SEC Form 10-Q filed by Sally Beauty Holdings Inc. (Name to be changed from Sally Hold
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 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 ☐ No
Number of shares of common stock outstanding as of May 3, 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, 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, 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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March 31, |
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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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Six Months Ended |
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March 31, |
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March 31, |
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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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Six Months Ended |
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March 31, |
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March 31, |
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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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— |
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( |
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— |
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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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Foreign exchange contracts, net of tax |
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( |
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( |
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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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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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( |
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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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( |
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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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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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Six Months Ended March 31, |
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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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— |
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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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( |
) |
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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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Other assets |
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( |
) |
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Operating leases, net |
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( |
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( |
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Accounts payable and accrued liabilities |
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Income taxes payable |
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( |
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Other liabilities |
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( |
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( |
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Net cash provided by operating activities |
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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 |
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( |
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( |
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Debt issuance costs |
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( |
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( |
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Proceeds from equity awards |
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Payments for common stock repurchased |
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( |
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— |
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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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Net decrease in cash and cash equivalents |
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( |
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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: |
|
|
|
|
|
|
||
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 March 31, 2024, and September 30, 2023, our consolidated results of operations, consolidated comprehensive income and consolidated statements of stockholders’ equity for the three and six months ended March 31, 2024 and 2023, and consolidated cash flows for the six months ended March 31, 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 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 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 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):
|
|
|
|
|
|
Six Months Ended March 31, |
|
|||||
|
|
|
|
|
|
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 follow:
(in thousands) |
|
Classification |
|
Fair Value Hierarchy Level |
|
March 31, |
|
|
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, such as 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 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 finance lease obligations, debt issuance costs and original issue discounts, are as follows:
|
|
|
|
March 31, 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 due 2030 |
|
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 $
Accumulated Other Comprehensive Loss
The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):
|
|
Foreign Currency Translation Adjustments |
|
|
Interest Rate Swap |
|
|
Foreign Exchange Contracts |
|
|
Total |
|
|
||||
Balance at September 30, 2023 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Other comprehensive income (loss) before |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|||
Reclassification to net earnings, net of tax |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
||
Balance at March 31, 2024 |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
The tax impact for the changes in other comprehensive income (loss) and the reclassifications to net earnings was not material.
6. Weighted-Average Shares
The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Weighted-average basic shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stock option and stock award programs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average diluted shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Anti-dilutive options excluded from our computation of diluted shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
11
7. Goodwill and Intangible Assets
During the three months ended March 31, 2024, we completed our annual assessments for impairment of goodwill and indefinite-lived intangible assets. For our goodwill testing, we performed a qualitative analysis and determined that there was no indication of impairment requiring further quantitative testing.
At September 30, 2023, we determined that due to the recent decline in the Company's share price and market capitalization, among other factors, a quantitative assessment was required. Based on our September 30, 2023, quantitative assessment using a discounted cash flow, we estimated the fair value for our BSG reporting unit to be approximately
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
(in thousands) |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Intangible assets amortization expense |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For the six months ended March 31, 2024, changes in goodwill reflects the effects of foreign currency exchange rates of $
8. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
|
|
March 31, |
|
|
September 30, |
|
||
Compensation and benefits |
|
$ |
|
|
$ |
|
||
Deferred revenue |
|
|
|
|
|
|
||
Rental obligations |
|
|
|
|
|
|
||
Insurance reserves |
|
|
|
|
|
|
||
Interest payable |
|
|
|
|
|
|
||
Property and other taxes |
|
|
|
|
|
|
||
Operating accruals and other |
|
|
|
|
|
|
||
Total accrued liabilities |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
9. Short-term and Long-term Debt
At March 31, 2024, our ABL facility had $
On February 12, 2024, we announced a registered public offering of
Additionally on February 12, 2024, we issued a notice to redeem the entire $
12
10. Derivative Instruments and Hedging Activities
During the six months ended March 31, 2024, we did
Designated Cash Flow Hedges
Foreign Currency Forwards
We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on forecasted inventory purchases in U.S. dollars by our foreign subsidiaries.
