- Plan to Restructure International
Operations
- Strategic Investments to Drive
Growth
Sally Beauty Holdings, Inc. (NYSE: SBH) (“the Company”) today
announced financial results for the fourth quarter and fiscal year
ended September 30, 2017. The Company will hold a conference call
today at 7:30 a.m. (Central) to discuss these results and its
business.
Fiscal 2017 Fourth Quarter Overview
Consolidated net sales were $974.2 million in the fourth
quarter, a decrease of 0.2% compared to the prior year. Same store
sales decreased 1.4% in the quarter. Hurricanes Harvey, Irma and
Maria (collectively, “the Hurricanes”) resulted in a number of
store closures from late August through the end of the Company’s
fiscal year. The negative impact of the Hurricanes on sales growth
and same store sales growth was approximately 80 basis points and
70 basis points, respectively. Additionally, foreign currency
translation had a favorable impact of approximately 60 basis points
on reported sales growth. Reported diluted earnings per share in
the fourth quarter were $0.27, a decrease of 25.0% compared to the
prior year, driven primarily by expenses related to both the
Company’s debt refinancing and 2017 Restructuring Plan. Adjusted
diluted earnings per share in the fourth quarter were $0.45, growth
of 9.8% compared to the prior year. The Hurricanes negatively
impacted both reported and adjusted diluted earnings per share in
the quarter by approximately $0.03.
“Even after considering the challenges created by the natural
disasters in the quarter, which impacted August and September, our
revenue fell short of our expectations,” said Chris Brickman,
President and Chief Executive Officer. “However, the modest decline
in consolidated net sales was offset by the successful completion
of our 2017 restructuring plan, tight control of discretionary
expenses, the successful refinancing of a large portion of our
long-term debt and the continued use of our strong cash flows to
acquire shares of our common stock.
“Driving revenue and earnings growth remains our top priority.
To that end, today we are announcing the commencement of a
restructuring of our international operations in order to leverage
the full scale of our consolidated European business and deliver
additional cost savings. At the same time, we are making
investments in our e-commerce capabilities that will allow us to
support two-day delivery to more than 90% of U.S. households by the
middle of fiscal 2018. In addition, we have planned a number of
exciting new product launches and improvements to our CRM,
marketing and promotional strategies that we expect will build the
foundation to drive future growth.
“We believe that these changes, combined with the strength and
stability of our large and growing Beauty Systems Group
distribution business, will keep us on the path to long-term
earnings growth,” Brickman concluded.
Additional Fourth Quarter Financial Detail
Gross margin for the fourth quarter was 49.5%, essentially flat
versus the prior year. Benefits from strategic pricing initiatives
in both segments and a customer mix shift in the Sally Beauty
segment were offset by a shift in segment mix.
Reported operating earnings and operating margin in the fourth
quarter were $111.8 million and 11.5%, respectively, compared to
reported operating earnings and operating margin of $110.8 million
and 11.4%, respectively, in the prior year. Adjusted operating
earnings and operating margin (excluding charges related to the
Company’s 2017 Restructuring Plan) were $120.2 million and 12.3%,
respectively, compared to adjusted operating earnings and operating
margin of $123.5 million and 12.6%, respectively, in the prior
year. The Hurricanes negatively impacted both reported and adjusted
operating earnings in the fourth quarter by approximately $7.7
million, representing both the impact of lost sales from store
closures and costs related to both inventory write-offs and asset
impairments.
The Company repurchased (and subsequently retired) a total of
3.0 million shares of common stock during the fourth quarter at an
aggregate cost of $59.5 million. Share repurchases for fiscal
year 2017 were approximately $346.1 million.
International Restructuring Plan
The Company successfully completed its 2017 Restructuring Plan,
which was focused primarily on its North American operations. Total
charges incurred in fiscal 2017 in connection with the 2017
Restructuring Plan were $22.7 million, consisting primarily of
employee separation and facility closure costs. The Company expects
annualized benefits from the 2017 Restructuring Plan of
approximately $20 million, with a benefit of approximately $10
million recorded in fiscal 2017.
The Company is today announcing the commencement of an
international restructuring plan (the “International Restructuring
Plan”) focused on significantly improving the profitability of its
international businesses, with particular focus on its European
operations. The Company expects to incur restructuring charges in
the range of $12 million to $14 million, with approximately $10
million to be recorded in fiscal 2018, related primarily to
potential employee separation costs. Additionally, the Company
expects to realize annualized benefits in the range of
approximately $12 million to $14 million from the initiative, with
a benefit of approximately $8 million realized in fiscal 2018.
Fiscal Year 2018 Guidance
For fiscal year 2018, the Company expects both a continued
challenging retail environment in the U.S. and a lingering impact
from the Hurricanes, particularly from Hurricane Maria in Puerto
Rico, in the first half of the fiscal year. As such, the Company
expects full year consolidated same store sales to be approximately
flat, with more challenging comparisons in the first half of the
fiscal year versus the second half of the fiscal year. The Company
also expects the number of new store openings to be offset by
strategic store closures, resulting in approximately flat net store
count versus the prior year, and a minimal impact on reported
revenue from foreign currency translation.
