Financial Data and Key Metrics Changes - The company reported net sales exceeding $1 billion, reflecting a year-over-year increase of 45% [7][29] - Same-store sales came in at 44.7%, with gross margin at 50.3%, up 470 basis points from the previous year [29][31] - Adjusted operating margin was 12.6%, with adjusted EBITDA more than doubling to $157 million, representing a margin of 15.3% [34] Business Line Data and Key Metrics Changes - Sally Beauty segment saw same-store sales increase of 43.3%, with e-commerce sales totaling $34 million [35] - BSG segment reported same-store sales growth of 47.8%, with e-commerce sales totaling $37 million [37] - The color category increased by 36%, with vivid colors growing by 52% in Sally U.S. and Canada [13][14] Market Data and Key Metrics Changes - Global e-commerce sales were $71 million, representing approximately 7% of total net sales [30][17] - E-commerce sales fulfillment by stores was 43% in Sally U.S. and Canada, with BOPIS comprising 22% of e-commerce sales [17][30] Company Strategy and Development Direction - The company is focused on recruiting and retaining color customers, driving operational excellence, and enhancing omni-channel experiences [15][25] - A new partnership with Regis will position the company as a primary distributor, optimizing the store portfolio for a superior customer experience [19] - The company aims to grow e-commerce sales to 15% of total sales in the coming years [16] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding macro uncertainties, including supply chain disruptions and pandemic variants impacting consumer sentiment [23][42] - The company anticipates Q4 net sales to be flat to up 2% compared to the previous year, reflecting normalization of comparisons [24][42] - Management remains optimistic about long-term growth, targeting low-single digit same-store sales beginning in fiscal 2022 [24][78] Other Important Information - The company reduced debt levels by over $200 million in Q3, bringing the leverage ratio below 2.5 times [23][40] - Cash flow from operations was $86 million, with capital expenditures totaling $18 million, resulting in free cash flow of $68 million [39] Q&A Session Summary Question: Can you provide more color on Q4 given COVID risks and supply chain disruptions? - Management noted that comparisons are challenging due to a strong Q4 last year, with uncertainty around supply chain disruptions and pandemic impacts [46][48] Question: Are you seeing any noticeable impact from the Delta variant? - Management indicated that the impact is more pronounced in August and September than in July [51] Question: What are your thoughts on gross margins and expenses for Q4? - Management expects gross margins to remain above 50% and anticipates an increase in SG&A expenses due to wage inflation and marketing investments [53][54] Question: How do you see the evolution of the color category and its sustainability? - Management believes the trend towards vivid colors is driven by self-expression, with significant growth potential among Gen Z consumers [62][94] Question: What are your priorities regarding shareholder returns and debt pay down? - The company remains focused on liquidity and will prioritize growth investments and debt pay down before considering shareholder returns [120]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2021 -OR- ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-33145 SALLY BEAUTY HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 36-2257936 (State or other jurisdiction of incorporation or organization) (I.R ...

Financial Data and Key Metrics Changes - Net sales increased by 6.3% year-over-year, with same-store sales up 6.5% [30][29] - Adjusted operating margin expanded by 510 basis points to 12.1%, and adjusted EBITDA increased by 55% to $141 million [36][29] - Adjusted diluted EPS more than doubled to $0.57 [36] Business Line Data and Key Metrics Changes - Sally Beauty same-store sales increased by 4.9%, with e-commerce sales up 46% year-over-year [37] - BSG segment same-store sales increased by 9.9%, with e-commerce growth at 68% year-over-year [38] - Hair color category saw a 27% increase in Sally U.S. and Canada, with vivid colors growing by 53% [13][14] Market Data and Key Metrics Changes - Strong consumer demand driven by improving consumer confidence and government stimulus actions [29][8] - E-commerce sales for Sally U.S. and Canada increased by 56% year-over-year [30][14] - The company ended Q2 with $408 million in cash and zero balance on its $600 million ABL credit facility [11][39] Company Strategy and Development Direction - The company is focused on three major priorities for fiscal 2021: completing transformation elements, leveraging new capabilities to recruit and retain color customers, and reducing debt leverage ratio to 2.5 times [18] - Key initiatives include expanding delivery services, replatforming the BSG digital storefront, enhancing loyalty and CRM programs, and continuing the rollout of JDA [19][22][23][24] - The company aims to be a leader in color with a focus on customer centricity, executing a full reset of color offerings in all Sally U.S. stores [25] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of fiscal 2021, expecting net sales growth in the high double-digits for Q3 [26] - The company is cautious about ongoing store closures in international markets and salon capacity restrictions in the U.S. [26] - Management highlighted the importance of ESG initiatives and their role in long-term performance and value creation [27] Other Important Information - The company plans to test approximately 90 store closures to analyze sales transfer and purchasing patterns [17] - The balance sheet remains strong, with a net debt leverage ratio of 2.34x, and the company aims to bring it closer to 2.5 times [41] Q&A Session Summary Question: What are you seeing in terms of the cosmetic side? - Cosmetics is a small percentage of the business, continuing to decline, while larger categories like color and care are significantly up [48][49] Question: Do you think the headwinds were more than a tailwind? - Sally U.S. was up 13.9%, but international shutdowns lowered overall segment results by 900 basis points [52][53] Question: Do you believe you gained market share? - Sally is outgrowing the color category, and BSG's color growth of 17% indicates strong competitive positioning [54][56] Question: Can you talk about your CRM and new customer acquisition? - The CRM program is improving, with a significant portion of customers returning, and new technology allows for personalized customer journeys [60][61] Question: What cost pressures are you seeing? - The company is experiencing wage inflation and product cost inflation but remains confident in maintaining 50% margin targets [65][66] Question: How did the Texas storms impact your business? - The storms caused significant disruptions, with around 1,000 stores closed for multiple days in February [91] Question: Is Q3 expected to be the biggest of the year? - The company expects net sales growth of 35% to 40% in Q3, but the environment remains dynamic [92][93] Question: Are the operating margins sustainable? - The company believes it can maintain low-single-digit same-store sales growth and leverage SG&A in a stabilized environment [98][99]

