WELCOME TO THE NEW SALLY. › ~ › media › Files › ...Compared to PY: Up for SBH, SBS . and BSG. Increased 10 bps. Down 20 bps. Increase of 13.7%. Sally Beauty Holdings, Inc

WELCOME TO THE NEW SALLY.NEW LOOK. NEW EXPERIENCE.

Fiscal 2019 Fourth Quarter Earnings Call

November 7, 2019

Sally Beauty Holdings, Inc.


Financial Highlights of the Quarter

SBH, SBS and BSG

Positive SSS

Gross Margin

ExpansionLower SG&A

Strong EPS Growth and Consensus

Beat


Our Transformation Reflects the Industry

Improving ourretail

fundamentals

Advancing ourdigital commerce

capabilities

Continuing to drive costs out of the

business

Sally Beauty Holdings’ Playbook

Increased competition in the retail beauty

space

Customers desire for more convenient

omni-channel shopping experience

Increased investment in stores and technology

Rising labor costs and tighter job market

Changing Retail and Beauty Sector

Transformation Plan

Playing to win with our customers: Hair

Color & Care

Playing to Win in Color & Care: Building on Product


My Black Is Beautiful BlondMeMaria Nila

Olaplex No. 6 & No. 7Good Dye Young

All About Curls

Retail Fundamentals Progressing

16M+ Active Members Rollout Complete in Over 2,000 stores Implemented Store Fulfillment Module & Began Full Testing in Select BSG Stores

New Oracle POS System

Sally Beauty Rewards Loyalty Program

JDA Merchandising and Supply Chain Platform


Digital Commerce Implementations

Refreshed BSG E-commerce Site Launch of the New Sally Mobile App

ColorView -- “Color Before You Commit”

ColorView Kiosk Technology in StoresColorView Technology via the Sally Mobile App

19 2018 21 22

Bricks & Mortar to Omnichannel Retailer

19 2018 21 22

Core Retail Operations From Brute Force Manual Process to Technology-Enabled

19 2018 21 22

Product Designer to Product Brand Builder

19 2018 21 22

Old School “Supply” Marketing to Reset Digital Confidence Branding

18 222119

Segregated, Slow Distribution Nodes to Flexible Replenishment

20

18 222119

Underinvested Store Experience to Refreshed Store Experience

20

Our Transformation Priorities Build Based on Priorities


Q4 Financial Highlights

SSS+1.1%

Gross Margin49.6%

SG&A%37.7%

Adjusted EPS

$0.58 (1)

Compared to PY: Up for SBH, SBS and BSG

Increased 10 bps Down 20 bps Increase of 13.7%

Sally Beauty Holdings, Inc. (1) Adjusted EPS is a non-GAAP measure. See Appendix for a reconciliation of this non-GAAP measure.

FY19 Financial Highlights

SSS+0.3%

Gross Margin49.3%

Adjusted SG&A%37.5% (1)

Adjusted EPS

$2.26 (2)

Guidance for the Full-Year: Approximately Flat Approximately Flat Up Slightly Up Mid-Single Digits

Sally Beauty Holdings, Inc.(1) Adjusted SG&A is a non-GAAP measure. See Appendix for a reconciliation of this non-GAAP measure.(2) Adjusted EPS is a non-GAAP measure. See Appendix for a reconciliation of this non-GAAP measure.

North American and Global Reach

Scaled, Focused Experts, Not “All Things to All People”

Strong owned and exclusive brand penetration

Team members are “Color Experts”

Strong cash flow generation

2

3

4

5

Differentiated industry position: hair color and hair care1

Proven resilience in recessions6

5,000+ Locations; 12 Countries; Close to Consumer

>$200M Free Cash Flow Each Year (1)

44% Owned/Exclusive Brand (SBS)53% Owned/Exclusive Brand (BSG)

Equal Share with All Grocery; Just Below All Drug

12,000+ Trained Cosmetologists or “Advanced Color” Certified by SBH

60% salon pros; 40% specialty retail(1) Free Cash Flow is a non-GAAP measure. See Appendix for a reconciliation of this non-GAAP measure.

