Sally Beauty Holdings Company Overview
Sally Beauty HoldingsCompany Overview
Company Highlights
Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty products
Annual consolidated sales of over $3.8 billion
Strong cash flow generation
Over 5,070 stores located in 13 countries (1)
Industry leading position with ~33% channel share
Proven resilience in recessionary cycles
Well-positioned for long-term growth
Two distinct business segments
(1) As of June 30, 2016, fiscal 2016 third quarter.
Company Highlights
Consolidated Fiscal 2015 Results
Net Sales Gross Margin
Segments
Customers• Retail consumers
• 76% of sales• Professional stylists, small salons,
chair/suite rentals• 24% of sales
• Stores – Chair/suite rentals• 65% of sales
• Full Service Sales - small to medium sized salons
• 35% of sales
(1) The impact from unfavorable foreign currency exchange in the 2015 fiscal year was $87.3 million, or 2.3%(2) See Addendum for a reconciliation of this non‐GAAP financial measure.
3,750 stores worldwide (1)
Retail consumers (76% of sales)
Professional stylists (24% of sales)
SalesSSS growthEBITEBIT margin
Segment
DistributionChannel
Customers
FY2015Financials
$2.3b1.7%$412m17.7%
Company Highlights
(1) As of June 30, 2016, fiscal 2016 third quarter.
SalesSSS growthEBITEBIT margin
Segment
DistributionChannel
Customers
FY2015Financials
1,322 stores (1)
947 direct sales consultants (1)
Professional stylists (chair/suite renters)
Salons (via BSG’s direct sales consultants)
$1.5b5.7%$231m15.4%
Company Highlights
(1) As of June 30, 2016, fiscal 2016 third quarter.
Company Highlights
Open‐Line Retail Exclusive / Full‐Service
3,750 stores 1,322 stores 947 consultants
Professional stylists
` Retail Consumers $$$ High-end$ Value
Customers:
Distribution:
SBH plays an important role in the supply chain
Salons
(1) As of June 30, 2016, fiscal 2016 third quarter.
Industry Growth
$1.6 $1.7 $1.8
$2.0 $2.1 $2.2 $2.3
$2.4 $2.6 $2.7
$2.9 $2.9 $3.0 $3.1
$3.3 $3.4 $3.5
$3.7 $3.8 $3.8 $4.0
$4.2 $4.5 $4.6
$4.8 $4.9
$‐
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
($ in
billions)
U.S. Salon Industry Product Sales(at wholesale $’s) Growth
of 3.2%RecessionResistantIndustry
Source: Professional Consultants & Resources, 2015 Study.(1) Professional beauty supply channel size based upon a 2015 study of manufacturer‐level sales conducted by Professional Consultants & Resources.
Business Segment Review
Sally Company Highlights
Sally Beauty global footprint
3,750(1) stores worldwide
2,902 stores in U.S. (including Puerto Rico)
848 stores in Canada, UK, Ireland, Belgium, Netherlands, France, Germany, Spain, Chile, Colombia, Peru & Mexico
Average store size 1,700 sq. ft., 90% selling space
Professional open-line business - merchandise assortment not available through mass retailers
Destination for professional quality haircare and solutions with a love it or return it guarantee Sally Beauty U.S. Store
(1) As of June 30, 2016, fiscal 2016 third quarter.
Sally Beauty: Marketing Initiatives
Sally Beauty: Marketing Initiatives
In Store Solution GuideDirect Mail Exterior Sign
Pro Flyer
TargetedDigital Ads
Social Media
Sallybeauty.com
Access Hollywood
TV Morning Shows
BloggerNetwork
DigitalVideo
Beauty Box
Auto-Replenish CRM
Text
2.7%3.8%
2.4% 2.4% 2.7%
1.2%2.1%
4.1%
6.3% 6.5%
-0.6%1.3% 1.7% 2.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD16
$1,208 $1,296 $1,359 $1,419 $1,567 $1,673 $1,696 $1,835 $2,012
$2,199 $2,230 $2,309 $2,330
$1,781
$0$400$800
$1,200$1,600$2,000$2,400$2,800
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD16
Sally Beauty Net Sales
Sally Beauty Same Store Sales
Growth of 1.9% (1)
Sally Beauty Financials
(1) The unfavorable impact of foreign currency exchange on sales for the first nine months of fiscal 2016 was $33.9 million.
