- Consolidated Same Store Sales
Decreased by 0.2%
- Sally Beauty Supply Achieved Flat
Same Store Sales For First Time in Seven Quarters; Beauty Systems
Group Same Store Sales Decreased by 0.8% with Improving Vendor
Supply
- Global E-Commerce Sales Increased by
30.1% versus Prior Year
- GAAP Diluted EPS of $0.46; Growth of
70.4% versus Prior Year
- Adjusted Diluted EPS of $0.51;
Growth of 13.3% versus Prior Year
- Strong Cash Flow from Operations
Invested in Business and Used to Reduce Indebtedness
- Multi-Quarter Transformation Plan On
Track; Work Still Ahead
Sally Beauty Holdings, Inc. (NYSE: SBH) (“the Company”) today
announced financial results for its fourth quarter and fiscal year
ended September 30, 2018. The Company will hold a conference call
today at 7:30 a.m. Central Time to discuss these results.
Fiscal 2018 Fourth Quarter Overview
Consolidated same store sales decreased 0.2% in the quarter.
Consolidated net sales were $966.0 million in the fourth quarter, a
decrease of 0.8% compared to the prior year. Foreign currency
translation had an unfavorable impact of approximately 50 basis
points on reported sales.
GAAP diluted earnings per share in the fourth quarter were $0.46
compared to $0.27 in the prior year, growth of 70.4%. Adjusted
diluted earnings per share, excluding charges related to the
Company’s transformation efforts and the adjustment of the one-time
net benefits of U.S. tax reform, were $0.51 in the fourth quarter
compared to $0.45 in the prior year, growth of 13.3%. The increase
was driven primarily by lower income tax expense as a result of
U.S. tax reform and a reduced share count.
“As our quarterly results demonstrate, we are making solid
progress on our transformation plan. Sally Beauty Supply launched
box color across the U.S., while Beauty Systems Group signed
distribution agreements with additional prestigious hair color and
care brands, efforts which further enhance our differentiated
categories of hair color and care,” said Chris Brickman, president
and chief executive officer.
“We are playing to win by re-focusing our business around our
differentiated core of hair color and care, improving our execution
of basic retail fundamentals and advancing our digital commerce
capabilities. We are continuing to drive costs out of the business,
which is enabling investment in our transformation. We recognize
that we still have work to do. With our key accomplishments from
the quarter and the recent management changes we have implemented,
we are confident that we are moving in the right direction,”
Brickman concluded.
Update on Transformation Plan
In terms of transformation activities during the fourth
quarter, and so far in the first quarter, we:
- Launched the new Sally Beauty Loyalty
Program in all Sally Beauty Supply stores;
- Launched box color across all U.S.
Sally Beauty Supply stores;
- Launched the Company’s private label
brand “ion” electrical appliances across the entire Beauty Systems
Group network;
- Rolled out the prestigious hair color
and care brand, Pravana, to shelves in all Beauty Systems Group
stores in the U.S.;
- Signed an exclusive distribution
agreement between Beauty Systems Group and Swedish vegan hair care
brand, Maria Nila;
- Executed a complete pricing reset in
the Sally Beauty Supply stores, including the change from a
three-tier to two-tier pricing model related to the rollout of the
new Sally Beauty Loyalty Program;
- Completed the rollout of store wage
increases, offset in part by store labor hour optimization, within
Beauty Systems Group;
- Completed the first cycle of the Sally
Beauty Cultivate innovation program and merchandised the winning
product on-shelf and online;
- Expanded the implementation of our
sourcing, store labor and G&A optimization to our European and
Mexican operations; and
- Made good progress in resolving
supply-chain issues with some key vendors.
As we move through the remainder of first quarter fiscal year
2019, our team will remain focused on:
- Progressing the design work for the
e-commerce site redesigns in both business segments;
- Training of store associates, education
of customers and marketing of the Sally Beauty Loyalty Program and
new brand and product launches;
- Testing new point-of-sale systems in
both Sally Beauty Supply and Beauty Systems Group;
- Building out the infrastructure to
support the testing of the first phase of a multi-year JDA
merchandising and supply chain platform;
- Expanding the test of our digital
“endless aisle” in Sally Beauty Supply stores;
- Integrating our operations in Mexico
and South America into one Latin American team to drive greater
efficiencies; and
- Implementing further optimization
projects with respect to our vendors, our promotional structures
and our supply chain.