Our Transformation Reflects the Industry

Improving ourretail

fundamentals

Advancing ourdigital commerce

capabilities

Continuing to drive costs out of the

business

Sally Beauty Holdings’ Playbook

Increased competition in the retail beauty

space

Customers desire for more convenient

omni-channel shopping experience

Increased investment in stores and technology

Rising labor costs and tighter job market

Changing Retail and Beauty Sector

Transformation Plan

Playing to win with our customers: Hair

Color & Care

• Filled innovation pipeline with new brands

• Launched box color/pro color kits

• Launched Sally Beauty Rewards Loyalty Program

• Implemented “Fewer, Bigger, Deeper” promotional strategy

• Deployed the new sallybeauty.com mobile-first e-commerce site

• Enabled sales transactions on the BSG mobile App

• Closed four distribution nodes

• Tested new store concepts in Las Vegas

• Launched Sally Beauty integrated App

• Refreshed BSG’s e-commerce site

• Launched “ColorView/Color Before You Commit” hair color technology

• Integrated our Mexico and South America operations into one LATAM team

• Launched a digital workforce management solution

• Added new talent across the organization

• Reduced our leverage ratio to 2.63x by paying off over $185 million in debt

• Expand innovation pipeline with clean, vegan color/care brands and men’s barbering

• Expand new store concepts to other territories for both Sally and BSG

• Complete the rollout of the Oracle POS to all Sally and BSG stores

• Expand testing of JDA Merchandising/Supply Chain Platform

• Continue to optimize our supply chain network

• Rollout Private Label Credit Card Program

• North Texas investments including:

• Remodeled Sally stores

• New 500,000 square foot distribution center

• Adding new talent and capabilities in digital commerce, brand marketing/strategy and global sourcing

• Project Surge to reinvigorate Europe

• Launch of new Sally Beauty brand campaign “Unleash Your (Pro)tential”

• Testing Pro brands within Sally Beauty

• Leverage our Order Management System to support “Buy Online / Ship From Store and Same-Day Delivery”

• Acquisition opportunities for BSG to expand distribution rights

Transformation Initiatives

Completed in FY19 Continues in FY20 New in FY20

FY20 Full-Year Financial Guidance

Total Revenue Up

1%-2%; SSS Up

0.5%-1.5%

Gross Margin

Increase Modestly

SG&A Increase Modestly

EPS & Adj. EPS Up

LSD - MSD

Capital @ $120M


Appendix


As Reported(GAAP) Restructuring (1)

As Adjusted (Non-GAAP)

Selling, general and administrative expenses 363,955$ -$ 363,955$ SG&A expenses, as a percentage of sales 37.7% 37.7%Operating earnings 116,092 (756) 115,336 Operating margin 12.0% 11.9%Earnings before provision for income taxes 93,875 (756) 93,119 Provision for income taxes (3) 24,868 (277) 24,591 Net earnings 69,007$ (479)$ 68,528$

Earnings per share:Basic 0.58$ (0.00)$ 0.58$ Diluted 0.58$ (0.00)$ 0.58$

As Reported(GAAP) Restructuring (1)

U.S. Tax Reform (2)

As Adjusted (Non-GAAP)

Selling, general and administrative expenses 365,864$ -$ -$ 365,864$ SG&A expenses, as a percentage of sales 37.9% 37.9%Operating earnings 103,126 9,102 - 112,228

Operating margin 10.7% 11.6%Earnings before provision for income taxes 78,743 9,102 - 87,845 Provision for income taxes (3) 23,557 1,884 1,039 26,480 Net earnings 55,186$ 7,218$ (1,039)$ 61,365$

Earnings per share:Basic 0.46$ 0.06$ (0.01)$ 0.51$ Diluted 0.46$ 0.06$ (0.01)$ 0.51$

(1) For the three months ended September 30, 2019, restructuring represents costs and expenses incurred in connection with the supply chain modernization plan, including a $1.8 million gain from the sale our Marinette fullfillment center. For the three months ended September 30, 2018, restructuring represents costs and expenses incurred in connection with the 2018 Restructuring Plan.

(2) U.S. tax reform represents adjustments to the revaluation of deferred income taxes and a deemed repatriation tax on previously undistributed foreign earnings resulting from changes to U.S. federal tax law in December 2017.

(3) The income tax provision associated with restructuring for the three months ended September 30, 2019 and 2018, was calculated using a 36.6% and 20.7% tax rate, respectively, since realization of a tax benefit for portions of these expenses are currently not deemed probable.