Full year gross margin is expected to expand by approximately 10
basis points, driven by strategic pricing initiatives in both
segments, a customer mix shift in the Sally U.S. business and an
increase in vendor allowances, only partially offset by a segment
mix shift and modest pricing adjustments in the Sally U.S. business
-- typically on low-velocity SKU’s -- designed to support the
brand’s value proposition.
Full year SG&A (including
depreciation and amortization expense) is expected to be
approximately 37.7% versus 37.2% in fiscal year 2017, reflecting
the operating expense impact of key investments to accelerate
e-commerce growth, investments in both a new inventory
merchandising and planning system to support the U.S. and Canadian
businesses and a new point-of sale system for our BSG business,
continued inflation in both store and distribution center wages and
the expectation of normalized levels of incentive compensation
expense in fiscal 2018, partially offset by benefits from both the
2017 Restructuring Plan and the newly-announced International
Restructuring Plan.
Reported operating earnings are expected to increase slightly,
due primarily to lower restructuring costs in fiscal year 2018.
Adjusted operating earnings, including the impact of the Hurricanes
in both years, are expected to decline slightly due to the
strategic investments noted above. However, the Company expects
full year benefits from its recent debt refinancing and lower
average share count to result in solid growth in both full year
reported diluted earnings per share and full year adjusted diluted
earnings per share.
Fiscal 2017 Full Year Financial Highlights
For the full fiscal year, consolidated net sales were $3.94
billion, a decrease of 0.4%, and same store sales declined 0.7%.
The Hurricanes negatively impacted both full year sales growth and
full year same store sales growth by approximately 20 basis points.
Foreign currency translation had a negative impact of approximately
80 basis points on full year consolidated sales growth. In
addition, an extra day of selling in fiscal year 2016, which was a
leap year, negatively impacted consolidated same store sales growth
in fiscal year 2017 by approximately 40 basis points.
Full year gross margin increased 20 basis points to 49.9%,
driven primarily by strategic pricing initiatives in both segments
and customer mix in the Sally Beauty segment.
Reported operating earnings and operating margin for the full
fiscal year were $478.6 million and 12.2%, respectively, compared
to reported operating earnings and operating margin of $498.3
million and 12.6%, respectively, in the prior year. Adjusted
operating earnings and operating margin (excluding charges related
to the Company’s 2017 Restructuring Plan) were $501.3 million and
12.7%, respectively, compared to adjusted operating earnings and
operating margin of $515.5 million and 13.0%, respectively, in the
prior fiscal year.
Reported diluted earnings per share for the full fiscal year
were $1.56, growth of 4.0% compared to the prior year. Adjusted
diluted earnings per share in fiscal 2017 were $1.80, growth of
4.7% compared to the prior year. The Hurricanes negatively impacted
both reported and adjusted diluted earnings per share in the fiscal
year by approximately $0.03.
Additional Fiscal 2017 Fourth Quarter and Full Year
Details
Adjusted EBITDA in the fourth quarter was $150.4 million, a
decrease of 1.8% from the prior year, and Adjusted EBITDA margin
was 15.4%, a decline of approximately 30 basis points from the
prior year. Full year Adjusted EBITDA was $624.1 million, a
decrease of 0.6% from the prior year, and Adjusted EBITDA margin
was 15.8%, a decline of approximately 10 basis points from the
prior year.
Inventory at quarter end was $930.9 million, up 2.6% from the
prior year. The increase was due primarily to new store growth, the
addition of new brands and foreign currency translation.
Capital expenditures in the quarter were $23.1 million, and full
year capital expenditures were $89.6 million, primarily for
information technology projects, new stores openings and
distribution facility upgrades.
Fiscal 2017 Fourth Quarter Segment Results
Sally Beauty Supply (“Sally”)
- Net sales were $584.4 million in the
quarter, a decrease of 0.8% versus the prior year. Foreign currency
translation boosted the segment’s revenue growth in the quarter by
80 basis points. Same store sales decreased 2.5%, with the
Hurricanes contributing approximately 90 basis points of the
decline.
- Net store count at year-end was 3,782,
an increase of one from the prior fiscal year-end.
- Gross margin increased 10 basis points
to 55.1% in the quarter. Gross margin benefitted from strategic
pricing initiatives and a shift in customer mix between retail and
professional.
- Reported operating earnings were $91.2
million in the quarter, a decrease of 7.0% versus the prior year.
Reported operating earnings were negatively impacted by the sales
decline and inventory write-off and repairs related to the
Hurricanes. Reported operating margin was 15.6%, a 100 basis point
decrease from the prior year.
Beauty Systems Group (“BSG”)
- Net sales were $389.8 million in the
quarter, an increase of 0.7% vs. the prior year, driven by growth
in same store sales, incremental sales from acquisitions and an
increase in net new stores, partially offset by the negative impact
from the Hurricanes. Foreign currency translation increased BSG’s
revenue growth by approximately 30 basis points. Same store sales
grew 1.0%, with a 40 basis point negative impact from the
Hurricanes.