As we move further into fiscal year 2019, we will continue
our transformation efforts by:
- Launching updated e-commerce and mobile
commerce capabilities and experiences for customers in all
businesses;
- Building awareness of our new product
launches across our U.S. Sally Beauty Supply network;
- Expanding distribution rights for
existing and new brands within the Beauty Systems Group;
- Piloting the first phase of the JDA
platform implementation; and
- Seeking to achieve additional selling,
general and administrative expense savings to fund our
investments.
Fiscal 2018 Fourth Quarter Financial Detail
Gross margin for the fourth quarter was 49.5%, flat compared to
the prior year. Selling, general and administrative expenses, as a
percentage of sales, for the fourth quarter were 37.9%, a modest
increase driven by investments in marketing, wages and technology,
partially offset by cost savings efforts.
GAAP operating earnings and operating margin in the fourth
quarter were $103.1 million and 10.7%, respectively, compared to
$111.8 million and 11.5%, respectively, in the prior year. Adjusted
operating earnings and operating margin (excluding charges related
to the Company’s transformation efforts in both years) were $112.2
million and 11.6%, respectively, compared to $120.2 million and
12.3%, respectively, in the prior year.
The Company’s effective tax rate for the fourth quarter was
29.9% compared to 39.9% in the prior year, with the significant
reduction driven by the impact of U.S. tax reform.
GAAP net earnings in the fourth quarter were $55.2 million, an
increase of $19.5 million, or 54.5%, from the prior year. Adjusted
EBITDA in the fourth quarter was $141.9 million, a decrease of $8.5
million, or 5.7%, from the prior year, and Adjusted EBITDA margin
was 14.7%, a decline of approximately 70 basis points from the
prior year.
At the end of the quarter, inventory was $944.3 million, up 1.4%
from the prior year. The increase was driven by the impact of
inventory related to the H. Chalut Ltée acquisition that closed in
the first quarter and the expansion of distribution rights for
Beauty Systems Group, partially offset by a stronger U.S. dollar on
reported inventory levels.
Capital expenditures in the quarter totaled $24.0 million,
primarily for information technology projects, store remodels and
maintenance, and distribution facility upgrades.
As a result of our focus on reducing levels of indebtedness, the
outstanding balance on the asset-based revolving line of credit was
paid to zero at the end of the fourth quarter (balance of $63.5
million at the end of the third quarter).
Fiscal 2018 Fourth Quarter Segment Results
Sally Beauty Supply
- Net sales were $576.6 million in the
quarter, a decrease of 1.3% compared to the prior year. Foreign
currency translation had an unfavorable impact on the segment’s
revenue growth in the quarter by approximately 50 basis
points. Same store sales were flat for the quarter.
- At the end of the quarter, net store
count was 3,761, a decrease of 21 from the prior year.
- Gross margin increased 80 basis points
to 55.9% in the quarter, driven in the U.S. by targeted price
increases in core categories and optimization of promotional
activity and in Europe via retail mix and price increases on owned
brands.
- GAAP operating earnings were $91.0
million in the quarter, a decrease of 0.2% versus the prior year.
GAAP operating margin was 15.8%, a 20 basis point increase from the
prior year.
Beauty Systems Group
- Net sales were $389.4 million in the
quarter, a decrease of 0.1% compared to the prior year. Foreign
currency translation decreased the segment’s revenue growth in the
quarter by approximately 40 basis points. Same store sales declined
0.8%, with continuing vendor supply issues contributing
approximately 60 basis points of headwind.
- At the end of the quarter, net store
count was 1,395, up 27 from the prior year, driven by the H. Chalut
Ltée acquisition and the net increase in CosmoProf stores.
- Gross margin decreased 120 basis points
to 40.0% in the quarter, driven primarily by a category mix shift
and timing of vendor allowances.
- GAAP operating earnings were $53.7
million in the quarter, a decrease of 12.1% versus the prior year.
GAAP operating margin in the quarter was 13.8%, a 190 basis point
decrease from the prior year.
- At the end of the quarter, total
distributor sales consultants were 820 compared to 829 in the prior
year.