Three Months Ended September 30, 2018

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIESNon-GAAP Financial Measures Reconciliations, Continued

(In thousands, except per share data)(Unaudited)

Three Months Ended September 30, 2019

Appendix


As Reported Restructuring (1)As Adjusted

(Non-GAAP)

Selling, general and administrative expenses 1,452,751$ -$ 1,452,751$ SG&A expenses, as a percentage of sales 37.5% 37.5%Operating earnings 458,473 (682) 457,791 Operating margin 11.8% 11.8%Earnings before provision for income taxes 362,164 (682) 361,482 Provision for income taxes (5) 90,541 (573) 89,968 Net earnings 271,623$ (109)$ 271,514$

Earnings per share:Basic 2.27$ (0.00)$ 2.27$ Diluted 2.26$ (0.00)$ 2.26$

As Reported Restructuring (1)

Charges from Data Security

Incidents (2)

Loss on Extinguishment of

Debt (3)U.S. Tax

Reform (4)As Adjusted

(Non-GAAP)

Selling, general and administrative expenses 1,484,209$ -$ (7,935)$ -$ -$ 1,476,274$ SG&A expenses, as a percentage of sales 37.7% 37.5%Operating earnings 426,589 33,615 7,935 - - 468,139

Operating margin 10.8% 11.9%Earnings before provision for income taxes 328,427 33,615 7,935 876 - 370,853Provision for income taxes (5) 70,380 7,563 2,301 254 23,241 103,739Net earnings 258,047$ 26,052$ 5,634$ 622$ (23,241)$ 267,114$

Earnings per share:Basic 2.09$ 0.21$ 0.05$ 0.01$ (0.19)$ 2.17$ Diluted 2.08$ 0.21$ 0.05$ 0.01$ (0.19)$ 2.16$

(5) The income tax provision associated with the fiscal years 2019 and 2018 restructuring was calculated using a 84.0% and 22.5% tax rate, respectively, since realization of a tax benefit for portions of these expenses are currently not deemed probable. The income tax provision associated with other charges for the fiscal year 2018 was calculated using a 29.0% tax rate.

Twelve Months Ended September 30, 2018

(1) For the fiscal year 2019, restructuring represents costs and expenses incurred in connection with the supply chain modernization plan, including a $8.4 million gain from the sale of our secondary headquarters and fulfillment center and our Marinette fullfillment center, and costs and expenses incurred in connection with the 2018 Restructuring Plan. For the fiscal year 2018, restructuring represents costs and expenses incurred in connection with the 2018 Restructuring Plan.

(2) Charges from data security incidents are included in selling, general and administrative expenses and represent expenses (including assessments by credit card networks, remediation costs, and other costs and expenses) incurred in connection with the prior data security incidents.

(3) Interest expense reflects a loss on extinguishment of debt in connection with a repricing of the variable-rate tranche of our term loan B, resulting in a lower effective interest.

(4) U.S. tax reform represents the net impact the revaluation of deferred income taxes and a deemed repatriation tax on previously undistributed foreign earnings resulting from changes to U.S. federal tax law in December 2017.

Twelve Months Ended September 30, 2019


(In thousands, except per share data)(Unaudited)

Appendix


Operating Free Cash Flow: 2019 2018Percentage

Change 2019 2018Percentage

ChangeNet cash provided by operating activities 116,592$ 90,731$ 28.5% 320,415$ 372,661$ -14.0%Less: Payments for property and equipment, net (1) (37,701) (23,967) 57.3% (92,443) (86,138) 7.3%Operating free cash flow (non-GAAP) 78,891$ 66,764$ 18.2% 227,972$ 286,523$ -20.4%

Three Months Ended September 30, Twelve Months Ended September 30,

(1) For the three and twelve months ended September 30, 2019, payments for property and equipment, net includes cash proceeds of $3.3 million and $15.3 million, respectively, from the sale of certain fullfillment centers in connection with the supply chain modernization plan.


(In thousands)(Unaudited)

Documents

WELCOME TO THE NEW SALLY. › ~ › media › Files › ...Compared to PY: Up for SBH, SBS . and BSG. Increased 10 bps. Down 20 bps. Increase of 13.7%. Sally Beauty Holdings, Inc