7%
8%
14%
9%
16%
25%
22%
Hair Care
Hair Color
Skin and Nail Care
ElectricalAppliances
Brushes,Cutlery andAccessories
Other BeautyItems
We offer a diversified mix of beauty products
EthnicProducts
47% of Sales from Hair Care & Color
*Fiscal year 2015
Sally Beauty Product Mix
Expand store base organically and through acquisitions; domestic and international
Plan is to grow net store base approximately 3 percent in FY2016
Increase customer traffic through loyalty programs and customer relationship management (CRM)
Further enhance e-commerce platform
Growth Initiatives
2,511 2,694 2,844 2,923 3,032 3,158 3,424 3,5633,309
0
1,000
2,000
3,000
4,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Worldwide Sally Beauty Stores
Sally Beauty Store Economics US
Capital Required $70k
Average Inventory $85k
Positive Contribution Margin 4 Months
Cash Payback on Investment 2 Years
Growth
3,673
7% 6% 3% 4% 4% 5% 4% 3% 4% 3%
Sally Beauty Store Economics
848 Sally Beauty stores located in 13 countries
Stores located in Canada, the UK, Republic of Ireland, Belgium, France, the Netherlands, Germany, Spain, Chile, Colombia, Peru & Mexico
24% of Sally Beauty sales from international
Sales mix differs from U.S./Canada
UK/Europe
~80-85% professional ~15-20% retail
Mexico and South America almost 100% retail
Existing International Platform Long‐Term Store Growth Potential
(Canada)~250
(Mexico)211 ~250
(UK / Ireland)261 ~300
(Belgium, France, Germany, Spain, Netherlands)
194 600‐800
(Chile)41 ~45
PotentialCurrent
118
(Colombia)
6
Total 848 ~1,500+
(Peru)~4017
~50
Sally Beauty Growth Initiatives
(1) As of June 30, 2016, fiscal 2016 third quarter.
U.S.
Chile, S.A.
United KingdomPeru, S.A.
Store designs vary by country and customer demographic
Sally Beauty: Growth Initiatives
Beauty Systems Group – 1,322(1) (professional stores & 944 professional distributor sales consultants
1,157 company-operated / 165 franchised stores (Armstrong McCall)
947 professional distributor sales consultants
Average store size 2,700 sq. ft.
Sells to salons and salon professionals
Professional exclusive / full-service business –includes merchandise assortment of premium brands sold through salons and not available in mass retail or Sally Beauty stores
LoxaBeauty.com, the online retail solution for salon/stylists
BSG Company Highlights
(1) As of June 30, 2016, fiscal 2016 third quarter.
$616 $802
$895 $954 $945 $975 $941 $1,081
$1,257 $1,325 $1,392 $1,445 $1,505
$1,196
$0$200$400$600$800
$1,000$1,200$1,400$1,600
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD16
BSG Net Sales
4.6%
8.5%
(0.6%)
4.1%
10.1%
6.9%
1.0%
6.2% 5.5% 6.1%4.2% 3.5%
5.7%6.8%
(4.0%)
0.0%
4.0%
8.0%
12.0%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 YTD16
BSG Same Store Sales Growth
Growth of 6.5%
BSG Financials
(1) The unfavorable impact of foreign currency exchange on sales for nine months of fiscal 2016 was $9.8 million, or 0.8%.
