UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED: MARCH 31,JUNE 30, 2020
-OR-
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No. 1-33145
SALLY BEAUTY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
| 36-2257936 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
3001 Colorado Boulevard |
|
|
Denton, Texas |
| 76210 |
(Address of principal executive offices) |
| (Zip Code) |
(940) 898-7500
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report): N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueSBHThe New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ |
| Accelerated filer | ☐ | Non-accelerated filer | ☐ |
Smaller reporting company | ☐ |
| Emerging growth company | ☐ |
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒
As of May 1,July 24, 2020, there were 112,870,685112,852,369 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 and involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors in Item 1A contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and in thisour Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements.
3
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.
4
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
The following condensed consolidated balance sheets as of March 31,June 30, 2020, and September 30, 2019, the condensed consolidated statements of earnings (loss), condensed consolidated statements of comprehensive income (loss) and the condensed statements of stockholders’ deficit for the three and sixnine months ended March 31,June 30, 2020 and 2019, and the condensed consolidated statements of cash flows for the sixnine months ended March 31,June 30, 2020 and 2019, are those of Sally Beauty Holdings, Inc. and its subsidiaries.
5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except par value data)
|
| March 31, 2020 |
|
| September 30, 2019 |
| ||
|
| (Unaudited) |
|
|
|
|
| |
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 364,414 |
|
| $ | 71,495 |
|
Trade accounts receivable, net |
|
| 42,802 |
|
|
| 43,136 |
|
Accounts receivable, other |
|
| 44,531 |
|
|
| 61,403 |
|
Inventory |
|
| 946,189 |
|
|
| 952,907 |
|
Other current assets |
|
| 51,103 |
|
|
| 34,612 |
|
Total current assets |
|
| 1,449,039 |
|
|
| 1,163,553 |
|
Property and equipment, net of accumulated depreciation of $680,238 at March 31, 2020 and $659,285 at September 30, 2019 |
|
| 320,220 |
|
|
| 319,628 |
|
Operating lease assets |
|
| 544,471 |
|
|
| — |
|
Goodwill |
|
| 529,037 |
|
|
| 530,786 |
|
Intangible assets, excluding goodwill, net of accumulated amortization of $59,495 at March 31, 2020 and $64,615 at September 30, 2019 |
|
| 58,893 |
|
|
| 62,051 |
|
Other assets |
|
| 19,506 |
|
|
| 22,428 |
|
Total assets |
| $ | 2,921,166 |
|
| $ | 2,098,446 |
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
| $ | 395,671 |
|
| $ | 1 |
|
Accounts payable |
|
| 221,760 |
|
|
| 278,688 |
|
Accrued liabilities |
|
| 145,920 |
|
|
| 169,054 |
|
Current operating lease liabilities |
|
| 151,162 |
|
|
| — |
|
Income taxes payable |
|
| 1,323 |
|
|
| 8,336 |
|
Total current liabilities |
|
| 915,836 |
|
|
| 456,079 |
|
Long-term debt |
|
| 1,550,195 |
|
|
| 1,594,542 |
|
Long-term operating lease liabilities |
|
| 405,593 |
|
|
| — |
|
Other liabilities |
|
| 18,310 |
|
|
| 27,757 |
|
Deferred income tax liabilities, net |
|
| 84,427 |
|
|
| 80,391 |
|
Total liabilities |
|
| 2,974,361 |
|
|
| 2,158,769 |
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value. Authorized 500,000 shares; 112,848 and 116,986 shares issued and 112,264 and 116,725 shares outstanding at March 31, 2020 and September 30, 2019, respectively |
|
| 1,123 |
|
|
| 1,167 |
|
Preferred stock, $0.01 par value. Authorized 50,000 shares; NaN issued |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| — |
|
|
| — |
|
Accumulated earnings |
|
| 69,925 |
|
|
| 55,797 |
|
Accumulated other comprehensive loss, net of tax |
|
| (124,243 | ) |
|
| (117,287 | ) |
Total stockholders’ deficit |
|
| (53,195 | ) |
|
| (60,323 | ) |
Total liabilities and stockholders’ deficit |
| $ | 2,921,166 |
|
| $ | 2,098,446 |
|
|
| June 30, 2020 |
|
| September 30, 2019 |
| ||
|
| (Unaudited) |
|
|
|
|
| |
Assets |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 838,811 |
|
| $ | 71,495 |
|
Trade accounts receivable, net |
|
| 42,818 |
|
|
| 43,136 |
|
Accounts receivable, other |
|
| 17,485 |
|
|
| 61,403 |
|
Inventory |
|
| 815,632 |
|
|
| 952,907 |
|
Other current assets |
|
| 48,596 |
|
|
| 34,612 |
|
Total current assets |
|
| 1,763,342 |
|
|
| 1,163,553 |
|
Property and equipment, net of accumulated depreciation of $688,798 at June 30, 2020, and $659,285 at September 30, 2019 |
|
| 311,063 |
|
|
| 319,628 |
|
Operating lease assets |
|
| 514,415 |
|
|
| — |
|
Goodwill |
|
| 530,681 |
|
|
| 530,786 |
|
Intangible assets, excluding goodwill, net of accumulated amortization of $65,791 at June 30, 2020, and $64,615 at September 30, 2019 |
|
| 56,859 |
|
|
| 62,051 |
|
Other assets |
|
| 21,734 |
|
|
| 22,428 |
|
Total assets |
| $ | 3,198,094 |
|
| $ | 2,098,446 |
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Current maturities of long-term debt |
| $ | 395,673 |
|
| $ | 1 |
|
Accounts payable |
|
| 239,905 |
|
|
| 278,688 |
|
Accrued liabilities |
|
| 148,197 |
|
|
| 169,054 |
|
Current operating lease liabilities |
|
| 152,650 |
|
|
| — |
|
Income taxes payable |
|
| 1,307 |
|
|
| 8,336 |
|
Total current liabilities |
|
| 937,732 |
|
|
| 456,079 |
|
Long-term debt |
|
| 1,845,594 |
|
|
| 1,594,542 |
|
Long-term operating lease liabilities |
|
| 377,930 |
|
|
| — |
|
Other liabilities |
|
| 26,433 |
|
|
| 27,757 |
|
Deferred income tax liabilities, net |
|
| 79,538 |
|
|
| 80,391 |
|
Total liabilities |
|
| 3,267,227 |
|
|
| 2,158,769 |
|
Stockholders’ deficit: |
|
|
|
|
|
|
|
|
Common stock, $0.01 par value. Authorized 500,000 shares; 112,848 and 116,986 shares issued and 112,280 and 116,725 shares outstanding at June 30, 2020, and September 30, 2019, respectively |
|
| 1,123 |
|
|
| 1,167 |
|
Preferred stock, $0.01 par value. Authorized 50,000 shares; NaN issued |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 2,513 |
|
|
| — |
|
Accumulated earnings |
|
| 46,399 |
|
|
| 55,797 |
|
Accumulated other comprehensive loss, net of tax |
|
| (119,168 | ) |
|
| (117,287 | ) |
Total stockholders’ deficit |
|
| (69,133 | ) |
|
| (60,323 | ) |
Total liabilities and stockholders’ deficit |
| $ | 3,198,094 |
|
| $ | 2,098,446 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Loss)
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net sales |
| $ | 871,023 |
|
| $ | 945,852 |
|
| $ | 1,851,231 |
|
| $ | 1,935,305 |
|
| $ | 705,287 |
|
| $ | 975,169 |
|
| $ | 2,556,518 |
|
| $ | 2,910,474 |
|
Cost of goods sold |
|
| 441,266 |
|
|
| 477,528 |
|
|
| 946,626 |
|
|
| 986,275 |
|
|
| 383,441 |
|
|
| 492,947 |
|
|
| 1,330,067 |
|
|
| 1,479,222 |
|
Gross profit |
|
| 429,757 |
|
|
| 468,324 |
|
|
| 904,605 |
|
|
| 949,030 |
|
|
| 321,846 |
|
|
| 482,222 |
|
|
| 1,226,451 |
|
|
| 1,431,252 |
|
Selling, general and administrative expenses |
|
| 383,299 |
|
|
| 361,626 |
|
|
| 761,228 |
|
|
| 728,614 |
|
|
| 314,599 |
|
|
| 360,183 |
|
|
| 1,075,827 |
|
|
| 1,088,797 |
|
Restructuring |
|
| 3,193 |
|
|
| (5,814 | ) |
|
| 5,725 |
|
|
| (1,834 | ) |
|
| 5,816 |
|
|
| 1,908 |
|
|
| 11,541 |
|
|
| 74 |
|
Operating earnings |
|
| 43,265 |
|
|
| 112,512 |
|
|
| 137,652 |
|
|
| 222,250 |
|
|
| 1,431 |
|
|
| 120,131 |
|
|
| 139,083 |
|
|
| 342,381 |
|
Interest expense |
|
| 21,644 |
|
|
| 23,821 |
|
|
| 43,185 |
|
|
| 48,310 |
|
|
| 27,298 |
|
|
| 25,781 |
|
|
| 70,483 |
|
|
| 74,092 |
|
Earnings before provision for income taxes |
|
| 21,621 |
|
|
| 88,691 |
|
|
| 94,467 |
|
|
| 173,940 |
| ||||||||||||||||
Provision for income taxes |
|
| 8,253 |
|
|
| 22,966 |
|
|
| 27,884 |
|
|
| 42,488 |
| ||||||||||||||||
Net earnings |
| $ | 13,368 |
|
| $ | 65,725 |
|
| $ | 66,583 |
|
| $ | 131,452 |
| ||||||||||||||||
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings (loss) before provision for income taxes |
|
| (25,867 | ) |
|
| 94,350 |
|
|
| 68,600 |
|
|
| 268,289 |
| ||||||||||||||||
Provision (benefit) for income taxes |
|
| (2,341 | ) |
|
| 23,186 |
|
|
| 25,543 |
|
|
| 65,673 |
| ||||||||||||||||
Net earnings (loss) |
| $ | (23,526 | ) |
| $ | 71,164 |
|
| $ | 43,057 |
|
| $ | 202,616 |
| ||||||||||||||||
Earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Basic |
| $ | 0.12 |
|
| $ | 0.55 |
|
| $ | 0.58 |
|
| $ | 1.10 |
|
| $ | (0.21 | ) |
| $ | 0.59 |
|
| $ | 0.38 |
|
| $ | 1.69 |
|
Diluted |
| $ | 0.12 |
|
| $ | 0.54 |
|
| $ | 0.57 |
|
| $ | 1.09 |
|
| $ | (0.21 | ) |
| $ | 0.59 |
|
| $ | 0.37 |
|
| $ | 1.68 |
|
Weighted-average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 114,823 |
|
|
| 120,077 |
|
|
| 115,478 |
|
|
| 120,033 |
|
|
| 112,271 |
|
|
| 120,119 |
|
|
| 114,413 |
|
|
| 120,062 |
|
Diluted |
|
| 115,795 |
|
|
| 120,991 |
|
|
| 116,462 |
|
|
| 120,949 |
|
|
| 112,271 |
|
|
| 120,977 |
|
|
| 115,370 |
|
|
| 120,928 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
|
| Three Months Ended |
|
| Six Months Ended |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
|
| March 31, |
|
| March 31, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net earnings |
| $ | 13,368 |
|
| $ | 65,725 |
|
| $ | 66,583 |
|
| $ | 131,452 |
| ||||||||||||||||
Net earnings (loss) |
| $ | (23,526 | ) |
| $ | 71,164 |
|
| $ | 43,057 |
|
| $ | 202,616 |
| ||||||||||||||||
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| (23,784 | ) |
|
| 3,040 |
|
|
| (8,823 | ) |
|
| (10,425 | ) |
|
| 5,116 |
|
|
| 834 |
|
|
| (3,707 | ) |
|
| (9,591 | ) |
Interest rate caps, net of tax |
|
| (80 | ) |
|
| (2,140 | ) |
|
| 29 |
|
|
| (4,970 | ) |
|
| 245 |
|
|
| 586 |
|
|
| 274 |
|
|
| (4,384 | ) |
Foreign exchange contracts, net of tax |
|
| 2,038 |
|
|
| 242 |
|
|
| 1,838 |
|
|
| (168 | ) |
|
| (286 | ) |
|
| 103 |
|
|
| 1,552 |
|
|
| (65 | ) |
Other comprehensive income (loss), net of tax |
|
| (21,826 | ) |
|
| 1,142 |
|
|
| (6,956 | ) |
|
| (15,563 | ) |
|
| 5,075 |
|
|
| 1,523 |
|
|
| (1,881 | ) |
|
| (14,040 | ) |
Total comprehensive income (loss) |
| $ | (8,458 | ) |
| $ | 66,867 |
|
| $ | 59,627 |
|
| $ | 115,889 |
|
| $ | (18,451 | ) |
| $ | 72,687 |
|
| $ | 41,176 |
|
| $ | 188,576 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Six Months Ended March 31, |
|
| Nine Months Ended June 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
| $ | 66,583 |
|
| $ | 131,452 |
|
| $ | 43,057 |
|
| $ | 202,616 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 53,997 |
|
|
| 53,275 |
|
|
| 80,829 |
|
|
| 80,425 |
|
Share-based compensation expense |
|
| 6,532 |
|
|
| 5,871 |
|
|
| 9,094 |
|
|
| 7,728 |
|
Amortization of deferred financing costs |
|
| 1,767 |
|
|
| 1,979 |
|
|
| 2,965 |
|
|
| 2,894 |
|
Gain on early extinguishment of debt |
|
| (357 | ) |
|
| (473 | ) | ||||||||
Gain on disposal of equipment and other property |
|
| (18 | ) |
|
| (6,548 | ) | ||||||||
Loss (gain) on early extinguishment of debt |
|
| (357 | ) |
|
| 951 |
| ||||||||
Loss (gain) on disposal of equipment and other property |
|
| 2,910 |
|
|
| (6,557 | ) | ||||||||
Deferred income taxes |
|
| 5,547 |
|
|
| 8,530 |
|
|
| 600 |
|
|
| 12,095 |
|
Changes in (exclusive of effects of acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
|
| 158 |
|
|
| 5,950 |
|
|
| 495 |
|
|
| 3,361 |
|
Accounts receivable, other |
|
| 19,199 |
|
|
| (7,554 | ) |
|
| 45,888 |
|
|
| (10,641 | ) |
Inventory |
|
| 1,365 |
|
|
| (14,213 | ) |
|
| 134,824 |
|
|
| (28,283 | ) |
Other current assets |
|
| (17,692 | ) |
|
| 2,754 |
|
|
| (15,840 | ) |
|
| 4,687 |
|
Other assets |
|
| 575 |
|
|
| (1,293 | ) |
|
| (691 | ) |
|
| (1,195 | ) |
Accounts payable and accrued liabilities |
|
| (55,679 | ) |
|
| (69,704 | ) |
|
| (35,572 | ) |
|
| (59,105 | ) |
Income taxes payable |
|
| (7,199 | ) |
|
| 4,150 |
|
|
| (7,154 | ) |
|
| (926 | ) |
Other liabilities |
|
| 1,353 |
|
|
| (4,066 | ) |
|
| 13,336 |
|
|
| (4,227 | ) |
Net cash provided by operating activities |
|
| 76,131 |
|
|
| 110,110 |
|
|
| 274,384 |
|
|
| 203,823 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
| (71,983 | ) |
|
| (46,398 | ) |
|
| (89,740 | ) |
|
| (66,763 | ) |
Proceeds from sale of property and equipment |
|
| 23 |
|
|
| 12,010 |
|
|
| 38 |
|
|
| 12,021 |
|
Acquisitions, net of cash acquired |
|
| (1,944 | ) |
|
| (2,848 | ) |
|
| (1,944 | ) |
|
| (2,763 | ) |
Net cash used by investing activities |
|
| (73,904 | ) |
|
| (37,236 | ) |
|
| (91,646 | ) |
|
| (57,505 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| 787,500 |
|
|
| 242,504 |
|
|
| 1,087,504 |
|
|
| 394,004 |
|
Repayments of long-term debt |
|
| (437,385 | ) |
|
| (304,157 | ) |
|
| (437,391 | ) |
|
| (561,162 | ) |
Debt issuance costs |
|
| (6,257 | ) |
|
| — |
| ||||||||
Payments for common stock repurchased |
|
| (61,357 | ) |
|
| — |
|
|
| (61,357 | ) |
|
| — |
|
Proceeds from exercises of stock options |
|
| 2,771 |
|
|
| 1,721 |
|
|
| 2,722 |
|
|
| 1,787 |
|
Net cash (used) provided by financing activities |
|
| 291,529 |
|
|
| (59,932 | ) | ||||||||
Net cash provided (used) by financing activities |
|
| 585,221 |
|
|
| (165,371 | ) | ||||||||
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| (837 | ) |
|
| (460 | ) |
|
| (643 | ) |
|
| (387 | ) |
Net increase in cash and cash equivalents |
|
| 292,919 |
|
|
| 12,482 |
| ||||||||
Net increase (decrease) in cash and cash equivalents |
|
| 767,316 |
|
|
| (19,440 | ) | ||||||||
Cash and cash equivalents, beginning of period |
|
| 71,495 |
|
|
| 77,295 |
|
|
| 71,495 |
|
|
| 77,295 |
|
Cash and cash equivalents, end of period |
| $ | 364,414 |
|
| $ | 89,777 |
|
| $ | 838,811 |
|
| $ | 57,855 |
|
Supplemental Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 41,366 |
|
| $ | 48,378 |
|
| $ | 74,046 |
|
| $ | 82,903 |
|
Income taxes paid |
| $ | 45,521 |
|
| $ | 37,518 |
|
| $ | 45,292 |
|
| $ | 62,852 |
|
Capital expenditures incurred but not paid |
| $ | 5,090 |
|
| $ | 3,763 |
|
| $ | 4,469 |
|
| $ | 3,116 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
9
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Deficit
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Other |
|
| Total |
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
| Other |
|
| Total |
| ||||||
| Common Stock | Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| Common Stock | Paid-in |
|
| Accumulated |
|
| Comprehensive |
|
| Stockholders’ |
| ||||||||||||||||||||||
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Equity (Deficit) |
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Loss |
|
| Equity (Deficit) |
| ||||||||||||
Balance at September 30, 2019 |
| 116,725 |
|
| $ | 1,167 |
|
| $ | — |
|
| $ | 55,797 |
|
| $ | (117,287 | ) |
| $ | (60,323 | ) |
| 116,725 |
|
| $ | 1,167 |
|
| $ | — |
|
| $ | 55,797 |
|
| $ | (117,287 | ) |
| $ | (60,323 | ) |
Cumulative effect of ASC 842 adoption |
| — |
|
|
| — |
|
|
| — |
|
|
| (445 | ) |
|
| — |
|
|
| (445 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (445 | ) |
|
| — |
|
|
| (445 | ) |
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 53,215 |
|
|
| — |
|
|
| 53,215 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 53,215 |
|
|
| — |
|
|
| 53,215 |
|
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,870 |
|
|
| 14,870 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 14,870 |
|
|
| 14,870 |
|
Repurchases and cancellations of common stock |
| (766 | ) |
|
| (7 | ) |
|
| (6,237 | ) |
|
| (5,113 | ) |
|
| — |
|
|
| (11,357 | ) |
| (766 | ) |
|
| (7 | ) |
|
| (6,237 | ) |
|
| (5,113 | ) |
|
| — |
|
|
| (11,357 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 3,473 |
|
|
| — |
|
|
| — |
|
|
| 3,473 |
|
| — |
|
|
| — |
|
|
| 3,473 |
|
|
| — |
|
|
| — |
|
|
| 3,473 |
|
Stock issued for stock options |
| 206 |
|
|
| 2 |
|
|
| 2,764 |
|
|
| — |
|
|
| — |
|
|
| 2,766 |
|
| 206 |
|
|
| 2 |
|
|
| 2,764 |
|
|
| — |
|
|
| — |
|
|
| 2,766 |
|
Balance at December 31, 2019 |
| 116,165 |
|
| $ | 1,162 |
|
| $ | — |
|
| $ | 103,454 |
|
| $ | (102,417 | ) |
| $ | 2,199 |
|
| 116,165 |
|
| $ | 1,162 |
|
| $ | — |
|
| $ | 103,454 |
|
| $ | (102,417 | ) |
| $ | 2,199 |
|
Net earnings |
| — |
|
|
| — |
|
|
| — |
|
|
| 13,368 |
|
|
| — |
|
|