Notional Currency |
|
Notional Amount |
|
|
Mexican Peso |
|
$ |
|
|
Euro |
|
|
|
|
Canadian Dollar |
|
|
|
|
Total |
|
$ |
|
|
Quarterly, the changes in fair value related to these foreign currency forwards are recorded into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold, based on inventory turns, in our condensed consolidated statements of earnings. For the three months ended March 31, 2024 and 2023, we recognized a loss of $
Interest Rate Swap
In April 2023, we entered into a interest rate swap with an initial notional amount of $
For the three and six months ended March 31, 2024, we recognized income of $
Interest Rate Caps
In July 2017, we purchased
Non-Designated Derivative Instruments
We also use foreign exchange contracts to mitigate our exposure to exchange rate changes in connection with certain intercompany balances not permanently invested.
Notional Currency |
|
Notional Amount |
|
|
British Pound |
|
$ |
|
|
Mexican Peso |
|
|
|
|
Euro |
|
|
|
|
Canadian Dollar |
|
|
|
|
Total |
|
$ |
|
|
We record changes in fair value and realized gains or losses related to these foreign currency forwards into selling, general and administrative expenses. For the three months ended March 31, 2024 and 2023, the effects of these foreign exchange contracts on our condensed consolidated financial statements were losses of $
13
ended March 31, 2024 and 2023, the effects of these foreign exchange contracts on our condensed consolidated financial statements were losses of $
11. Segment Reporting
Segment data for the three and six months ended March 31, 2024 and 2023, is as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sally Beauty Supply ("SBS") |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Beauty Systems Group ("BSG") |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Earnings before provision for income taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
SBS |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
BSG |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Segment operating earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unallocated expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restructuring |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Consolidated operating earnings |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings before provision for income taxes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Sales between segments, which are eliminated in consolidation, were not material during the three and six months ended March 31, 2024 and 2023.
14
Disaggregation of net sales by segment
Periodically, we make minor adjustments to our product hierarchy, that impacts the roll-up of our merchandise categories. As a result, certain prior year amounts have been reclassified to conform to current year presentation. The following tables disaggregate our segment revenues by merchandise category.
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
SBS |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Hair color |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Hair care |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Styling tools and supplies |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Nail |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Skin and cosmetics |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Other beauty items |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Total |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
BSG |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Hair care |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Hair color |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Styling tools and supplies |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Skin and cosmetics |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Nail |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Other beauty items |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Total |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
The following tables disaggregate our segment revenue by sales channels:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
SBS |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Company-operated stores |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
E-commerce |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Total |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
BSG |
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Company-operated stores |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
E-commerce |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Distributor sales consultants |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Franchise stores |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Total |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
15
12. Restructuring
Restructuring expenses, included in Cost of Goods Sold (“COGS”) and Restructuring for the three and six months ended March 31, 2024 and 2023, are as follows (in thousands):
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Included in COGS (a) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Distribution Center Consolidation and Store Optimization Plan |
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Included in Restructuring (b) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Distribution Center Consolidation and Store Optimization Plan |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||
Distribution Center Consolidation and Store Optimization Plan
In the fourth quarter of fiscal year 2022, our Board approved the Distribution Center Consolidation and Store Optimization Plan (“the Plan”) authorizing the closure of 330 SBS stores and 35 BSG stores, and the closure of two BSG distribution centers in Clackamas, Oregon and Pottsville, Pennsylvania. Stores identified for early closure were part of a strategic evaluation which included a market analysis of certain locations where we believed we would be able to recapture demand and improve profitability.
The Plan has been substantially completed, as the remaining two BSG stores were closed earlier this fiscal year. However, we may still incur future immaterial charges related to store closures such as exit costs, lease negotiation penalties and adjustments to estimates. As of March 31, 2024, there were no material outstanding liabilities for exit costs or involuntary employee termination benefits.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty for the periods covered by this Quarterly Report. This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, including the Risk Factors sections therein, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and notes to those financial statements.
Financial Summary for the Three Months Ended March 31, 2024
Comparable Sales
We believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period. Our comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and from e-commerce revenue. Additionally, comparable sales include sales to franchisees and full service sales. Our comparable sales excludes the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquired stores are excluded from our comparable sales calculation until 14 months after the acquisition. Our calculation of comparable sales might not be the same as other retailers as the calculation varies across the retail industry.
