Sally Beauty Holdings, Inc. (NYSE: SBH) (the “Company”) today
announced financial results for its fiscal 2017 third quarter ended
June 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 Third Quarter Highlights
Reported diluted earnings per share in the third quarter were
$0.49, growth of 6.5% compared to the prior year’s third quarter.
Adjusted diluted earnings per share (excluding $5.1 million of
charges related to the Restructuring Plan announced in February
2017) were $0.52, growth of 10.6% compared to the prior year.
Consolidated net sales were $998.0 million in the third quarter,
essentially flat when compared to the prior year. Same store sales
growth of 0.3% and incremental sales from new stores were partially
offset by unfavorable foreign currency translation, the latter of
which negatively impacted revenue growth by $10.2 million, or
approximately 100 basis points. Additionally, the Company lost a
day of sales in the third quarter due to the shift of the Easter
holiday from March in the prior fiscal year to April this fiscal
year, which negatively impacted both sales growth and same store
sales growth in the quarter by approximately 60 basis points.
Gross margin for the third quarter increased 40 basis points to
50.4%, driven primarily by strategic pricing initiatives and
reduced reliance on promotional activity in the Sally Beauty
segment.
Selling, general and administrative (“SG&A”) expenses in the
third quarter, excluding depreciation and amortization expense,
were 33.9% of sales vs. 34.0% of sales in the prior year.
Reported operating earnings and operating margin in the third
quarter were $130.3 million and 13.1%, respectively, compared to
reported operating earnings and operating margin of $134.1 million
and 13.4%, respectively, in the prior year. Adjusted operating
earnings and operating margin were $135.4 million and 13.6%,
respectively, essentially flat when compared to the prior year’s
adjusted operating earnings and operating margin.
The Company repurchased (and subsequently retired) a total of
6.2 million shares of common stock during the quarter at an
aggregate cost of $117.6 million. Share repurchases through the
first three quarters of the fiscal year were approximately $286.5
million.
“We are pleased to report solid third quarter results, with
improved revenue performance, excellent gross margin expansion and
meaningful growth in adjusted earnings per share,” said Chris
Brickman, Sally Beauty Holding’s President and Chief Executive
Officer. “Our results reflect a balanced approach to managing our
business in a challenging retail environment, combining appropriate
long-term strategic investments with an unrelenting focus on
operating discipline and organizational efficiencies.
“Our effort to position the Company for better financial
performance extends to our capital structure. As we announced
shortly after quarter end, we refinanced $850 million of our
long-term debt in early July by redeeming higher cost senior notes
with funds generated from a new, lower cost institutional term
loan, a move that should generate a significant reduction in annual
cash interest expense.
“We intend to execute on our strategic priorities and strive for
additional gross margin improvement and cost savings in order to
achieve our financial goals for the year and deliver even better
results in fiscal 2018.”
Additional Fiscal 2017 Third Quarter Details
Reported net earnings in the quarter were $66.5 million, a
decrease of $1.4 million, or 2.0%, from the prior year. Adjusted
EBITDA in the quarter was $167.0 million, an increase of $3.3
million, or 2.0%, from the prior year. Adjusted EBITDA margin was
16.7% in the quarter compared to 16.4% in the prior year.
Inventory at quarter end was $947.6 million, up 4.2% from the
prior year. The increase was due primarily to new store growth and
the addition of new brands, partially offset by the impact of a
stronger U.S. dollar.
Capital expenditures in the quarter were $17.1 million, and
fiscal year to date capital expenditures were $64.0 million,
primarily for information technology projects, new stores openings
and distribution facility upgrades.