- Net store count at year-end was 1,368,
up 30 from the prior fiscal year-end.
- Gross margin increased 10 basis points,
to 41.2%, in the quarter.
- Reported operating earnings were $61.1
million in the quarter, an increase of 0.4% versus the prior year,
driven by the modest revenue growth and gross margin improvement.
Reported operating margin in the quarter was 15.7%, essentially
flat to the prior year.
- Total distributor sales consultants at
quarter end were 829 versus 914 at the end of the prior year. This
decrease is due primarily to a decline in the number of distributor
sales consultants employed by BSG’s Armstrong McCall franchise
business.
Fiscal 2017 Full Year Segment Results
Sally Beauty Supply (“Sally”)
- Net sales were $2.35 billion in fiscal
year 2017, a decrease of 1.7% versus the prior fiscal year. Foreign
currency translation negatively impacted full year revenue growth
by 130 basis points. Same store sales decreased 1.6%, including a
20 basis point negative impact from the Hurricanes and a 30 basis
point negative impact from fiscal 2016 being a leap year.
- Gross margin increased 50 basis points
to 55.6% in fiscal year 2017. Gross margin benefitted from
strategic pricing initiatives and a shift in customer mix between
retail and professional.
- Reported operating earnings were $385.4
million in fiscal year 2017, a decrease of 6.4% versus the prior
fiscal year. Reported operating earnings were negatively impacted
by the sales decline and inventory write-off and repairs related to
the Hurricanes. Reported operating margin was 16.4%, a 90 basis
point decrease from the prior fiscal year.
Beauty Systems Group (“BSG”)
- Net sales were $1.59 billion in fiscal
year 2017, an increase of 1.7% vs. the prior year fiscal year,
driven by growth in same store sales, incremental sales from
acquisitions and net new stores. Foreign currency translation had
essentially no impact on revenue growth. Same store sales growth
was 1.3%, including a 10 basis point negative impact from the
Hurricanes and a 40 basis point negative impact from the fiscal
2016 being a leap year.
- Gross margin increased 10 basis points
to 41.5% in fiscal year 2017.
- Reported operating earnings were $254.7
million in fiscal year 2017, an increase of 0.9% versus the prior
fiscal year, driven by the modest revenue growth and gross margin
expansion. Reported operating margin was 16.0%, a decline of
approximately 10 basis points from the prior fiscal year.
Conference Call and Where You Can Find Additional
Information
The Company will hold a conference call and audio webcast today
to discuss its financial results and its business at approximately
7:30 a.m. (Central). During the conference call, the Company may
discuss and answer one or more questions concerning business and
financial matters and trends affecting the Company. The Company’s
responses to these questions, as well as other matters discussed
during the conference call, may contain or constitute material
information that has not been previously disclosed. Simultaneous to
the conference call, an audio webcast of the call will be available
via a link on the Company’s website,
investor.sallybeautyholdings.com. The conference call can be
accessed by dialing 877-531-2988 (International: 612-332-0720). The
teleconference will be held in a “listen-only” mode for all
participants other than the Company’s current sell-side and
buy-side investment professionals. If you are unable to listen to
this conference call, the replay will be available at about 9:30
a.m. (Central) November 15, 2017, through November 22, 2017, by
dialing 800-475-6701 or if international dial 320-365-3844 and
reference the conference ID number 430498. Also, a website replay
will be available on investor.sallybeautyholdings.com
About Sally Beauty Holdings, Inc.
Sally Beauty Holdings, Inc. (NYSE: SBH) is an international
specialty retailer and distributor of professional beauty supplies
with revenues of approximately $3.9 billion annually. Through the
Sally Beauty Supply and Beauty Systems Group businesses, the
Company sells and distributes through 5,150 stores, including
approximately 187 franchised units, and has operations throughout
the United States, the United Kingdom, Belgium, Chile, Peru,
Colombia, France, the Netherlands, Canada, Puerto Rico, Mexico,
Ireland, Spain and Germany. Sally Beauty Supply stores offer up to
8,000 products for hair, skin, and nails through professional lines
such as OPI®, China Glaze®, Wella®, Clairol®, Conair® and Hot Shot
Tools®, as well as an extensive selection of proprietary
merchandise. Beauty Systems Group stores, branded as CosmoProf or
Armstrong McCall stores, along with its outside sales consultants,
sell up to 10,500 professionally branded products including Paul
Mitchell®, Wella®, Matrix®, Schwarzkopf®, Kenra®, Goldwell®, Joico®
and Aquage®, intended for use in salons and for resale by salons to
retail consumers. For more information about Sally Beauty Holdings,
Inc., please visit sallybeautyholdings.com.