Fiscal 2018 Full Year Financial Highlights
For the full fiscal year, consolidated same store sales declined
1.5%. Consolidated net sales were $3.93 billion, a decrease of
0.1%. Foreign currency translation had a favorable impact of
approximately 80 basis points on full year consolidated sales
growth.
Full year gross margin was 49.4%, a decrease of 50 basis points
as compared to the prior year. In the Sally segment, margin
decreases were driven by a geographic revenue mix shift towards the
segment’s lower margin international business and increased coupon
redemptions. In the Beauty Systems Group segment, margin declines
were driven by opportunistic purchases that were not repeated from
the prior year and lower vendor allowances.
GAAP operating earnings and operating margin for the full fiscal
year were $426.6 million and 10.8%, respectively, compared to
$478.6 million and 12.2%, respectively, in the prior year. Adjusted
operating earnings and operating margin (excluding charges related
to the Company’s transformation efforts in both years and expenses
related to the previously disclosed data security incidents from
the current year) were $468.1 million and 11.9%, respectively,
compared to $501.3 million and 12.7%, respectively, in the prior
fiscal year.
The Company’s effective tax rate for the full fiscal year was
21.4% compared to 37.8% in the prior year, with the significant
reduction driven by the impact of U.S. tax reform. Excluding the
one-time adjustments from the net impact of the revaluation of
deferred income taxes partially offset by a deemed repatriation tax
on previously undistributed foreign earnings, the full fiscal year
effective tax rate was 28.5%.
GAAP net earnings for the full fiscal year were $258.0 million,
an increase of $43.0 million, or 20.0%, from the prior year. Full
year Adjusted EBITDA was $587.5 million, a decrease of 5.9% from
the prior year, and Adjusted EBITDA margin was 14.9%, a decline of
approximately 90 basis points from the prior year.
GAAP diluted earnings per share for the full fiscal year were
$2.08, growth of 33.3% compared to the prior year. Adjusted diluted
earnings per share in fiscal year 2018 were $2.16, growth of 20.0%
compared to the prior year.
Full year capital expenditures were $86.1 million, primarily for
information technology projects, store remodels and maintenance and
distribution facility upgrades.
Cash flow from operations for the full fiscal year was $372.7
million, an increase of 8.6% as compared to the prior year.
Operating free cash flow for the full fiscal year was $286.5
million, an increase of 13.0% as compared to the prior year.
The Company repurchased (and subsequently retired) a total of
10.0 million shares of common stock during the full fiscal year, at
an aggregate cost of $165.9 million.
Fiscal 2018 Full Year Segment Results
Sally Beauty Supply
- Net sales were $2.33 billion in fiscal
year 2018, a decrease of 0.5% versus the prior fiscal year. Foreign
currency translation boosted full year revenue growth by
approximately 130 basis points. Same store sales decreased
1.5%.
- Gross margin decreased 20 basis points
to 55.4% in fiscal year 2018. Gross margin declines were driven by
a geographic revenue mix shift towards the segment’s lower margin
international business and increased coupon redemptions.
- GAAP operating earnings were $362.9
million in fiscal year 2018, a decrease of 5.9% versus the prior
fiscal year. GAAP operating margin was 15.5%, a 90 basis point
decrease from the prior fiscal year.
Beauty Systems Group
- Net sales were $1.60 billion in fiscal
year 2018, an increase of 0.3% versus the prior fiscal year.
Foreign currency translation boosted full year revenue growth by
approximately 20 basis points. Same store sales declined 1.5%.
- Gross margin decreased 70 basis points
to 40.8% in fiscal year 2018. Gross margin declines were driven by
opportunistic purchases that were not repeated from the prior year
and lower vendor allowances.
- GAAP operating earnings were $240.2
million in fiscal year 2018, a decrease of 5.7% versus the prior
fiscal year. GAAP operating margin was 15.0%, a decline of
approximately 100 basis points from the prior fiscal year.
Fiscal Year 2019 Guidance
The Company’s guidance reflects the impact of our significant
transformation agenda, including making key investments to drive
long-term growth and reaping the benefits of cost-savings
initiatives already underway that are expected to offset the
majority of these investments.
- The Company expects full year
consolidated same store sales to be approximately flat.
