UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED:
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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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(Former name, former address and former fiscal year, if changed since last report): N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
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 Section13(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
As of January 27, 2023, there were
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, which we refer to as 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, 2022, 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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December 31, 2022 |
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September 30, 2022 |
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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 $ December 31, 2022, and $ |
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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, $ December 31, 2022, and September 30, 2022, respectively |
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Preferred stock, $ |
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Additional paid-in capital |
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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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December 31, |
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2022 |
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2021 |
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Net sales |
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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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Earnings per share: |
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Basic |
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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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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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December 31, |
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2022 |
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2021 |
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Net earnings |
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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 caps, net of tax |
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Foreign exchange contracts, net of tax |
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Other comprehensive income (loss), net of tax |
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Total comprehensive income |
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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, 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 related to net share settlement |
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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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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, 2021 |
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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 related to net share settlement |
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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 common stock |
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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, 2021 |
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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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Three Months Ended December 31, |
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2022 |
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2021 |
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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 (used) by operating activities: |
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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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Impairment of long-lived assets, including operating lease assets |
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— |
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Loss on disposal of equipment and other property |
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Deferred income taxes |
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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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( |
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Other current assets |
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( |
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( |
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Other assets |
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Operating leases, net |
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( |
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Accounts payable and accrued liabilities |
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Income taxes payable |
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Other liabilities |
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( |
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Net cash provided (used) by operating activities |
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( |
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Cash Flows from Investing Activities: |
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Payments for property and equipment, net of proceeds |
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( |
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( |
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Acquisitions, net of cash acquired |
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— |
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( |
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Net cash used by investing activities |
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( |
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( |
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Cash Flows from Financing Activities: |
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Proceeds from issuance of long-term debt |
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Repayments of long-term debt, including prepayment costs |
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( |
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( |
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Payments for common stock repurchased |
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— |
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( |
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Proceeds from equity awards |
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Employee withholding taxes paid related to net share settlement of equity awards |
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( |
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( |
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Net cash used by financing activities |
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( |
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( |
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Effect of foreign exchange rate changes on cash and cash equivalents |
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( |
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Net increase (decrease) in cash and cash equivalents |
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( |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period |
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$ |
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$ |
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Supplemental Cash Flow Information: |
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Interest paid |
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$ |
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$ |
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Income taxes paid |
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$ |
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$ |
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Capital expenditures incurred but not paid |
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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.
8
Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. |
Significant Accounting Policies |
Basis of Presentation
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, 2022. 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 December 31, 2022, and September 30, 2022, and our consolidated results of operations, consolidated comprehensive income, consolidated cash flows and consolidated statements of stockholders’ equity for the three months ended December 31, 2022 and 2021.
Principles of Consolidation
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.
Accounting Policies
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.
Use of Estimates
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 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.
9
2. |
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):
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Three Months Ended December 31, |
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2022 |
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2021 |
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Beginning Balance |
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$ |
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$ |
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Loyalty points and gift cards issued but not redeemed, net of estimated breakage |
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Revenue recognized from beginning liability |
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( |
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( |
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Ending Balance |
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$ |
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$ |
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See Note 10, Segment Reporting, for additional information regarding the disaggregation of our sales revenue.
3. |
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.
Financial instruments measured at fair value on recurring basis
Consistent with the fair value hierarchy, we categorized our financial assets and liabilities as follow:
(in thousands) |
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Classification |
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Fair Value Hierarchy Level |
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December 31, 2022 |
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September 30, 2022 |
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Financial Assets: |
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Foreign exchange contracts |
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Non-designated cash flow hedges |
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Other current assets |
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Level 2 |
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$ |
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$ |
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Interest rate caps |
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Other current assets |
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Level 2 |
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Total assets |
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$ |
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$ |
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. |
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Financial Liabilities: |
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Foreign exchange contracts |
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Designated cash flow hedges |
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Accrued liabilities |
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Level 2 |
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$ |
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$ |
— |
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Non-designated cash flow hedges |
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Accrued liabilities |
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Level 2 |
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Total liabilities |
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$ |
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$ |
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The fair value for interest rate caps and foreign exchange contracts were measured using widely accepted valuation techniques, such as discounted cash flow analyses and observable inputs, such as market interest rates and foreign exchange rates.
10
Other fair value disclosures
The carrying amounts of cash equivalents, trade and other accounts receivable and accounts payable and borrowing under our ABL facility approximate their respective fair values due to the short-term nature of these financial instruments. Carrying amounts and the related estimated fair value of our long-term debt, excluding capital lease obligations and debt issuance costs, are as follows:
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December 31, 2022 |
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September 30, 2022 |
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(in thousands) |
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Fair Value Hierarchy Level |
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Carrying Value |
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Fair Value |
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Carrying Value |
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Fair Value |
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Long-term debt, excluding capital leases |
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Senior notes |
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Level 1 |
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$ |
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$ |
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$ |
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$ |
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Term loan B |
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Level 2 |
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Total long-term debt |
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$ |
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$ |
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$ |
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$ |
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The fair value of term loan B was 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.
4. |
Stockholders’ Equity |
Share Repurchases
In August 2017, our Board of Directors (“Board”) approved a share repurchase program authorizing us to repurchase up to $
Accumulated Other Comprehensive Income (Loss)
The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):
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Foreign Currency Translation Adjustments |
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Interest Rate Caps |
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Foreign Exchange Contracts |
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Total |
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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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Other comprehensive income (loss) before reclassification, net of tax |
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( |
) |
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Reclassification to net earnings, net of tax |
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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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The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings was not material.
5. |
Weighted-Average Shares |
The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands):
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