| 13,368 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13,368 |
|
|
| — |
|
|
| 13,368 |
|
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,826 | ) |
|
| (21,826 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,826 | ) |
|
| (21,826 | ) |
Repurchases and cancellations of common stock |
| (3,936 | ) |
|
| (39 | ) |
|
| (3,064 | ) |
|
| (46,897 | ) |
|
| — |
|
|
| (50,000 | ) |
| (3,936 | ) |
|
| (39 | ) |
|
| (3,064 | ) |
|
| (46,897 | ) |
|
| — |
|
|
| (50,000 | ) |
Share-based compensation |
| — |
|
|
| — |
|
|
| 3,059 |
|
|
| — |
|
|
| — |
|
|
| 3,059 |
|
| — |
|
|
| — |
|
|
| 3,059 |
|
|
| — |
|
|
| — |
|
|
| 3,059 |
|
Stock issued for stock options |
| 35 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
| 35 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Balance at March 31, 2020 |
| 112,264 |
|
| $ | 1,123 |
|
| $ | — |
|
| $ | 69,925 |
|
| $ | (124,243 | ) |
| $ | (53,195 | ) |
| 112,264 |
|
| $ | 1,123 |
|
| $ | - |
|
| $ | 69,925 |
|
| $ | (124,243 | ) |
| $ | (53,195 | ) |
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| (23,526 | ) |
|
| — |
|
|
| (23,526 | ) | |||||||||||||||||||||||
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,075 |
|
|
| 5,075 |
| |||||||||||||||||||||||
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,562 |
|
|
| — |
|
|
| — |
|
|
| 2,562 |
| |||||||||||||||||||||||
Stock issued for stock options |
| 16 |
|
|
| — |
|
|
| (49 | ) |
|
| — |
|
|
| — |
|
|
| (49 | ) | |||||||||||||||||||||||
Balance at June 30, 2020 |
| 112,280 |
|
| $ | 1,123 |
|
| $ | 2,513 |
|
| $ | 46,399 |
|
| $ | (119,168 | ) |
| $ | (69,133 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
| Other |
|
|
| Total |
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
| Accumulated |
|
|
| Other |
|
|
| Total |
| ||||||||||||||||||
| Common Stock |
| Paid-in |
|
|
| Accumulated |
|
|
|
| Comprehensive |
|
|
| Stockholders’ |
| Common Stock |
| Paid-in |
|
|
| (Deficit) |
|
|
|
| Comprehensive |
|
|
| Stockholders’ |
| ||||||||||||||||||||||||||||||||
| Shares |
|
|
|
| Amount |
|
|
|
| Capital |
|
|
|
| Deficit |
|
|
| Loss |
|
|
| Deficit |
| Shares |
|
|
|
| Amount |
|
|
|
| Capital |
|
|
|
| Earnings |
|
|
| Loss |
|
|
| Deficit |
| ||||||||||||||||
Balance at September 30, 2018 |
| 119,926 |
| $ | 1,199 |
| $ | — |
| $ | (179,764 | ) |
| $ | (89,991 | ) |
| $ | (268,556 | ) |
| 119,926 |
| $ | 1,199 |
| $ | — |
| $ | (179,764 | ) |
| $ | (89,991 | ) |
| $ | (268,556 | ) | ||||||||||||||||||||||||||
Net earnings |
| — |
| — |
| — |
| 65,727 |
| — |
| 65,727 |
|
| — |
| — |
| — |
| 65,727 |
| — |
| 65,727 |
| ||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss |
| — |
| — |
| — |
| — |
| (16,705 | ) |
| (16,705 | ) |
| — |
| — |
| — |
| — |
| (16,705 | ) |
| (16,705 | ) | ||||||||||||||||||||||||||||||||||||||
Share-based compensation |
| — |
| — |
| 3,354 |
| — |
| — |
| 3,354 |
|
| — |
| — |
| 3,354 |
| — |
| — |
| 3,354 |
| ||||||||||||||||||||||||||||||||||||||||
Stock issued for stock options |
| 115 |
|
| 1 |
|
| 1,448 |
|
| — |
|
| — |
|
| 1,449 |
|
| 115 |
|
| 1 |
|
| 1,448 |
|
| — |
|
| — |
|
| 1,449 |
| ||||||||||||||||||||||||||||||
Balance at December 31, 2018 |
| 120,041 |
| $ | 1,200 |
| $ | 4,802 |
| $ | (114,037 | ) |
| $ | (106,696 | ) |
| $ | (214,731 | ) |
| 120,041 |
| $ | 1,200 |
| $ | 4,802 |
| $ | (114,037 | ) |
| $ | (106,696 | ) |
| $ | (214,731 | ) | ||||||||||||||||||||||||||
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 65,725 |
|
|
|
| — |
|
|
|
| 65,725 |
|
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 65,725 |
|
|
|
| — |
|
|
|
| 65,725 |
| ||||||||||
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,142 |
|
|
| 1,142 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,142 |
|
|
| 1,142 |
| ||||||||||||||||||||
Share-based compensation |
| — |
|
|
| — |
|
|
| 2,517 |
|
|
| — |
|
|
| — |
|
|
| 2,517 |
|
| — |
|
|
| — |
|
|
| 2,517 |
|
|
| — |
|
|
| — |
|
|
| 2,517 |
| ||||||||||||||||||||
Stock issued for stock options |
| 66 |
|
|
|
| 1 |
|
|
|
| 271 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 272 |
|
| 66 |
|
|
|
| 1 |
|
|
|
| 271 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 272 |
| ||||||||||
Balance at March 31, 2019 |
| 120,107 |
| $ | 1,201 |
| $ | 7,590 |
| $ | (48,312 | ) |
| $ | (105,554 | ) |
| $ | (145,075 | ) |
| 120,107 |
| $ | 1,201 |
| $ | 7,590 |
| $ | (48,312 | ) |
| $ | (105,554 | ) |
| $ | (145,075 | ) | ||||||||||||||||||||||||||
Net earnings |
| — |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 71,164 |
|
|
|
| — |
|
|
|
| 71,164 |
| ||||||||||||||||||||||||||||||||||||||
Other comprehensive income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,523 |
|
|
| 1,523 |
| |||||||||||||||||||||||||||||||||||||||||||
Share-based compensation |
| — |
|
|
| — |
|
|
| 1,857 |
|
|
| — |
|
|
| — |
|
|
| 1,857 |
| |||||||||||||||||||||||||||||||||||||||||||
Stock issued for stock options |
| 23 |
|
|
|
| — |
|
|
|
| 66 |
|
|
|
| — |
|
|
|
| — |
|
|
|
| 66 |
| ||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 |
| 120,130 |
| $ | 1,201 |
| $ | 9,513 |
| $ | 22,852 |
| $ | (104,031 | ) |
| $ | (70,465 | ) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures are adequate to make the information not misleading. 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, 2019. In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of March 31,June 30, 2020, and September 30, 2019, our consolidated results of operations, consolidated comprehensive income (loss), and consolidated statements of stockholders’ deficit for the three and sixnine months ended March 31,June 30, 2020 and 2019, and our consolidated cash flows for the sixnine months ended March 31,June 30, 2020 and 2019.
Our operating results for the three months ended March 31,June 30, 2020, may not be indicative of the results that may be expected for the full fiscal year ending September 30, 2020, becausein particular as a result of the novel coronavirus ("COVID-19")effects of the COVID-19 pandemic. As a result of COVID-19, we temporarily shut down virtually all global customer-facing store operations.operations at the end of our second fiscal quarter and the start of our third fiscal quarter, followed by a rapid re-opening process over the course of the third quarter, although there is no certainty that we will not have to reclose certain, even a significant number, of our stores in the future. As of June 30, 2020, we have re-opened substantially all of our customer-facing store operations, except for parts of our operations in Mexico and South America. Due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, thisthe material adverse impact mayof this pandemic will likely continue for the remainder of our fiscal year 2020, and may continue into our fiscal year 2021 and possibly beyond.
2. Significant Accounting Policies
We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full-year consolidated financial statements. See Note 3 for more information about the adoption of the new lease accounting standard. 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 estimated annual effective income tax rates; however, for the current period the provision for income taxes has been determined on the basis of year to date results, as COVID-19 related closures impacted our ability to reasonably forecast full year results by jurisdiction.rates.
3. Accounting Changes and Recent Accounting Pronouncements
Accounting Change
In February 2016, the FASBFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU No. 2016-02”), which requires most operating leases to be reported on the balance sheet as a right-of-use asset and a lease liability. On October 1, 2019, we adopted ASU No. 2016-02 using a modified retrospective transition method without restating comparative periods. We have elected the package of practical expedients permitted within the transition guidance under the new standard relating to the identification, classification and initial direct costs of leases commencing before the effective date of Topic 842. In addition, we have elected to not recognize a right-of-use asset or lease obligation for short-term leases with an initial term of 12 months or less.
Additionally, the adoption of ASU No. 2016-02, as amended, resulted in the recognition of an operating lease asset of $513.9 million and an operating lease liability of $523.5 million. Existing straight-line rent liability, prepaid rent and accrued rent were reclassified from certain other assets and liabilities into the operating lease asset. Furthermore, the cumulative effect of the adoption of ASU No. 2016-02 resulted in a $0.4 million adjustment to accumulated earnings resulting from the impairment of certain operating lease assets. The impact on our condensed consolidated results of operations or condensed consolidated cash flows was not material.
See Note 8 for additional information in connection with ASU No. 2016-02.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12 which simplifies the accounting for income taxes by removing an exception related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period with year to date losses and the recognition of deferred tax liabilities for outside basis differences. Additionally, the update clarifies and simplifies other areas of ASC 740, Income Taxes.Taxes. For public companies, the amendments in the updatedupdate are effective for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, but all amendments must be adopted at once. The amendments in this update have different adoption methods including prospective basis, retrospective basis, and a modified retrospective basis dependent on the specific change. We are currently evaluating the impact of this update.
4. Revenue Recognition
Substantially all of our revenue is derived through the sale of merchandise throughat the point-of-sale. Revenue is recognized net of estimated sales returns and sales taxes. We estimate sales returns based on historical data.
Changes to our contract liabilities for the period were as follows (in thousands):
September 30, 2019 |
|
|
|
|
| $ | 12,866 |
|
|
|
|
|
| $ | 12,866 |
|
Loyalty points and gift cards issued but not redeemed, net of estimated breakage | Loyalty points and gift cards issued but not redeemed, net of estimated breakage |
|
| 9,003 |
| Loyalty points and gift cards issued but not redeemed, net of estimated breakage |
|
| 9,161 |
| ||||||
Revenue recognized from beginning liability | Revenue recognized from beginning liability |
|
| (8,491 | ) | Revenue recognized from beginning liability |
|
| (8,703 | ) | ||||||
March 31, 2020 |
|
|
|
|
| $ | 13,378 |
| ||||||||
June 30, 2020 |
|
|
|
|
| $ | 13,324 |
|
Private Label Credit Card - In September 2019, we signed a multi-year agreement with a third-party bank to launch a private label credit card (the “Program”). As of March 31,June 30, 2020, Program operations had not yet commenced.
See Note 13 for additional information regarding the disaggregation of our sales revenue.
5. Fair Value Measurements
Fair value 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, 2020 |
|
| September 30, 2019 |
|
| Classification |
| Fair Value Hierarchy Level |
| June 30, 2020 |
|
| September 30, 2019 |
| ||||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Other current assets |
| Level 2 |
| $ | 3,043 |
|
| $ | — |
|
| Other current assets |
| Level 2 |
| $ | 1,367 |
|
| $ | — |
|
Interest rate caps |
| Other assets |
| Level 2 |
|
| 145 |
|
|
| 344 |
|
| Other assets |
| Level 2 |
|
| 308 |
|
|
| 344 |
|
Total assets |
|
|
|
|
| $ | 3,188 |
|
| $ | 344 |
|
|
|
|
|
| $ | 1,675 |
|
| $ | 344 |
|
Other fair value disclosures
|
|
|
| March 31, 2020 |
|
| September 30, 2019 |
|
|
|
| June 30, 2020 |
|
| September 30, 2019 |
| ||||||||||||||||||||
|
| Fair Value Hierarchy Level |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
|
| Fair Value Hierarchy Level |
| Carrying Value |
|
| Fair Value |
|
| Carrying Value |
|
| Fair Value |
| ||||||||
Long-term debt, excluding capital leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes |
| Level 1 |
| $ | 877,380 |
|
| $ | 731,418 |
|
| $ | 885,296 |
|
| $ | 898,814 |
|
| Level 1 |
| $ | 1,177,380 |
|
| $ | 1,177,726 |
|
| $ | 885,296 |
|
| $ | 898,814 |
|
Term loan B |
| Level 2 |
|
| 685,788 |
|
|
| 601,101 |
|
|
| 724,000 |
|
|
| 709,830 |
|
| Level 2 |
|
| 685,788 |
|
|
| 651,498 |
|
|
| 724,000 |
|
|
| 709,830 |
|
Total long-term debt |
|
|
| $ | 1,563,168 |
|
| $ | 1,332,519 |
|
| $ | 1,609,296 |
|
| $ | 1,608,644 |
|
|
|
| $ | 1,863,168 |
|
| $ | 1,829,224 |
|
| $ | 1,609,296 |
|
| $ | 1,608,644 |
|
The table above excludes amounts related to our ABL facility as the balance approximates fair value due to the short-term nature of our borrowings.
6. Stockholder’sStockholders’ Equity (Deficit)
Share Repurchases
In August 2017, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.0 billion of its common stock, subject to certain limitations governed by our debt agreements, over an approximate four-year period expiring on September 30, 2021.
Information related to our shares repurchased and subsequently retired were as follows (in thousands):
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Number of shares repurchased |
|
| 3,936 |
|
|
| — |
|
|
| 4,702 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,702 |
|
|
| — |
|
Total cost of share repurchased |
| $ | 50,000 |
|
| $ | — |
|
| $ | 61,357 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 61,357 |
|
| $ | — |
|
Accumulated Other Comprehensive Loss
The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):
|
| Foreign Currency Translation Adjustments |
|
| Interest Rate Caps |
|
| Foreign Exchange Contracts |
|
| Total |
| ||||
Balance at September 30, 2019 |
| $ | (113,932 | ) |
| $ | (3,201 | ) |
| $ | (154 | ) |
| $ | (117,287 | ) |
Other comprehensive loss before reclassification, net of tax |
|
| (8,823 | ) |
|
| (209 | ) |
|
| (399 | ) |
|
| (9,431 | ) |
Reclassification to net earnings, net of tax |
|
| — |
|
|
| 238 |
|
|
| 2,237 |
|
|
| 2,475 |
|
Balance at March 31, 2020 |
| $ | (122,755 | ) |
| $ | (3,172 | ) |
| $ | 1,684 |
|
| $ | (124,243 | ) |
|
| Foreign Currency Translation Adjustments |
|
| Interest Rate Caps |
|
| Foreign Exchange Contracts |
|
| Total |
| ||||
Balance at September 30, 2019 |
| $ | (113,932 | ) |
| $ | (3,201 | ) |
| $ | (154 | ) |
| $ | (117,287 | ) |
Other comprehensive loss (income) before reclassification, net of tax |
|
| (3,707 | ) |
|
| (131 | ) |
|
| (1,115 | ) |
|
| (4,953 | ) |
Reclassification to net earnings (loss), net of tax |
|
| — |
|
|
| 405 |
|
|
| 2,667 |
|
|
| 3,072 |
|
Balance at June 30, 2020 |
| $ | (117,639 | ) |
| $ | (2,927 | ) |
| $ | 1,398 |
|
| $ | (119,168 | ) |
The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings (loss) were not material.
7. Weighted-Average Shares
The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands):
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Weighted-average basic shares |
|
| 114,823 |
|
|
| 120,077 |
|
|
| 115,478 |
|
|
| 120,033 |
|
|
| 112,271 |
|
|
| 120,119 |
|
|
| 114,413 |
|
|
| 120,062 |
|
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option and stock award programs |
|
| 972 |
|
|
| 914 |
|
|
| 984 |
|
|
| 916 |
|
|
| — |
|
|
| 858 |
|
|
| 957 |
|
|
| 866 |
|
Weighted-average diluted shares |
|
| 115,795 |
|
|
| 120,991 |
|
|
| 116,462 |
|
|
| 120,949 |
|
|
| 112,271 |
|
|
| 120,977 |
|
|
| 115,370 |
|
|
| 120,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive options excluded from our computation of diluted shares |
|
| 5,076 |
|
|
| 5,183 |
|
|
| 5,076 |
|
|
| 5,183 |
|
|
| 4,976 |
|
|
| 5,044 |
|
|
| 4,887 |
|
|
| 5,044 |
|
Potentially dilutive stock option and stock award programs excluded from our computation of diluted shares |
|
| 941 |
|
|
| — |
|
|
| — |
|
|
| — |
|
8. Leases
Substantially all of our leases are operating leases and relate primarily to retail stores and warehousing properties with lease terms of five to ten years. Some of our leases include options to extend the agreement by a certain number of years, typically five years. At the lease commencement date, an operating lease liability and related operating lease asset are recognized and include the extended terms to the extent we are reasonably certain that we will exercise the option.