Fiscal 2017 Guidance
Based on fiscal year to date results and expectations for the
fiscal fourth quarter, the Company is maintaining its expectation
of approximately flat full year consolidated same store sales
growth, and now expects full year net new store growth of
approximately 1.5%. The Company expects full year gross margin
expansion of approximately 30 basis points, full year adjusted
SG&A in the range of 34.2% to 34.4% of sales, and full year
reported and adjusted operating income growth of approximately flat
to the prior year. Taking further into account the expected
benefits from the recent debt refinancing and the year to date
share repurchases, the Company expects solid growth in both
reported and adjusted full year earnings per share.
Fiscal 2017 Third Quarter Segment Results
Sally Beauty Supply (“Sally”)
- Sales were $594.9 million in the third
quarter, down 1.3% vs. the prior year. Sales growth was partially
offset by unfavorable foreign currency translation of 150 basis
points and the impact of the shift of the Easter holiday of 70
basis points. Same store sales were down 0.8%. The Easter calendar
shift negatively impacted same store sales by approximately 70
basis points.
- Net store count at quarter end
increased by 76, to 3,826, from the prior year’s third
quarter.
- Gross margin increased 80 basis points
to 56.0% in the third quarter. Gross margin benefitted from
strategic pricing initiatives and a reduced reliance on promotional
activity in the U.S.
- Operating earnings were $104.9 million
in the third quarter, essentially flat vs. the prior year.
Operating earnings were negatively impacted by the sales decline,
labor inflation and new store opening costs, offset by the strong
gross margin expansion and reduction of discretionary operating
expenses. Operating margin was 17.6%, a 20 basis point improvement
from the prior year.
Beauty Systems Group (“BSG”)
- Sales were $403.2 million in the third
quarter, up 1.9% vs. the prior year, driven by growth in same store
sales, incremental sales from acquisitions and net new stores.
Sales growth was partially offset by unfavorable foreign currency
translation of 30 basis points and the impact of the shift of the
Easter holiday of 40 basis points. Same store sales growth was
2.8%. The Easter calendar shift negatively impacted same store
sales by approximately 50 basis points.
- Net store count at quarter end
increased by 40, to 1,362, from the prior year’s third
quarter.
- Gross margin in the third quarter was
42.0%, flat when compared to the prior year.
- Operating earnings were $67.3 million
in the third quarter, up 3.3% from the prior year, driven by the
modest revenue growth and SG&A leverage. Operating margin was
16.7%, a 20 basis point improvement from the prior year.
- Total distributor sales consultants at
quarter end were 839 vs. 925 at the end of the prior year’s third
quarter. This decrease is due primarily to a decline in the number
of distributor sales consultants employed by the Company’s
Armstrong McCall franchise business.
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 800-230-1093 (International: 612-332-0228). 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) August 3, 2017, through August 10, 2017, by dialing
800-475-6701 or if international dial 320-365-3844 and reference
the conference ID number 427540. 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 $4.0 billion annually. Through the
Sally Beauty Supply and Beauty Systems Group businesses, the
Company sells and distributes through over 5,000 stores, including
approximately 182 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 9,000 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 10,000
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, 2016,
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; (2) adjusted operating income and operating
margin; and (3) adjusted diluted earnings per share. 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 - 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 and asset impairment
for the relevant time periods as indicated in the accompanying
non-GAAP reconciliations to the comparable GAAP financial
measures.