- Full year gross margin is expected to
be approximately flat compared to the prior year.
- Full year selling, general and
administrative expenses (including depreciation and amortization
expense) are expected to be down slightly due to lower
restructuring charges as compared to the prior year.
- Full year adjusted selling, general and
administrative expenses (including depreciation and amortization
expense) are expected to be up slightly versus the prior year, as a
result of timing of investments being made in the business,
partially offset as operating efficiencies start to reach full run
rate status toward the second half of fiscal year 2019.
- Full year GAAP operating earnings and
operating margin are expected to increase by mid-single digits,
primarily due to an improvement in sales and lower restructuring
costs as compared to the prior year.
- Full year adjusted operating earnings
and operating margin are expected to decline slightly as compared
to the prior year, driven primarily by an improvement in same store
sales offset by the slightly higher adjusted selling, general and
administrative expenses referred to above.
- The Company expects the consolidated
effective tax rate for the year to be approximately 27%.
- Lower average share count and lower
interest expense from reduced indebtedness should result in
mid-single digit growth in both full year GAAP diluted earnings per
share and full year adjusted diluted earnings per share.
- Capital expenditures for the full year
are expected to be approximately $120 million.
- Cash flow from operations for the full
year is expected to be approximately $340 million, reflecting an
effort to speed payments to vendors to achieve cost of good
savings. Free cash flow is expected to be approximately $220
million.
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 Time. 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 (800) 230-1059 (International: (612) 234-9959).
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. A replay of the earnings
conference call will be available starting at 9:30 a.m. Central
Time, November 8, 2018, through November 15, 2018, by dialing (800)
475-6701 or if international, dial (320) 365-3844 and reference the
conference ID number 454860. 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 5,156 stores, including 184
franchised units, and has operations throughout the United States,
Puerto Rico, Canada, Mexico, Chile, Peru, the United Kingdom,
Ireland, Belgium, France, the Netherlands, 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 CHI®, 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. Forward-looking
statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995, can be identified by the use of
forward-looking terminology such as “believes,” “projects,”
“expects,” “can,” “may,” “estimates,” “should,” “plans,” “targets,”
“intends,” “could,” “will,” “would,” “anticipates,” “potential,”
“confident,” “optimistic,” or the negative thereof, or other
variations thereon, or comparable terminology, or by discussions of
strategy, objectives, estimates, guidance, expectations and future
plans. Forward-looking statements can also be identified by the
fact these statements do not relate strictly to historical or
current matters.
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, the
risks and uncertainties described 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 Net 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, costs related to the Company’s previously announced
restructuring plans and costs related to the previously disclosed
data security incidents 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 exclude costs
related to the Company’s previously announced restructuring plans
and costs related to the previously disclosed data security
incidents 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
tax-effected costs related to the Company’s previously announced
restructuring plans, tax-effected costs related to the previously
disclosed data security incidents, tax-effected costs related to
the loss on extinguishment of debt, and the net benefits of the
revaluation of deferred income taxes and a deemed repatriation on
previously undistributed foreign earnings as a result of U.S. tax
reform for the relevant time periods 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; 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, 2018
2017 Percentage Change 2018
2017 Percentage Change
Net sales $ 965,997 $ 974,195 -0.8 % $ 3,932,565 $ 3,938,317
-0.1 % Cost of products sold 487,905
491,753 -0.8 % 1,988,152
1,973,422 0.7 % Gross
profit 478,092 482,442 -0.9 % 1,944,413 1,964,895 -1.0 % Selling,
general and administrative expenses (1) 365,864 362,265 1.0 %
1,484,209 1,463,619 1.4 % Restructuring charges 9,102
8,414 8.2 % 33,615
22,679 48.2 %
Operating earnings 103,126 111,763 -7.7 % 426,589 478,597 -10.9 %
Interest expense 24,383 52,283
-53.4 % 98,162
132,899 -26.1 % Earnings before
provision for income taxes 78,743 59,480 32.4 % 328,427 345,698
-5.0 % Provision for income taxes 23,557
23,761 -0.9 % 70,380
130,622 -46.1 %
Net earnings $ 55,186 $ 35,719
54.5 % $ 258,047 $ 215,076
20.0 % Earnings per share: Basic $ 0.46 $ 0.27
70.4 % $ 2.09 $ 1.56 34.0 % Diluted $ 0.46 $
0.27 70.4 % $ 2.08 $ 1.56
33.3 % Weighted average shares: Basic
119,805 130,543 123,190 137,533 Diluted 120,441
131,163
123,832 138,176
Basis Point Change Basis Point Change
Comparison as a
percentage of net sales
Consolidated gross margin 49.5 % 49.5 % 0 49.4 % 49.9 % (50 )
Selling, general and administrative expenses 37.9 % 37.2 % 70 37.7
% 37.2 % 50 Consolidated operating margin 10.7 % 11.5 % (80 ) 10.8
% 12.2 % (140 )
Effective tax
rate
29.9 % 39.9 % (1,000 )
21.4 % 37.8 % (1,640 )
(1)
For the twelve months ended September 30,
2018, selling, general and administrative expenses include $7.9
million of expenses incurred in connection with the data security
incidents.