Cautionary Notice Regarding Forward-Looking
Statements
Statements in this news release and the schedules hereto which
are not purely historical facts or which depend upon future events
may be 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. 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
Readers are cautioned not to place undue reliance on
forward-looking statements as such statements speak only as of the
date they were made. Any forward-looking statements 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, including, but not limited to, risks
and uncertainties related to: anticipating and effectively
responding to changes in consumer and professional stylist
preferences and buying trends in a timely manner; the success of
our strategic initiatives, including our store refresh program and
increased marketing efforts, to enhance the customer experience,
attract new customers, drive brand awareness and improve customer
loyalty; our ability to efficiently manage and control our costs
and the success of our cost control plans, including our recently
announced restructuring plan; our ability to implement our
restructuring plan in various jurisdictions; our ability to manage
the effects of our cost reduction plans on our employees and other
operations costs; charges related to the restructuring plan;
possible changes in the size and components of the expected costs
and charges associated with the restructuring plan; our ability to
realize the anticipated cost savings from the restructuring plan
within the anticipated time frame, if at all; the highly
competitive nature of, and the increasing consolidation of, the
beauty products distribution industry; the timing and acceptance of
new product introductions; shifts in the mix of product sold during
any period; potential fluctuation in our same store sales and
quarterly financial performance; our dependence upon manufacturers
who may be unwilling or unable to continue to supply products to
us; our dependence upon manufacturers who have developed or could
develop their own distribution businesses which compete directly
with ours; the possibility of material interruptions in the supply
of products by our third-party manufacturers or distributors or
increases in the prices of products we purchase from our
third-party manufacturers or distributors; products sold by us
being found to be defective in labeling or content; compliance with
current laws and regulations or becoming subject to additional or
more stringent laws and regulations; the success of our e-commerce
businesses; diversion of professional products sold by Beauty
Systems Group to mass retailers or other unauthorized resellers;
the operational and financial performance of our franchise-based
business; successfully identifying acquisition candidates and
successfully completing desirable acquisitions; integrating
acquired businesses; the success of our initiatives to expand into
new geographies; the success of our existing stores, and our
ability to increase sales at existing stores; opening and operating
new stores profitably; the volume of traffic to our stores; the
impact of the general economic conditions upon our business; the
challenges of conducting business outside the United States; the
impact of Britain’s recent decision to leave the European Union and
related or other disruptive events in the European Union or other
geographies in which we conduct business; rising labor and rental
costs; protecting our intellectual property rights, particularly
our trademarks; the risk that our products may infringe on the
intellectual property rights of others; successfully updating and
integrating our information technology systems; disruption in our
information technology systems; a significant data security breach,
including misappropriation of our customers’, or employees’ or
suppliers’ confidential information, and the potential costs
related thereto; the negative impact on our reputation and loss of
confidence of our customers, suppliers and others arising from a
significant data security breach; the costs and diversion of
management’s attention required to investigate and remediate a data
security breach and to continuously upgrade our information
technology security systems to address evolving cyber-security
threats; the ultimate determination of the extent or scope of the
potential liabilities relating to our past or any future data
security incidents; our ability to attract or retain highly skilled
management and other personnel; severe weather, natural disasters
or acts of violence or terrorism; the preparedness of our
accounting and other management systems to meet financial reporting
and other requirements and the upgrade of our existing financial
reporting system; being a holding company, with no operations of
our own, and depending on our subsidiaries for our liquidity needs;
our ability to execute and implement our common stock repurchase
program; our substantial indebtedness; the possibility that we may
incur substantial additional debt, including secured debt, in the
future; restrictions and limitations in the agreements and
instruments governing our debt; generating the significant amount
of cash needed to service all of our debt and refinancing all or a
portion of our indebtedness or obtaining additional financing;
changes in interest rates increasing the cost of servicing our
debt; and the costs and effects of litigation.
Additional factors that could cause actual events or results to
differ materially from the events or results described in the
forward-looking statements can be found in our filings with the
Securities and Exchange Commission, including our most recent
Annual Report on Form 10-K for the year ended September 30, 2017,
as filed with the Securities and Exchange Commission. Consequently,
all forward-looking statements in this release are qualified by the
factors, risks and uncertainties contained therein. We assume no
obligation to publicly update or revise any forward-looking
statements
Use of Non-GAAP Financial Measures
This news release and the schedules hereto include the following
financial measures that have not been calculated in accordance with
accounting principles generally accepted in the United States, or
GAAP, and are therefore referred to as non-GAAP financial measures:
(1) Adjusted EBITDA and EBITDA margin; (2) adjusted operating
earnings and operating margin; (3) adjusted diluted earnings per
share and (4) operating free cash flow. We have provided
definitions below for these non-GAAP financial measures and have
provided tables in the schedules hereto to reconcile these non-GAAP
financial measures to the comparable GAAP financial measures.
Adjusted EBITDA and EBITDA Margin - We define the measure
Adjusted EBITDA as GAAP net earnings before depreciation and
amortization, interest expense, income taxes, share-based
compensation, and costs related to the Company’s previously
announced Restructuring Plan, data security incidents, management
transition plan, executive separation expenses and asset impairment
for the relevant time periods as indicated in the accompanying
non-GAAP reconciliations to the comparable GAAP financial measures.