The operating lease liabilities are calculated using the present value of lease payments. The discount rate used is either the rate implicit in the lease, when known, or our estimated incremental borrowing rate. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not generally borrow on a collateralized basis, we derive an appropriate incremental borrowing rate using the interest rate we pay on our non-collateralized borrowings, adjusted for the amount of the lease payments, the lease term and the effect of designating specific collateral with a value equal to the unpaid lease payments for that lease. We apply the incremental borrowing rate on a portfolio basis given the impact of applying it on a lease by lease basis would be immaterial.
Operating lease assets are valued based on the initial operating lease liabilities plus any prepaid rent and direct costs from executing the leases, reduced by tenant improvement allowances and any rent abatement. Operating lease assets are tested for impairment in the same manner as our long-lived assets. During the three months ended June 30, 2020, we recognized impairment on our certain operating lease asset and immaterial amounts for lease hold improvements of $0.9 million within selling, general and administrative expenses. See Note 15 for additional information related to impairments in connection with our restructuring activity.
Our operating and finance leases consisted of the following (in thousands):
|
| Balance Sheet Classification |
| March 31, 2020 |
|
| Balance Sheet Classification |
| June 30, 2020 |
| ||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease |
| Operating lease assets |
| $ | 544,471 |
|
| Operating lease assets |
| $ | 514,415 |
|
Finance lease |
| Property and equipment, net |
|
| 2,866 |
|
| Property and equipment, net |
|
| 2,839 |
|
Total lease assets |
|
|
| $ | 547,337 |
|
|
|
| $ | 517,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease |
| Current operating lease liabilities |
| $ | 151,162 |
|
| Current operating lease liabilities |
| $ | 152,650 |
|
Finance lease |
| Current maturities of long-term debt |
|
| 171 |
|
| Current maturities of long-term debt |
|
| 173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease |
| Long-term operating lease liabilities |
|
| 405,593 |
|
| Long-term operating lease liabilities |
|
| 377,930 |
|
Finance lease |
| Long-term debt |
|
| 672 |
|
| Long-term debt |
|
| 683 |
|
Total lease liabilities |
|
|
| $ | 557,598 |
|
|
|
| $ | 531,436 |
|
Our lease costs, net of immaterial sublease income, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Statement of Earnings Classification |
| Three Months Ended March 31, 2020 |
|
| Six Months Ended March 31, 2020 |
|
| Statement of Earnings (Loss) Classification |
| Three Months Ended June 30, 2020 |
|
| Nine Months Ended June 30, 2020 |
| ||||
Operating lease costs (a) |
| Cost of goods sold and selling, general and administrative expenses (b) |
| $ | 49,342 |
|
| $ | 94,687 |
|
| Cost of goods sold and selling, general and administrative expenses (b) |
| $ | 48,785 |
|
| $ | 143,472 |
|
Finance lease costs: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of leased assets |
| Selling, general and administrative expenses |
|
| 75 |
|
|
| 150 |
|
| Selling, general and administrative expenses |
|
| 74 |
|
|
| 224 |
|
Interest on lease liabilities |
| Interest expense |
|
| 11 |
|
|
| 22 |
|
| Interest expense |
|
| 11 |
|
|
| 33 |
|
Variable lease costs (c) |
| Selling, general and administrative expenses |
|
| 14,694 |
|
|
| 28,964 |
|
| Selling, general and administrative expenses |
|
| 5,276 |
|
|
| 34,240 |
|
Total lease costs |
|
|
| $ | 64,122 |
|
| $ | 123,823 |
|
|
|
| $ | 54,146 |
|
| $ | 177,969 |
|
| (a) | Includes costs related to short-term leases, which are immaterial. |
| (b) | Certain supply chain-related amounts are included in cost of goods sold. |
| (c) | Includes common area maintenance, real estate taxes and insurance related to leases. |
In response to COVID-19, the FASB issued interpretive guidance that provides an option for entities to make a policy election for lease concessions as a result of COVID-19, provided that the modified contracts result in total cash flows that are substantially the same or less than the original contracts. This policy election allows for lease concessions to be treated as though enforceable rights and obligations for those concessions existed (regardless of whether those enforceable rights and obligations for the concessions explicitly exist in the contracts). We have elected to apply this policy election and have included rent abatements related to COVID-19 into variable lease costs. For the three and nine months ended June 30, 2020, we have recognized a benefit of $8.1 million for rent abatements.
As of March 31,June 30, 2020, the approximate future lease payments under our leases are as follows (in thousands):
Fiscal Year | Fiscal Year |
|
| Operating leases |
|
| Finance leases |
| Fiscal Year |
|
| Operating leases |
|
| Finance leases |
| ||||
Remainder of 2020 | Remainder of 2020 |
|
| $ | 91,911 |
|
| $ | 171 |
| Remainder of 2020 |
|
| $ | 45,867 |
|
| $ | 45 |
|
| 2021 |
|
|
| 157,568 |
|
|
| 168 |
| 2021 |
|
|
| 161,902 |
|
|
| 171 |
|
| 2022 |
|
|
| 116,804 |
|
|
| 168 |
| 2022 |
|
|
| 122,267 |
|
|
| 171 |
|
| 2023 |
|
|
| 81,479 |
|
|
| 168 |
| 2023 |
|
|
| 86,973 |
|
|
| 171 |
|
| 2024 |
|
|
| 53,297 |
|
|
| 168 |
| 2024 |
|
|
| 58,007 |
|
|
| 171 |
|
Thereafter | Thereafter |
|
|
| 93,793 |
|
|
| — |
| Thereafter |
|
|
| 101,561 |
|
|
| 127 |
|
Total undiscounted lease payments | Total undiscounted lease payments |
|
|
| 594,852 |
|
|
| 843 |
| Total undiscounted lease payments |
|
|
| 576,577 |
|
|
| 856 |
|
Less: imputed interest | Less: imputed interest |
|
|
| 38,097 |
|
|
| — |
| Less: imputed interest |
|
|
| 45,997 |
|
|
| — |
|
Present value of lease liabilities | Present value of lease liabilities |
|
| $ | 556,755 |
|
| $ | 843 |
| Present value of lease liabilities |
|
| $ | 530,580 |
|
| $ | 856 |
|
The table above does not include operating leases we have entered into of approximately $13.4$11.6 million that have not commenced, primarily related to future retail stores.
As of September 30, 2019, our future minimum lease payments under non-cancelable operating leases as reported under the previous accounting standard were as follows (in thousands):
Fiscal Year |
|
|
|
|
2020 |
| $ | 174,578 |
|
2021 |
|
| 136,900 |
|
2022 |
|
| 95,918 |
|
2023 |
|
| 61,944 |
|
2024 |
|
| 33,803 |
|
Thereafter |
|
| 40,545 |
|
|
| $ | 543,688 |
|
Other lease information is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
| Six Months Ended March 31, 2020 |
|
| Nine Months Ended June 30, 2020 |
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
Operating cash flows – operating leases |
| $ | 96,734 |
|
| $ | 147,959 |
|
Operating cash flows – finance leases |
|
| 22 |
|
|
| 33 |
|
Financing cash flows – finance leases |
|
| 2 |
|
|
| 3 |
|
|
|
|
|
|
|
|
|
|
Supplemental non-cash information on lease liabilities: |
|
|
|
|
|
|
|
|
Lease assets obtained in exchange for new operating lease liabilities |
| $ | 128,536 |
|
| $ | 151,528 |
|
Lease assets obtained in exchange for new finance lease liabilities |
|
| 4 |
|
|
| 4 |
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
|
| June 30, 2020 |
| ||
Weighted-average remaining lease term (in years): |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.7 |
|
|
| 4.9 |
|
Finance leases |
|
| 4.3 |
|
|
| 4.0 |
|
Weighted-average discount rate: |
|
|
|
|
|
|
|
|
Operating leases |
|
| 4.3 | % |
|
| 4.3 | % |
Finance leases |
|
| 5.0 | % |
|
| 5.0 | % |
9. Goodwill and Intangible Assets
During the three months ended March 31, 2020, we completedWe performed our annual assessment for impairment of goodwill and other intangible assets. Additionally, dueassets during our fiscal second quarter prior to the impacts of COVID-19. As a result of COVID-19, we performed an additionalinterim assessment for impairment of goodwill and other intangibles as of March 31, 2020, which updated our assumptions around the growth, timing and discount rate applied to future cash flows in connection with our business restart. Due to the uncertainty around COVID-19, our projected future cash flows may differ materially from actual results. Furthermore, we considered potential triggering events and determined there were NaN during the three months ended June 30, 2020, as our assumptions relative to future cash flows had improved during the quarter, and our market capitalization had increased significantly since March 31, 2020. NaN material impairment losses were recognized in the current or prior periods presented in connection with our goodwill and other intangible assets.
For the three months ended March 31,June 30, 2020 and 2019, amortization expense related to other intangible assets was $2.2 million and $2.9$2.8 million, respectively, and, for the sixnine months ended March 31,June 30, 2020 and 2019, amortization expense was $4.6$6.8 million and $5.7$8.5 million, respectively.
During the sixnine months ended March 31,June 30, 2020, we recorded approximately $1.4 million in other intangible assets related to immaterial asset acquisitions. Additionally, goodwill was negatively impacted by approximately $1.7$0.1 million from changes in foreign currency exchange rates during the sixnine months ended March 31,June 30, 2020.
10. Short-term Borrowings and Long-term Debt
During the threenine months ended March 31,June 30, 2020, we preemptively drew on our ABL facility as a result of COVID-19. At March 31,June 30, 2020, we had $395.5 million outstanding, including the FILO (first-in, last-out) tranche,and $85.8$81.0 million available for borrowing under our ABL facility, including the Canadian sub-facility.sub-facility, subject to the conditions contained therein. Our ABL facility matures on July 6, 2022.
During the three months ended December 31, 2019, we paid down $14.8 million aggregate principal amount of our term loan B fixed tranche at a weighted-average price of 97.875% of face value, excluding accrued interest. Additionally, during the three months ended March 31, 2020, we paid down $22.0 million aggregate principal amount of our term loan B fixed tranche at a weighted-average price of 99.0% of face value, excluding accrued interest. In connection with the debt repayment, for the sixnine months ended March 31,June 30, 2020, we recognized a $0.4 million gain on the extinguishment of debt, including a gain of approximately $0.4 million from the discount paid under the face value and the write-off of $0.1 million in unamortized deferred financing costs.
During the three months ended March, 31, 2020, we paid down $7.9 million aggregate principal amount of our senior notes due 2025 at a weighted-average price of 98.7% of face value, excluding accrued interest.
See Note 16 for further information relatedOn April 15, 2020, we entered into an amendment to the recent issuance of debt and modification of our ABL facility that occurred subsequent to, March 31, 2020. among other things, increased the revolving commitment thereunder from $500.0 million to $600.0 million, established a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increased pricing on the revolving loans and modified certain covenant and reporting terms. The ABL facility continues to be secured by a first-priority lien in and upon the accounts and inventory (and the proceeds thereof) of the Company and its guarantor subsidiaries. The ABL facility is also secured by a second-priority lien in and upon the remaining assets of the Company and its guarantor subsidiaries.
On April 24, 2020, we completed a private offering of $300.0 million aggregate principal amount of senior secured second lien notes due 2025 (the “Senior Secured Notes”) and received $295.5 million in net proceeds from the Senior Secured Notes offering. The Notes bear interest at a rate of 8.75% and were issued at par. The Senior Secured Notes are guaranteed on a senior secured basis by the guarantors who have guaranteed obligations under our senior secured credit facilities and our existing notes. We currently intend to hold the net proceedsfrom this offering to maintain cash reserves on our balance sheet. If necessary, we will use the cash for working capital and general corporate purposes.
Covenants
The agreements governing our ABL facility, term loan B and the senior notes due 2023 and 2025 contain a customary covenant package that places restrictions on the disposition of assets, the granting of liens and security interests, the prepayment of certain indebtedness, and other matters andwith customary events of default, including customary cross-default and/or cross-acceleration provisions. As of March 31,June 30, 2020, we were in compliance with all debt covenants and all the net assets of our consolidated subsidiaries were unrestricted from transfer.
11. Derivative Instruments and Hedging Activities
During the sixnine months ended March 31,June 30, 2020, we did 0t purchase or hold any derivative instruments for trading or speculative purposes. See Note 5 for the classification and fair value of our derivative instruments.
Designated Cash Flow Hedges
Foreign Currency Forwards
We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on inventory purchases in U.S. dollars by our foreign subsidiaries. At March 31,June 30, 2020, the notional amount we held through these forwards, based upon exchange rates at March 31,June 30, 2020, was as follows (in thousands):
Notional Currency |
| Notional Amount |
|
| Notional Amount |
| ||
Mexican Peso |
| $ | 12,653 |
|
| $ | 6,529 |
|
Canadian Dollar |
|
| 4,766 |
|
|
| 2,340 |
|
Total |
| $ | 17,419 |
|
| $ | 8,869 |
|
We record quarterly, net of income tax, the changes in fair value related to the foreign currency forwards into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold based on inventory turns. For the nine months ended June 30, 2020, we recognized $1.4 million into cost of goods sold on our condensed consolidated statements of earnings (loss). Based on March 31,June 30, 2020, valuations and exchange rates, we expect to reclassify gains of approximately $2.1$1.8 million into cost of goods sold over the next 12 months.
DuringAdditionally during the threenine months ended March 31,June 30, 2020, we de-designated certain foreign currency forwards as it became probable that the forecasted transaction would not occur as a result of the recent coronavirusCOVID-19 pandemic. As a result, we reclassified $1.3 million in gains from AOCL into selling, general and administration expenses. These contracts expireexpired ratably through June 30, 2020.
Other than the amounts reclassified due to de-designation, the effects of our foreign currency forwards on our condensed consolidated statements of earnings were not material for the six months ended March 31, 2020.
Interest Rate Caps
In July 2017, we purchased 2 interest rate caps with an initial aggregate notional amount of $550 million (the “interest rate caps”) to mitigate the exposure to higher interest rates in connection with our term loan B. The interest rate caps are comprised of individual caplets that expire ratably through June 30, 2023, and are designated as cash flow hedges. Accordingly, changes in fair value of the interest rate caps are recorded quarterly, net of income tax, and are included in AOCL. Over the next 12 months, we expect to reclassify approximately $0.9$1.0 million into interest expense, which represents the original value of the expiring caplets.
The effects of our interest rate caps on our condensed consolidated statements of earnings (loss) were not material for the sixnine months ended March 31,June 30, 2020.
12. Income Tax
The effective tax rates were 38.2%9.1% and 25.9%24.6%, for the three months ended March 31,June 30, 2020 and 2019, respectively. The increase in the effective tax rate for the third quarter of the current year was primarily drivennegatively impacted by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses as compared to the prior period, the tax benefit of which cannot be recognized.tax benefitted. The effective tax rates were 29.5%37.2% and 24.4%24.5%, for the sixnine months ended March 31,June 30, 2020 and 2019, respectively. The increase in the effective tax rate was primarily driven by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses, as compared to the prior period, the tax benefit of which cannot be recognized. Additionally, for the sixnine months ended March 31,June 30, 2019, the provision for income taxes included an income tax benefit due to an adjustment to our previously recorded transition tax on unrepatriated foreign earnings as a result of the Tax Cuts and Jobs Act.
The difference between the U.S. statutory federal income tax rate and the effective income tax rate is summarized below:
| Three Months Ended |
|
| Six Months Ended |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||||||||||||
| March 31, |
|
| March 31, |
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
U.S. federal statutory income tax rate |
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
State income taxes, net of federal tax benefit |
| 4.4 |
|
|
| 3.3 |
|
|
| 3.6 |
|
|
| 3.4 |
|
| 2.9 |
|
|
| 3.3 |
|
|
| 3.9 |
|
|
| 3.4 |
|
Effect of foreign operations |
| 0.1 |
|
|
| (0.1 | ) |
|
| 0.9 |
|
|
| 0.1 |
|
| 4.6 |
|
|
| 0.2 |
|
|
| (0.5 | ) |
|
| 0.1 |
|
Foreign valuation allowances |
| 15.9 |
|
|
| (0.1 | ) |
|
| 3.9 |
|
|
| 0.4 |
|
| (13.0 | ) |
|
| (0.3 | ) |
|
| 10.2 |
|
|
| 0.2 |
|
Deemed repatriation tax |
| 0.0 |
|
|
| 0.0 |
|
|
| 0.0 |
|
|
| (1.7 | ) |
| (1.1 | ) |
|
| — |
|
|
| 0.4 |
|
|
| (1.1 | ) |
Other, net |
| (3.2 | ) |
|
| 1.8 |
|
|
| 0.1 |
|
|
| 1.2 |
|
| (5.3 | ) |
|
| 0.4 |
|
|
| 2.2 |
|
|
| 0.9 |
|
Effective tax rate |
| 38.2 | % |
|
| 25.9 | % |
|
| 29.5 | % |
|
| 24.4 | % |
| 9.1 | % |
|
| 24.6 | % |
|
| 37.2 | % |
|
| 24.5 | % |
(1) | For the three months ended June 30, 2020, the impact of these items is opposite the customary relationship due to the loss before the provision for income taxes that was incurred. |
In response to the global pandemic related to COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020. The CARES Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, temporary suspension of certain payment requirements for the employer portion of social security taxes, and the creation of certain refundable employee retention credits. We are currently evaluating the CARES Act, but thereThere was not a material impact on our income tax expense for the three or nine months ended March 31,June 30, 2020. We will continue to monitor legislative developments related to COVID-19 and will record the associated income tax impacts in the periods that guidance is finalized or when we are able to reasonably estimate an impact.
