Sally Beauty Holdings, Inc., the leader in professional hair color, has announced financial results for its fourth quarter and full year ended September 30, 2023.
Fourth quarter consolidated net sales were $921.4 million, a decrease of 4.3 percent compared to the prior year. The company was operating 308 fewer stores at the end of the quarter compared to the prior year.
“We are pleased to report full year financial results in line with the expectations we laid out at the beginning of fiscal 2023,” said Denise Paulonis, president and chief executive officer.
“We drove a comparable sales gain, maintained healthy gross margins and generated strong cash flow from operations against a rapidly shifting backdrop," Paulonis said. "We also advanced our consumer-centric strategies during the year, launching new concepts and bringing new services to the market, while delivering unparalleled product innovation to both our Sally and BSG customers.”
Foreign currency translation had a favorable impact of 110 basis points on consolidated net sales for the quarter. At constant currency, global e-commerce sales were $87 million or 9.4 percent of consolidated net sales for the quarter.
Consolidated comparable sales declined 1.6 percent, driven primarily by lower traffic and inflationary pressures that continued to impact consumer behavior at Sally Beauty and the continuation of stylist demand trends seen over the last several quarters at Beauty Systems Group.
Consolidated gross profit for the fourth quarter was $466.6 million compared to $463.5 million in the prior year, an increase of 0.7%.
Consolidated GAAP gross margin was 50.6 percent, an increase of 240 basis points compared to 48.2 percent in the prior year, driven primarily by the prior year’s non-cash inventory write-down of $19.4 million, related to the company’s previously announced distribution center consolidation and store optimization plan.
Excluding the inventory write-down, Adjusted Gross Margin was 50.6 percent, an increase of 50 basis points compared to 50.1 percent in the prior year, driven primarily by higher product margin, and lower distribution and freight costs from supply chain efficiencies.
Selling, general and administrative (SG&A) expenses totaled $390.5 million, a decrease of $7.3 million compared to the prior year. Adjusted Selling, General and Administrative Expenses, excluding the company’s restructuring efforts and COVID-19 related net expenses for the disposal of obsolete personal-protective equipment, totaled $387.3 million, a decrease of $10.6 million compared to the prior year.
The decrease was driven primarily by the savings from the company’s previously announced distribution center consolidation and store optimization plan and lower advertising costs, partially offset by higher labor costs. As a percentage of sales, Adjusted SG&A expenses were 42.0 percent compared to 41.3 percent in the prior year.
GAAP operating earnings and operating margin in the fourth quarter were $76.9 million and 8.3 percent, compared to $39.2 million and 4.1 percent, in the prior year. Adjusted Operating Earnings and Operating Margin, excluding the company’s restructuring efforts and COVID-19 related net expenses, were $79.3 million and 8.6 percent, compared to $83.9 million and 8.7 percent, in the prior year.
GAAP net earnings in the fourth quarter were $42.6 million, or $0.39 per diluted share, compared to GAAP net earnings of $21.3 million, or $0.20 per diluted share in the prior year.
“Our teams are executing well on our strategic initiatives designed to reignite top line growth and improve profitability — enhancing our customer centricity, growing our high-margin own brands and amplifying innovation, and increasing the efficiency of our operations," Paulonis said.
"Building on our strong foundation, we are focused on the future and remain committed to creating value for our shareholders.”
Adjusted Net Earnings, excluding the company’s restructuring efforts, COVID-19 related net expenses, and the loss on debt extinguishment related to the Company’s repricing of its term loan, were $45.7 million, or $0.42 per diluted share, compared to Adjusted Net Earnings of $54.4 million, or $0.50 per diluted share in the prior year.
Adjusted EBITDA in the fourth quarter was $109.3 million, a decrease of 2.7 percent compared to the prior year, and Adjusted EBITDA Margin was 11.9 percent, an increase of 20 basis points compared to the prior year.
As of September 30, 2023, the company had cash and cash equivalents of $123 million and a zero-balance outstanding under its asset-based revolving line of credit. At the end of the quarter, inventory was $975.2 million, up 4.1 percent versus a year ago. The company ended the quarter with a net debt leverage ratio of 2.1x.
Fourth quarter cash flow from operations was $116.5 million. Capital expenditures in the quarter totaled $26.9 million.
During the quarter, the company utilized its strong cash flow to acquire assets from Goldwell of New York for $9 million, repay the remaining $16 million outstanding balance under its asset-revolving line of credit, and to repurchase 1.5 million shares under its share repurchase program at an aggregate cost of $15 million.
On September 13, 2023, the company repriced its term loan B, reducing the pricing from SOFR (secured overnight financing rate) plus a spread of 250 basis points to SOFR plus a spread of 225 basis points. The 25 basis point reduction in the spread results in approximately $1 million in annual interest expense savings.
