UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED:
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol |
Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Number of shares of common stock outstanding as of August 2, 2024:
TABLE OF CONTENTS
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
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2
In this Quarterly Report, references to “the Company,” “Sally Beauty,” “our company,” “we,” “our,” “ours” and “us” refer to Sally Beauty Holdings, Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report on Form 10-Q and in the documents incorporated by reference herein which are not purely historical facts or which depend upon future events may constitute 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, "the Exchange Act." 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 and 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. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors in Item 1A contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements.
3
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except par value data)
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June 30, |
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September 30, |
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(Unaudited) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Trade accounts receivable, net |
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Accounts receivable, other |
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Inventory |
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Other current assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Operating lease assets |
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Goodwill |
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Intangible assets, excluding goodwill, net of accumulated amortization of |
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Other assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders’ Equity |
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Current liabilities: |
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Current maturities of long-term debt |
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$ |
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$ |
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Accounts payable |
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Accrued liabilities |
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Current operating lease liabilities |
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Income taxes payable |
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Total current liabilities |
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Long-term debt |
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Long-term operating lease liabilities |
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Other liabilities |
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Deferred income tax liabilities, net |
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Total liabilities |
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Stockholders’ equity: |
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Common stock, $ |
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Preferred stock, $ |
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Additional paid-in capital |
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— |
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Accumulated earnings |
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Accumulated other comprehensive loss, net of tax |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net sales |
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$ |
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$ |
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$ |
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$ |
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Cost of goods sold |
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Gross profit |
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Selling, general and administrative expenses |
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Restructuring |
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Operating earnings |
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Interest expense |
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Earnings before provision for income taxes |
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Provision for income taxes |
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Net earnings |
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$ |
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$ |
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$ |
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$ |
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Earnings per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted-average shares: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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June 30, |
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June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net earnings |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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Interest rate swap, net of tax |
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Interest rate caps, net of tax |
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— |
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— |
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— |
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( |
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Foreign exchange contracts, net of tax |
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( |
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Other comprehensive income (loss), net of tax |
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( |
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Total comprehensive income |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
Paid-in |
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Accumulated |
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Comprehensive |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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Equity |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Stock issued for equity awards |
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— |
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— |
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Employee withholding taxes paid |
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( |
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( |
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( |
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— |
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— |
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( |
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Repurchases and cancellations of |
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( |
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( |
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( |
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( |
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— |
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( |
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Balance at December 31, 2023 |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Stock issued for equity awards |
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— |
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— |
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Employee withholding taxes paid |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
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Repurchases and cancellations of |
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( |
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( |
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( |
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( |
) |
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— |
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( |
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Balance at March 31, 2024 |
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$ |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Stock issued for equity awards |
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— |
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— |
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— |
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Repurchases and cancellations of |
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( |
) |
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( |
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( |
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( |
) |
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— |
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( |
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Balance at June 30, 2024 |
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$ |
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$ |
— |
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$ |
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$ |
( |
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$ |
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
Paid-in |
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Accumulated |
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Comprehensive |
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Stockholders’ |
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Shares |
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Amount |
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Capital |
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Earnings |
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Loss |
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Equity |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Stock issued for equity awards |
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— |
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— |
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Employee withholding taxes paid |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
) |
Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Stock issued for equity awards |
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— |
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— |
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Employee withholding taxes paid |
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( |
) |
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— |
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( |
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— |
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— |
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( |
) |
Balance at March 31, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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Net earnings |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Share-based compensation |
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— |
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— |
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— |
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— |
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Stock issued for equity awards |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
7
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
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Nine Months Ended June 30, |
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2024 |
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2023 |
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Cash Flows from Operating Activities: |
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Net earnings |
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$ |
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$ |
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Adjustments to reconcile net earnings to net cash provided |
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Depreciation and amortization |
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Share-based compensation expense |
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Amortization of deferred financing costs |
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Loss on early extinguishment of debt |
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Impairment of long-lived assets, including operating lease assets |
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Loss on disposal of equipment and other property |
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Deferred income taxes |
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( |
) |
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( |
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Changes in (exclusive of effects of acquisitions): |
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Trade accounts receivable |
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Accounts receivable, other |
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( |
) |
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( |
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Inventory |
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( |
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( |
) |
Other current assets |
|
|
|
|
|
|
||
Other assets |
|
|
( |
) |
|
|
|
|
Operating leases, net |
|
|
( |
) |
|
|
( |
) |
Accounts payable and accrued liabilities |
|
|
( |
) |
|
|
( |
) |
Income taxes payable |
|
|
|
|
|
|
||
Other liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash provided by operating activities |
|
|
|
|
|
|
||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
||
Payments for property and equipment, net of proceeds |
|
|
( |
) |
|
|
( |
) |
Acquisitions, net of cash acquired |
|
|
( |
) |
|
|
— |
|
Net cash used by investing activities |
|
|
( |
) |
|
|
( |
) |
Cash Flows from Financing Activities: |
|
|
|
|
|
|
||
Proceeds from issuance of long-term debt and ABL facility |
|
|
|
|
|
|
||
Repayments of long-term debt and ABL facility |
|
|
( |
) |
|
|
( |
) |
Debt issuance costs |
|
|
( |
) |
|
|
( |
) |
Proceeds from equity awards |
|
|
|
|
|
|
||
Payments for common stock repurchased |
|
|
( |
) |
|
|
— |
|
Employee withholding taxes paid related to net share settlement of equity awards |
|
|
( |
) |
|
|
( |
) |
Net cash used by financing activities |
|
|
( |
) |
|
|
( |
) |
Effect of foreign exchange rate changes on cash and cash equivalents |
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
|
( |
) |
|
|
|
|
Cash and cash equivalents, beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents, end of period |
|
$ |
|
|
$ |
|
||
Supplemental Cash Flow Information: |
|
|
|
|
|
|
||
Interest paid |
|
$ |
|
|
$ |
|
||
Income taxes paid |
|
$ |
|
|
$ |
|
||
Capital expenditures incurred but not paid |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Significant Accounting Policies
The unaudited condensed consolidated interim financial statements of Sally Beauty Holdings, Inc. and its subsidiaries included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures included herein are adequate for the interim period presented. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of June 30, 2024, and September 30, 2023, our consolidated results of operations, consolidated comprehensive income and consolidated statements of stockholders’ equity for the three and nine months ended June 30, 2024 and 2023, and consolidated cash flows for the nine months ended June 30, 2024 and 2023.