13. Business Segments
Segment data for the three and sixnine months ended March 31,June 30, 2020 and 2019, is as follows (in thousands):
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sally Beauty Supply ("SBS") |
| $ | 519,509 |
|
| $ | 565,604 |
|
| $ | 1,088,657 |
|
| $ | 1,146,213 |
|
| $ | 415,468 |
|
| $ | 575,025 |
|
| $ | 1,504,125 |
|
| $ | 1,721,238 |
|
Beauty Systems Group ("BSG") |
|
| 351,514 |
|
|
| 380,248 |
|
|
| 762,574 |
|
|
| 789,092 |
|
|
| 289,819 |
|
|
| 400,144 |
|
|
| 1,052,393 |
|
|
| 1,189,236 |
|
Total |
| $ | 871,023 |
|
| $ | 945,852 |
|
| $ | 1,851,231 |
|
| $ | 1,935,305 |
|
| $ | 705,287 |
|
| $ | 975,169 |
|
| $ | 2,556,518 |
|
| $ | 2,910,474 |
|
Earnings before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Earnings (loss) before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 56,373 |
|
| $ | 86,715 |
|
| $ | 130,598 |
|
| $ | 176,706 |
|
| $ | 3,087 |
|
| $ | 95,763 |
|
| $ | 133,684 |
|
| $ | 272,470 |
|
BSG |
|
| 41,039 |
|
|
| 56,518 |
|
|
| 103,473 |
|
|
| 118,849 |
|
|
| 40,084 |
|
|
| 61,552 |
|
|
| 143,557 |
|
|
| 180,401 |
|
Segment operating earnings |
|
| 97,412 |
|
|
| 143,233 |
|
|
| 234,071 |
|
|
| 295,555 |
|
|
| 43,171 |
|
|
| 157,315 |
|
|
| 277,241 |
|
|
| 452,871 |
|
Unallocated expenses |
|
| 50,954 |
|
|
| 36,535 |
|
|
| 90,694 |
|
|
| 75,139 |
|
|
| 35,924 |
|
|
| 35,276 |
|
|
| 126,617 |
|
|
| 110,416 |
|
Restructuring |
|
| 3,193 |
|
|
| (5,814 | ) |
|
| 5,725 |
|
|
| (1,834 | ) |
|
| 5,816 |
|
|
| 1,908 |
|
|
| 11,541 |
|
|
| 74 |
|
Consolidated operating earnings |
|
| 43,265 |
|
|
| 112,512 |
|
|
| 137,652 |
|
|
| 222,250 |
|
|
| 1,431 |
|
|
| 120,131 |
|
|
| 139,083 |
|
|
| 342,381 |
|
Interest expense |
|
| 21,644 |
|
|
| 23,821 |
|
|
| 43,185 |
|
|
| 48,310 |
|
|
| 27,298 |
|
|
| 25,781 |
|
|
| 70,483 |
|
|
| 74,092 |
|
Earnings before provision for income taxes |
| $ | 21,621 |
|
| $ | 88,691 |
|
| $ | 94,467 |
|
| $ | 173,940 |
| ||||||||||||||||
Earnings (loss) before provision for income taxes |
| $ | (25,867 | ) |
| $ | 94,350 |
|
| $ | 68,600 |
|
| $ | 268,289 |
|
Sales between segments, which are eliminated in consolidation, were not material during the three and sixnine months ended March 31,June 30, 2020 and 2019.
Disaggregation of net sales by segment
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
SBS |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Hair color |
|
| 32.8 | % |
|
| 29.1 | % |
|
| 31.9 | % |
|
| 28.3 | % |
|
| 36.6 | % |
|
| 30.2 | % |
|
| 33.8 | % |
|
| 28.9 | % |
Hair care |
|
| 19.5 | % |
|
| 20.5 | % |
|
| 19.7 | % |
|
| 20.2 | % |
|
| 16.3 | % |
|
| 20.3 | % |
|
| 19.0 | % |
|
| 20.5 | % |
Styling tools |
|
| 13.6 | % |
|
| 12.4 | % |
|
| 13.0 | % |
|
| 13.9 | % | ||||||||||||||||
Skin and nail care |
|
| 12.8 | % |
|
| 14.6 | % |
|
| 13.5 | % |
|
| 14.8 | % |
|
| 13.3 | % |
|
| 15.5 | % |
|
| 13.8 | % |
|
| 14.9 | % |
Styling tools |
|
| 12.7 | % |
|
| 13.6 | % |
|
| 13.4 | % |
|
| 14.7 | % | ||||||||||||||||
Salon supplies and accessories |
|
| 7.6 | % |
|
| 7.5 | % |
|
| 7.2 | % |
|
| 7.3 | % |
|
| 9.1 | % |
|
| 7.1 | % |
|
| 7.5 | % |
|
| 7.2 | % |
Multicultural products |
|
| 6.1 | % |
|
| 7.0 | % |
|
| 5.7 | % |
|
| 6.7 | % | ||||||||||||||||
Textured hair products |
|
| 4.7 | % |
|
| 6.6 | % |
|
| 5.1 | % |
|
| 6.5 | % | ||||||||||||||||
Other beauty items |
|
| 8.5 | % |
|
| 7.7 | % |
|
| 8.6 | % |
|
| 8.0 | % |
|
| 6.4 | % |
|
| 7.9 | % |
|
| 7.8 | % |
|
| 8.1 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
BSG |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Hair color |
|
| 40.1 | % |
|
| 40.3 | % |
|
| 38.8 | % |
|
| 39.1 | % |
|
| 42.2 | % |
|
| 40.5 | % |
|
| 39.7 | % |
|
| 39.5 | % |
Hair care |
|
| 35.1 | % |
|
| 34.2 | % |
|
| 34.8 | % |
|
| 33.8 | % |
|
| 32.5 | % |
|
| 36.1 | % |
|
| 34.2 | % |
|
| 34.6 | % |
Skin and nail care |
|
| 8.2 | % |
|
| 8.2 | % |
|
| 8.2 | % |
|
| 8.2 | % |
|
| 8.2 | % |
|
| 8.1 | % |
|
| 8.2 | % |
|
| 8.2 | % |
Styling tools |
|
| 6.2 | % |
|
| 3.2 | % |
|
| 6.5 | % |
|
| 3.6 | % |
|
| 6.2 | % |
|
| 3.4 | % |
|
| 6.4 | % |
|
| 3.5 | % |
Other beauty items |
|
| 3.0 | % |
|
| 6.6 | % |
|
| 2.8 | % |
|
| 6.1 | % |
|
| 7.0 | % |
|
| 6.6 | % |
|
| 3.9 | % |
|
| 6.3 | % |
Promotional items |
|
| 7.4 | % |
|
| 7.5 | % |
|
| 8.9 | % |
|
| 9.2 | % |
|
| 3.9 | % |
|
| 5.3 | % |
|
| 7.6 | % |
|
| 7.9 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
The following tables disaggregate our segment revenue by sales channels:
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
SBS |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Company-operated stores |
|
| 94.9 | % |
|
| 96.7 | % |
|
| 95.4 | % |
|
| 96.7 | % |
|
| 79.1 | % |
|
| 96.9 | % |
|
| 90.9 | % |
|
| 96.8 | % |
E-commerce |
|
| 4.9 | % |
|
| 3.0 | % |
|
| 4.4 | % |
|
| 3.0 | % |
|
| 20.8 | % |
|
| 2.8 | % |
|
| 8.9 | % |
|
| 2.9 | % |
Franchise stores |
|
| 0.2 | % |
|
| 0.3 | % |
|
| 0.2 | % |
|
| 0.3 | % |
|
| 0.1 | % |
|
| 0.3 | % |
|
| 0.2 | % |
|
| 0.3 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
BSG |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Company-operated stores |
|
| 70.4 | % |
|
| 70.4 | % |
|
| 69.8 | % |
|
| 69.7 | % |
|
| 63.9 | % |
|
| 68.8 | % |
|
| 68.2 | % |
|
| 69.4 | % |
Distributor sales consultants |
|
| 16.6 | % |
|
| 17.3 | % |
|
| 17.3 | % |
|
| 18.1 | % |
|
| 10.8 | % |
|
| 18.3 | % |
|
| 15.5 | % |
|
| 18.2 | % |
E-commerce |
|
| 17.4 | % |
|
| 4.9 | % |
|
| 8.9 | % |
|
| 4.8 | % | ||||||||||||||||
Franchise stores |
|
| 7.1 | % |
|
| 7.3 | % |
|
| 7.2 | % |
|
| 7.5 | % |
|
| 7.9 | % |
|
| 8.0 | % |
|
| 7.4 | % |
|
| 7.6 | % |
E-commerce |
|
| 5.9 | % |
|
| 5.0 | % |
|
| 5.7 | % |
|
| 4.7 | % | ||||||||||||||||
Total |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
|
| 100.0 | % |
14. Parent, Issuers, Guarantor and Non-Guarantor Condensed Consolidating Financial Statements
Certain 100% wholly owned domestic subsidiaries (“guarantor subsidiaries”), as defined in our credit agreements, of Sally Beauty serve as guarantors to the ABL facility, term loan B and senior notes due 2023 and 2025. The guarantees related to these debt instruments are full and unconditional, joint and several and have certain restrictions on the ability to pay restricted payments to Sally Beauty Holdings, Inc. (“parent”). Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors (“non-guarantor subsidiaries”).
The following condensed consolidating financial information represents financial information for (i) parent, (ii) Sally Holdings LLC and Sally Capital Inc., (iii) the guarantor subsidiaries; (iv) the non-guarantor subsidiaries, (v) elimination entries necessary for consolidation purposes, and (vi) Sally Beauty on a consolidated basis.
Condensed Consolidating Balance Sheet
March 31,June 30, 2020
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
|
| 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 |
|
| $ | 335,827 |
|
| $ | 28,577 |
|
| $ | — |
|
| $ | 364,414 |
|
| $ | — |
|
| $ | 10 |
|
| $ | 771,131 |
|
| $ | 67,670 |
|
| $ | — |
|
| $ | 838,811 |
|
Trade and other accounts receivable, net |
|
| — |
|
|
| — |
|
|
| 52,788 |
|
|
| 34,545 |
|
|
| — |
|
|
| 87,333 |
|
|
| — |
|
|
| — |
|
|
| 33,856 |
|
|
| 26,447 |
|
|
| — |
|
|
| 60,303 |
|
Due from affiliates |
|
| — |
|
|
| — |
|
|
| 2,638,162 |
|
|
| — |
|
|
| (2,638,162 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,378,638 |
|
|
| — |
|
|
| (2,378,638 | ) |
|
| — |
|
Inventory |
|
| — |
|
|
| — |
|
|
| 710,623 |
|
|
| 235,566 |
|
|
| — |
|
|
| 946,189 |
|
|
| — |
|
|
| — |
|
|
| 608,147 |
|
|
| 207,485 |
|
|
| — |
|
|
| 815,632 |
|
Other current assets |
|
| 15,311 |
|
|
| 270 |
|
|
| 23,119 |
|
|
| 12,403 |
|
|
| — |
|
|
| 51,103 |
|
|
| 14,375 |
|
|
| 206 |
|
|
| 23,417 |
|
|
| 10,598 |
|
|
| — |
|
|
| 48,596 |
|
Property and equipment, net |
|
| 8 |
|
|
| — |
|
|
| 264,739 |
|
|
| 55,473 |
|
|
| — |
|
|
| 320,220 |
|
|
| 7 |
|
|
| — |
|
|
| 259,521 |
|
|
| 51,535 |
|
|
| — |
|
|
| 311,063 |
|
Operating lease assets |
|
| — |
|
|
| — |
|
|
| 401,374 |
|
|
| 143,097 |
|
|
| — |
|
|
| 544,471 |
|
|
| — |
|
|
| — |
|
|
| 381,907 |
|
|
| 132,508 |
|
|
| — |
|
|
| 514,415 |
|
Investment in subsidiaries |
|
| 1,685,104 |
|
|
| 4,469,936 |
|
|
| 376,173 |
|
|
| — |
|
|
| (6,531,213 | ) |
|
| — |
|
|
| 1,668,707 |
|
|
| 4,473,741 |
|
|
| 361,944 |
|
|
| — |
|
|
| (6,504,392 | ) |
|
| — |
|
Goodwill and other intangible assets, net |
|
| — |
|
|
| — |
|
|
| 450,484 |
|
|
| 137,446 |
|
|
| — |
|
|
| 587,930 |
|
|
| — |
|
|
| — |
|
|
| 448,869 |
|
|
| 138,671 |
|
|
| — |
|
|
| 587,540 |
|
Other assets |
|
| 1,446 |
|
|
| 3,092 |
|
|
| 3,098 |
|
|
| 11,870 |
|
|
| — |
|
|
| 19,506 |
|
|
| 1,447 |
|
|
| 3,701 |
|
|
| 4,589 |
|
|
| 11,997 |
|
|
| — |
|
|
| 21,734 |
|
Total assets |
| $ | 1,701,869 |
|
| $ | 4,473,308 |
|
| $ | 5,256,387 |
|
| $ | 658,977 |
|
| $ | (9,169,375 | ) |
| $ | 2,921,166 |
|
| $ | 1,684,536 |
|
| $ | 4,477,658 |
|
| $ | 5,272,019 |
|
| $ | 646,911 |
|
| $ | (8,883,030 | ) |
| $ | 3,198,094 |
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 23 |
|
| $ | — |
|
| $ | 180,078 |
|
| $ | 41,659 |
|
| $ | — |
|
| $ | 221,760 |
|
| $ | 15 |
|
| $ | 68 |
|
| $ | 197,442 |
|
| $ | 42,380 |
|
| $ | — |
|
| $ | 239,905 |
|
Due to affiliates |
|
| 1,748,579 |
|
|
| 823,032 |
|
|
| — |
|
|
| 66,551 |
|
|
| (2,638,162 | ) |
|
| — |
|
|
| 1,747,406 |
|
|
| 554,908 |
|
|
| — |
|
|
| 76,324 |
|
|
| (2,378,638 | ) |
|
| — |
|
Accrued liabilities |
|
| 160 |
|
|
| 18,151 |
|
|
| 100,226 |
|
|
| 27,383 |
|
|
| — |
|
|
| 145,920 |
|
|
| 164 |
|
|
| 11,567 |
|
|
| 107,574 |
|
|
| 28,892 |
|
|
| — |
|
|
| 148,197 |
|
Income taxes payable |
|
| — |
|
|
| 2,161 |
|
|
| — |
|
|
| (838 | ) |
|
| — |
|
|
| 1,323 |
|
|
| — |
|
|
| 2,162 |
|
|
| — |
|
|
| (855 | ) |
|
| — |
|
|
| 1,307 |
|
Long-term debt |
|
| — |
|
|
| 1,945,023 |
|
|
| 4 |
|
|
| 839 |
|
|
| — |
|
|
| 1,945,866 |
|
|
| — |
|
|
| 2,240,411 |
|
|
| 2 |
|
|
| 854 |
|
|
| — |
|
|
| 2,241,267 |
|
Long-term operating lease liabilities |
|
| — |
|
|
| — |
|
|
| 413,824 |
|
|
| 142,931 |
|
|
| — |
|
|
| 556,755 |
|
|
| — |
|
|
| — |
|
|
| 397,477 |
|
|
| 133,103 |
|
|
| — |
|
|
| 530,580 |
|
Other liabilities |
|
| 6,441 |
|
|
| — |
|
|
| 11,840 |
|
|
| 29 |
|
|
| — |
|
|
| 18,310 |
|
|
| 6,441 |
|
|
| — |
|
|
| 19,930 |
|
|
| 62 |
|
|
| — |
|
|
| 26,433 |
|
Deferred income tax liabilities, net |
|
| (139 | ) |
|
| (163 | ) |
|
| 80,479 |
|
|
| 4,250 |
|
|
| — |
|
|
| 84,427 |
|
|
| (357 | ) |
|
| (165 | ) |
|
| 75,853 |
|
|
| 4,207 |
|
|
| — |
|
|
| 79,538 |
|
Total liabilities |
|
| 1,755,064 |
|
|
| 2,788,204 |
|
|
| 786,451 |
|
|
| 282,804 |
|
|
| (2,638,162 | ) |
|
| 2,974,361 |
|
|
| 1,753,669 |
|
|
| 2,808,951 |
|
|
| 798,278 |
|
|
| 284,967 |
|
|
| (2,378,638 | ) |
|
| 3,267,227 |
|
Total stockholders’ equity (deficit) |
|
| (53,195 | ) |
|
| 1,685,104 |
|
|
| 4,469,936 |
|
|
| 376,173 |
|
|
| (6,531,213 | ) |
|
| (53,195 | ) |
|
| (69,133 | ) |
|
| 1,668,707 |
|
|
| 4,473,741 |
|
|
| 361,944 |
|
|
| (6,504,392 | ) |
|
| (69,133 | ) |
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,701,869 |
|
| $ | 4,473,308 |
|
| $ | 5,256,387 |
|
| $ | 658,977 |
|
| $ | (9,169,375 | ) |
| $ | 2,921,166 |
|
| $ | 1,684,536 |
|
| $ | 4,477,658 |
|
| $ | 5,272,019 |
|
| $ | 646,911 |
|
| $ | (8,883,030 | ) |
| $ | 3,198,094 |
|
Condensed Consolidating Balance Sheet
September 30, 2019
(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 |
|
| $ | 41,009 |
|
| $ | 30,476 |
|
| $ | — |
|
| $ | 71,495 |
|
Trade and other accounts receivable, net |
|
| — |
|
|
| — |
|
|
| 65,746 |
|
|
| 38,793 |
|
|
| — |
|
|
| 104,539 |
|
Due from affiliates |
|
| — |
|
|
| — |
|
|
| 2,878,072 |
|
|
| — |
|
|
| (2,878,072 | ) |
|
| — |
|
Inventory |
|
| — |
|
|
| — |
|
|
| 722,830 |
|
|
| 230,077 |
|
|
| — |
|
|
| 952,907 |
|
Other current assets |
|
| 1,436 |
|
|
| 132 |
|
|
| 22,480 |
|
|
| 10,564 |
|
|
| — |
|
|
| 34,612 |
|
Property and equipment, net |
|
| 6 |
|
|
| — |
|
|
| 258,132 |
|
|
| 61,490 |
|
|
| — |
|
|
| 319,628 |
|
Investment in subsidiaries |
|
| 1,621,843 |
|
|
| 4,374,334 |
|
|
| 385,629 |
|
|
| — |
|
|
| (6,381,806 | ) |
|
| — |
|
Goodwill and other intangible assets, net |
|
| — |
|
|
| — |
|
|
| 452,645 |
|
|
| 140,192 |
|
|
| — |
|
|
| 592,837 |
|
Other assets |
|
| 1,446 |
|
|
| 3,499 |
|
|
| (581 | ) |
|
| 18,064 |
|
|
| — |
|
|
| 22,428 |
|
Total assets |
| $ | 1,624,731 |
|
| $ | 4,377,975 |
|
| $ | 4,825,962 |
|
| $ | 529,656 |
|
| $ | (9,259,878 | ) |
| $ | 2,098,446 |
|
Liabilities and Stockholders’ Equity (Deficit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 48 |
|
| $ | — |
|
| $ | 235,940 |
|
| $ | 42,700 |
|
| $ | — |
|
| $ | 278,688 |
|
Due to affiliates |
|
| 1,672,322 |
|
|
| 1,142,324 |
|
|
| — |
|
|
| 63,426 |
|
|
| (2,878,072 | ) |
|
| — |
|
Accrued liabilities |
|
| 188 |
|
|
| 17,937 |
|
|
| 121,375 |
|
|
| 29,554 |
|
|
| — |
|
|
| 169,054 |
|
Income taxes payable |
|
| 6,055 |
|
|
| 2,161 |
|
|
| 1 |
|
|
| 119 |
|
|
| — |
|
|
| 8,336 |
|
Long-term debt |
|
| — |
|
|
| 1,593,710 |
|
|
| 1 |
|
|
| 832 |
|
|
| — |
|
|
| 1,594,543 |
|
Other liabilities |
|
| 6,441 |
|
|
| — |
|
|
| 17,639 |
|
|
| 3,677 |
|
|
| — |
|
|
| 27,757 |
|
Deferred income tax liabilities, net |
|
| — |
|
|
| — |
|
|
| 76,672 |
|
|
| 3,719 |
|
|
| — |
|
|
| 80,391 |
|
Total liabilities |
|
| 1,685,054 |
|
|
| 2,756,132 |
|
|
| 451,628 |
|
|
| 144,027 |
|
|
| (2,878,072 | ) |
|
| 2,158,769 |
|
Total stockholders’ equity (deficit) |
|
| (60,323 | ) |
|
| 1,621,843 |
|
|
| 4,374,334 |
|
|
| 385,629 |
|
|
| (6,381,806 | ) |
|
| (60,323 | ) |
Total liabilities and stockholders’ equity (deficit) |
| $ | 1,624,731 |
|
| $ | 4,377,975 |
|
| $ | 4,825,962 |
|
| $ | 529,656 |
|
| $ | (9,259,878 | ) |
| $ | 2,098,446 |
|
Condensed Consolidating Statement of Earnings (Loss) and Comprehensive Income
Three Months Ended March 31,June 30, 2020
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 713,872 |
|
| $ | 157,151 |
|
| $ | — |
|
| $ | 871,023 |
|
| $ | — |
|
| $ | — |
|
| $ | 604,881 |
|
