Released : 02/04/2016

  • Consolidated net sales of $998.0 million, up 3.5%
  • 1Q16 same store sales growth of 3.9% versus 2.3% in 1Q15
  • Consolidated gross margin expansion of 40 basis points
  • 1Q16 GAAP net earnings of $42.2 million with diluted earnings per share of $0.28
  • 1Q16 Adjusted net earnings of $65.1 million with diluted earnings per share of $0.43
  • Repurchased $62.4 million, or 2.4 million shares, of common stock

Sally Beauty Holdings, Inc. (NYSE: SBH) (the “Company”) today announced financial results for the fiscal 2016 first quarter. The Company held a conference call today at 10:00 a.m. (Central) to discuss these results and its business.

“We are off to a solid start for fiscal year 2016,” stated Chris Brickman, President and CEO. “We drove same store sales improvement in our Sally business, and our BSG business continued to grow sales and gain channel share. In addition, implementation of our pricing and margin improvement initiatives resulted in gross profit margin expansion consistent with our previously stated guidance.

“Looking forward, we are confident that we can deliver on our full year guidance. However, we anticipate the business may confront modest headwinds in Q2 as we launch our hair care solutions center in almost 3,000 Sally U.S. stores, invest in a significant TV campaign to re-engage retail consumers at Sally and ramp up new business development programs globally. Despite these short term challenges, we are excited about the upcoming initiatives and believe that they will help us accelerate growth in our Sally business and deliver on our full-year earnings objectives."

FISCAL 2016 FIRST QUARTER FINANCIAL HIGHLIGHTS

Net Sales: For the fiscal 2016 first quarter, consolidated net sales were $998.0 million, an increase of 3.5% from the fiscal 2015 first quarter. The sales increase in our fiscal 2016 first quarter is attributable to same store sales growth and incremental sales from our new stores. The unfavorable impact from changes in foreign currency exchange rates in the fiscal 2016 first quarter was $22.1 million, or 2.3% of sales. Consolidated same store sales growth in the fiscal 2016 first quarter was 3.9%.

Gross Profit: Consolidated gross profit for the fiscal 2016 first quarter was $494.0 million, an increase of 4.3% over gross profit of $473.8 million for the fiscal 2015 first quarter. Gross profit as a percentage of sales was 49.5%, a 40 basis point improvement from the fiscal 2015 first quarter.

GAAP and Adjusted Selling, General and Administrative Expenses: For the fiscal 2016 first quarter, consolidated GAAP selling, general and administrative (SG&A) expenses, including unallocated corporate expenses and share-based compensation, were $339.7 million, or 34.0% of sales, a 90 basis point improvement from the fiscal 2015 first quarter metric of 34.9% of sales and total SG&A expenses of $337.0 million. Excluding expenses associated with the previously disclosed data security incidents of $0.5 million and management transition expenses of $0.9 million, pre-tax, adjusted SG&A expenses in the fiscal 2016 first quarter were $338.4 million, or 33.9% of sales.

Note: SG&A expenses include unallocated corporate expenses, as detailed in the Company’s segment information on schedule B.

GAAP Interest Expense: GAAP interest expense for the fiscal 2016 first quarter was $63.9 million, up $34.7 million from the fiscal 2015 first quarter. This increase is due to the loss on the extinguishment of debt of $33.3 million, pre-tax, in connection with the Company’s December 2015 redemption in full of its $750 million of 6.875% senior notes due 2019 and overlapping interest expense on such senior notes of $2.1 million, pre-tax. On December 3, 2015, the Company completed the issuance and sale of $750 million of 5.625% senior notes due 2025.

Provision for GAAP Income Taxes: GAAPincome taxes were $24.7 million for the fiscal 2016 first quarter versus $32.1 million in the fiscal 2015 first quarter. The Company’s effective tax rate in the fiscal 2016 first quarter was 36.9%, flat when compared to the effective tax rate in the fiscal 2015 first quarter.

In fiscal year 2016, the Company’s effective tax rate is expected to be in the previously stated range of 37.5% to 38.5%.

GAAP and Adjusted Net Earnings and Diluted Net Earnings Per Share (EPS) (1): GAAP net earnings were $42.2 million in the fiscal 2016 first quarter, compared to fiscal 2015 first quarter GAAP net earnings of $54.9 million, down 23.1%. Excluding expenses from the loss on extinguishment of debt and overlapping interest expense of $22.0 million, net of tax, and expenses from the data security incident and management transition expenses of $0.8 million, net of tax, adjusted net earnings for the fiscal 2016 first quarter were $65.1 million, up 18.2% from adjusted net earnings of $55.1 million in the fiscal 2015 first quarter.

GAAP and adjusted diluted earnings per share for the fiscal 2016 first quarter were $0.28 and $0.43, respectively, compared to GAAP and adjusted fiscal 2015 first quarter diluted earnings per share of $0.35.