17
Overview
Key Operating Metrics
The following table sets forth, for the periods indicated, information concerning key measures we rely on to evaluate our operating performance (dollars in thousands):
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
||||||||||||||||||||||||||
|
|
2024 |
|
|
2023 |
|
|
Increase (Decrease) |
|
|
2024 |
|
|
2023 |
|
|
Increase (Decrease) |
|
||||||||||||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
SBS |
|
$ |
513,241 |
|
|
$ |
530,246 |
|
|
$ |
(17,005 |
) |
|
|
(3.2 |
)% |
|
$ |
1,036,479 |
|
|
$ |
1,079,718 |
|
|
$ |
(43,239 |
) |
|
|
(4.0 |
)% |
BSG |
|
|
395,120 |
|
|
|
388,466 |
|
|
|
6,654 |
|
|
|
1.7 |
% |
|
|
803,184 |
|
|
|
796,049 |
|
|
|
7,135 |
|
|
|
0.9 |
% |
Consolidated |
|
$ |
908,361 |
|
|
$ |
918,712 |
|
|
$ |
(10,351 |
) |
|
|
(1.1 |
)% |
|
$ |
1,839,663 |
|
|
$ |
1,875,767 |
|
|
$ |
(36,104 |
) |
|
|
(1.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
SBS |
|
$ |
307,578 |
|
|
$ |
317,117 |
|
|
$ |
(9,539 |
) |
|
|
(3.0 |
)% |
|
$ |
614,138 |
|
|
$ |
640,592 |
|
|
$ |
(26,454 |
) |
|
|
(4.1 |
)% |
BSG |
|
|
155,494 |
|
|
|
151,222 |
|
|
|
4,272 |
|
|
|
2.8 |
% |
|
|
316,110 |
|
|
|
316,321 |
|
|
|
(211 |
) |
|
|
(0.1 |
)% |
Consolidated |
|
$ |
463,072 |
|
|
$ |
468,339 |
|
|
$ |
(5,267 |
) |
|
|
(1.1 |
)% |
|
$ |
930,248 |
|
|
$ |
956,913 |
|
|
$ |
(26,665 |
) |
|
|
(2.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Segment gross margin: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
SBS |
|
|
59.9 |
% |
|
|
59.8 |
% |
|
10 |
|
|
bps |
|
|
|
59.3 |
% |
|
|
59.3 |
% |
|
— |
|
|
bps |
|
||||
BSG |
|
|
39.4 |
% |
|
|
38.9 |
% |
|
50 |
|
|
bps |
|
|
|
39.4 |
% |
|
|
39.7 |
% |
|
(30) |
|
|
bps |
|
||||
Consolidated |
|
|
51.0 |
% |
|
|
51.0 |
% |
|
— |
|
|
bps |
|
|
|
50.6 |
% |
|
|
51.0 |
% |
|
(40) |
|
|
bps |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Segment operating earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
SBS |
|
$ |
76,820 |
|
|
$ |
92,134 |
|
|
$ |
(15,314 |
) |
|
|
(16.6 |
)% |
|
$ |
154,449 |
|
|
$ |
191,308 |
|
|
$ |
(36,859 |
) |
|
|
(19.3 |
)% |
BSG |
|
|
43,015 |
|
|
|
37,260 |
|
|
|
5,755 |
|
|
|
15.4 |
% |
|
|
87,642 |
|
|
|
86,907 |
|
|
|
735 |
|
|
|
0.8 |
% |
Segment operating earnings |
|
|
119,835 |
|
|
|
129,394 |
|
|
|
(9,559 |
) |
|
|
(7.4 |
)% |
|
|
242,091 |
|
|
|
278,215 |
|
|
|
(36,124 |
) |
|
|
(13.0 |
)% |
Unallocated expenses and restructuring(a) |
|
|
60,261 |
|
|
|
57,986 |
|
|
|
2,275 |
|
|
|
3.9 |
% |
|
|
113,394 |
|
|
|
120,219 |
|
|
|
(6,825 |
) |
|
|
(5.7 |
)% |
Consolidated operating earnings |
|
|
59,574 |
|
|
|
71,408 |
|
|
|
(11,834 |
) |
|
|
(16.6 |
)% |
|
|
128,697 |
|
|
|
157,996 |
|
|
|
(29,299 |
) |
|
|
(18.5 |
)% |
Interest expense |
|
|
20,523 |
|
|
|
16,685 |
|
|
|
3,838 |
|
|
|
23.0 |
% |
|
|
37,837 |
|
|
|
34,608 |
|
|
|
3,229 |
|
|
|
9.3 |
% |
Earnings before provision for income taxes |
|
|
39,051 |
|
|
|
54,723 |
|
|
|
(15,672 |
) |
|
|
(28.6 |
)% |
|
|
90,860 |
|
|
|
123,388 |
|
|
|
(32,528 |
) |
|
|
(26.4 |
)% |
Provision for income taxes |
|
|
9,807 |
|
|
|
13,862 |
|
|
|
(4,055 |
) |
|
|
(29.3 |
)% |
|
|
23,226 |
|
|
|
32,190 |
|
|
|
(8,964 |
) |
|
|
(27.8 |
)% |
Net earnings |
|
$ |
29,244 |
|
|
$ |
40,861 |
|
|
$ |
(11,617 |
) |
|
|
(28.4 |
)% |
|
$ |
67,634 |
|
|
$ |
91,198 |
|
|
$ |
(23,564 |