| $ | 100,406 |
|
| $ | — |
|
| $ | 705,287 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 382 |
|
|
| — |
|
|
| (382 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 236 |
|
|
| — |
|
|
| (236 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 355,373 |
|
|
| 86,275 |
|
|
| (382 | ) |
|
| 441,266 |
|
|
| — |
|
|
| — |
|
|
| 319,527 |
|
|
| 64,150 |
|
|
| (236 | ) |
|
| 383,441 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 358,881 |
|
|
| 70,876 |
|
|
| — |
|
|
| 429,757 |
|
|
| — |
|
|
| — |
|
|
| 285,590 |
|
|
| 36,256 |
|
|
| — |
|
|
| 321,846 |
|
Selling, general and administrative expenses |
|
| 2,758 |
|
|
| 179 |
|
|
| 306,197 |
|
|
| 74,165 |
|
|
| — |
|
|
| 383,299 |
|
|
| 2,763 |
|
|
| 132 |
|
|
| 255,841 |
|
|
| 55,863 |
|
|
| — |
|
|
| 314,599 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| 3,193 |
|
|
| — |
|
|
| — |
|
|
| 3,193 |
|
|
| — |
|
|
| — |
|
|
| 5,816 |
|
|
| — |
|
|
| — |
|
|
| 5,816 |
|
Operating earnings (loss) |
|
| (2,758 | ) |
|
| (179 | ) |
|
| 49,491 |
|
|
| (3,289 | ) |
|
| — |
|
|
| 43,265 |
|
|
| (2,763 | ) |
|
| (132 | ) |
|
| 23,933 |
|
|
| (19,607 | ) |
|
| — |
|
|
| 1,431 |
|
Interest expense (income) |
|
| — |
|
|
| 21,652 |
|
|
| 3 |
|
|
| (11 | ) |
|
| — |
|
|
| 21,644 |
|
|
| — |
|
|
| 27,377 |
|
|
| (1 | ) |
|
| (78 | ) |
|
| — |
|
|
| 27,298 |
|
Earnings (loss) before provision for income taxes |
|
| (2,758 | ) |
|
| (21,831 | ) |
|
| 49,488 |
|
|
| (3,278 | ) |
|
| — |
|
|
| 21,621 |
|
|
| (2,763 | ) |
|
| (27,509 | ) |
|
| 23,934 |
|
|
| (19,529 | ) |
|
| — |
|
|
| (25,867 | ) |
Provision (benefit) for income taxes |
|
| (708 | ) |
|
| (5,604 | ) |
|
| 11,502 |
|
|
| 3,063 |
|
|
| — |
|
|
| 8,253 |
|
|
| (709 | ) |
|
| (7,061 | ) |
|
| 7,208 |
|
|
| (1,779 | ) |
|
| — |
|
|
| (2,341 | ) |
Equity in earnings (loss) of subsidiaries, net of tax |
|
| 15,418 |
|
|
| 31,645 |
|
|
| (6,341 | ) |
|
| — |
|
|
| (40,722 | ) |
|
| — |
|
|
| (21,472 | ) |
|
| (1,024 | ) |
|
| (17,750 | ) |
|
| — |
|
|
| 40,246 |
|
|
| — |
|
Net earnings (loss) |
|
| 13,368 |
|
|
| 15,418 |
|
|
| 31,645 |
|
|
| (6,341 | ) |
|
| (40,722 | ) |
|
| 13,368 |
|
|
| (23,526 | ) |
|
| (21,472 | ) |
|
| (1,024 | ) |
|
| (17,750 | ) |
|
| 40,246 |
|
|
| (23,526 | ) |
Other comprehensive income, net of tax |
|
| — |
|
|
| (80 | ) |
|
| — |
|
|
| (21,746 | ) |
|
| — |
|
|
| (21,826 | ) |
|
| — |
|
|
| 245 |
|
|
| — |
|
|
| 4,830 |
|
|
| — |
|
|
| 5,075 |
|
Total comprehensive income (loss) |
| $ | 13,368 |
|
| $ | 15,338 |
|
| $ | 31,645 |
|
| $ | (28,087 | ) |
| $ | (40,722 | ) |
| $ | (8,458 | ) | ||||||||||||||||||||||||
Total comprehensive loss |
| $ | (23,526 | ) |
| $ | (21,227 | ) |
| $ | (1,024 | ) |
| $ | (12,920 | ) |
| $ | 40,246 |
|
| $ | (18,451 | ) |
Condensed Consolidating Statement of Earnings and Comprehensive Income
Three Months Ended March 31,June 30, 2019
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||||||||
Net sales |
| $ | — |
|
| $ | — |
|
| $ | 769,284 |
|
| $ | 176,568 |
|
| $ | — |
|
| $ | 945,852 |
|
| $ | — |
|
| $ | — |
|
| $ | 789,534 |
|
| $ | 185,635 |
|
| $ | — |
|
| $ | 975,169 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 480 |
|
|
| — |
|
|
| (480 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 545 |
|
|
| — |
|
|
| (545 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 383,147 |
|
|
| 94,861 |
|
|
| (480 | ) |
|
| 477,528 |
|
|
| — |
|
|
| — |
|
|
| 393,875 |
|
|
| 99,617 |
|
|
| (545 | ) |
|
| 492,947 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 386,617 |
|
|
| 81,707 |
|
|
| — |
|
|
| 468,324 |
|
|
| — |
|
|
| — |
|
|
| 396,204 |
|
|
| 86,018 |
|
|
| — |
|
|
| 482,222 |
|
Selling, general and administrative expenses |
|
| 3,084 |
|
|
| 198 |
|
|
| 281,404 |
|
|
| 76,940 |
|
|
| — |
|
|
| 361,626 |
|
|
| 2,564 |
|
|
| 123 |
|
|
| 281,520 |
|
|
| 75,976 |
|
|
| — |
|
|
| 360,183 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| (5,814 | ) |
|
| — |
|
|
| — |
|
|
| (5,814 | ) |
|
| — |
|
|
| — |
|
|
| 1,908 |
|
|
| — |
|
|
| — |
|
|
| 1,908 |
|
Operating earnings (loss) |
|
| (3,084 | ) |
|
| (198 | ) |
|
| 111,027 |
|
|
| 4,767 |
|
|
| — |
|
|
| 112,512 |
|
|
| (2,564 | ) |
|
| (123 | ) |
|
| 112,776 |
|
|
| 10,042 |
|
|
| — |
|
|
| 120,131 |
|
Interest expense (income) |
|
| — |
|
|
| 23,871 |
|
|
| (1 | ) |
|
| (49 | ) |
|
| — |
|
|
| 23,821 |
|
|
| — |
|
|
| 25,824 |
|
|
| (3 | ) |
|
| (40 | ) |
|
| — |
|
|
| 25,781 |
|
Earnings (loss) before provision for income taxes |
|
| (3,084 | ) |
|
| (24,069 | ) |
|
| 111,028 |
|
|
| 4,816 |
|
|
| — |
|
|
| 88,691 |
|
|
| (2,564 | ) |
|
| (25,947 | ) |
|
| 112,779 |
|
|
| 10,082 |
|
|
| — |
|
|
| 94,350 |
|
Provision (benefit) for income taxes |
|
| (791 | ) |
|
| (6,179 | ) |
|
| 28,795 |
|
|
| 1,141 |
|
|
|
|
|
|
| 22,966 |
|
|
| (659 | ) |
|
| (6,659 | ) |
|
| 28,193 |
|
|
| 2,311 |
|
|
|
|
|
|
| 23,186 |
|
Equity in earnings of subsidiaries, net of tax |
|
| 68,018 |
|
|
| 85,908 |
|
|
| 3,675 |
|
|
| — |
|
|
| (157,601 | ) |
|
| — |
|
|
| 73,069 |
|
|
| 92,357 |
|
|
| 7,771 |
|
|
| — |
|
|
| (173,197 | ) |
|
| — |
|
Net earnings |
|
| 65,725 |
|
|
| 68,018 |
|
|
| 85,908 |
|
|
| 3,675 |
|
|
| (157,601 | ) |
|
| 65,725 |
|
|
| 71,164 |
|
|
| 73,069 |
|
|
| 92,357 |
|
|
| 7,771 |
|
|
| (173,197 | ) |
|
| 71,164 |
|
Other comprehensive income (loss), net of tax |
|
| — |
|
|
| (2,140 | ) |
|
| — |
|
|
| 3,282 |
|
|
|
|
|
|
| 1,142 |
| ||||||||||||||||||||||||
Total comprehensive income (loss) |
| $ | 65,725 |
|
| $ | 65,878 |
|
| $ | 85,908 |
|
| $ | 6,957 |
|
| $ | (157,601 | ) |
| $ | 66,867 |
| ||||||||||||||||||||||||
Other comprehensive income, net of tax |
|
| — |
|
|
| 586 |
|
|
| — |
|
|
| 937 |
|
|
|
|
|
|
| 1,523 |
| ||||||||||||||||||||||||
Total comprehensive income |
| $ | 71,164 |
|
| $ | 73,655 |
|
| $ | 92,357 |
|
| $ | 8,708 |
|
| $ | (173,197 | ) |
| $ | 72,687 |
|
Condensed Consolidating Statement of Earnings and Comprehensive Income
Nine Months Ended June 30, 2020
(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 |
| $ | — |
|
| $ | — |
|
| $ | 2,105,368 |
|
| $ | 451,150 |
|
| $ | — |
|
| $ | 2,556,518 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 1,231 |
|
|
| — |
|
|
| (1,231 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 1,075,180 |
|
|
| 256,118 |
|
|
| (1,231 | ) |
|
| 1,330,067 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 1,031,419 |
|
|
| 195,032 |
|
|
| — |
|
|
| 1,226,451 |
|
Selling, general and administrative expenses |
|
| 8,250 |
|
|
| 467 |
|
|
| 858,490 |
|
|
| 208,620 |
|
|
| — |
|
|
| 1,075,827 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| 11,541 |
|
|
| — |
|
|
| — |
|
|
| 11,541 |
|
Operating earnings (loss) |
|
| (8,250 | ) |
|
| (467 | ) |
|
| 161,388 |
|
|
| (13,588 | ) |
|
| — |
|
|
| 139,083 |
|
Interest expense (income) |
|
| — |
|
|
| 70,590 |
|
|
| 4 |
|
|
| (111 | ) |
|
| — |
|
|
| 70,483 |
|
Earnings (loss) before provision for income taxes |
|
| (8,250 | ) |
|
| (71,057 | ) |
|
| 161,384 |
|
|
| (13,477 | ) |
|
| — |
|
|
| 68,600 |
|
Provision (benefit) for income taxes |
|
| (2,117 | ) |
|
| (18,239 | ) |
|
| 41,488 |
|
|
| 4,411 |
|
|
| — |
|
|
| 25,543 |
|
Equity in earnings (loss) of subsidiaries, net of tax |
|
| 49,190 |
|
|
| 102,008 |
|
|
| (17,888 | ) |
|
| — |
|
|
| (133,310 | ) |
|
| — |
|
Net earnings (loss) |
|
| 43,057 |
|
|
| 49,190 |
|
|
| 102,008 |
|
|
| (17,888 | ) |
|
| (133,310 | ) |
|
| 43,057 |
|
Other comprehensive income (loss), net of tax |
|
| — |
|
|
| 274 |
|
|
| — |
|
|
| (2,155 | ) |
|
| — |
|
|
| (1,881 | ) |
Total comprehensive income (loss) |
| $ | 43,057 |
|
| $ | 49,464 |
|
| $ | 102,008 |
|
| $ | (20,043 | ) |
| $ | (133,310 | ) |
| $ | 41,176 |
|
Condensed Consolidating Statement of Earnings and Comprehensive Income
Nine Months Ended June 30, 2019
(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 |
| $ | — |
|
| $ | — |
|
| $ | 2,352,348 |
|
| $ | 558,126 |
|
| $ | — |
|
| $ | 2,910,474 |
|
Related party sales |
|
| — |
|
|
| — |
|
|
| 1,694 |
|
|
|
|
|
|
| (1,694 | ) |
|
| — |
|
Cost of goods sold |
|
| — |
|
|
| — |
|
|
| 1,181,062 |
|
|
| 299,854 |
|
|
| (1,694 | ) |
|
| 1,479,222 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| 1,172,980 |
|
|
| 258,272 |
|
|
| — |
|
|
| 1,431,252 |
|
Selling, general and administrative expenses |
|
| 8,457 |
|
|
| 489 |
|
|
| 849,140 |
|
|
| 230,711 |
|
|
| — |
|
|
| 1,088,797 |
|
Restructuring |
|
| — |
|
|
| — |
|
|
| 74 |
|
|
| — |
|
|
| — |
|
|
| 74 |
|
Operating earnings (loss) |
|
| (8,457 | ) |
|
| (489 | ) |
|
| 323,766 |
|
|
| 27,561 |
|
|
| — |
|
|
| 342,381 |
|
Interest expense (income) |
|
| — |
|
|
| 74,248 |
|
|
| (5 | ) |
|
| (151 | ) |
|
| — |
|
|
| 74,092 |
|
Earnings (loss) before provision for income taxes |
|
| (8,457 | ) |
|
| (74,737 | ) |
|
| 323,771 |
|
|
| 27,712 |
|
|
| — |
|
|
| 268,289 |
|
Provision (benefit) for income taxes |
|
| (2,171 | ) |
|
| (19,184 | ) |
|
| 82,671 |
|
|
| 4,357 |
|
|
|
|
|
|
| 65,673 |
|
Equity in earnings of subsidiaries, net of tax |
|
| 208,902 |
|
|
| 264,455 |
|
|
| 23,355 |
|
|
| — |
|
|
| (496,712 | ) |
|
| — |
|
Net earnings |
|
| 202,616 |
|
|
| 208,902 |
|
|
| 264,455 |
|
|
| 23,355 |
|
|
| (496,712 | ) |
|
| 202,616 |
|
Other comprehensive loss, net of tax |
|
| — |
|
|
| (4,384 | ) |
|
| — |
|
|
| (9,656 | ) |
|
| — |
|
|
| (14,040 | ) |
Total comprehensive income |
| $ | 202,616 |
|
| $ | 204,518 |
|
| $ | 264,455 |
|
| $ | 13,699 |
|
| $ | (496,712 | ) |
| $ | 188,576 |
|
Condensed Consolidating Statement of Cash Flows
SixNine Months Ended March 31,June 30, 2020
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||||||||
Net cash (used) provided by operating activities |
| $ | (17,666 | ) |
| $ | (30,822 | ) |
| $ | 122,299 |
|
| $ | 2,320 |
|
| $ | — |
|
| $ | 76,131 |
|
| $ | (16,444 | ) |
| $ | (56,439 | ) |
| $ | 313,209 |
|
| $ | 34,058 |
|
| $ | — |
|
| $ | 274,384 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
| (5 | ) |
|
| — |
|
|
| (65,724 | ) |
|
| (6,254 | ) |
|
| — |
|
|
| (71,983 | ) |
|
| (5 | ) |
|
| — |
|
|
| (80,854 | ) |
|
| (8,881 | ) |
|
| — |
|
|
| (89,740 | ) |
Proceeds from sale of property and equipment |
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| — |
|
|
| — |
|
|
| 23 |
|
|
| 15 |
|
|
|
|
|
|
| 38 |
|
Acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (1,691 | ) |
|
| (253 | ) |
|
| — |
|
|
| (1,944 | ) |
|
| — |
|
|
| — |
|
|
| (1,691 | ) |
|
| (253 | ) |
|
| — |
|
|
| (1,944 | ) |
Due from affiliates |
|
| — |
|
|
| — |
|
|
| 239,910 |
|
|
| — |
|
|
| (239,910 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 499,434 |
|
|
| — |
|
|
| (499,434 | ) |
|
| — |
|
Net cash (used) provided by investing activities |
|
| (5 | ) |
|
| — |
|
|
| 172,518 |
|
|
| (6,507 | ) |
|
| (239,910 | ) |
|
| (73,904 | ) |
|
| (5 | ) |
|
| — |
|
|
| 416,912 |
|
|
| (9,119 | ) |
|
| (499,434 | ) |
|
| (91,646 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| — |
|
|
| 787,500 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 787,500 |
|
|
| — |
|
|
| 1,087,500 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 1,087,504 |
|
Repayments of long-term debt |
|
| — |
|
|
| (437,386 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| (437,385 | ) |
|
| — |
|
|
| (437,388 | ) |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| (437,391 | ) |
Debt issuance costs |
|
| — |
|
|
| (6,257 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,257 | ) | ||||||||||||||||||||||||
Repurchases of common stock |
|
| (61,357 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (61,357 | ) |
|
| (61,357 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (61,357 | ) |
Proceeds from exercises of stock options |
|
| 2,771 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,771 |
|
|
| 2,722 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,722 |
|
Due to affiliates |
|
| 76,257 |
|
|
| (319,292 | ) |
|
| — |
|
|
| 3,125 |
|
|
| 239,910 |
|
|
| — |
|
|
| 75,084 |
|
|
| (587,416 | ) |
|
| — |
|
|
| 12,898 |
|
|
| 499,434 |
|
|
| — |
|
Net cash provided by financing activities |
|
| 17,671 |
|
|
| 30,822 |
|
|
| 1 |
|
|
| 3,125 |
|
|
| 239,910 |
|
|
| 291,529 |
|
|
| 16,449 |
|
|
| 56,439 |
|
|
| 1 |
|
|
| 12,898 |
|
|
| 499,434 |
|
|
| 585,221 |
|
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (837 | ) |
|
| — |
|
|
| (837 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (643 | ) |
|
| — |
|
|
| (643 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| 294,818 |
|
|
| (1,899 | ) |
|
| — |
|
|
| 292,919 |
| ||||||||||||||||||||||||
Net increase in cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| 730,122 |
|
|
| 37,194 |
|
|
| — |
|
|
| 767,316 |
| ||||||||||||||||||||||||
Cash and cash equivalents, beginning of period |
|
| — |
|
|
| 10 |
|
|
| 41,009 |
|
|
| 30,476 |
|
|
| — |
|
|
| 71,495 |
|
|
| — |
|
|
| 10 |
|
|
| 41,009 |
|
|
| 30,476 |
|
|
| — |
|
|
| 71,495 |
|
Cash and cash equivalents, end of period |
| $ | — |
|
| $ | 10 |
|
| $ | 335,827 |
|
| $ | 28,577 |
|
| $ | — |
|
| $ | 364,414 |
|
| $ | — |
|
| $ | 10 |
|
| $ | 771,131 |
|
| $ | 67,670 |
|
| $ | — |
|
| $ | 838,811 |
|
Condensed Consolidating Statement of Cash Flows
SixNine Months Ended March 31,June 30, 2019
(In thousands)
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
|
| Parent |
|
| Sally Holdings LLC and Sally Capital Inc. |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Eliminations |
|
| Sally Beauty Holdings, Inc. and Subsidiaries |
| ||||||||||||
Net cash (used) provided by operating activities |
| $ | 1,262 |
|
| $ | (32,639 | ) |
| $ | 144,685 |
|
| $ | (3,198 | ) |
| $ | — |
|
| $ | 110,110 |
|
| $ | (3,949 | ) |
| $ | (63,597 | ) |
| $ | 270,637 |
|
| $ | 732 |
|
| $ | — |
|
| $ | 203,823 |
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments for property and equipment |
|
| — |
|
|
| — |
|
|
| (41,559 | ) |
|
| (4,839 | ) |
|
| — |
|
|
| (46,398 | ) |
|
| (1 | ) |
|
| — |
|
|
| (58,607 | ) |
|
| (8,155 | ) |
|
| — |
|
|
| (66,763 | ) |
Proceeds from sale of property and equipment |
|
| — |
|
|
| — |
|
|
| 12,007 |
|
|
| 3 |
|
