Press release·03/03/2025 02:35:08

Overview

Sally Beauty Holdings, Inc. (SBH) is a leading retailer and distributor of professional beauty supplies. The company operates through two business segments: Sally Beauty Supply (SBS) and Beauty Systems Group (BSG). SBS sells hair color, styling tools, and other beauty products directly to consumers, while BSG sells professional beauty products to salons and other professional customers.

In the three months ended December 31, 2024, SBH reported solid financial results, with increases in net sales, gross profit, and net earnings compared to the same period in the prior year. The company’s performance was driven by strong sales growth and improved profitability in both the SBS and BSG segments.

Key Operating Metrics

The table below summarizes SBH’s key operating metrics for the three-month periods ended December 31, 2024 and 2023:

Metric	Q4 2024	Q4 2023	Increase (Decrease)
Net Sales	$937,895	$931,302	0.7%
Gross Profit	$476,840	$467,176	2.1%
Gross Margin	50.8%	50.2%	60 bps
Segment Operating Earnings	$130,343	$122,256	6.6%
Net Earnings	$61,013	$38,390	58.9%
Comparable Sales Growth	1.6%	(0.8%)	240 bps
Number of Stores (including franchises)	4,453	4,475	(0.5%)

The key highlights from the operating metrics include:

• Consolidated net sales increased 0.7%, driven by growth in both the SBS and BSG segments.
• Gross profit increased 2.1%, with gross margin expanding by 60 basis points to 50.8%.
• Segment operating earnings grew 6.6%, reflecting improved profitability in both business units.
• Net earnings increased 58.9%, outpacing the growth in sales and operating earnings.
• Comparable sales grew 1.6%, a significant improvement from the 0.8% decline in the prior-year period.
• The total store count declined slightly by 0.5% as the company optimized its store network.

Results of Operations

Net Sales

SBS net sales increased 0.4%, primarily due to a 1.7% increase in comparable sales, partially offset by the negative impact of foreign currency exchange rates and lower sales from closed stores.

BSG net sales increased 1.1%, driven by a 1.4% increase in comparable sales and higher sales from acquired stores, partially offset by the negative impact of foreign currency exchange rates.

Gross Profit

SBS gross profit increased 2.2%, driven by higher sales and an expansion in gross margin. The improvement in gross margin was due to higher product margins, enhanced promotional strategies, and lower shrink expense.

BSG gross profit increased 1.8%, also driven by higher sales and an expansion in gross margin. The improvement in gross margin was due to lower distribution and freight costs from supply chain efficiencies and lower shrink expense, partially offset by lower product margins related to brand mix.

Selling, General and Administrative (SG&A) Expenses

SBS SG&A expenses increased 1.9% due to higher labor and compensation-related costs, as well as increased advertising expense, partially offset by lower delivery expenses and other cost savings initiatives.

BSG SG&A expenses decreased 2.5%, driven by higher net sales, lower delivery expenses, and other cost savings initiatives.

Unallocated SG&A expenses, which represent corporate costs not charged to the reporting segments, decreased 43.6% primarily due to a $26.6 million gain on the sale of the company’s corporate headquarters.

Interest Expense and Taxes

Interest expense was relatively unchanged, as a decrease in interest on the Term Loan B due to lower interest rates was offset by higher interest costs on the company’s senior notes.

The effective tax rate increased to 26.4% from 25.9% in the prior-year period, primarily due to the impact of foreign operations for which a tax benefit was not recognized.

Liquidity and Capital Resources

SBH’s principal sources of liquidity are cash from operations, cash and cash equivalents, and borrowings under its asset-based lending (ABL) facility. As of December 31, 2024, the company had $588.2 million of available liquidity, including $482.7 million available under the ABL facility and $105.5 million in cash and cash equivalents.

The company’s working capital (current assets less current liabilities) decreased by $14.5 million to $698.1 million, primarily due to lower inventory levels and the disposal of assets held for sale, partially offset by the timing of accounts payable.

SBH’s cash flow performance was as follows:

Cash Flow Metric	Q4 2024	Q4 2023
Net Cash Provided by Operating Activities	$33,457	$51,020
Net Cash Provided (Used) by Investing Activities	$23,125	$(30,769)
Net Cash Used by Financing Activities	$(57,667)	$(22,776)

The decrease in cash provided by operating activities was primarily driven by the timing of accounts payable and tax payments, partially offset by lower inventory purchases, the timing of debt interest payments, and higher cash receipts from customers.

Net cash provided by investing activities in the current period was primarily due to $44.0 million received from the sale of the company’s corporate headquarters, as well as lower capital expenditures compared to the prior-year period.

The increase in cash used by financing activities was primarily due to a $40.0 million early repayment on the company’s term loan, partially offset by fewer shares repurchased under the share repurchase program.

Debt and Guarantor Financial Information

As of December 31, 2024, SBH had $942.2 million in outstanding debt principal, consisting of $600.0 million in 2032 Senior Notes and $353.0 million remaining on its Term Loan B. There were no outstanding borrowings under the company’s ABL facility.

The company’s 2032 Senior Notes are issued by its wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc., and are guaranteed by SBH and certain of its wholly-owned domestic subsidiaries.

The following table presents summarized balance sheet and income statement information for the Issuers and Guarantors of the 2032 Senior Notes:

Summarized Financial Information	December 31, 2024	September 30, 2024
Cash and Cash Equivalents	$30,806	$32,817
Inventory	$772,207	$781,512
Current Assets	$897,374	$914,686
Total Assets	$2,062,286	$2,085,179
Current Liabilities	$451,548	$479,052
Total Liabilities	$1,865,473	$1,951,874
	Q4 2024
Net Sales	$751,779
Gross Profit	$388,176
Earnings Before Taxes	$73,272
Net Earnings	$54,931

Share Repurchase Program

Under its current share repurchase program, SBH repurchased 0.8 million shares of its common stock for $10.0 million during the three months ended December 31, 2024, excluding the impact of excise taxes. As of the end of the quarter, the company had approximately $510.8 million remaining under its $1.0 billion share repurchase authorization.

Outlook and Analysis

SBH’s financial performance in the three months ended December 31, 2024, demonstrates the company’s ability to navigate a challenging macroeconomic environment and deliver solid results. The key strengths and areas of focus for the company include:

Strengths:

• Consistent sales growth in both the SBS and BSG segments, driven by strong comparable sales performance
• Expanding gross margins in both business units, reflecting the company’s initiatives to improve product mix, supply chain efficiency, and promotional strategies
• Effective cost management, as evidenced by the decrease in SG&A expenses for the BSG segment and the significant reduction in unallocated corporate costs
• Solid liquidity position, with ample availability under the ABL facility and cash on hand to fund operations and strategic initiatives

Areas of Focus:

• Continued optimization of the store network and product assortment to drive further improvements in sales and profitability
• Leveraging the company’s Fuel for Growth initiative to enhance operational efficiency and unlock additional cost savings
• Prudent management of the capital structure, including the potential for further debt reduction and share repurchases
• Monitoring the potential impact of the OECD’s Pillar 2 tax framework on the company’s global operations

Overall, SBH’s financial results for the three months ended December 31, 2024, demonstrate the company’s ability to execute its strategic priorities and deliver value to shareholders. The company’s focus on driving sales growth, improving profitability, and maintaining a strong financial position positions it well to navigate the current economic environment and capitalize on future opportunities.