Adjusted EBITDA(1): Adjusted EBITDA for the fiscal 2016 first quarter was $159.9 million, an increase of 10.4% from $144.8 million for the fiscal 2015 first quarter.

Financial Position, Capital Expenditures and Working Capital: Cash and cash equivalents as of December 31, 2015, were $67.4 million. The Company’s asset-based loan (ABL) revolving credit facility ended the fiscal 2016 first quarter with no outstanding borrowings. The Company’s debt, excluding capital leases, totaled $1.8 billion as of December 31, 2015.

For the fiscal 2016 first quarter, the Company’s capital expenditures totaled $32.4 million. Capital expenditures for the fiscal year 2016 are projected to be in the previously stated range of $125 million to $135 million, excluding acquisitions.

Working capital (current assets less current liabilities) decreased $20.5 million to $674.9 million at December 31, 2015 compared to $695.4 million at September 30, 2015. Borrowing capacity on the ABL facility was approximately $478.5 million at the end of fiscal 2016 fist quarter. The ratio of current assets to current liabilities was 2.48 to 1.00 at December 31, 2015 compared to 2.41 to 1.00 at September 30, 2015.

Inventory as of December 31, 2015 was $912.4 million, an increase of $74.6 million or growth of 8.9% from December 31, 2014 inventory. This increase is primarily due to sales growth from existing stores, additional inventory from new store openings and the introduction of new brands in the BSG and Sally businesses.

During the period of October 1, 2015 through December 31, 2015, the Company repurchased (and subsequently retired) 2.4 million shares of its common stock at an aggregate cost of $62.4 million and had approximately $710 million of additional share repurchase authorization remaining under its $1 billion share repurchase authorization.

Business Segment Results:

Sally Beauty Supply

Fiscal 2016 First Quarter Results for Sally Beauty Supply

  • Sales of $596.0 million, up 1.6% from $586.5 million in the fiscal 2015 first quarter. Sales growth was driven by same store sales growth and net new store openings. The unfavorable impact of foreign currency exchange on sales was $16.9 million, or 2.9%.
  • Same store sales growth of 2.4% versus growth of 1.6% in the fiscal 2015 first quarter. Same store sales growth rate was positively impacted by selective price increases in certain geographical areas of the U.S.
  • Gross margin of 55.0%, a 60 basis point increase from 54.4% in the fiscal 2015 first quarter.
  • Segment operating earnings of $106.1 million, up 4.8% from $101.2 million in the fiscal 2015 first quarter.
  • Segment operating margins increased 50 basis points to 17.8% of sales from 17.3% in the fiscal 2015 first quarter.
  • Net store count increased by 106 over the fiscal 2015 first quarter for total store count of 3,711.

Sales growth in the fiscal 2016 first quarter was driven by same store sales growth and new store openings; this growth was partially offset by the unfavorable impact of foreign currency exchange. Gross profit margin improvement of 60 basis points was primarily the result of selective price increases in certain geographical areas of the U.S.and fewer promotions in the quarter versus the prior year quarter. Segment operating earnings and margin were positively impacted by gross margin improvement and SG&A leverage.

Beauty Systems Group

Fiscal 2016 First Quarter Results for Beauty Systems Group

  • Sales of $402.1 million, up 6.4% from $377.9 million in the fiscal 2015 first quarter. The unfavorable impact of foreign currency exchange on sales was $5.2 million, or 1.4%.
  • Same store sales growth of 7.2% versus 3.9% in the fiscal 2015 first quarter.
  • Gross margin of 41.3%, up 40 basis points when compared to the fiscal 2015 first quarter of 40.9%.
  • Segment earnings of $65.9 million, up 16.4% from $56.6 million in the fiscal 2015 first quarter.
  • Segment operating margins increased by 140 basis points to 16.4% of sales from 15.0% in the fiscal 2015 first quarter.
  • Net store count was 1,303, an increase of 28 stores over the fiscal 2015 first quarter.
  • Total BSG distributor sales consultants at the end of the fiscal 2016 first quarter were 951 versus 967 at the end of the fiscal 2015 first quarter.

Sales growth for the Beauty Systems Group was primarily driven by growth in same store sales, sales growth in the full service business and net new store openings; this growth was partially offset by the unfavorable impact of foreign currency exchange. Growth in segment operating earnings was primarily due to gross margin expansion and SG&A leverage improvement.

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 $3.8 billion annually. Through the Sally Beauty Supply and Beauty Systems Group businesses, the Company sells and distributes through over 5,000 stores, including approximately 175 franchised units, 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 10,000 products for hair, skin, and nails through professional lines such as Clairol, L’Oreal, Wella and Conair, 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 10,000 professionally branded products including Paul Mitchell, Wella, Sebastian, Goldwell, Joico, and Aquage which are targeted exclusively for professional and salon use and resale to their customers.

For more information about Sally Beauty Holdings, Inc., please visit sallybeautyholdings.com.

 

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