|
| — |
|
|
| 12,010 |
|
|
| — |
|
|
| — |
|
|
| 12,017 |
|
|
| 4 |
|
|
| — |
|
|
| 12,021 |
|
Acquisitions, net of cash acquired |
|
| — |
|
|
| — |
|
|
| (2,008 | ) |
|
| (840 | ) |
|
| — |
|
|
| (2,848 | ) |
|
| — |
|
|
| — |
|
|
| (1,923 | ) |
|
| (840 | ) |
|
| — |
|
|
| (2,763 | ) |
Due from affiliates |
|
| — |
|
|
| — |
|
|
| (92,458 | ) |
|
| — |
|
|
| 92,458 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (219,921 | ) |
|
| — |
|
|
| 219,921 |
|
|
| — |
|
Net cash used by investing activities |
|
| — |
|
|
| — |
|
|
| (124,018 | ) |
|
| (5,676 | ) |
|
| 92,458 |
|
|
| (37,236 | ) |
|
| (1 | ) |
|
| — |
|
|
| (268,434 | ) |
|
| (8,991 | ) |
|
| 219,921 |
|
|
| (57,505 | ) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| — |
|
|
| 242,500 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 242,504 |
|
|
| — |
|
|
| 394,000 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| 394,004 |
|
Repayments of long-term debt |
|
| — |
|
|
| (304,154 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| — |
|
|
| (304,157 | ) |
|
| — |
|
|
| (561,158 | ) |
|
| (3 | ) |
|
| (1 | ) |
|
| — |
|
|
| (561,162 | ) |
Repurchases of common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Proceeds from exercises of stock options |
|
| 1,721 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,721 |
|
|
| 1,787 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,787 |
|
Due to affiliates |
|
| (2,983 | ) |
|
| 94,293 |
|
|
| — |
|
|
| 1,148 |
|
|
| (92,458 | ) |
|
| — |
|
|
| 2,163 |
|
|
| 230,755 |
|
|
| — |
|
|
| (12,997 | ) |
|
| (219,921 | ) |
|
| — |
|
Net cash (used) provided by financing activities |
|
| (1,262 | ) |
|
| 32,639 |
|
|
| 2 |
|
|
| 1,147 |
|
|
| (92,458 | ) |
|
| (59,932 | ) |
|
| 3,950 |
|
|
| 63,597 |
|
|
| 1 |
|
|
| (12,998 | ) |
|
| (219,921 | ) |
|
| (165,371 | ) |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (460 | ) |
|
| — |
|
|
| (460 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (387 | ) |
|
| — |
|
|
| (387 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| — |
|
|
| — |
|
|
| 20,669 |
|
|
| (8,187 | ) |
|
| — |
|
|
| 12,482 |
|
|
| — |
|
|
| — |
|
|
| 2,204 |
|
|
| (21,644 | ) |
|
| — |
|
|
| (19,440 | ) |
Cash and cash equivalents, beginning of period |
|
| — |
|
|
| 10 |
|
|
| 29,050 |
|
|
| 48,235 |
|
|
| — |
|
|
| 77,295 |
|
|
| — |
|
|
| 10 |
|
|
| 29,050 |
|
|
| 48,235 |
|
|
| — |
|
|
| 77,295 |
|
Cash and cash equivalents, end of period |
| $ | — |
|
| $ | 10 |
|
| $ | 49,719 |
|
| $ | 40,048 |
|
| $ | — |
|
| $ | 89,777 |
|
| $ | — |
|
| $ | 10 |
|
| $ | 31,254 |
|
| $ | 26,591 |
|
| $ | — |
|
| $ | 57,855 |
|
15. Restructuring
Restructuring expense and gain for the three and sixnine months ended March 31,June 30, 2020 and 2019, are as follows (in thousands):
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Project Surge |
| $ | 107 |
|
| $ | — |
|
| $ | 1,360 |
|
| $ | — |
|
| $ | 70 |
|
| $ | — |
|
| $ | 1,430 |
|
| $ | — |
|
Transformation Plan |
|
| 3,086 |
|
|
| (5,814 | ) |
|
| 4,365 |
|
|
| (1,834 | ) |
|
| 5,746 |
|
|
| 1,908 |
|
|
| 10,111 |
|
|
| 74 |
|
Total expense (gain) |
| $ | 3,193 |
|
| $ | (5,814 | ) |
| $ | 5,725 |
|
| $ | (1,834 | ) | ||||||||||||||||
Total expense |
| $ | 5,816 |
|
| $ | 1,908 |
|
| $ | 11,541 |
|
| $ | 74 |
|
Project Surge
In November 2019, we announced that we were launching Project Surge, which takes the successful elements of the North American Sally Beauty transformation and integrates them into our European operations, with the support and participation of several key leaders from the corporate headquarters. As part of this plan, we will beare focusing on several operating elements, including a review of our talent and operating structure.
The liability related to Project Surge, which is included in accrued liabilities on our condensed consolidated balance sheets, is as follows (in thousands):
Project Surge |
| Liability at September 30, 2019 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at March 31, 2020 |
|
| Liability at September 30, 2019 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at June 30, 2020 |
| ||||||||||
Workforce reductions |
| $ | — |
|
| $ | 998 |
|
| $ | 998 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,068 |
|
| $ | 1,068 |
|
| $ | — |
|
| $ | — |
|
Other |
|
| — |
|
|
| 362 |
|
|
| 362 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 362 |
|
|
| 362 |
|
|
| — |
|
|
| — |
|
Total |
| $ | — |
|
| $ | 1,360 |
|
| $ | 1,360 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,430 |
|
| $ | 1,430 |
|
| $ | — |
|
| $ | — |
|
Expenses incurred during the sixnine months ended March 31,June 30, 2020, represent costs incurred by SBS of $1.3 million and corporate of $0.1 million.
Transformation Plan
We previously disclosed a Transformation Plan focusedplan to focus on certain core business strategies. In addition to optimizing our Supply Chain Networksupply chain network with changes to our transportation model and network of nodes, we are improving our marketing and digital commerce capabilities, and advancing our merchandising transformation efforts. In addition, we expanded our plan and announced a reduction in workforce within our field and headquarters. All these together, make up our Transformation Plan.
The liability related to the Transformation Plan, which is included in accrued liabilities on our condensed consolidated balance sheets, is as follows (in thousands):
Transformation Plan |
| Liability at September 30, 2019 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at March 31, 2020 |
|
| Liability at September 30, 2019 |
|
| Expenses |
|
| Expenses Paid or Otherwise Settled |
|
| Adjustments |
|
| Liability at June 30, 2020 |
| ||||||||||
Workforce reductions |
| $ | 654 |
|
| $ | 2,022 |
|
| $ | 1,959 |
|
| $ | — |
|
| $ | 717 |
|
| $ | 654 |
|
| $ | 5,562 |
|
| $ | 4,660 |
|
| $ | — |
|
| $ | 1,556 |
|
Consulting |
|
| 204 |
|
|
| 1,426 |
|
|
| 1,630 |
|
|
| — |
|
|
| — |
|
|
| 204 |
|
|
| 1,426 |
|
|
| 1,630 |
|
|
| — |
|
|
| — |
|
Other |
|
| 70 |
|
|
| 917 |
|
|
| 987 |
|
|
| — |
|
|
| — |
|
|
| 70 |
|
|
| 3,123 |
|
|
| 3,193 |
|
|
| — |
|
|
| — |
|
Total |
| $ | 928 |
|
| $ | 4,365 |
|
| $ | 4,576 |
|
| $ | — |
|
| $ | 717 |
|
| $ | 928 |
|
| $ | 10,111 |
|
| $ | 9,483 |
|
| $ | — |
|
| $ | 1,556 |
|
Expenses incurred during the sixnine months ended March 31,June 30, 2020, represent costs incurred by SBS of $5.1 million, BSG of $1.8 million and corporate of $2.4$3.2 million. Additionally, other expenses in the table above includes a non-cash asset impairment of $1.8 million SBSrelated to the re-measurement of $1.3certain long-lived assets and operating lease assets. These assets had a carrying value of $5.4 million and BSG of $0.7 million.were adjusted down to their estimated fair values. The fair value measurements for these purposes were based on unobservable inputs (Level 3).
16. Subsequent Events
On April 15, 2020, we entered into an amendment to our ABL facility to, among other things, increase the revolving commitment thereunder from $500.0 million to $600.0 million, establish a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increase pricing on the revolving loans and modify certain covenant and reporting terms. The ABL Facility will continue to be secured by a first-priority lien in and upon the accounts and inventory (and the proceeds thereof) of the Company and its guarantor subsidiaries. The ABL Facility will be secured by a second-priority lien in and upon the remaining assets of the Company and its guarantor subsidiaries. The ABL facility will mature on July 6, 2022.
On April 24, 2020, we completed a private an offering of $300.0 million aggregate principal amount of senior secured second lien notes due 2025 (the “Notes”) and received $295.5 million in net proceeds from the Notes offering. The Notes will bear interest at a rate of 8.75% and were issued at par. The Notes are guaranteed on a senior secured basis by the guarantors who have guaranteed obligations under our senior secured credit facilities and our existing notes. We intend to use the net proceeds for working capital and general corporate purposes.
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, 2019, and our other filings with the Securities and Exchange Commission, including the Risk Factors section,sections therein, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and notes to those financial statements and the Risk Factors contained in Section 1A.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.year, in particular as a result of the effects of the COVID-19 pandemic.
Highlights for the Three Months Ended March 31,June 30, 2020:
| • | During the three months ended |
| • | Consolidated net sales for the three months ended |
| • | Our global e-commerce sales increased |
| • | Consolidated same store sales decreased |
| • | Consolidated gross profit for the three months ended |
| • | Consolidated operating earnings for the three months ended |
| • |
|
| • |
|
| • | Cash provided by operations was |
| • |
|
Impact of COVID-19 on Our Business and Business Strategy Update
Our results of operations for the three months ended March 31,June 30, 2020, were significantly impacted by the effects of COVID-19. Prior to the widening effects of the COVID-19 pandemic in the United States which commenced in early March,as we delivered strong same store sales growth in both of our Sally Beauty and Beauty Systems Group segments, showing signs of success in certain elements of our previously announced transformation plans. Consolidated same store sales decreased by 7.1% for the entire second quarter, asexperienced a result of the COVID-19 pandemic leading to the shutdownrolling shut down of customer-facing operations at all global stores starting in virtuallymid-March through mid-April, followed by the rolling restart of store operations from mid-April until the end of June. Store re-openings were triggered by local regulation; the adoption of our new COVID-19 related safety protocols involving store cleaning, masks, and gloves; limiting the number of customers in stores at one time; in-store social distancing guidelines; and the recall from furlough of sufficient store staff. As of June 30, 2020, we have re-opened substantially all stores globallyglobal customer-facing store operations, other than parts of our network in the middle of March. Prior to March 12th, the COVID-19 inflection date for the Company, same store sales had been up 4.7%.Mexico and South America, and saw strong consumer and professional demand in our re-opened stores.
As part of these temporary closures,our re-opening, we also announced that we would temporarily idle several distribution centersrecalled all furloughed associates in the field and temporarily furlough elementsat the headquarters in the U.S. and Canada, effective as of June 8, 2020, except for associates working in the limited number of stores which remained closed at that time. Additional associates in Europe and Latin America will return in our headquarters staff, in advance of a network restart. Furthermore, our Chief Executive Officer and Board of Directors have reduced their pay by 50% for the duration of the COVID-19 crisis and other senior leaders will also have significant reductions in salary for the same time period.fourth quarter.
During the three months ended March 31, 2020, prior to COVID, we made solid progress against our transformation plans as we played to win by focusing on hair color and hair care, improved our retail fundamentals, advanced our digital commerce capabilities and drove costs out of the business. We completed the nationwide roll out of our new point-of-sale system in BSG and are continuing
the roll out in SBS, which will allow our store associates to better serve our customers. In early March, asAs a result of COVID-19, we reprioritized our transformation plans to accelerate key digital and supply chain initiatives, and pivoted to cash management and expense reduction, and paused efforts such as our national brand relaunch,reduction. We have resumed our work againston the implementation of a new merchandising system implementation and the start-up of the new North Texas distribution node.node, but continue to pause on efforts such as our national brand relaunch. Additionally, due to the evolving COVID-19 pandemic and the related business uncertainty, we are deferringcontinue to defer non-digital capital investments and aggressively attackingaddress our short-term cost structure.
In support of our operations and out of an abundance of caution, we also preemptively drew on our ABL facility and have $395.5 million outstanding as of March 31, 2020. Furthermore, onOn April 15, 2020, we amended our ABL facility to increase the revolving commitment thereunder from $500.0 million to $600.0 million, establish a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increase pricing on the revolving loans and modify certain covenant and reporting terms. To further strengthen our liquidity, on April 24, 2020, we closed on $300.0 million of 8.75% senior secured second-lien notes due 2025.
On April 18, 2020, we began the measured process of re-opening our stores to the public. For the week of May 4, 2020, we have re-opened approximately 1,500 stores globally. Store re-openings are triggered by local regulation, the adoption of the Company’s new COVID-19 related safety protocols, as well as the recall from furlough of sufficient store staff.
While theThe effects of the COVID-19 pandemic and related responses largely impacted the last month of our fiscal 2020 second quarter, we expect the pandemic to havehad a material impact on the entirety of our fiscal 2020 third quarter results of operations, cash flows and financial position. Furthermore, due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, thisthe material adverse impact mayof the pandemic will likely continue for the remainder of our fiscal 2020 year and may continue into our fiscal 2021 year and possibly beyond.