) |
|
|
(25.8 |
)% |
|
|
. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Comparable sales growth (decline): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
SBS |
|
|
(4.0 |
)% |
|
|
9.1 |
% |
|
(1,310) |
|
|
bps |
|
|
|
(3.0 |
)% |
|
|
5.9 |
% |
|
(890) |
|
|
bps |
|
||||
BSG |
|
|
2.0 |
% |
|
|
1.3 |
% |
|
70 |
|
|
bps |
|
|
|
1.3 |
% |
|
|
(0.2 |
)% |
|
150 |
|
|
bps |
|
||||
Consolidated |
|
|
(1.5 |
)% |
|
|
5.7 |
% |
|
(720) |
|
|
bps |
|
|
|
(1.1 |
)% |
|
|
3.3 |
% |
|
(440) |
|
|
bps |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Number of stores at end-of-period (including franchises): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
SBS |
|
|
3,134 |
|
|
|
3,143 |
|
|
|
(9 |
) |
|
|
(0.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
BSG |
|
|
1,334 |
|
|
|
1,341 |
|
|
|
(7 |
) |
|
|
(0.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Consolidated |
|
|
4,468 |
|
|
|
4,484 |
|
|
|
(16 |
) |
|
|
(0.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
||||
18
Results of Operations
The Three Months Ended March 31, 2024, compared to the Three Months Ended March 31, 2023
Net Sales
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Comparable sales |
|
$ |
(21,210 |
) |
Sales outside comparable sales (a) |
|
|
(341 |
) |
Foreign currency exchange |
|
|
4,546 |
|
Total |
|
$ |
(17,005 |
) |
SBS's net sales decrease was primarily driven by a decline in comparable sales, partially offset by favorable impacts from foreign currency exchange rates. SBS’s decline in comparable sales was driven by a result of fewer transactions.
BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):
Comparable sales |
|
$ |
7,624 |
|
Sales outside comparable sales (a) |
|
|
(1,067 |
) |
Foreign currency exchange |
|
|
97 |
|
Total |
|
$ |
6,654 |
|
BSG's net sales increase was primarily driven by an increase in comparable sales, reflecting expanded distribution, new brand innovation and improving salon demand trends.
Gross Profit
SBS. SBS’s gross profit decreased for the three months ended March 31, 2024, as a result of a decrease in net sales, partially offset by a higher gross margin on units sold. SBS’s gross margin improvement was driven primarily by lower distribution and freight costs from supply chain efficiencies, partially offset by the impact of favorable adjustments to our expected obsolescence reserve related to the Plan in the prior year.
BSG. BSG’s gross profit increased for the three months ended March 31, 2024, as a result of an increase in net sales and a higher gross margin on units sold. BSG’s gross margin improvement was driven by lower distribution and freight costs from supply chain efficiencies, partially offset by lower product margins primarily from higher take rate on promotions and brand mix.
Selling, General and Administrative Expenses
SBS. SBS’s selling, general and administrative expenses increased $5.8 million, or 2.6%, for the three months ended March 31, 2024, and included an unfavorable impact from foreign exchange rates of $1.8 million. As a percentage of SBS net sales, selling, general and administrative expense for the three months ended March 31, 2024, was 45.0% compared to 42.4% for the three months ended March 31, 2023. The increase as a percentage of sales was primarily due to higher labor and rent costs.