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,
management transition plan, data security incidents 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,
management transition plan, data security incidents 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; 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 June 30,
Nine Months Ended June 30, 2017
2016 (1)
% Chg 2017
2016 (1)
% Chg Net sales $ 998,043 $ 998,161 0.0
% $ 2,964,122 $ 2,976,260 -0.4 % Cost of products sold and
distribution expenses 495,404
499,185 -0.8 % 1,481,669
1,495,761 -0.9 % Gross profit
502,639 498,976 0.7 % 1,482,453 1,480,499 0.1 % Selling, general
and administrative expenses (2) 337,992 339,459 -0.4 % 1,017,383
1,020,497 -0.3 % Depreciation and amortization 29,255 25,433 15.0 %
83,972 72,524 15.8 % Restructuring charges 5,054
- 100.0 % 14,265
- 100.0 %
Operating earnings 130,338 134,084 -2.8 % 366,833 387,478 -5.3 %
Interest expense (3) 26,969
26,703 1.0 % 80,616
117,617 -31.5 % Earnings before
provision for income taxes 103,369 107,381 -3.7 % 286,217 269,861
6.1 % Provision for income taxes 36,830
39,462 -6.7 % 106,860
99,540 7.4 % Net earnings
$ 66,539 $ 67,919 -2.0 %
$ 179,357 $ 170,321 5.3 %
Earnings per share: Basic $ 0.49 $ 0.47 4.3 % $ 1.28 $ 1.15
11.3 % Diluted $ 0.49 $ 0.46
6.5 % $ 1.28 $ 1.14
12.3 % Weighted average shares: Basic 135,450 145,957
139,888 147,741 Diluted 136,159
147,837 140,634
149,476
Basis Pt
Chg Basis Pt Chg
Comparison as a % of
Net sales
Sally Beauty Supply Gross Margin 56.0 % 55.2 % 80 55.8 % 55.1 % 70
BSG Gross Margin 42.0 % 42.0 % 0 41.6 % 41.5 % 10 Consolidated
Gross Margin 50.4 % 50.0 % 40 50.0 % 49.7 % 30 Selling, general and
administrative expenses 33.9 % 34.0 % (10 ) 34.3 % 34.3 % 0
Consolidated Operating Margin 13.1 % 13.4 % (30 ) 12.4 % 13.0 % (60
)
Effective Tax
Rate
35.6 % 36.7 % (110 )
37.3 % 36.9 % 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 Sally Beauty Supply segment. (2) For the
three months ended June 30, 2017 and 2016, selling, general and
administrative expenses include share-based compensation expense of
$2.4 million and $2.8 million, respectively, and, for the three
months ended June 30, 2016, $1.4 million of expenses incurred in
connection with the data security incidents disclosed earlier. For
the nine months ended June 30, 2017 and 2016, selling, general and
administrative expenses include share-based compensation expense of
$8.6 million and $10.0 million, respectively, and, for the nine
months ended June 30, 2016, $2.6 million of expenses incurred in
connection with the data security incidents. In addition, for the
nine months ended June 30, 2016, selling, general and
administrative expenses include $1.3 million of expenses related to
the management transition plan disclosed in the fiscal year 2016,
and an asset impairment charge of $0.6 million. (3) For the
nine months ended June 30, 2016, interest expense includes a loss
on extinguishment of debt of $33.3 million (including call premiums
of $25.8 million) in connection with the Company's December 2015
redemption of certain senior notes.
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (In thousands)
June 30, 2017 September 30, 2016 (Unaudited)
Cash and cash equivalents $ 54,100 $ 86,622 Trade and other
accounts receivable 88,407 83,983 Inventory 947,623 907,337 Other
current assets 49,984 54,861 Deferred income tax assets
40,126 40,024 Total current assets 1,180,240
1,172,827 Property and equipment, net 310,176 319,558 Goodwill and
other intangible assets 617,255 625,677 Other assets 12,808
14,001 Total assets $ 2,120,479 $
2,132,063 Current maturities of long-term debt $
82,246 $ 716 Accounts payable 291,878 271,376 Accrued liabilities
166,484 214,584 Income taxes payable 1,413
1,989 Total current liabilities 542,021 488,665 Long-term
debt, including capital leases (1) 1,784,480 1,783,294 Other
liabilities 19,012 21,614 Deferred income tax liability
127,242 114,656 Total liabilities 2,472,755
2,408,229 Total stockholders' deficit (352,276 )
(276,166 ) Total liabilities and stockholders' deficit $ 2,120,479
$ 2,132,063 (1) Long-term debt, including
capital leases is reported net of unamortized debt issuance costs
of $21.2 million at June 30, 2017 and $23.7 million at September
30, 2016.