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (In thousands) (Unaudited)
September 30,
2018
September 30,
2017 (1)
Cash and cash equivalents $ 77,295 $ 63,759 Trade and other
accounts receivable 90,490 92,241 Inventory 944,338 930,855 Other
current assets 42,960 55,223
Total current assets 1,155,083 1,142,078 Property and
equipment, net 308,357 313,717 Goodwill and other intangible assets
608,623 618,096 Other assets 25,351
25,116 Total assets $ 2,097,414
$ 2,099,007 Current maturities of long-term debt $
5,501 $ 96,082 Accounts payable 303,241 307,752 Accrued liabilities
180,287 166,527 Income taxes payable 2,144
2,233 Total current liabilities 491,173
572,594 Long-term debt, including capital leases 1,768,808
1,771,853 Other liabilities 30,022 20,140 Deferred income tax
liabilities 75,967 98,036
Total liabilities 2,365,970 2,462,623 Total stockholders' deficit
(268,556 ) (363,616 ) Total liabilities
and stockholders' deficit $ 2,097,414 $
2,099,007
(1)
The prior year has been restated to
reflect the impact of adopting ASU 2015-17.
Supplemental Schedule 1
SALLY
BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Segment Information (In
thousands) (Unaudited)
Three Months Ended September
30, Twelve Months Ended September 30, 2018
2017 Percentage Change
2018 2017 Percentage
Change Net sales: Sally Beauty Supply ("SBS") $ 576,566 $
584,384 -1.3 % $ 2,333,838 $ 2,345,116 -0.5 % Beauty Systems Group
("BSG") 389,431 389,811
-0.1 % 1,598,727
1,593,201 0.3 % Total net sales $ 965,997
$ 974,195 -0.8 % $
3,932,565 $ 3,938,317
-0.1 % Operating earnings: SBS $ 91,019 $ 91,162 -0.2 % $
362,853 $ 385,407 -5.9 % BSG 53,672
61,061 -12.1 % 240,225
254,691 -5.7 % Segment
operating earnings 144,691 152,223 -4.9 % 603,078 640,098 -5.8 %
Unallocated expenses (1) (32,463 ) (32,046 ) 1.3 % (142,874
) (138,822 ) 2.9 % Restructuring charges (9,102 ) (8,414 ) 8.2 %
(33,615 ) (22,679 ) 48.2 % Interest expense (24,383 )
(52,283 ) -53.4 % (98,162 )
(132,899 ) -26.1 % Earnings
before provision for income taxes $ 78,743 $
59,480 32.4 % $ 328,427 $
345,698 -5.0 % Segment gross
margin:
2018 2017
Basis Point Change 2018 2017
Basis Point Change SBS 55.9 % 55.1 % 80 55.4 %
55.6 % (20 ) BSG 40.0 % 41.2 % (120 ) 40.8 % 41.5 % (70 )
Segment operating margin: SBS 15.8 % 15.6 % 20 15.5 % 16.4 % (90 )
BSG 13.8 % 15.7 % (190 ) 15.0 % 16.0 % (100 ) Consolidated
operating margin 10.7 % 11.5 %
(80 ) 10.8 % 12.2 %
(140 )
(1)
Unallocated expenses, including
share-based compensation expense, consist of corporate and shared
costs and are included in selling, general and administrative
expenses. For the twelve months ended September 30, 2018,
unallocated expenses include $7.9 million of expenses incurred in
connection with the data security incidents.
