruptions and the incrementalcost 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 DecemberMarch 31, 2017, compared2022, 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 DecemberMarch 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 corporatewas 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 |
The increase in net sales was driven by an increase in comparable sales, primarily due to an increase in average unit prices and from strong e-commerce growth. These increases were offset by a decrease in overall unit volume due to operating fewer stores compared to the same period last year.
Gross Profit
SBS. SBS’s gross profit increased for the six months ended March 31, 2022, as a result of a higher gross margin, primarily due to pricing leverage and a decrease in obsolete personal-protective equipment write-downs, partially offset by higher distribution and freight costs.
BSG. BSG’s gross profit increased for the six months ended March 31, 2022, driven by an increase in sales, and improvement of pricing leverage, coupled with a decrease in personal-protective equipment write-downs.
Selling, General and Administrative Expenses
SBS. SBS’s selling, general and administrative expenses increased $18.1 million, or 4.1%, for the six months ended March 31, 2022. The increase was driven primarily by higher compensation and compensation-related expenses of $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 compensationother increases in variable operating expenses.
Unallocated. Unallocated selling, general and administrative expenses, of $0.7 million.
Restructuring Charges
Duringwhich represent certain corporate costs that have not been charged to our reporting segments, decreased $25.1 million, or 22.7%, for the threesix months ended DecemberMarch 31, 2017, we incurred2022, 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 $5.2the 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 costspay-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 offsetno 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 threesix months ended DecemberMarch 31, 20172022 and 2016,2021, respectively. The decreaseincrease 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 impactwrite-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 DecemberMarch 31, 2017,2022, compared to $569.5$718.7 million at September 30, 2017, resulting2021, 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
assetscash 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 DecemberMarch 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), fundscash expected to be generated by operations and funds available under theour ABL facility will be sufficient to meetfund 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 threesix months ended DecemberMarch 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 DecemberMarch 31, 2017, Sally Holdings2022, we had $381.3$481.1 million available for borrowings under theour 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 toABL facility are generally paid down with cash provided by our stockholders.operating activities.
Share Repurchase Programs
During the threesix months ended DecemberMarch 31, 2017 and 2016,2022, we repurchased and subsequently retired approximately 3.8 million shares and 2.56.8 million shares of our common stock under Board approved share repurchase programs at an aggregate cost of $64.5for $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 DecemberMarch 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. Futureour 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. TheHistorically, 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 byThe $134.3 million decrease in operating activities duringwas driven by the three months ended December 31, 2017 increased $14.4 millionreduction 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 threesix months ended DecemberMarch 31, 2016, mainly due to2021 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 threesix months ended DecemberMarch 31, 20172022, increased $3.7$15.1 million to $31.7$44.4 million, compared to the threesix months ended DecemberMarch 31, 2016.2021. This increase reflects cash used for acquisitions, netchange 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 loweradditional 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 threesix months ended DecemberMarch 31, 2017 increased $3.8 million to $56.9 million, compared to the three months ended December 31, 2016, due primarily to a decrease2021 and an increase in proceeds from exercises of stock options of $14.0 million. This decrease wasexercised, 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 DebtGuarantor Financial Information
At DecemberMarch 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 AnalysisAs 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 inMarch 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 withpay 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 financialcombined 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 conditionsthe Guarantors as of March 31, 2022 and to financial, market and competitive factors, manySeptember 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 threeincome information for six months ended DecemberMarch 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 DecemberMarch 31, 20172022, 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 NotesThere 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 “Itemour disclosures about
market risks contained in Item 7A. Quantitative“Quantitative and Qualitative Disclosures Aboutabout 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 DecemberMarch 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 DecemberMarch 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 — OTHEROTHER INFORMATION
We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.
In addition to the other information set forth in this 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
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
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) | The table above does not include |
| (2) | In |
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Mine Safety Disclosures
Not applicable
(a) Not applicable
(b) Not applicable
Item 6. ExhibitsExhibits
Exhibit No. |
| Description |
|
|
|
3.1 |
| |
|
|
|
3.2 |
| |
|
|
|
|
| |
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of |
|
|
|
31.2 |
| Rule 13a-14(a)/15d-14(a) Certification of |
|
|
|
32.1 |
| Section 1350 Certification of |
|
|
|
32.2 |
| Section 1350 Certification of |
|
|
|
101 |
| The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended |
104 | The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2022, formatted in Inline XBRL (contained in Exhibit 101). |
* Included herewith
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: |
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| By: |
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| Senior Vice President, Chief Financial
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| For the Registrant and as its Principal Financial Officer |
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