BSG. BSG’s selling, general and administrative expenses decreased $1.5 million, or 1.3%, for the three months ended March 31, 2024. As a percentage of BSG net sales, selling, general and administrative expense for the three months ended March 31, 2024, was 28.5% compared to 29.3% for the three months ended March 31, 2023. The decrease as a percentage of sales was primarily due to lower delivery expense.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $9.5 million, or 18.7%, for the three months ended March 31, 2024, primarily due to expenses in connection with our Fuel for Growth initiative in the current year and higher health insurance costs, partially offset by lower accrued bonus expense.
Restructuring
The decrease in restructuring was primarily due to the lapping of expenses incurred in connection with our Distribution Center Consolidation and Store Optimization Plan in the prior year for $7.3 million. See Note 12, Restructuring, in Item 1 of this quarterly report for more information on the Plan.
19
Interest Expense
The increase in interest expense is primarily due to higher interest rates on our variable rate debt and an increase in our losses on debt extinguishment, partially offset by lower average outstanding borrowings on our ABL facility during the current quarter. See Note 9, Short-term and Long-term Debt, and Note 10, Derivative Instruments and Hedging Activities, in Item 1 of this quarterly report for more information on our debt and interest rate swap that has helped mitigate some of the additional interest costs resulting from higher interest rates.
The Six Months Ended March 31, 2024, compared to the Six Months Ended March 31, 2023
Net Sales
SBS. The decrease in net sales for SBS was primarily driven by the following (in thousands):
Comparable sales |
|
$ |
(31,089 |
) |
Sales outside comparable sales (a) |
|
|
(25,442 |
) |
Foreign currency exchange |
|
|
13,292 |
|
Total |
|
$ |
(43,239 |
) |
SBS's net sales decrease was primarily driven by the impact of lower comparable sales and store closures primarily in connection with the Plan in an amount of approximately $23.6 million, partially offset by a significant portion of these sales being recaptured in other locations included within comparable sales and a favorable impact from foreign currency exchange rates. SBS’s comparable sales decline was a result of fewer transactions, partially offset by growth in our average unit retail, driven by inflationary impacts and pricing leverage.
BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):
Comparable sales |
|
$ |
10,497 |
|
Sales outside comparable sales (a) |
|
|
(3,362 |
) |
Foreign currency exchange |
|
|
— |
|
Total |
|
$ |
7,135 |
|
BSG's net sales increase was primarily driven by an increase in comparable sales, reflecting expanded distribution, new brand innovation and improving salon demand trends, partially offset by the impact of store closures.
Gross Profit
SBS. SBS’s gross profit decreased for the six months ended March 31, 2024, as a result of a decrease in net sales. SBS’s gross margin was flat due to lower distribution and freight costs from supply chain efficiencies, offset by the impact of favorable adjustments to our expected obsolescence reserve related to the Plan in the prior year.
BSG. BSG’s gross profit was flat for the six months ended March 31, 2024, as a result of a lower gross margin on units sold, offset by an increase in net sales. BSG’s gross margin decline was driven by unfavorable fixed cost absorption, shrink expense, and adjustments to our expected obsolescence reserve related to the Plan in the prior year, partially offset by lower distribution and freight costs from supply chain efficiencies and higher product margins primarily from higher take rate on promotions and brand mix.
Selling, General and Administrative Expenses
SBS. SBS’s selling, general and administrative expenses increased $10.4 million, or 2.3%, for the six months ended March 31, 2024, and included an unfavorable impact from foreign exchange rates of $5.1 million and cost savings from store closures in connection with the Plan. As a percentage of SBS net sales, selling, general and administrative expense for the six months ended March 31, 2024, was 44.4% compared to 41.6% for the six months ended March 31, 2023. The increase as a percentage of sales was due to higher labor costs, rent costs, and advertising expenses.
BSG. BSG’s selling, general and administrative expenses decreased $0.9 million, or 0.4%, for the six months ended March 31, 2024. As a percentage of BSG net sales, selling, general and administrative expense for the six months ended March 31, 2024, was 28.4% compared to 28.8% for the six months ended March 31, 2023. The decrease as a percentage of sales was driven primarily by lower delivery expense.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $10.9 million, or 10.6%, for the six months ended March 31, 2024, primarily due to expenses in connection with our Fuel for Growth initiative in the current year, partially offset by lower accrued bonus expense.