Supplemental Schedule 1
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Segment
Information (In thousands) (Unaudited)
Three
Months Ended June 30, Nine Months Ended June 30,
2017
2016 (1)
% Chg 2017
2016 (1)
% Chg Net sales: Sally Beauty Supply $ 594,880
$ 602,632 -1.3 % $ 1,760,732 $ 1,797,068 -2.0 % Beauty Systems
Group 403,163 395,529
1.9 % 1,203,390
1,179,192 2.1 % Total net sales $ 998,043
$ 998,161 0.0 % $
2,964,122 $ 2,976,260
-0.4 % Operating earnings: Sally Beauty Supply $ 104,880 $
104,908 0.0 % $ 294,245 $ 313,792 -6.2 % Beauty Systems Group
67,327 65,196
3.3 % 193,630 191,649
1.0 % Segment operating earnings 172,207
170,104 1.2 % 487,875 505,441 -3.5 % Unallocated expenses
(2) (34,437 ) (33,182 ) 3.8 % (98,187 ) (107,952 ) -9.0 %
Restructuring charges (5,054 ) - 100.0 % (14,265 ) - 100.0 %
Share-based compensation (2,378 ) (2,838 ) -16.2 % (8,590 ) (10,011
) -14.2 % Interest expense (3) (26,969 )
(26,703 ) 1.0 % (80,616 )
(117,617 ) -31.5 % Earnings before provision
for income taxes $ 103,369 $ 107,381
-3.7 % $ 286,217 $ 269,861
6.1 % Segment operating margin:
Basis Pt Chg Basis Pt Chg Sally Beauty Supply 17.6 %
17.4 % 20 16.7 % 17.5 % (80 ) Beauty Systems Group 16.7 % 16.5 % 20
16.1 % 16.3 % (20 ) Consolidated operating margin 13.1 %
13.4 % (30 ) 12.4 %
13.0 % (60 ) (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 Sally
Beauty Supply segment. (2) Unallocated expenses consist of
corporate and shared costs, and are included in selling, general
and administrative expenses. For the three and nine months ended
June 30, 2016, unallocated expenses include $1.4 million and $2.6
million, respectively, of expenses incurred in connection with the
data security incidents disclosed earlier and, for the nine months
ended June 30, 2016, $1.3 million of expenses incurred in
connection with the management transition plan disclosed in the
fiscal year 2016. (3) For the nine months ended June 30,
2016, interest expense includes a loss on extinguishment of debt of
$33.3 million (including call premiums of $25.8 million) in
connection with the Company's December 2015 redemption of certain
senior notes.
Supplemental Schedule 2
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP
Financial Measures Reconciliations, Continued (In thousands)
(Unaudited)
Three Months Ended June 30, 2017
As Reported
RestructuringCharges (1)(3)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 337,992 $
337,992 SG&A expenses, as a percentage of sales 33.9 % 33.9 %
Operating earnings 130,338 $ 5,054 135,392 Operating Margin 13.1 %
13.6 % - Earnings before provision for income taxes 103,369 5,054
108,423 Provision for income taxes (3) 36,830
1,162
37,992 Net earnings $ 66,539
$ 3,892 $
70,431 Earnings per share: Basic $ 0.49 $ 0.03 $ 0.52
Diluted $ 0.49 $ 0.03
$ 0.52
Three Months
Ended June 30, 2016 As Reported
Charges fromData SecurityIncidents (2)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 339,459 $
(1,375 ) $ 338,084 SG&A expenses, as a percentage of sales 34.0
% 33.9 % Operating earnings 134,084 1,375 135,459 Operating Margin
13.4 % 13.6 % - Earnings before provision for income taxes 107,381
1,375 108,756 Provision for income taxes (3) 39,462
523
39,985 Net earnings $ 67,919
$ 852
$ 68,771 Earnings per share: Basic $
0.47 $ 0.01
$ 0.47 Diluted $ 0.46 $ 0.01
$ 0.47 (1) For the three months ended
June 30, 2017, results include pre-tax expenses of $5.1 million
incurred in connection with the restructuring plan disclosed
earlier this year. (2) For the three months ended June 30,
2016, selling, general and administrative expenses include pre-tax
expenses of $1.4 million incurred in connection with the data
security incidents disclosed earlier this year. (3) The
income tax provision associated with our Fiscal 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 23.0% tax rate since, currently, realization
of a tax benefit for portions of this expense is not deemed
probable.