Overview
Key Operating Metrics
The following table sets forth, for the periods indicated, information concerning key measures we rely on to evaluate our operating performance (dollars in thousands):
|
| Three Months Ended March 31, |
|
| Six Months Ended March 31, |
|
| Three Months Ended June 30, |
|
| Nine Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
|
| 2020 |
|
| 2019 |
|
| Increase (Decrease) |
| ||||||||||||||||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 519,509 |
|
| $ | 565,604 |
|
| $ | (46,095 | ) |
|
| (8.1 | )% |
| $ | 1,088,657 |
|
| $ | 1,146,213 |
|
| $ | (57,556 | ) |
|
| (5.0 | )% |
| $ | 415,468 |
|
| $ | 575,025 |
|
| $ | (159,557 | ) |
|
| (27.7 | )% |
| $ | 1,504,125 |
|
| $ | 1,721,238 |
|
| $ | (217,113 | ) |
|
| (12.6 | )% |
BSG |
|
| 351,514 |
|
|
| 380,248 |
|
|
| (28,734 | ) |
|
| (7.6 | )% |
|
| 762,574 |
|
|
| 789,092 |
|
|
| (26,518 | ) |
|
| (3.4 | )% |
|
| 289,819 |
|
|
| 400,144 |
|
|
| (110,325 | ) |
|
| (27.6 | )% |
|
| 1,052,393 |
|
|
| 1,189,236 |
|
|
| (136,843 | ) |
|
| (11.5 | )% |
Consolidated |
| $ | 871,023 |
|
| $ | 945,852 |
|
| $ | (74,829 | ) |
|
| (7.9 | )% |
| $ | 1,851,231 |
|
| $ | 1,935,305 |
|
| $ | (84,074 | ) |
|
| (4.3 | )% |
| $ | 705,287 |
|
| $ | 975,169 |
|
| $ | (269,882 | ) |
|
| (27.7 | )% |
| $ | 2,556,518 |
|
| $ | 2,910,474 |
|
| $ | (353,956 | ) |
|
| (12.2 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 289,067 |
|
| $ | 314,729 |
|
| $ | (25,662 | ) |
|
| (8.2 | )% |
| $ | 598,057 |
|
| $ | 631,959 |
|
| $ | (33,902 | ) |
|
| (5.4 | )% |
| $ | 202,460 |
|
| $ | 320,998 |
|
| $ | (118,538 | ) |
|
| (36.9 | )% |
| $ | 800,517 |
|
| $ | 952,958 |
|
| $ | (152,441 | ) |
|
| (16.0 | )% |
BSG |
|
| 140,690 |
|
|
| 153,595 |
|
|
| (12,905 | ) |
|
| (8.4 | )% |
|
| 306,548 |
|
|
| 317,071 |
|
|
| (10,523 | ) |
|
| (3.3 | )% |
|
| 119,386 |
|
|
| 161,224 |
|
|
| (41,838 | ) |
|
| (26.0 | )% |
|
| 425,934 |
|
|
| 478,294 |
|
|
| (52,360 | ) |
|
| (10.9 | )% |
Consolidated |
| $ | 429,757 |
|
| $ | 468,324 |
|
| $ | (38,567 | ) |
|
| (8.2 | )% |
| $ | 904,605 |
|
| $ | 949,030 |
|
| $ | (44,425 | ) |
|
| (4.7 | )% |
| $ | 321,846 |
|
| $ | 482,222 |
|
| $ | (160,376 | ) |
|
| (33.3 | )% |
| $ | 1,226,451 |
|
| $ | 1,431,252 |
|
| $ | (204,801 | ) |
|
| (14.3 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
|
| 55.6 | % |
|
| 55.6 | % |
| — |
|
| bps |
|
|
| 54.9 | % |
|
| 55.1 | % |
| (20) |
|
| bps |
|
|
| 48.7 | % |
|
| 55.8 | % |
| (710) |
|
| bps |
|
|
| 53.2 | % |
|
| 55.4 | % |
| (220) |
|
| bps |
| ||||||||
BSG |
|
| 40.0 | % |
|
| 40.4 | % |
| (40) |
|
| bps |
|
|
| 40.2 | % |
|
| 40.2 | % |
| — |
|
| bps |
|
|
| 41.2 | % |
|
| 40.3 | % |
| 90 |
|
| bps |
|
|
| 40.5 | % |
|
| 40.2 | % |
| 30 |
|
| bps |
| ||||||||
Consolidated |
|
| 49.3 | % |
|
| 49.5 | % |
| (20) |
|
| bps |
|
|
| 48.9 | % |
|
| 49.0 | % |
| (10) |
|
| bps |
|
|
| 45.6 | % |
|
| 49.5 | % |
| (390) |
|
| bps |
|
|
| 48.0 | % |
|
| 49.2 | % |
| (120) |
|
| bps |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Net earnings (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SBS |
| $ | 56,373 |
|
| $ | 86,715 |
|
| $ | (30,342 | ) |
|
| (35.0 | )% |
| $ | 130,598 |
|
| $ | 176,706 |
|
| $ | (46,108 | ) |
|
| (26.1 | )% |
| $ | 3,087 |
|
| $ | 95,763 |
|
| $ | (92,676 | ) |
|
| (96.8 | )% |
| $ | 133,684 |
|
| $ | 272,470 |
|
| $ | (138,786 | ) |
|
| (50.9 | )% |
BSG |
|
| 41,039 |
|
|
| 56,518 |
|
|
| (15,479 | ) |
|
| (27.4 | )% |
|
| 103,473 |
|
|
| 118,849 |
|
|
| (15,376 | ) |
|
| (12.9 | )% |
|
| 40,084 |
|
|
| 61,552 |
|
|
| (21,468 | ) |
|
| (34.9 | )% |
|
| 143,557 |
|
|
| 180,401 |
|
|
| (36,844 | ) |
|
| (20.4 | )% |
Segment operating earnings |
|
| 97,412 |
|
|
| 143,233 |
|
|
| (45,821 | ) |
|
| (32.0 | )% |
|
| 234,071 |
|
|
| 295,555 |
|
|
| (61,484 | ) |
|
| (20.8 | )% |
|
| 43,171 |
|
|
| 157,315 |
|
|
| (114,144 | ) |
|
| (72.6 | )% |
|
| 277,241 |
|
|
| 452,871 |
|
|
| (175,630 | ) |
|
| (38.8 | )% |
Unallocated expenses and restructuring (a) |
|
| 54,147 |
|
|
| 30,721 |
|
|
| 23,426 |
|
|
| 76.3 | % |
|
| 96,419 |
|
|
| 73,305 |
|
|
| 23,114 |
|
|
| 31.5 | % |
|
| 41,740 |
|
|
| 37,184 |
|
|
| 4,556 |
|
|
| 12.3 | % |
|
| 138,158 |
|
|
| 110,490 |
|
|
| 27,668 |
|
|
| 25.0 | % |
Consolidated operating earnings |
|
| 43,265 |
|
|
| 112,512 |
|
|
| (69,247 | ) |
|
| (61.5 | )% |
|
| 137,652 |
|
|
| 222,250 |
|
|
| (84,598 | ) |
|
| (38.1 | )% |
|
| 1,431 |
|
|
| 120,131 |
|
|
| (118,700 | ) |
|
| (98.8 | )% |
|
| 139,083 |
|
|
| 342,381 |
|
|
| (203,298 | ) |
|
| (59.4 | )% |
Interest expense |
|
| 21,644 |
|
|
| 23,821 |
|
|
| (2,177 | ) |
|
| (9.1 | )% |
|
| 43,185 |
|
|
| 48,310 |
|
|
| (5,125 | ) |
|
| (10.6 | )% |
|
| 27,298 |
|
|
| 25,781 |
|
|
| 1,517 |
|
|
| 5.9 | % |
|
| 70,483 |
|
|
| 74,092 |
|
|
| (3,609 | ) |
|
| (4.9 | )% |
Earnings before provision for income taxes |
|
| 21,621 |
|
|
| 88,691 |
|
|
| (67,070 | ) |
|
| (75.6 | )% |
|
| 94,467 |
|
|
| 173,940 |
|
|
| (79,473 | ) |
|
| (45.7 | )% | ||||||||||||||||||||||||||||||||
Provision for income taxes |
|
| 8,253 |
|
|
| 22,966 |
|
|
| (14,713 | ) |
|
| (64.1 | )% |
|
| 27,884 |
|
|
| 42,488 |
|
|
| (14,604 | ) |
|
| (34.4 | )% | ||||||||||||||||||||||||||||||||
Net earnings |
| $ | 13,368 |
|
| $ | 65,725 |
|
| $ | (52,357 | ) |
|
| (79.7 | )% |
| $ | 66,583 |
|
| $ | 131,452 |
|
| $ | (64,869 | ) |
|
| (49.3 | )% | ||||||||||||||||||||||||||||||||
Earnings (loss) before provision for income taxes |
|
| (25,867 | ) |
|
| 94,350 |
|
|
| (120,217 | ) |
|
| (127.4 | )% |
|
| 68,600 |
|
|
| 268,289 |
|
|
| (199,689 | ) |
|
| (74.4 | )% | ||||||||||||||||||||||||||||||||
Provision (benefit) for income taxes |
|
| (2,341 | ) |
|
| 23,186 |
|
|
| (25,527 | ) |
|
| (110.1 | )% |
|
| 25,543 |
|
|
| 65,673 |
|
|
| (40,130 | ) |
|
| (61.1 | )% | ||||||||||||||||||||||||||||||||
Net earnings (loss) |
| $ | (23,526 | ) |
| $ | 71,164 |
|
| $ | (94,690 | ) |
|
| (133.1 | )% |
| $ | 43,057 |
|
| $ | 202,616 |
|
| $ | (159,559 | ) |
|
| (78.7 | )% | ||||||||||||||||||||||||||||||||
|
| . |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| . |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Number of stores at end-of-period (including franchises): | Number of stores at end-of-period (including franchises): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of stores at end-of-period (including franchises): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
SBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,701 |
|
|
| 3,718 |
|
|
| (17 | ) |
|
| (0.5 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 3,691 |
|
|
| 3,705 |
|
|
| (14 | ) |
|
| (0.4 | )% |
BSG |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,374 |
|
|
| 1,388 |
|
|
| (14 | ) |
|
| (1.0 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,371 |
|
|
| 1,384 |
|
|
| (13 | ) |
|
| (0.9 | )% |
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,075 |
|
|
| 5,106 |
|
|
| (31 | ) |
|
| (0.6 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,062 |
|
|
| 5,089 |
|
|
| (27 | ) |
|
| (0.5 | )% |
Same store sales growth (decline) (b): | Same store sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Same store sales growth (decline) (b): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
SBS |
|
| (7.0 | )% |
|
| (0.3 | )% |
| (670) |
|
| bps |
|
|
| (4.0 | )% |
|
| 0.2 | % |
| (420) |
|
| bps |
|
|
| (25.9 | )% |
|
| (0.6 | )% |
| (2,530) |
|
| bps |
|
|
| (11.3 | )% |
|
| (0.1 | )% |
| (1,120) |
|
| bps |
| ||||||||
BSG |
|
| (7.4 | )% |
|
| (0.9 | )% |
| (650) |
|
| bps |
|
|
| (3.0 | )% |
|
| (0.7 | )% |
| (230) |
|
| bps |
|
|
| (27.9 | )% |
|
| 1.4 | % |
| (2,930) |
|
| bps |
|
|
| (11.2 | )% |
|
| — |
|
| (1,120) |
|
| bps |
| ||||||||
Consolidated |
|
| (7.1 | )% |
|
| (0.5 | )% |
| (660) |
|
| bps |
|
|
| (3.6 | )% |
|
| (0.1 | )% |
| (350) |
|
| bps |
|
|
| (26.6 | )% |
|
| 0.1 | % |
| (2,670) |
|
| bps |
|
|
| (11.3 | )% |
|
| (0.1 | )% |
| (1,120) |
|
| bps |
|
(a) | Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our consolidated statements of |
(b) | For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year. Our same store sales are calculated in constant dollars and include e-commerce sales from certain digital platforms, but do not generally include the sales from stores relocated until 14 months after the relocation. The sales from stores acquired are excluded from our same store sales calculation until 14 months after the acquisition. |
Results of Operations
The Three Months Ended March 31,June 30, 2020, compared to the Three Months Ended March 31,June 30, 2019
Net Sales
Consolidated. Consolidated net sales include a negative impact from changes in foreign currency exchange rates of $3.1$3.2 million, or 0.4%0.5% of consolidated net sales.
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Same store sales |
| $ | (37,244 | ) |
| $ | (139,836 | ) |
Sales outside same store sales |
|
| (5,853 | ) |
|
| (17,171 | ) |
Foreign currency exchange |
|
| (2,998 | ) |
|
| (2,550 | ) |
Total |
| $ | (46,095 | ) |
| $ | (159,557 | ) |
SBS experienced lower unit volume (which was caused primarily by the impact of the temporary closure of all our customer-facing store operations due to the effects of COVID-19, partially offset by strong demand upon re-opening. The challenges faced by lower customer traffic and the reduction in company-operated stores during the last 12 months). These headwindsunit volume were partially offset by an increase in average unit prices, resulting from targeted price increases, a change in product mix to higher-priced products increased e-commerce sales and athe cancellation of most promotional efficiency effort. activity.
BSG. The decrease in net sales for BSG was primarily driven by the following (in thousands):
Same store sales |
| $ | (19,495 | ) |
| $ | (75,464 | ) |
Sales outside same store sales |
|
| (9,106 | ) |
|
| (34,258 | ) |
Foreign currency exchange |
|
| (133 | ) |
|
| (603 | ) |
Total |
| $ | (28,734 | ) |
| $ | (110,325 | ) |
BSG experienced lower unit volume primarily as a result of the temporary closure of all of our customer-facing store operations in the U.S. and Canada due to the effects of COVID-19. The negative impact of the temporary closures were partially offset by an increase in average unit prices resulting primarily from the introduction of certain third-party brands with higher average unit prices in the preceding 12 months and increased e-commerce sales.lower promotional activity.
Gross Profit
Consolidated. Consolidated gross profit decreased for the three months ended March 31,June 30, 2020, primarily due to lower net sales in both segments and a lower gross margin in SBS, partially offset by a higher gross margin in BSG. While point-of-sale margin was stronger across both segments versus the prior year, driven by fewer promotions and favorable shift in product mix, it was more than offset by on-shelf inventory clearance efforts related to slow moving inventory plus a non-cash write down of inventory of $27.1 million and a reduction in vendor allowances from fewer promotions and reduced inventory purchases.
SBS. SBS’s gross profit decreased for the three months ended March 31,June 30, 2020, as a result of a lower net sales. SBSsales and a lower gross margin. SBS’s gross margin was unchanged fordecreased primarily as a result of the three months ended March 31, 2020, compared tocombination of lower vendor allowances and from aggressive inventory clearance efforts at the three months ended March 31, 2019.end of the quarter, partially offset by the positive impact from fewer promotions and favorable product mix.
BSG. BSG’s gross profit decreased for the three months ended March 31,June 30, 2020, primarily as a result of a lower net sales, andpartially offset by a lowerhigher gross margin. BSG’s gross margin decreasedincreased primarily as a result of the timing of promotional activity.fewer promotions and higher margin product mix, partially offset by lower vendor allowances from fewer promotions and reduced inventory purchases and inventory clearance actions.
Selling, General and Administrative Expenses
Consolidated. Consolidated selling, general and administrative expenses increaseddecreased primarily as a result of costs associated with disaster payments and furloughed employeescost saving initiatives in response to COVID-19, higherincluding savings associated with furloughed employees, lower advertising and promotional expenses, rent abatements and the suspension or elimination of all non-critical projects and non-essential spend. These decreases were partially offset by increased shipping costs resulting from increased e-commerce volume. These increases were partially offset by lower compensationvolume and compensation-relatedincremental store expenses and an employee retention payroll tax credit provided by the CARES Act.for personal protective equipment. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 580770 basis points to 44.0%44.6% for the three months ended March 31,June 30, 2020. This deleveraging was driven by lost sales as a result of the impact of COVID-19.
SBS. SBS’s selling, general and administrative expenses increased $4.7decreased $25.9 million, or 2.1%11.5%, for the three months ended March 31, 2020. This increase was primaryJune 30, 2020, primarily due to higher advertising expense of $5.2 million, increased shipping costs of $2.4 million and increased rent expense of $1.5 million. These increases were partially offsetour response to COVID-19. The decrease was driven by lower compensation and compensation-related expenses of $3.3$45.5 million including(primarily as a result of previously announced furloughs), lower anticipated annual incentive bonusesrent expense of $6.3 million (driven by rent abatements) and lower sales bonuses,advertising expenses of $5.0 million. These decreases were partially offset by an increase in shipping costs of $23.3 million, resulting primarily from increased e-commerce volume, and the positive impact from changes in foreign currency exchange rates of $1.3 million.incremental store expense for personal protective equipment.
BSG. BSG’s selling, general and administrative expenses increased $2.6decreased $20.4 million, or 2.7%20.4%, for the three months ended March 31,June 30, 2020, primarily due to our response to COVID-19. The decrease was driven by lower compensation and compensation-related expenses of $21.5 million, primarily as a result of higherpreviously announced furloughs, and lower advertising expenses of $1.2 million and increased$3.9 million. These decreases were partially offset by an increase in shipping costs of $0.8 million.$4.7 million, resulting primarily from increased e-commerce volume.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $14.4$0.6 million, or 39.5%1.8%, for the three months ended March 31,June 30, 2020, primarily from
costs associated with disaster payments and furloughed employeesother costs incurred in response to COVID-19, partially offset by an employee retention payroll tax credit provided by the CARES Act.lower compensation expenses resulting from furloughed employees.
Restructuring
For the three months ended March 31,June 30, 2020, we incurred restructuring charges of $3.2$5.8 million primarily in connection with the Transformation Plan. For the three months ended March 31,June 30, 2019, we recognized incomecharges of $5.8$1.9 million in connection with the supply chain modernization plan, which included a $6.6 million gain from selling our secondary headquarters and fulfillment center in Denton, Texas.plan. See Note 15 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.
Interest Expense
The decreaseincrease in interest expense is primarily from lowerhigher outstanding principal balancesbalance on our term loan BABL facility and our senior notes.the newly issued Senior Secured Notes. See “Liquidity and Capital Resources” below for additional information.
Provision (Benefit) for Income Taxes
The effective tax rates were 38.2%9.1% and 25.9%24.6%, for the three months ended March 31,June 30, 2020, and 2019, respectively. The increase in the effective tax rate for the third quarter of the current year was primarily drivennegatively impacted by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses as compared to the prior period, which cannot be tax benefitted.
The SixNine Months Ended March 31,June 30, 2020, compared to the SixNine Months Ended March 31,June 30, 2019
Net Sales
Consolidated. Consolidated net sales include a negative impact from changes in foreign currency exchange rates of $4.1$7.3 million, or 0.2%0.3% of consolidated net sales.