The unaudited condensed consolidated interim financial statements include all accounts of Sally Beauty Holdings, Inc. and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. All amounts are in U.S. Dollars.
We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full-year assumptions. For interim financial reporting purposes, income taxes are recorded based upon our estimated annual effective income tax.
In order to present our financial statements in conformity with GAAP, we are required to make certain estimates and assumptions that impact our interim financial statements and supplementary disclosures. These estimates may use forecasted financial information based on reasonable information available, however they are subject to change in the future. Significant estimates and assumptions are part of our accounting for sales allowances, deferred revenue, valuation of inventory, amortization and depreciation, intangibles and goodwill, and other reserves. We believe these estimates and assumptions are reasonable; however, they are based on management’s current knowledge of events and actions, and changes in facts and circumstances may result in revised estimates and impact actual results.
2. Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued accounting standards update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, to enhance segment disclosures for annual and interim consolidated financial statements, including significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”). For public companies, the amendments in the update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of this update, but we do not expect the update to impact our consolidated results of operations or financial position.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to expand disclosures in an entity’s income tax rate reconciliation table and the disaggregation of taxes paid in U.S. and foreign jurisdictions. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We are currently evaluating the impact of this update, but we do not expect the update to impact our consolidated results of operations or financial position.
9
3. Revenue Recognition
Substantially all of our revenue is derived through the sale of merchandise at the point-of-sale. Revenue is recognized net of estimated sales returns and sales taxes. We estimate sales returns based on historical data.
Changes to our contract liabilities, which are included in accrued liabilities in our condensed consolidated balance sheets, for the periods were as follows (in thousands):
|
|
|
|
|
|
Nine Months Ended June 30, |
|
|||||
|
|
|
|
|
|
2024 |
|
|
2023 |
|
||
Beginning Balance |
|
|
|
|
|
$ |
|
|
$ |
|
||
Loyalty points and gift cards issued but not redeemed, net of estimated breakage |
|
|
|
|
|
|
||||||
Revenue recognized from beginning liability |
|
|
( |
) |
|
|
( |
) |
||||
Ending Balance |
|
|
|
|
|
$ |
|
|
$ |
|
||
See Note 11, Segment Reporting, for additional information regarding the disaggregation of our sales revenue.
4. Fair Value Measurements
We measure on a recurring basis and disclose the fair value of our financial instruments under the provisions of ASC Topic 820, Fair Value Measurement, as amended (“ASC 820”). We define “fair value” as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for measuring fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.
The three levels of that hierarchy are defined as follows:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities;
Level 2 - Pricing inputs are other than quoted prices in active markets, included in Level 1, that are either directly or indirectly observable; and
Level 3 - Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own model with estimates and assumptions.
Consistent with the fair value hierarchy, we categorized our financial assets and liabilities as follows:
(in thousands) |
|
Classification |
|
Fair Value Hierarchy Level |
|
June 30, |
|
|
September 30, |
|
||
Financial Assets: |
|
|
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
|
|
|
|
|
|
|
|
|
||
Non-designated cash flow hedges |
|
Other current assets |
|
Level 2 |
|
$ |
|
|
$ |
|
||
Interest rate swap |
|
Other assets |
|
Level 2 |
|
|
|
|
|
|
||
Total assets |
|
|
|
|
|
$ |
|
|
$ |
|
||
. |
|
|
|
|
|
|
|
|
|
|
||
Financial Liabilities: |
|
|
|
|
|
|
|
|
|
|
||
Foreign exchange contracts |
|
|
|
|
|
|
|
|
|
|
||
Designated cash flow hedges |
|
Accrued liabilities |
|
Level 2 |
|
$ |
|
|
$ |
— |
|
|
Non-designated cash flow hedges |
|
Accrued liabilities |
|
Level 2 |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
$ |
|
|
$ |
|
||
The fair value of each asset and liability were measured using widely accepted valuation techniques, including discounted cash flow analyses and observable inputs, such as market interest rates and foreign exchange rates.
10
The carrying amounts of cash equivalents, trade and other accounts receivable, and accounts payable and borrowing under our $
|
|
|
|
June 30, 2024 |
|
|
September 30, 2023 |
|
||||||||||
(in thousands) |
|
Fair Value Hierarchy Level |
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
Long-term debt, excluding finance lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Senior notes |
|
Level 1 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Term loan B |
|
Level 2 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total long-term debt |
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The fair values of our term loans were measured using quoted market prices for similar debt securities in active markets or widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.
5. Stockholders’ Equity
Share Repurchases
In August 2017, our Board of Directors (“Board”) approved a share repurchase program authorizing us to repurchase up to $