20
Restructuring
The decrease in restructuring was primarily due to the lapping of expenses incurred in connection with our Distribution Center Consolidation and Store Optimization Plan in the prior year for $17.7 million. See Note 12, Restructuring, in Item 1 of this quarterly report for more information on the Plan.
Interest Expense
The increase in interest expense is primarily due to higher interest rates on our variable rate debt and an increase in our losses on debt extinguishment, partially offset by lower average outstanding borrowings on our ABL facility during the current year. See Note 9, Short-term and Long-term Debt, and Note 10, Derivative Instruments and Hedging Activities, in Item 1 of this quarterly report for more information on our debt and interest rate swap that has helped mitigate some of the additional interest costs resulting from higher interest rates.
Liquidity and Capital Resources
Overview
Our principal sources of liquidity are cash from operations, cash and cash equivalents and borrowings under our ABL facility. A substantial portion of our liquidity needs arise from funding the costs of our operations, working capital, capital expenditures, debt interest and principal payments. Additionally, under our share repurchase program (see below for more details) we will from time-to-time repurchase shares of our common stock on the open market to return value to our shareholders. At March 31, 2024, we had $517.8 million in our liquidity pool, which includes $420.6 million available for borrowing under our ABL facility and cash and cash equivalents of $97.2 million.
Our working capital (current assets less current liabilities) decreased $12.1 million, to $636.6 million at March 31, 2024, compared to $648.7 million at September 30, 2023. The decrease was primarily driven by the impacts of our debt activity during the quarter, resulting in higher borrowings under our ABL facility and a decrease in cash and cash equivalents, and due to the timing of AP payments. These impacts were partially offset by an increase in inventory, as a result of expanded distribution rights in BSG, vendor price increases, the impact of foreign exchange rates of $4.7 million, and by fewer accrued liabilities, driven by the timing of interest and payroll payments.
We anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), cash expected to be generated by operations, and funds available under our ABL facility will be sufficient to fund our working capital and capital expenditure requirements over the next twelve months.
Cash Flows
|
|
Six Months Ended March 31, |
|
|||||
(in thousands) |
|
2024 |
|
|
2023 |
|
||
Net cash provided by operating activities |
|
$ |
87,960 |
|
|
$ |
79,648 |
|
Net cash used by investing activities |
|
|
(44,877 |
) |
|
|
(42,181 |
) |
Net cash used by financing activities |
|
|
(68,932 |
) |
|
|
(49,237 |
) |
Net Cash Provided by Operating Activities
The increase in cash provided by operating activities was driven by the timing of account payables payments and inventory purchases and lease contract termination and severance payments in connection with the Plan in the prior year, partially offset by the timing of cash receipts from customers.
Net Cash Used by Investing Activities
The increase in cash used by investing activities was driven by higher capital expenditures related to store improvements.
Net Cash Used by Financing Activities
The increase in cash used by financing activities was primarily due to shares repurchased in the current year under our share repurchases program, partially offset by fewer reductions in our debt outstanding in the current year compared to the prior year.
Debt and Guarantor Financial Information
During the three months ending March 31, 2024, we issued $600.0 million in 2032 Senior Notes and used the proceeds, together with cash on hand and borrowings under our ABL facility, to repay in full our 2025 Senior Notes. See Note 9, Short-term and Long-term Debt, in Item 1 of this quarterly report for more information on the issuance and repayment of debt.
21
At March 31, 2024, we had $1.1 billion in outstanding debt principal, excluding finance lease obligations, unamortized debt issuance costs and debt discounts, in the aggregate, of $13.7 million. Our debt consists of $600.0 million in 2032 Senior Notes outstanding, $396.0 million remaining on our term loan and $62.0 million in outstanding borrowings under our ABL facility.
We utilize our ABL facility for the issuance of letters of credit, certain working capital and liquidity needs, and to manage normal fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, paying down other debt and share repurchases. Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities. During the six months ended March 31, 2024, the weighted average interest rate on our borrowings under the ABL facility was 7.73%.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.
Guarantor Financial Information
Our 2032 Senior Notes were issued by our wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc. (the “Issuers”). The notes are unsecured debt instruments guaranteed by us and certain of our wholly-owned domestic subsidiaries (together, the “Guarantors”) and have certain restrictions on the ability of our subsidiaries to make certain restrictive payments to Sally Beauty. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors.