Beauty Systems Group Announces Strategic Acquisition of Assets from Goldwell of New York
In September, Beauty Systems Group acquired certain assets from Goldwell of New York, which included five stores, as well as full-service sales and distribution rights for all sales channels of Goldwell, Deva Curl and other key brands in the upstate New York territory.
In addition, the expanded distribution rights also apply to 28 Cosmo Prof stores in the same territory. The transaction also included full-service and e-commerce distribution rights for Amika hair care.
The acquisition is expected to result in an incremental sales benefit of approximately 1 percent to the company’s Beauty Systems Group segment in fiscal 2024.
Fiscal 2023 Fourth Quarter Segment Results
Sally Beauty Supply
- Segment net sales were $524.6 million in the quarter, a decrease of 5.3 percent compared to the prior year. The segment operated 291 fewer stores at the end of the quarter compared to the prior year and had a favorable impact of 200 basis points from foreign currency translation on reported sales. At constant currency, segment e-commerce sales were $32 million or 6.1 percent of segment net sales for the quarter.
- Segment comparable sales decreased 1.2 percent in the fourth quarter. The Sally Beauty businesses in the U.S. and Canada represented 76 percent of segment net sales for the quarter and had a comparable sales decrease of 2.0 percent, primarily reflecting lower traffic and inflationary pressures that impacted consumer behavior.
- At the end of the quarter, net store count was 3,148.
- GAAP gross margin increased by 260 basis points to 59.2 percent compared to the prior year. The increase was driven primarily by the prior year’s non-cash inventory write-down related to the Company’s previously announced distribution center consolidation and store optimization plan. Excluding the inventory write-down, Adjusted Gross Margin increased 90 basis points to 59.2 percent compared to the prior year. The increase was driven primarily by higher product margin due to higher owned brand penetration, and lower distribution and freight costs from supply chain efficiencies, partially offset by an unfavorable sales mix shift between Sally US (higher margin) and Sally international (lower margin).
- GAAP operating earnings were $78.5 million compared to $80.5 million in the prior year, representing a decrease of 2.5 percent. GAAP operating margin increased to 15.0 percent compared to 14.5 percent in the prior year.
Beauty Systems Group
- Segment net sales were $396.8 million in the quarter, a decrease of 2.9 percent compared to the prior year. The segment operated 17 fewer stores at the end of the quarter compared to the prior year and had an unfavorable impact of 20 basis points on reported sales from foreign currency translation. At constant currency, segment e-commerce sales were $55 million or 13.9 percent of segment net sales for the quarter.
- Segment comparable sales decreased 2.3 percent in the fourth quarter, primarily reflecting the continuation of stylist demand trends seen over the last several quarters.
- At the end of the quarter, net store count was 1,338.
- GAAP gross margin increased 260 basis points to 39.3 percent in the quarter compared to the prior year, driven primarily by the prior year’s non-cash inventory write-down related to the Company’s previously announced distribution center consolidation and store optimization plan. Excluding the inventory write-down, Adjusted Gross Margin increased 40 basis points to 39.3 percent compared to the prior year. The increase was driven primarily by higher product margin and a favorable sales mix shift between stores (higher margin) and full service (lower margin).
- GAAP operating earnings were $45.7 million in the quarter, an increase of 39.3 percent compared to $32.8 million in the prior year. GAAP operating margin in the quarter was 11.5% compared to 8.0 percent in the prior year.
- At the end of the quarter, there were 670 distributor sales consultants compared to 718 in the prior year.
Fiscal Year 2024 Guidance
The company remains focused on driving top line growth through its strategic initiatives, including product innovation, expanded distribution at Beauty Systems Group, and new concepts and services.
Additionally, the company’s Fuel for Growth initiative positions it to capture gross margin and SG&A benefits, while also investing for growth and returning value to shareholders through its share repurchase program.
The company is providing the following guidance for the full fiscal year 2024:
- Net sales and comparable sales are expected to be approximately flat compared to the prior year, reflecting growth from the company’s strategic initiatives, offset by anticipated pressure on consumer spending;
- Gross Margin is expected to remain above 50 percent;
- Adjusted Operating Margin is expected to be at least 9.0 percent;
- Operating Cash Flow is expected to be at least $260 million; and
- Capital expenditures are expected to be approximately $100 million. The company does not provide a reconciliation for forward-looking non-GAAP financial measures where it is unable to provide a meaningful or accurate calculation or estimation of reconciling items and the information is not available without unreasonable effort. This is due to the inherent difficulty of forecasting the occurrence and the financial impact of various items that have not yet occurred, are out of the Company’s control or cannot be reasonably predicted. For the same reasons, the Company is unable to address the probable significance of the unavailable information. Forward-looking non-GAAP financial measures provided without the most directly comparable GAAP financial measures may vary materially from the corresponding GAAP financial measures.