We offer a diversified mix of beauty products not carried in Sally stores or mass retail
8%5%
10%
11%
33%
35%
Hair Care
Skin and Nail Care
ElectricalAppliances
PromotionalItems
Other BeautyItems
Hair Color
*Fiscal year 2015
BSG Product Mix
828 874 929 991 1,0271,151 1,190 1,245
0
400
800
1,200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Expand store base organically Further penetrate existing geographies
Enter new territories
Exclusive distribution
Expand gross margins as sales
shift to the stores
Fold-in acquisition opportunities Capital Required $80k
Average Inventory $150k
Positive Contribution Margin 4 Months
Cash Payback on Investment 2 Years
Growth Initiatives
BSG Store Economics
Growth
1,265
Organic
Acquisition
Store GrowthStore Growth1,294
6 46 44 16 36 39 39 43 20 22
0 0 11 46 0 85 0 12 0 7
6% 6% 7% 4% 12% 3% 5% 2% 2%
BSG Store Economics
Consolidated Results
Long‐term debt (as of 6/2016)
$850
$200
$750
$‐
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1,000
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
No near-term maturities
In November 2015, refinanced entire $750 million of 6.875% Senior Notes due 2019 with $750 million of 5.625% Senior Notes due 2025
Targeted consolidated pro forma leverage ratio (Net Debt/EBITDA) of approximately 2.75x
Ample liquidity
Strong cash flow
$500 million asset-based revolving credit facility Committed through July 2018
Long‐term debt maturities ($ millions)
Consolidated Debt
AMOUNT($MM)
% OFTOTAL DEBT
REVOLVING ABL FACILITY $0.0 0.0%5.750% SENIOR NOTES (FY2022) $850.0 47.4%5.625% SENIOR NOTES (FY2026) $750.0 41.5%5.500% SENIOR NOTES (FY2024) $200.0 11.1%
TOTAL DEBT $1,800.00 100.0%
$0.33
$0.44$0.52
$0.77
$1.07
$1.42$1.48
$1.53 $1.53
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
2007 2008 2009 2010 2011 2012 2013 2014 2015
FlatYoY
$2,514 $2,648 $2,637
$2,916
$3,269 $3,524 $3,622
$3,754 $3,834
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2007 2008 2009 2010 2011 2012 2013 2014 2015
Sales EPS (adjusted)
2.2%YoY
(1)
(1) FY15 includes $87.3 million, or 230 points of growth, of unfavorable F(X) exchange rates
Consolidated Financials
Adjusted EBITDA FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15Net Earnings (GAAP) 44.5$ 77.7$ 99.1$ 143.8$ 213.7$ 233.1$ 261.2$ 246.0$ 235.1$
Interest expense, net of interest income 146.0 159.1 132.0 113.0 112.5 138.4 107.7 116.3 116.8Provision for income taxes 38.0 46.2 65.7 84.1 122.2 127.9 151.5 144.7 143.4Depreciation and amortization 42.6 48.5 47.1 51.1 59.7 64.7 72.2 79.7 89.4Share‐based compensation 13.1 10.2 8.6 12.8 15.6 16.9 19.2 22.1 16.8Transaction expenses (1) 21.5 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐Sales‐based service fee charged by Alberto‐Culver 3.8 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐Expenses from data security incidents ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2.5 5.6Germany restructure ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 5.3Litigation settlement and non‐recurring charges ‐ ‐ ‐ ‐ (21.3) 10.2 ‐ ‐ ‐
Adjusted EBITDA 309.5$ 341.7$ 352.5$ 404.8$ 502.5$ 591.1$ 611.8$ 611.3$ 612.4$
Adjusted net earnings and adjusted diluted earnings per shareNet Earnings (GAAP) 44.5$ 77.7$ 99.1$ 143.8$ 213.7$ 233.1$ 261.2$ 246.0$ 235.1$
Marked‐tomarket adjustment for certain interest rate swaps 3.0 4.6 ‐ (2.4) ‐ ‐ ‐ ‐ ‐Expenses associated with the spin‐off from Alverto Culver 13.4 ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐Loss on extinguishment of debt ‐ ‐ (5.3) ‐ ‐ 37.8 ‐ ‐ ‐Interest expense on redeemed debt ‐ ‐ ‐ ‐ ‐ 5.1 ‐ ‐ ‐Amortization of deferred financing costs ‐ ‐ ‐ ‐ ‐ 0.2 ‐ ‐ ‐Litigation settlement and non‐recurring items, net (2) ‐ ‐ ‐ ‐ (21.3) 10.2 ‐ ‐ ‐Loss from securiy breach incidents ‐ ‐ ‐ ‐ ‐ ‐ ‐ 2.5 5.6Management transition costs ‐ ‐ ‐ ‐ ‐ ‐ ‐ 3.5 ‐Germany restructure ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ 5.3Tax provision for the adjustments to net earnings (1.4) (1.7) 2.1 0.9 7.9 (19.2) ‐ (2.3) (4.0)
Adjusted net earnings 59.5$ 80.6$ 95.9$ 142.3$ 200.3$ 267.2$ 261.2$ 249.7$ 241.9$ Diluted adjusted net earnings per share (non‐GAAP): 0.33$ 0.44$ 0.52$ 0.77$ 1.07$ 1.42$ 1.48$ 1.53$ 1.15$ Diluted GAAP net earnings per share: 0.24$ 0.42$ 0.54$ 0.78$ 1.14$ 1.24$ 1.48$ 1.51$ 1.13$