Adjusted EBITDA Margin is Adjusted EBITDA as a percentage of net
sales.
Adjusted Operating Earnings and Operating Margin – Adjusted
operating earnings are GAAP operating earnings that excludes costs
related to the Company’s previously announced Restructuring Plan,
data security incidents, management transition plan, executive
separation expenses and asset impairment charges for the relevant
time periods as indicated in the accompanying non-GAAP
reconciliations to the comparable GAAP financial measures. Adjusted
Operating Margin is Adjusted Operating Earnings as a percentage of
net sales.
Adjusted Diluted Net Earnings Per Share – Adjusted diluted net
earnings per share is GAAP diluted earnings per share that exclude
costs related to the Company’s previously announced Restructuring
Plan, loss on debt extinguishment and related interest overlap,
data security incidents, management transition plan, executive
separation expenses and asset impairment as indicated in the
accompanying non-GAAP reconciliations to the comparable GAAP
financial measures.
Operating Free Cash Flow – We define the measure Operating Free
Cash Flow as GAAP net cash provided by operating activities less
capital expenditures. We believe Operating Free Cash Flow is an
important liquidity measure that provides useful information to
investors about the amount of cash generated from operations after
taking into account capital expenditures.
We believe that these non-GAAP financial measures provide
valuable information regarding our earnings and business trends by
excluding specific items that we believe are not indicative of the
ongoing operating results of our businesses; providing a useful way
for investors to make a comparison of our performance over time and
against other companies in our industry.
We have provided these non-GAAP financial measures as
supplemental information to our GAAP financial measures and believe
these non-GAAP measures provide investors with additional
meaningful financial information regarding our operating
performance and cash flows. Our management and Board of Directors
also use these non-GAAP measures as supplemental measures to
evaluate our businesses and the performance of management,
including the determination of performance-based compensation, to
make operating and strategic decisions, and to allocate financial
resources. We believe that these non-GAAP measures also provide
meaningful information for investors and securities analysts to
evaluate our historical and prospective financial performance.
These non-GAAP measures should not be considered a substitute for
or superior to GAAP results. Furthermore, the non-GAAP measures
presented by us may not be comparable to similarly titled measures
of other companies.
Supplemental Schedules Segment Information 1 Non-GAAP
Financial Measures Reconciliations 2-3 Non-GAAP Financial Measures
Reconciliations Continued; Adjusted EBITDA and Operating Free Cash
Flow 4 Store Count and Same Store Sales 5
SALLY
BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements
of Earnings (In thousands, except per share data) (Unaudited)
Three Months Ended September 30,
Twelve Months Ended September 30, 2017
2016
PercentageChange
2017 2016
Percentage Change
Net sales $ 974,195 $ 976,358 -0.2 % $ 3,938,317 $ 3,952,618
-0.4 % Cost of products sold 491,753
492,917 -0.2 % 1,973,422
1,988,678 -0.8 % Gross profit 482,442 483,441 -0.2 %
1,964,895 1,963,940 0.0 % Selling, general and administrative
expenses (1) 333,913 345,489 -3.4 % 1,351,296 1,365,986 -1.1 %
Depreciation and amortization 28,352 27,133 4.5 % 112,323 99,657
12.7 % Restructuring charges 8,414 -
100.0 % 22,679 -
100.0 % Operating earnings 111,763 110,819 0.9 % 478,597
498,297 -4.0 % Interest expense (2) 52,283
26,620 96.4 % 132,899
144,237 -7.9 % Earnings before provision for
income taxes 59,480 84,199 -29.4 % 345,698 354,060 -2.4 % Provision
for income taxes 23,761 31,578
-24.8 % 130,622 131,118
-0.4 % Net earnings $ 35,719 $ 52,621
-32.1 % $ 215,076 $ 222,942 -3.5
% Earnings per share: Basic $ 0.27 $ 0.36 -25.0 % $ 1.56 $
1.51 3.3 % Diluted $ 0.27 $ 0.36 -25.0
% $ 1.56 $ 1.50 4.0 % Weighted
average shares: Basic 130,543 145,504 137,533 147,179 Diluted
131,163 147,118
138,176 148,803
Basis PointChange
Basis PointChange
Comparison as a
percentage of net sales
Consolidated gross margin 49.5 % 49.5 % 0 49.9 % 49.7 % 20 Selling,
general and administrative expenses 34.3 % 35.4 % (110 ) 34.3 %
34.6 % (30 ) Consolidated operating margin 11.5 % 11.4 % 10 12.2 %
12.6 % (40 )
Effective tax
rate
39.9 % 37.5 % 240 37.8 %
37.0 % 80 (1) For the three
months ended September 30, 2016, selling, general and
administrative expenses include $12.0 million of expenses incurred
in connection with the data security incidents. For the twelve
months ended September 30, 2016, expenses incurred in connection
with the data security incidents were $14.6 million, and selling,
general and administrative expenses also include $1.3 million of
expenses related to the management transition plan disclosed in the
fiscal year 2016.