Supplemental Schedule 3
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Non-GAAP Financial Measures Reconciliations, Continued (In
thousands) (Unaudited)
Nine Months Ended June 30,
2017 As Reported
RestructuringCharges (1)(4)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 1,017,383 $
1,017,383 SG&A expenses, as a percentage of sales 34.3 % 34.3 %
Operating earnings 366,833 $ 14,265 381,098 Operating Margin 12.4 %
12.9 %
Earnings before provision for income taxes 286,217 14,265 300,482
Provision for income taxes (4) 106,860
4,493
111,353
Net earnings $ 179,357 $ 9,772
$ 189,129 Earnings per
share: Basic $ 1.28 $ 0.07 $ 1.35 Diluted $ 1.28
$ 0.07
$ 1.34
Nine Months Ended June 30, 2016 As Reported
Loss onExtinguishmentof Debt (2)
OverlappingInterestExpense (2)
Charges fromData SecurityIncidents (3)
ManagementTransitionExpenses (3)
AssetImpairmentCharge (3)
As Adjusted(Non-GAAP)
Selling, general and administrative expenses $ 1,020,497 $
(2,621 ) $ (1,318 ) $ (571 ) $ 1,015,987 SG&A expenses, as a
percentage of sales 34.3 % 34.1 % Operating earnings 387,478 2,621
1,318 571 391,988 Operating Margin 13.0 % 13.2 %
Earnings before provision for income taxes 269,861 $ 33,296 $ 2,148
2,621 1,318 571 309,815 Provision for income taxes (4)
99,540 12,652 816
996 501
217 114,722
Net earnings $ 170,321 $ 20,644
$ 1,332 $ 1,625 $ 817
$ 354 $ 195,093
Earnings per share: Basic $ 1.15 $ 0.14 $ 0.01 $ 0.01 $ 0.01 $ 0.00
$ 1.32 Diluted $ 1.14 $ 0.14 $
0.01 $ 0.01 $ 0.01
$ 0.00 $ 1.31 (1) For the
nine months ended June 30, 2017, results include pre-tax expenses
of $14.3 million incurred in connection with the restructuring plan
disclosed earlier this year. (2) For the nine months ended
June 30, 2016, interest expense includes a loss on extinguishment
of debt of $33.3 million in connection with the Company's December
2015 redemption of certain senior notes and interest in the amount
of $2.1 million on such senior notes after December 3, 2015 and
until their redemption, as well as interest on the Company's senior
notes due 2025 issued on December 3, 2015. These pro-forma
adjustments assume the redeemed senior notes were repaid on
December 3, 2015. (3) For the nine months ended June 30,
2016, selling, general and administrative expenses include pre-tax
expenses of $2.6 million incurred in connection with the data
security incidents disclosed earlier, pre-tax expenses of $1.3
million incurred in connection with management transition plan
disclosed in the fiscal year 2016, and an asset impairment charge
of $0.6 million, before tax. (4) The income tax provision
associated with our Fiscal 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 31.5% tax rate since, currently, realization of a tax
benefit for portions of this expense is not deemed probable.