Supplemental Schedule 2
SALLY BEAUTY HOLDINGS,
INC. AND SUBSIDIARIES Non-GAAP Financial Measures
Reconciliations, Continued (In thousands, except per share data)
(Unaudited)
Three Months Ended September 30, 2018
As Reported(GAAP)
RestructuringCharges (1)
U.S. TaxReform (2)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 365,864 $ - $
- $ 365,864 SG&A expenses, as a percentage of sales 37.9 % 37.9
% Operating earnings 103,126 9,102 - 112,228 Operating margin 10.7
% 11.6 % Earnings before provision for income taxes 78,743 9,102 -
87,845 Provision for income taxes (3) 23,557
1,884 1,039
26,480 Net earnings $ 55,186
$ 7,218 $ (1,039 )
$ 61,365 Earnings per share:
Basic $ 0.46 $ 0.06 $ (0.01 ) $ 0.51 Diluted $ 0.46
$ 0.06 $ (0.01 )
$ 0.51
Three Months Ended September
30, 2017
As Reported(GAAP)
RestructuringCharges (1)
Loss onextinguishmentof debt
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 362,265 $ - $
- $ 362,265 SG&A expenses, as a percentage of sales 37.2 % 37.2
% Operating earnings 111,763 8,414 - 120,177 Operating margin 11.5
% 12.3 % Earnings before provision for income taxes 59,480 8,414
27,981 95,875 Provision for income taxes (3) 23,761
2,440
10,633 36,834 Net earnings $
35,719 $ 5,974
$ 17,348 $ 59,041 Earnings per
share: Basic $ 0.27 $ 0.05 $ 0.13 $ 0.45 Diluted $ 0.27
$ 0.05 $ 0.13
$ 0.45
(1)
Restructuring charges represent costs and
expenses incurred in connection with the 2017 Restructuring Plan,
disclosed in February 2017, and the 2018 Restructuring Plan,
disclosed in November 2017 and expanded in April 2018.
(2)
U.S. tax reform represents adjustments to
the revaluation of deferred income taxes and a deemed repatriation
tax on previously undistributed foreign earnings resulting from
changes to U.S. federal tax law in December 2017.
(3)
The income tax provision associated with
restructuring charges for the fiscal years 2018 and 2017 was
calculated using a 20.7% and 29.0% tax rate, respectively, since
realization of a tax benefit for portions of these expenses are
currently not deemed probable. The income tax provision associated
with the loss on extinguishment of debt for fiscal year 2017 was
calculated using an effective tax rate of 38.0%.
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,
2018 As Reported
Charges fromData SecurityIncidents (1)
RestructuringCharges (2)
Loss onExtinguishmentof Debt (3)
U.S. TaxReform (4)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 1,484,209 $
(7,935 ) $ - $ - $ - $ 1,476,274 SG&A expenses, as a percentage
of sales 37.7 % 37.5 % Operating earnings 426,589 7,935 33,615 - -
468,139 Operating margin 10.8 % 11.9 % Earnings before provision
for income taxes 328,427 7,935 33,615 876 - 370,853 Provision for
income taxes (5) 70,380 2,301
7,563 254
23,241 103,739 Net
earnings $ 258,047 $ 5,634
$ 26,052 $ 622 $ (23,241 )
$ 267,114 Earnings per share: Basic $
2.09 $ 0.05 $ 0.21 $ 0.01 $ (0.19 ) $ 2.17 Diluted $ 2.08
$ 0.05 $ 0.21 $
0.01 $ (0.19 ) $ 2.16
Twelve Months Ended September 30, 2017 As Reported
RestructuringCharges (2)
Loss onExtinguishmentof Debt (3)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 1,463,619 $ -
$ - $ 1,463,619 SG&A expenses, as a percentage of sales 37.2 %
37.2 % Operating earnings 478,597 22,679 - 501,276 Operating margin
12.2 % 12.7 % Earnings before provision for income taxes 345,698
22,679 27,981 396,358 Provision for income taxes (5) 130,622
6,917
10,633
148,172 Net earnings $ 215,076
$ 15,762 $ 17,348
$ 248,186 Earnings per share: Basic $
1.56 $ 0.11 $ 0.13 $ 1.80 Diluted $ 1.56
$ 0.11 $ 0.13
$ 1.80
(1)
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.