(2) For the three and twelve months ended
September 30, 2017, interest expense includes a loss on
extinguishment of debt of $28.0 million in connection with our July
2017 redemption of our senior notes due 2022 and, for the twelve
months ended September 30, 2016, a loss on extinguishment of debt
of $33.3 million in connection with our December 2015 redemption of
our senior notes due 2019.
SALLY BEAUTY HOLDINGS, INC. AND
SUBSIDIARIES Condensed Consolidated Balance Sheets (In
thousands) (Unaudited)
As of September 30,
2017 2016 Cash and cash
equivalents $ 63,759 $ 86,622 Trade and other accounts receivable
92,241 83,983 Inventory 930,855 907,337 Other current assets 55,223
54,861 Deferred income tax assets 28,425
40,024 Total current assets 1,170,503 1,172,827 Property and
equipment, net 313,717 319,558 Goodwill and other intangible assets
618,096 625,677 Other assets 20,777 14,001
Total assets $ 2,123,093 $ 2,132,063
Current maturities of long-term debt $ 96,082 $ 716 Accounts
payable 307,752 271,376 Accrued liabilities 168,498 214,584 Income
taxes payable 2,233 1,989 Total current
liabilities 574,565 488,665 Long-term debt, including capital
leases 1,771,853 1,783,294 Other liabilities 20,140 21,614 Deferred
income tax liabilities 120,151 114,656
Total liabilities 2,486,709 2,408,229 Total stockholders' deficit
(363,616 ) (276,166 ) Total liabilities and
stockholders' deficit $ 2,123,093 $ 2,132,063
Supplemental Schedule 1
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Segment
Information (In thousands) (Unaudited)
Three
Months Ended September 30, Twelve Months Ended
September 30, 2017
2016 (1)
PercentageChange
2017
2016 (1)
PercentageChange
Net sales: Sally Beauty Supply ("SBS") $ 584,384 $ 589,269 -0.8 % $
2,345,116 $ 2,386,337 -1.7 % Beauty Systems Group ("BSG")
389,811 387,089 0.7 %
1,593,201 1,566,281 1.7 % Total
net sales $ 974,195 $ 976,358 -0.2 % $
3,938,317 $ 3,952,618 -0.4 %
Operating earnings: SBS $ 91,162 $ 98,032 -7.0 % $ 385,407 $
411,824 -6.4 % BSG 61,061 60,794
0.4 % 254,691 252,442
0.9 % Segment operating earnings 152,223 158,826 -4.2 %
640,098 664,266 -3.6 % Unallocated expenses (2) (32,046 )
(48,007 ) -33.2 % (138,822 ) (165,969 ) -16.4 % Restructuring
charges (8,414 ) - 100.0 % (22,679 ) - 100.0 % Interest expense (3)
(52,283 ) (26,620 ) 96.4 %
(132,899 ) (144,237 ) -7.9 % Earnings before
provision for income taxes $ 59,480 $ 84,199
-29.4 % $ 345,698 $ 354,060 -2.4
% Segment gross margin:
2017
2016 (1)
Basis PointChange
2017
2016 (1)
Basis PointChange
SBS 55.1 % 55.0 % 10 55.6 % 55.1 % 50 BSG 41.2 % 41.1 % 10 41.5 %
41.4 % 10 Segment operating margin: SBS 15.6 % 16.6 % (100 )
16.4 % 17.3 % (90 ) BSG 15.7 % 15.7 % 0 16.0 % 16.1 % (10 )
Consolidated operating margin 11.5 % 11.4 %
10 12.2 % 12.6 % (40 )
(1) Certain amounts for the prior fiscal periods have been
reclassified to conform to the current period presentation in
connection with the realignment of a business unit from the BSG
segment to the SBS segment. (2) Unallocated expenses,
including share-based compensation expenses, consist of corporate
and shared costs and are included in selling, general and
administrative expenses. For the three months ended September 30,
2016, unallocated expenses include $12.0 million of expenses
incurred in connection with the data security incidents. For the
twelve months ended September 30, 2016, expenses incurred in
connection with the data security incidents were $14.6 million, and
unallocated expenses also include $1.3 million of expenses related
to the management transition plan disclosed in the fiscal year
2016.
(3) For the three and twelve months ended
September 30, 2017, interest expense includes a loss on
extinguishment of debt of $28.0 million in connection with our July
2017 redemption of our senior notes due 2022 and, for the twelve
months ended September 30, 2016, a loss on extinguishment of debt
of $33.3 million in connection with our December 2015 redemption of
our senior notes due 2019.