The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these combined entities has been eliminated.
The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of March 31, 2024, and September 30, 2023:
(in thousands) |
|
March 31, 2024 |
|
|
September 30, 2023 |
|
||
Cash and cash equivalents |
|
$ |
32,784 |
|
|
$ |
66,148 |
|
Inventory |
|
$ |
787,351 |
|
|
$ |
735,853 |
|
Intercompany receivable |
|
$ |
— |
|
|
$ |
1,658 |
|
Current assets |
|
$ |
915,327 |
|
|
$ |
890,462 |
|
Total assets |
|
$ |
2,073,759 |
|
|
$ |
2,076,413 |
|
Current liabilities |
|
$ |
524,496 |
|
|
$ |
468,202 |
|
Intercompany payable |
|
$ |
2,611 |
|
|
$ |
— |
|
Total liabilities |
|
$ |
1,984,754 |
|
|
$ |
2,011,075 |
|
The following table presents the summarized statement of earnings information for the Issuers and the Guarantors for six months ended March 31, 2024 (in thousands):
Net sales |
|
$ |
1,479,062 |
|
|
Gross profit |
|
$ |
757,827 |
|
|
Earnings before provision for income taxes |
|
$ |
72,048 |
|
|
Net Earnings |
|
$ |
54,377 |
|
|
Share Repurchase Programs
Under our current share repurchase program, we may from time-to-time repurchase our common stock on the open market. During the three and six months ended March 31, 2024, we repurchased 1.5 million and 3.5 million shares of our common stock for $20.0 million and $40.0 million, respectively, under our share repurchase program, excluding the impact of excise taxes. During the three and six months ended March 31, 2023, no shares were repurchased in connection with our share repurchase program. See Note 5, Stockholders’ Equity, for more information about our share repurchase program.
Contractual Obligations
Other than our debt, as discussed above, there have been no material changes outside the ordinary course of our business to our contractual obligations since September 30, 2023.
Off-Balance Sheet Financing Arrangements
At March 31, 2024, and September 30, 2023, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates or assumptions since September 30, 2023.
22
Recent Accounting Pronouncements
See Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates and government actions. There have been no material changes to our market risks from September 30, 2023. See our disclosures about market risks contained in Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
Item 4. Controls and Procedures
Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2024. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Quarterly Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.
Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this Quarterly Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis and to maintain them as dynamic systems that change as conditions warrant.
Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of March 31, 2024, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors contained in Item 1A. “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors disclosed in such Annual Report. The risks described in such Annual Report and herein are not the only risks facing our company.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
Information regarding shares of common stock we repurchased during the second quarter of fiscal year 2024, excluding the impact of excise taxes, is as follows:
Fiscal Period |
|
Total Number of Shares Purchased (1) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)(2) |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
Jan 1 -Jan 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
560,792,432 |
|
Feb 1 - Feb 29, 2024 |
|
|
1,209,241 |
|
|
|
13.22 |
|
|
|
1,209,241 |
|
|
|
544,801,708 |
|
Mar 1 - Mar 31, 2024 |
|
|
317,227 |
|
|
|
12.64 |
|
|
|
317,227 |
|
|
|
540,792,435 |
|
Total this quarter |
|
|
1,526,468 |
|
|
$ |
13.10 |
|
|
|
1,526,468 |
|
|
$ |
540,792,435 |
|
Item 5. Other Information
During the quarter ended March 31, 2024, no director or officer of the Company
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Item 6. Exhibits
Exhibit No. |
|
Description |
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1 |
|
|
|
|
|
22 |
|
|
|
|
|
31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
|
|
|
|
32.2 |
|
|
|
|
|
101 |
|
The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Stockholders’ Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements. |
|
|
|
104 |
|
The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024, formatted in iXBRL (contained in Exhibit 101). |
* Included herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
SALLY BEAUTY HOLDINGS, INC. |
|
|
|
(Registrant) |
|
|
|
|
Date: May 9, 2024 |
|
|
|
|
|
|
|
|
By: |
|
/s/ Marlo M. Cormier |
|
|
|
Marlo M. Cormier |
|
|
|
Senior Vice President, Chief Financial Officer |
|
|
|
For the Registrant and as its Principal Financial Officer |
27