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Same store sales |
| $ | (43,154 | ) |
| $ | (183,005 | ) |
Sales outside same store sales |
|
| (10,341 | ) |
|
| (27,498 | ) |
Foreign currency exchange |
|
| (4,061 | ) |
|
| (6,610 | ) |
Total |
| $ | (57,556 | ) |
| $ | (217,113 | ) |
SBS experienced lower unit volume caused by lower customer traffic, the reduction in company-operated stores during the last 12 months and the temporary closure of all of our customer-facing store operations in the U.S. and Canada due to the effects of COVID-19.COVID-19, lower customer traffic and the reduction in company-operated stores during the last 12 months. The segment also experienced a lapped non-recurring benefit from the prior year. These headwinds were partially offset by increased e-commerce sales and an increase in average unit prices. The increase in the average unit prices resulting fromwas a result of targeted price increases earlier in the year, a change in product mix to higher-priced products increased e-commerce sales and a promotional efficiency effort, partially offset by implementation related technology disruptions in the first fiscal quarter which led to incorrect POS pricing, elevated promotional discounts and higher loyalty program redemptions.
BSG. The decrease in net sales for BSG was primarily driven by the following (in thousands):
Same store sales |
| $ | (16,080 | ) |
| $ | (91,544 | ) |
Sales outside same store sales |
|
| (10,356 | ) |
|
| (44,614 | ) |
Foreign currency exchange |
|
| (82 | ) |
|
| (685 | ) |
Total |
| $ | (26,518 | ) |
| $ | (136,843 | ) |
BSG experienced lower unit volume primarily as a result of the temporary closure of all of our customer-facing store operations in the U.S. and Canada due to the effects of COVID-19. The negative effects of these temporary closures were partially offset by increased e-commerce sales and an increase in average unit prices resulting primarily from lower promotional activity and the introduction of certain third-party brands with higher average unit prices in the preceding 12 months and increased e-commerce sales.months.
Gross Profit
Consolidated. Consolidated gross profit decreased for the sixnine months ended March 31,June 30, 2020, primarily due to lower net sales in both segments and a lower gross margin in SBS.SBS, partially offset by a higher gross margin in BSG.
SBS. SBS’s gross profit decreased for the sixnine months ended March 31,June 30, 2020, primarily as a result of a lower net sales and a lower gross margin. SBS’s gross margin decreased primarily as a result of aggressive inventory clearance actions in the current quarter, the implementation related technology disruptions in the first quarter and non-recurring benefits that we lapped from the prior year, partially offset by continued promotional efficiencies and targeted price increases.fewer promotions.
BSG. BSG’s gross profit decreased for the sixnine months ended March 31,June 30, 2020, primarily as a result of lower sales.net sales, partially offset by a higher gross margin. BSG’s gross margin remained flat forincreased primarily from a shift in the six months ended March 31, 2020, compared topurchased product mix and fewer promotions, partially offset by aggressive inventory clearance actions in the six months ended March 31, 2019.current quarter.
Selling, General and Administrative Expenses
Consolidated. Consolidated selling, general and administrative expenses increaseddecreased primarily as a result of higherlower compensation and compensation-related expenses, SBS advertising expensespartially offset by costs associated with disaster payments and legalin response to COVID-19 and higher shipping costs. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 350470 basis points to 41.1%42.1% for the sixnine months ended March 31,June 30, 2020. This deleveraging was driven by lost sales as a result of the impact of COVID-19.
SBS. SBS’s selling, general and administrative expenses increased $12.2decreased $13.7 million, or 2.7%2.0%, for the sixnine months ended March 31,June 30, 2020. This increase reflects higher advertisinglower compensation and compensation-related expense of $6.7$43.1 million, increasedprimarily as a result of previously announced furloughs. This decrease was partially offset by an increase in shipping costs of $4.3$27.6 million, and higher compensation and compensation-related expenses.resulting primarily from increased e-commerce volume.
BSG. BSG’s selling, general and administrative expenses increased $4.9decreased $15.5 million, or 2.4%5.2%, for the sixnine months ended March 31, 2020,June 30, 2020. This increase reflects lower compensation and compensation-related expense of $21.3 million, primarily as a result of higher advertising expense of $1.1 million, increasedpreviously announced furloughs. This decrease was partially offset by an increase in shipping costs of $1.1$5.9 million, and higher depreciation expense of $0.8 million.resulting primarily from increased e-commerce volume.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $15.6$16.2 million, or 20.7%14.7%, for the sixnine months ended March 31,June 30, 2020, primarily from costs associated with disaster payments and furloughed employees in response to COVID-19, and higher professional fees of $3.3 million, partially offset by an employee retention payroll tax credit provided by the CARES Act.lower compensation expenses resulting from furloughed employees.
Restructuring
For the sixnine months ended March 31,June 30, 2020, we incurred restructuring charges of $5.7$11.5 million in connection with Project Surge and the Transformation Plan. For the sixnine months ended March 31,June 30, 2019, we recognized incomecharges of $1.8$6.7 million in connection with the supply chain modernization plan, which includedpartially offset by a $6.6 million gain from selling our secondary headquarters and fulfillment center in Denton, Texas, and the 2018 Restructuring Plan. See Note 15 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.
Interest Expense
The decrease in interest expense is primarily from lower outstanding principal balances on our term loan B and our senior notes.notes during the first and second quarters, partially offset by a higher average outstanding ABL balance during the nine months ended June 30, 2020 and the newly issued Senior Secured Notes. See “Liquidity and Capital Resources” below for additional information.
Provision (Benefit) for Income Taxes
The effective tax rates were 29.5%37.2% and 24.4%24.5%, for the sixnine months ended March 31,June 30, 2020, and 2019, respectively. The increase in the effective tax rate was primarily driven by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses, as compared to the prior period, which cannot be tax benefitted. Additionally, for the sixnine months ended March 31,June 30, 2019, the provision for income taxes included an income tax benefit due to an adjustment to our previously recorded transition tax on unrepatriated foreign earnings as a result of the Tax Cuts and Jobs Act.
Liquidity and Capital Resources
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 operations, working capital, capital expenditures, debt repayment and share repurchases. Working capital (current assets less current liabilities) decreased $174.3increased $118.1 million, to $533.2$825.6 million at March 31,June 30, 2020, compared to $707.5 million at September 30, 2019, resulting primarily from the impact of the adoption of the new lease standard.
At March 31,June 30, 2020, cash and cash equivalents were $364.4$838.8 million. Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), funds expected to be generated by operations and funds available under the ABL facility will be sufficient to fund working capital requirements, potential acquisitions, finance anticipated capital expenditures, including information technology upgrades and store remodels and debt repayments over the next 12 months. Due to the impact of COVID-19, we have shifted our focus to being proactive in maintaining our financial flexibility. As mentioned above, we have reduced our capital investments, idled several distribution centers, temporarily furloughed elements of the headquarter and field staff and implemented reductions in salary for senior leaders for the duration of the COVID-19 crisis, including 50% reduction in the Chief Executive Officer’s pay.
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 opportunistic share repurchases. During the quarter we drew on the revolver to fund share repurchase and debt
paydown activity. During the sixnine months ended March 31,June 30, 2020, the weighted-average interest rate on our borrowings under the ABL facility was 3.1%2.85%. During late March, in support of our operations and out of an abundance of caution, we preemptively drew on our ABL facility as a result of COVID-19. The amounts drawn are generally paid down with cash provided by our operating activities. As of March 31,June 30, 2020, we had $85.8$81.0 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.
Subsequent toDuring the end of the second fiscal quarter,nine months ended June 30, 2020, we entered into an amendment to our ABL facility to, among other things, increase the revolving commitment thereunder from $500.0 million to $600.0 million, establish a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increase pricing on the revolving loans and modify certain covenant and reporting terms. We also issued $300.0 million of 8.75% senior secured second-lien notes due 2025Senior Secured Notes in a private offering in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended. See Note 16, Subsequent Events, for more information.
Share Repurchase Programs
During the sixthree months ended March 31,June 30, 2020, we did not repurchase any common stock. During the nine months ended June 30, 2020, we repurchased and subsequently retired approximately 3.94.7 million shares of our common stock at an aggregate cost of $50.0$61.4 million. We funded these share repurchases with existing cash balances, cash from operations and borrowings under the ABL facility. As of March 31,June 30, 2020, we had authorization of approximately $726.1 million of additional potential share repurchases remaining under the 2017 Share 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. TheWhile historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions.acquisitions, we have shifted our focus in the short-term to reduce non-essential cash expenditures and preserve our cash balances.
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the sixnine months ended March 31,June 30, 2020, decreased $34.0increased $70.6 million to $76.1$274.4 million, compared to the sixnine months ended March 31,June 30, 2019, mainly due to lower net earnings, partially offset bythe reduction in inventory purchases as a result of COVID-19 and the timing of our vendor receivables, and higher inventory purchasespartially offset by the decrease in the prior year resulting from the correction of supply chain issues created by certain vendors and the launch of new product lines.net earnings.
Net Cash Used by Investing Activities
Net cash used by investing activities during the sixnine months ended March 31,June 30, 2020, increased $36.7$34.1 million to $73.9$91.6 million, compared to the sixnine months ended March 31,June 30, 2019. This change was primarily a result of higher of capital expenditures, related to our investments in information technology, and the sellingsale of our secondary headquarters and fulfillment center in the prior year with no comparable sale in this year.
Net Cash Provided (Used) by Financing Activities
The change in financing activities cash flows was primarily a result of additional borrowings, out of an abundance of caution in connection with COVID-19, under our ABL facility and the issuance of $300.0 million in connection with COVID-19new Senior Secured Notes and partially offset by the repurchase of $61.4 million of our common stock.
Long-Term Debt
At March 31,June 30, 2020, we had $1,958.7$2,258.7 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $12.8$17.4 million. Our debt consisted of $877.4$1,177.4 million of senior notes outstanding, a term loan B with an outstanding principal balance of $685.8 million and $395.5 million of principal borrowings outstanding under our ABL facility.
See Note 10, Short-term Borrowings and Long-term Debt, and Note 16, Subsequent Events, for more information on our debt.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.
Contractual Obligations
There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2019.
Off-Balance Sheet Financing Arrangements
At March 31,June 30, 2020, and September 30, 2019, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates or assumptions since September 30, 2019.
Accounting Changes and Recent Accounting Pronouncements
See Note 3 of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.
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, 2019. See our disclosures about market risks contained in Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019.
Item 4. Controls and Procedures
Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31,June 30, 2020. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Quarterly Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.
Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this Quarterly Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and
by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis and to maintain them as dynamic systems that change as conditions warrant.
Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of March 31,June 30, 2020, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors contained in Item 1A. “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2019, and in our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2020, which could materially affect our business, financial condition or future results. Other than the risks set forth below, thereThere have been no material changes from the risk factors disclosed in such Annual Report and such Quarterly Report. The risks described in such Annual Report and Quarterly Report and herein are not the only risks facing our company.
The recent novel coronavirus (COVID-19) global pandemic has had and is expected to continue to have an adverse effect on our business and results of operations.
In late 2019, COVID-19 was first detected in Wuhan, China. In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn in many of our markets. As a result of COVID-19, on March 23, 2020, we temporarily closed all U.S. and Canadian retail and wholesale store fronts to customers without a firm date on when we will reopen. While we have begun opening certain of our stores, the cadence of reopening the North American fleet of stores is uncertain. Beginning in mid-March 2020, certain stores have transitioned to a contactless curbside service model, or to a ship-from-store mode as permitted by regulation or local order. Because we will require a smaller workforce to execute on the critical activities of our business during this time, we have furloughed most of our employees. We have provided furloughed employees in the U.S. and Canada with two weeks’ pay and medical benefits continuation through June 30, 2020. Due to the uncertainty of COVID-19, we will continue to assess the situation, including government-imposed restrictions, market by market.
We are unable to accurately predict the impact that COVID-19 will have on our operations going forward due to uncertainties which will be dictated by the length of time that such disruptions continue, which will, in turn, depend on the currently unknowable duration of the COVID-19 pandemic and the impact of governmental regulations that might be imposed in response to the pandemic. Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread of COVID-19. Such orders or restrictions have resulted in temporary store closures, limitation of store hours, limitations on number of people in stores or in warehouses, requirements on sanitation and social distancing practices, work stoppages, slowdowns and delays, travel restrictions and cancellation of events, among other effects, thereby negatively impacting our operations. In addition, we expect to be impacted by the deterioration in the economic conditions in North America, which potentially could have an impact on discretionary consumer spending. Further, deteriorating economic conditions globally have created a challenging environment for financing, creating substantial uncertainty regarding the availability of credit. The combination of reduced consumer spending and volatile credit markets could adversely impact our liquidity. However, while it is premature to accurately predict the ultimate impact of these developments, we expect our financial results to be materially adversely impacted.
To the extent the COVID-19 pandemic adversely affects our business, liquidity and financial results, it may also have the effect of heightening many of the other risks described in this “Risk Factors” section and in the “Risk Factors” section of our Annual Report on Form 10-K, such as those relating to our high level of indebtedness, our need to generate sufficient cash flows to service our indebtedness, and our ability to comply with the covenants contained in the agreements that govern our indebtedness.
Our business has been and may continue to be materially and adversely affected by the spread of the novel coronavirus (COVID-19).
Many of our vendors either produce their products or source component parts of their products from areas affected by COVID-19. As a result, the business disruptions caused by the spread of COVID-19 may impact our ability to timely acquire the products we sell to
our customers and our business may be adversely affected. In addition, consumer fears about becoming ill with the disease may continue, which will adversely affect traffic to our and our customers’ stores. Consumer spending generally may also be negatively impacted by general macroeconomic conditions and consumer confidence, including the impacts of any recession, resulting from the COVID-19 pandemic. This may negatively impact sales in our stores, when reopened to the public, and our e-commerce channel and may cause our wholesale customers to purchase fewer products from us. The COVID-19 pandemic also has the potential to have a continued significant impact on our supply chain if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages. We may also see disruptions or delays in shipments and negative impacts to pricing of certain products.
We have taken decisive actions across our businesses to help protect employees, customers, and others in the communities we serve including in response to the increased impact from COVID-19. In addition to store closures, we are temporarily idling several distribution centers. Our online commerce business continues to be available to customers. While the COVID-19 pandemic is expected to be temporary and it is premature to accurately predict the ultimate impact of these developments, we expect our financial results to be materially adversely impacted. The disruption to the global economy and to our business, along with a sustained decline in our stock price, may lead to triggering events that may indicate that the carrying value of certain assets, including inventories, accounts receivables, long-lived assets, intangibles, and goodwill, may not be recoverable. The further spread of COVID-19, and the requirement to take action to limit the spread of the illness, has had, and may continue to have, a material adverse impact on global economic conditions, our business, liquidity, results of operations and financial condition, including on our potential to conduct financings on terms acceptable to us, if at all.
Changes in consumer behavior as a result of COVID-19 may materially and adversely affect our business.
Consumer behavior may fundamentally change as a result of COVID-19 in both the near and long term. Traffic in retail stores, including our stores, may be materially and adversely affected with more consumers relying on ecommerce. Consumer spending may also be negatively impacted by general macroeconomic conditions and consumer confidence, including the impacts of any recession, resulting from the COVID-19 pandemic. All of this could materially and adversely impact sales at our retail stores. We have reprioritized our transformation plans to accelerate the roll-out of our digital programs in response to the temporary closure of our stores and potential changes in consumer behavior, however, there is no guarantee that we will be successful in growing our ecommerce sales. Furthermore, we have expended and may continue to expend significant resources to strengthen our digital platforms. In addition, we may also need to re-design our supply chain to focus more on ecommerce sales and fulfillment, which could result in capital expenditures, business disruption and lower margin sales.
Health concerns arising from the outbreak of a health epidemic or pandemic may have an adverse effect on our business.
In addition to COVID-19, our business could be materially and adversely affected by the outbreak of a widespread epidemic or pandemic, including those arising from various strains of avian flu or swine flu, such as H1N1, particularly if located in regions from which we derive a significant amount of revenue or profit. The occurrence of such an outbreak or other adverse public health developments could materially disrupt our business and operations. Such events could also significantly impact our industry and cause a temporary closure of stores and fulfillment centers, which could severely disrupt our operations and have a material adverse effect on our business, financial condition and results of operations.
Furthermore, other viruses may be transmitted through human contact, and the risk of contracting viruses could cause employees or customers to avoid gathering in public places, which could adversely affect store traffic or the ability to adequately staff stores. We could also be adversely affected if government authorities impose mandatory closures, seek voluntary closures, impose restrictions on operations of stores, or restrict the import or export of inventory. Even if such measures are not implemented and a virus or other disease does not spread significantly, the perceived risk of infection or health risk may adversely affect our business and operating results.
A downturn in economic conditions and other external market factors could have a significant adverse effect on our business and our financial condition.
During economic downturns, including any potential impacts from COVID-19, fewer customers may shop in our stores and on our websites, and those who do shop may limit the amount of their purchases. This reduced demand may lead to lower sales and intensified competitive pressures, resulting in higher markdowns and/or increased marketing and promotional spending. Additionally, factors such as results differing from guidance, changes in sales and operating income in the peak seasons, changes in our market valuations, performance results for the general retail industry, announcements by us or our industry peers or changes in analysts’ recommendations may cause volatility in the price of our common stock and our shareholder returns.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Fiscal Period |
| Total Number of Shares Purchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) |
|
| Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
| ||||
January 1 - January 31, 2020 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | 776,120,613 |
|
February 1 - February 29, 2020 |
|
| 1,561,376 |
|
|
| 13.06 |
|
|
| 1,561,376 |
|
|
| 755,725,524 |
|
March 1 - March 31, 2020 |
|
| 2,374,537 |
|
|
| 12.47 |
|
|
| 2,374,537 |
|
|
| 726,120,621 |
|
Total this quarter |
|
| 3,935,913 |
|
| $ | 12.70 |
|
|
| 3,935,913 |
|
| $ | 726,120,621 |
|
(1)In August 2017, we announced that our Board of Directors had approved a share repurchase program authorizing us to repurchase up to $1.0 billion of our common stock over an approximate four-year period expiring on September 30, 2021 (the “2017 Share Repurchase Program”).
Item 6. Exhibits
Exhibit No. |
| Description |
|
|
|
3.1 |
| |
|
|
|
3.2 |
| |
4.1 | ||
4.2 | ||
|
|
|
31.1 |
| Rule 13a-14(a)/15d-14(a) Certification of Christian A. Brickman* |
|
|
|
31.2 |
| |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101 |
| The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended |
|
|
|
104 |
| The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended |
* Included herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
| SALLY BEAUTY HOLDINGS, INC. |
|
|
| (Registrant) |
|
|
|
|
Date: |
|
|
|
|
|
|
|
| By: |
| /s/ Aaron E. Alt |
|
|
| Aaron E. Alt |
|
|
| Senior Vice President, Chief Financial Officer and President – Sally Beauty Supply |
|
|
| For the Registrant and as its Principal Financial Officer |
39