Supplemental Schedule 2
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP
Financial Measures Reconciliations (In thousands, except per share
data) (Unaudited)
Three Months Ended September 30,
2017 As Reported
Loss onExtinguishmentof Debt (1)
RestructuringCharges (2)(4)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 333,913 $
333,913 SG&A expenses, as a percentage of net sales 34.3 % 34.3
% Operating earnings 111,763 $ 8,414 120,177 Operating margin 11.5
% 12.3 % - Earnings before provision for income taxes 59,480 $
27,981 8,414 95,875 Provision for income taxes (4) 23,761
10,633 2,440
36,834 Net earnings $ 35,719
$ 17,348 $ 5,974
$ 59,041 Earnings per share: Basic $
0.27 $ 0.13 $ 0.05 $ 0.45 Diluted $ 0.27 $ 0.13
$ 0.05 $ 0.45
Three Months Ended September 30, 2016 As Reported
Charges fromData SecurityIncidents (3)
ExecutiveSeparationExpenses
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 345,489 $
(11,995 ) $ (679 ) $ 332,815 SG&A expenses, as a percentage of
net sales 35.4 % 34.1 % Operating earnings 110,819 11,995 679
123,493 Operating margin 11.4 % 12.6 % - Earnings before provision
for income taxes 84,199 11,995 679 96,873 Provision for income
taxes (4) 31,578
4,558 258 36,394
Net earnings $ 52,621
$ 7,437 $ 421 $ 60,479
Earnings per share: Basic $ 0.36 $ 0.05 $ 0.00 $ 0.42
Diluted $ 0.36 $ 0.05
$ 0.00 $ 0.41 (1)
Loss on extinguishment of debt is included in interest expense and
represents call premiums and other expenses incurred in connection
with our July 2017 redemption of our senior notes due 2022.
(2) Restructuring charges represent costs and expenses incurred in
connection with the restructuring plan disclosed earlier this year.
(3) Charges from data security incidents are included in
selling, general and administrative expenses and represent expenses
(including assessments by credit card networks, remediation costs,
and other costs and expenses) incurred in connection with the data
security incidents disclosed earlier. (4) Unless otherwise
indicated, the income tax provision associated with fiscal year
2017 and 2016 adjustments to net earnings was calculated using an
effective tax rate of 38.0%. The income tax provision associated
with the restructuring charges was calculated using a 29% tax rate
since realization of a tax benefit for portions of this expense is
currently not deemed probable.
Supplemental Schedule 3
SALLY
BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP Financial
Measures Reconciliations, Continued (In thousands, except per share
data) (Unaudited)
Twelve Months Ended September
30, 2017 As Reported
Loss onExtinguishmentof Debt (1)
RestructuringCharges (2)(4)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 1,351,296 $
1,351,296 SG&A expenses, as a percentage of net sales 34.3 %
34.3 % Operating earnings 478,597 $ 22,679 501,276 Operating margin
12.2 % 12.7 % Earnings before provision for income taxes 345,698 $
27,981 22,679 396,358 Provision for income taxes (4) 130,622
10,633 6,917
148,172
Net earnings $ 215,076 $ 17,348 $
15,762
$ 248,186 Earnings per share: Basic $ 1.56 $
0.13 $ 0.11 $ 1.80 Diluted $ 1.56 $ 0.13 $
0.11
$ 1.80
Twelve Months Ended September 30, 2016
As Reported
Loss onExtinguishmentof Debt (1)
OverlappingInterestExpense (1)
Charges fromData SecurityIncidents (3)
ManagementTransitionExpenses (3)
ExecutiveSeparationExpenses
AssetImpairmentCharge
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 1,365,986 $
(14,615 ) $ (1,318 ) $ (679 ) $ (571 ) $ 1,348,803 SG&A
expenses, as a percentage of net sales 34.6 % 34.1 % Operating
earnings 498,297 14,615 1,318 679 571 515,480 Operating margin 12.6
% 13.0 % Earnings before provision for income taxes 354,060 $
33,296 $ 2,148 14,615 1,318 679 571 406,687 Provision for income
taxes (4) 131,118 12,652
816 5,554 501
258 217 151,116
Net earnings $ 222,942 $ 20,644 $ 1,332
$ 9,061 $ 817 $ 421
$ 354 $ 255,571 Earnings per
share: Basic $ 1.51 $ 0.14 $ 0.01 $ 0.06 $ 0.01 $ 0.00 $ 0.00 $
1.74 Diluted $ 1.50 $ 0.14 $ 0.01 $
0.06 $ 0.01 $ 0.00 $ 0.00
$ 1.72 (1) Loss on extinguishment of
debt is included in interest expense and, for the fiscal year 2017,
represents call premiums and other expenses of $28.0 million
incurred in connection with our July 2017 redemption of our senior
notes due 2022. For the twelve months ended September 30, 2016,
loss on extinguishment of debt in connection with our December 2015
redemption of our senior notes due 2019 was $33.3 million. In
addition, interest expense of $2.1 million was incurred on the
senior notes due 2019 after December 3, 2015 and until their
redemption, as well as interest on our senior notes due 2025 issued
on December 3, 2015. These pro-forma adjustments assume the senior
notes due 2019 were redeemed on December 3, 2015. (2)
Restructuring charges represent costs and expenses incurred in
connection with the restructuring plan disclosed earlier in 2017.