Supplemental
Schedule 4
SALLY
BEAUTY HOLDINGS, INC. AND SUBSIDIARIES Non-GAAP Financial
Measures Reconciliations (In thousands) (Unaudited)
Three Months Ended June 30, Nine Months Ended June
30, Adjusted EBITDA: 2017
2016 % Chg 2017
2016 % Chg Net earnings $ 66,539
$ 67,919 -2.0 % $ 179,357 $ 170,321 5.3 % Add: Depreciation and
amortization 29,255 25,433 15.0 % 83,972 72,524 15.8 % Share-based
compensation (1) 2,378 2,838 -16.2 % 8,590 10,011 -14.2 %
Restructuring charges 5,054 - 100.0 % 14,265 - 100.0 % Assets
impairment charge - - 0.0 % - 571 -100.0 % Loss from data security
incidents (2) - 1,375 -100.0 % - 2,621 -100.0 % Management
transition expenses (2) - - -100.0 % - 1,318 -100.0 % Interest
expense (3) 26,969 26,703 1.0 % 80,616 117,617 -31.5 % Provision
for income taxes 36,830 39,462
-6.7 % 106,860
99,540 7.4 % Adjusted EBITDA (Non-GAAP)
$ 167,025 $ 163,730 2.0 %
$ 473,660 $ 474,523 -0.2
%
Basis Pt Chg Basis Pt Chg
Comparison as a % of
Net Sales
Adjusted EBITDA Margin 16.7 % 16.4 %
30 16.0 % 15.9 %
10
Operating Free Cash
Flow: 2017 2016 %
Chg 2017 2016 %
Chg Net cash provided by operating activities $ 63,921 $ 36,605
74.6 % $ 223,415 $ 248,813 -10.2 % Less: Capital expenditures, net
(17,209 ) (36,360 ) -52.7
% (66,529 ) (108,270 )
-38.6 % Operating Free Cash Flow (Non-GAAP) $ 46,712
$ 245 100.0 % $ 156,886
$ 140,543 11.6 % (1) For the
nine months ended June 30, 2017 and 2016, share-based compensation
includes $1.1 million and $1.3 million, respectively, of
accelerated expense related to certain retirement-eligible
employees who are eligible to continue vesting awards upon
retirement. (2) For the three and nine months ended June 30,
2016, selling, general and administrative expenses include $1.4
million and $2.6 million, respectively, of expenses incurred in
connection with the data security incidents disclosed earlier and,
for the nine months ended June 30, 2016, $1.3 million of expenses
related to the management transition plan disclosed in the fiscal
year 2016.
(3) For the nine months ended June 30,
2016, interest expense includes a loss on extinguishment of debt of
$33.3 million (including call premiums of $25.8 million) in
connection with the Company's December 2015 redemption of certain
senior notes.
Supplemental Schedule 5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Store Count and Same Store Sales (Unaudited)
As of
June 30, 2017 2016
Chg Number of stores (at end of period): Sally Beauty
Supply: Company-operated stores 3,807 3,732 75 Franchise stores 19
18 1 Total Sally
Beauty Supply 3,826 3,750 76 Beauty Systems Group ("BSG"):
Company-operated stores 1,196 1,157 39 Franchise stores 166
165 1 Total Beauty System
Group 1,362 1,322 40
Total 5,188 5,072
116 BSG distributor sales consultants (end of period)
(1) 839 925 (86 )
2017 2016
Basis Pt Chg Third quarter company-operated
same store sales growth (decline) (2) Sally Beauty Supply -0.8 %
1.3 % (210 ) Beauty Systems Group 2.8 % 5.4 % (260 ) Consolidated
0.3 % 2.5 % (220 ) Nine months
ended June 30 company-operated same store sales growth (decline)
(2) Sally Beauty Supply -1.3 % 2.0 % (330 ) Beauty Systems Group
1.4 % 6.8 % (540 ) Consolidated -0.4 % 3.5 %
(390 ) (1) Includes 257 and 318 distributor sales
consultants as reported by our franchisees at June 30, 2017 and
2016, respectively. (2) 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.Karen Fugate, 940-297-3877Investor
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