(2)
Restructuring charges represent costs and
expenses incurred in connection with the 2017 Restructuring Plan,
disclosed in February 2017, and the 2018 Restructuring Plan,
disclosed in November 2017 and expanded in April 2018.
(3)
Interest expense reflects a loss on
extinguishment of debt in connection with a repricing of the
variable-rate tranche of our term loan B, resulting in a lower
effective interest.
(4)
U.S. tax reform represents the net impact
the revaluation of deferred income taxes and a deemed repatriation
tax on previously undistributed foreign earnings resulting from
changes to U.S. federal tax law in December 2017.
(5)
The income tax provision associated with
the fiscal years 2018 and 2017 restructuring charges was calculated
using a 22.5% and 30.5% tax rate, respectively, since realization
of a tax benefit for portions of these expenses are currently not
deemed probable. The income tax provision associated with other
charges for the fiscal years 2018 and 2017 was calculated using a
29.0% and 38.0% tax rate, respectively.
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:
2018 2017 Percentage
Change 2018 2017
Percentage Change Net earnings $ 55,186 $ 35,719 54.5
% $ 258,047 $ 215,076 20.0 % Add: Depreciation and amortization
27,401 28,352 -3.4 % 108,829 112,323 -3.1 % Interest expense 24,383
52,283 -53.4 % 98,162 132,899 -26.1 % Provision for income taxes
23,557 23,761
-0.9 % 70,380 130,622
-46.1 % EBITDA (non-GAAP) 130,527 140,115 -6.8
% 535,418 590,920 -9.4 % Share-based compensation 2,282 1,918 19.0
% 10,519 10,507 0.1 % Restructuring charges 9,102 8,414 8.2 %
33,615 22,679 48.2 % Charges from Data Security Incidents -
- 100.0 %
7,935 - 100.0 %
Adjusted EBITDA (non-GAAP) $ 141,911 $ 150,447
-5.7 % $ 587,487 $
624,106 -5.9 %
Basis Point
Change Basis Point Change
Adjusted EBITDA as a
percentage of net sales
Adjusted EBITDA margin 14.7 % 15.4 %
(70 ) 14.9 % 15.8 %
(90 )
Operating Free Cash Flow:
2018 2017 Percentage
Change 2018 2017
Percentage Change Net cash provided by operating activities
(1) $ 90,731 $ 120,439 -24.7 % $ 372,661 $ 343,286 8.6 % Less:
Payments for property and equipment, net (23,967 )
(23,096 ) 3.8 % (86,138 )
(89,625 ) -3.9 % Operating free cash
flow (non-GAAP) $ 66,764 $ 97,343
-31.4 % $ 286,523 $ 253,661
13.0 %
(1)
Prior year amounts have been restated to
reflect the impact of adopting ASU 2016-09.
Supplemental Schedule 5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Store Count and
Same Store Sales (Unaudited)
As of September 30,
2018 2017 Change
Number of stores: SBS: Company-operated stores 3,744 3,763
(19 ) Franchise stores 17 19 (2 ) Total SBS 3,761
3,782 (21 ) BSG: Company-operated stores 1,228 1,200 28 Franchise
stores 167 168 (1 ) Total BSG 1,395 1,368
27 Total consolidated 5,156 5,150 6
Number of BSG distributor sales consultants 820
829 (9 ) BSG distributor sales consultants
(DSC) include 265 and 259 sales consultants employed by our
franchisees at September 30, 2018 and 2017, respectively. In
addition, at September 30, 2018, DSC count includes 38 sales
consultants employed by Chalut, a Canadian distributor of
professional beauty products acquired by the Company in December
2017.
Three Months Ended September 30,
Twelve Months Ended September 30, 2018
2017
Basis PointChange
2018 2017
Basis PointChange
Same store sales growth (decline): SBS 0.0 % -2.5 % 250 -1.5 % -1.6
% 10 BSG -0.8 % 1.0 % (180 ) -1.5 % 1.3 % (280 ) Consolidated -0.2
% -1.4 % 120 -1.5 % -0.7 % (80 )
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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