(3) Charges from data security incidents are included in
selling, general and administrative expenses and represent
expenses, including assessments by credit card networks and other
costs and expenses, incurred in connection with the data security
incidents disclosed earlier. For the twelve months ended September
30, 2016, selling, general and administrative expenses also include
expenses of $1.3 million incurred in connection with management
transition plan disclosed in the fiscal year 2016. (4)
Unless otherwise indicated, the income tax provision associated
with fiscal year 2017 and 2016 adjustments to net earnings was
calculated using an effective tax rate of 38.0%. The income tax
provision associated with the restructuring charges was calculated
using a 30.5% tax rate since realization of a tax benefit for
portions of this expense is currently not deemed probable.
Supplemental Schedule 4
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP
Financial Measures Reconciliations, Continued (In thousands)
(Unaudited)
Three Months Ended September 30,
Twelve Months Ended September 30, Adjusted EBITDA:
2017 2016
PercentageChange
2017 2016
PercentageChange
Net earnings $ 35,719 $ 52,621 -32.1 % $ 215,076 $ 222,942
-3.5 % Add: Depreciation and amortization 28,352 27,133 4.5 %
112,323 99,657 12.7 % Interest expense (1) 52,283 26,620 96.4 %
132,899 144,237 -7.9 % Provision for income taxes 23,761
31,578 -24.8 % 130,622
131,118 -0.4 % EBITDA (non-GAAP)
140,115 137,952 1.6 % 590,920 597,954 -1.2 % Share-based
compensation 1,918 2,570 -25.4 % 10,507 12,580 -16.5 %
Restructuring charges 8,414 - 100.0 % 22,679 - 100.0 % Charges from
data security incidents (2) - 11,995 -100.0 % - 14,615 -100.0 %
Management transition expenses (2) - - 0.0 % - 1,318 -100.0 %
Executive separation expenses - 679 -100.0 % - 679 -100.0 % Assets
impairment charge - - 0.0
% - 571 -100.0 % Adjusted
EBITDA (non-GAAP) $ 150,447 $ 153,196
-1.8 % $ 624,106 $ 627,717 -0.6 %
Basis PointChange
Basis PointChange
Adjusted EBITDA as a percentage of net sales Adjusted
EBITDA margin 15.4 % 15.7 % (30 )
15.8 % 15.9 % (10 )
Operating Free Cash Flow: 2017 2016
PercentageChange
2017 2016
PercentageChange
Net cash provided by operating activities $ 120,963 $ 102,192 18.4
% $ 344,378 $ 351,005 -1.9 % Less: Payments for property and
equipment, net (23,096 ) (40,419 )
-42.9 % (89,625 ) (148,689 ) -39.7 %
Operating free cash flow (non-GAAP) $ 97,867 $ 61,773
58.4 % $ 254,753 $ 202,316
25.9 %
(1) For the three and twelve months ended
September 30, 2017, interest expense includes a loss on
extinguishment of debt of $28.0 million in connection with our July
2017 redemption of our senior notes due 2022 and, for the twelve
months ended September 30, 2016, a loss on extinguishment of debt
of $33.3 million in connection with our December 2015 redemption of
our senior notes due 2019.
(2) For the three months ended September
30, 2016, selling, general and administrative expenses include
$12.0 million of expenses incurred in connection with the data
security incidents. For the twelve months ended September 30, 2016,
expenses incurred in connection with the data security incidents
were $14.6 million, and selling, general and administrative
expenses also include $1.3 million of expenses related to the
management transition plan disclosed in the fiscal year 2016.
Supplemental Schedule 5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Store
Count and Same Store Sales (Unaudited)
As of
September 30, 2017 2016
Change Number of stores: Sally Beauty Supply ("SBS"):
Company-operated stores 3,763 3,763 - Franchise stores 19 18
1 Total SBS 3,782 3,781 1 Beauty Systems Group
("BSG"): Company-operated stores 1,200 1,174 26 Franchise stores
168 164 4 Total BSG 1,368 1,338
30 Total consolidated 5,150 5,119 31
Number of BSG distributor sales consultants 829 914
(85 )
Three Months Ended September 30,
Twelve Months Ended
September 30,
2017 2016
Basis PointChange
2017 2016
Basis PointChange
Same store sales growth (decline) (1) SBS -2.5 % 0.8 % (330 ) -1.6
% 1.7 % (330 ) BSG 1.0 % 1.9 % (90 ) 1.3 % 5.5 % (420 )
Consolidated -1.4 % 1.2 % (260 ) -0.7 % 2.9 % (360 ) BSG
distributor sales consultants include 259 and 311 sales consultants
employed by our franchisees at September 30, 2017 and 2016,
respectively. (1) 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 U.S.
dollars and include internet-based sales and the effect of store
expansions, if applicable, 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.
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Sally Beauty Holdings, Inc.Jeff Harkins, 940-297-3877Investor
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