(1) Transaction expenses of $21.5 for separation of the Company from Alberto‐Culver in November 2006.(2) Results for the nine months ended June 30, 2011, reflect a $27.0 million benefit of a l itigation settlement and non‐recurring charges of $5.7 mill ion.
Addendum: Non‐GAAP Reconciliations
Cautionary Notice Regarding Forward‐Looking Statements
Statements in this presentation hereto which are not purely historical facts or which depend upon future events may be forward‐looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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. Any forward‐looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward‐looking statements, including, but not limited to, risks and uncertainties related to: the highly competitive nature of, and the increasing consolidation of, the beauty products distribution industry; anticipating and effectively responding to changes in consumer preferences and buying trends in a timely manner; potential fluctuation in our same store sales and quarterly financial performance; our dependence upon manufacturers who may be unwilling or unable to continue to supply products to us; the possibility of material interruptions in the supply of products by our third‐party manufacturers or distributors; products sold by us being found to be defective in labeling or content; compliance with current laws and regulations or becoming subject to additional or more stringent laws and regulations; the success of our e‐commerce businesses; product diversion to mass retailers or other unauthorized resellers; the operational and financial performance of our franchise‐based business; successfully identifying acquisition candidates and successfully completing desirable acquisitions; integrating acquired businesses; opening and operating new stores profitably; the impact of the health of the economy upon our business; the success of our cost control plans; protecting our intellectual property rights, particularly our trademarks; the risk that our products may infringe on the intellectual property of others or that we may be required to defend our intellectual property rights; conducting business outside the United States; disruption in our information technology systems; a significant data security breach, including misappropriation of our customers’ or employees’ confidential information, and the potential costs related thereto; the negative impact on our reputation and loss of confidence of our customers, suppliers and others arising from a significant data security breach; the costs and diversion of management attention required to investigate and remediate a data security breach; the ultimate determination of the extent or scope of the potential liabilities relating to our 2015 data security incident; our ability to attract or retain highly skilled management and other personnel; severe weather, natural disasters or acts of violence or terrorism; the preparedness of our accounting and other management systems to meet financial reporting and other requirements and the upgrade of our existing financial reporting system; being a holding company, with no operations of our own, and depending on our subsidiaries for cash; our ability to execute and implement our common stock repurchase program; our substantial indebtedness; the possibility that we may incur substantial additional debt, including secured debt, in the future; restrictions and limitations in the agreements and instruments governing our debt; generating the significant amount of cash needed to service all of our debt and refinancing all or a portion of our indebtedness or obtaining additional financing; changes in interest rates increasing the cost of servicing our debt; the potential impact on us if the financial institutions we deal with become impaired; and the costs and effects of litigation.
Additional factors that could cause actual events or results to differ materially from the events or results described in the forward‐looking statements can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10‐K for the year ended September 30, 2015, as filed with the Securities and Exchange Commission. Consequently, all forward‐looking statements in this release are qualified by the factors, risks and uncertainties contained therein. We assume no obligation to publicly update or revise any forward‐looking statements.
Cautionary Notice Regarding Forward‐Looking Statements