Exhibit 99.1

 

 

Sally Beauty Holdings, Inc. Announces Fourth Quarter Results

 

 

DENTON, Texas, November 8, 2018 – 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:

 

 

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As we move through the remainder of first quarter fiscal year 2019, our team will remain focused on:

 

 

As we move further into fiscal year 2019, we will continue our transformation efforts by:

 

 

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.  

 

 

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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

 

Beauty Systems Group

 

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.

 

 

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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

 

Beauty Systems Group

 

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.

 

 

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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.

 

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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

 

 

 

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SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(In thousands, except per share data)

(Unaudited)

 

 

 

(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.

 

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SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

 

 

 

(1) The prior year has been restated to reflect the impact of adopting ASU 2015-17.

 

 

 

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Supplemental Schedule 1

 

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Segment Information

(In thousands)

(Unaudited)

 

 

(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.

 

 

 

 

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Supplemental Schedule 2

 

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Non-GAAP Financial Measures Reconciliations, Continued

(In thousands, except per share data)

(Unaudited)

 

 

 

(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%.

 

 

 

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Supplemental Schedule 3

 

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Non-GAAP Financial Measures Reconciliations, Continued

(In thousands, except per share data)

(Unaudited)

 

 

(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.

 

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Supplemental Schedule 4

 

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Non-GAAP Financial Measures Reconciliations, Continued

(In thousands)

(Unaudited)

 

 

 

 

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Supplemental Schedule 5

 

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Store Count and Same Store Sales

(Unaudited)

 

 

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.

 

 

 

 

 

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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