PART I — FINANCIAL INFORMATION [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Condensed consolidated financial statements and notes are presented, highlighting significant improvements in net earnings and operating cash flow [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (in thousands) | Metric | March 31, 2021 (Unaudited) | September 30, 2020 | | :----------------------------- | :-------------------------- | :------------------- | | Cash and cash equivalents | $408,321 | $514,151 | | Inventory | $949,695 | $814,503 | | Total current assets | $1,466,450 | $1,433,097 | | Total assets | $2,909,572 | $2,895,147 | | Current maturities of long-term debt | $197,596 | $180 | | Long-term debt | $1,389,545 | $1,796,897 | | Total liabilities | $2,774,739 | $2,879,704 | | Total stockholders' equity | $134,833 | $15,443 | - Total stockholders' equity significantly increased from **$15.4 million** at September 30, 2020, to **$134.8 million** at March 31, 2021[19](index=19&type=chunk) - Current maturities of long-term debt increased substantially from **$180 thousand** to **$197.6 million**, while long-term debt decreased from **$1.80 billion** to **$1.39 billion**[19](index=19&type=chunk) [Condensed Consolidated Statements of Earnings](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) Condensed Consolidated Statements of Earnings (in thousands) | Metric (in thousands) | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2020 | 6 Months Ended Mar 31, 2021 | 6 Months Ended Mar 31, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $926,328 | $871,023 | $1,862,350 | $1,851,231 | | Gross profit | $467,229 | $429,757 | $937,953 | $904,605 | | Operating earnings | $75,511 | $43,265 | $179,833 | $137,652 | | Net earnings | $38,312 | $13,368 | $95,503 | $66,583 | | Basic EPS | $0.34 | $0.12 | $0.85 | $0.58 | | Diluted EPS | $0.34 | $0.12 | $0.84 | $0.57 | - Net earnings for the three months ended March 31, 2021, increased by **186.6%** to **$38.3 million** from **$13.4 million** in the prior year[22](index=22&type=chunk) - Diluted EPS for the three months ended March 31, 2021, rose to **$0.34** from **$0.12** in the same period last year[22](index=22&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric (in thousands) | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2020 | 6 Months Ended Mar 31, 2021 | 6 Months Ended Mar 31, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net earnings | $38,312 | $13,368 | $95,503 | $66,583 | | Other comprehensive income (loss), net of tax | $(7,316) | $(21,826) | $16,272 | $(6,956) | | Total comprehensive income (loss) | $30,996 | $(8,458) | $111,775 | $59,627 | - Total comprehensive income for the three months ended March 31, 2021, was **$31.0 million**, a significant improvement from a loss of **$8.5 million** in the prior year[25](index=25&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity (Deficit)](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity%20(Deficit)) Condensed Consolidated Statements of Stockholders' Equity (Deficit) (in thousands) | Metric (in thousands) | Balance at Sep 30, 2020 | Balance at Mar 31, 2021 | | :-------------------- | :---------------------- | :---------------------- | | Common Stock Amount | $1,124 | $1,127 | | Additional Paid-in Capital | $1,913 | $9,525 | | Accumulated Earnings | $117,109 | $212,612 | | Accumulated Other Comprehensive Loss | $(104,703) | $(88,431) | | Total Stockholders' Equity | $15,443 | $134,833 | - Total stockholders' equity increased from **$15.4 million** at September 30, 2020, to **$134.8 million** at March 31, 2021, primarily driven by net earnings and other comprehensive income[28](index=28&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity (in thousands) | 6 Months Ended Mar 31, 2021 | 6 Months Ended Mar 31, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $131,556 | $76,131 | | Net cash used by investing activities | $(29,340) | $(73,904) | | Net cash (used) provided by financing activities | $(211,198) | $291,529 | | Net (decrease) increase in cash and cash equivalents | $(105,830) | $292,919 | | Cash and cash equivalents, end of period | $408,321 | $364,414 | - Net cash provided by operating activities increased by **$55.4 million** to **$131.6 million** for the six months ended March 31, 2021, compared to the prior year[31](index=31&type=chunk)[97](index=97&type=chunk) - Net cash used by investing activities decreased by **$44.6 million** to **$29.3 million**, reflecting a focus on reduced capital expenditures[31](index=31&type=chunk)[98](index=98&type=chunk) - Net cash used by financing activities was **$211.2 million**, primarily due to the paydown of term loan B fixed tranche, contrasting with cash provided by financing activities in the prior year[31](index=31&type=chunk)[99](index=99&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The condensed consolidated interim financial statements are prepared in accordance with GAAP and SEC rules, with certain information condensed or omitted[33](index=33&type=chunk) - The company is evaluating ASU No. 2019-12 for income taxes but does not expect a material impact on results or financial position[36](index=36&type=chunk) - Goodwill increased by **$4.6 million** during the six months ended March 31, 2021, primarily due to foreign currency exchange rates[42](index=42&type=chunk) - The company paid the remaining **$213.2 million** of its term loan B fixed tranche during the three months ended March 31, 2021, recognizing a **$1.4 million** loss on extinguishment of debt[44](index=44&type=chunk) - The company was in compliance with all debt covenants as of March 31, 2021[45](index=45&type=chunk) - Effective tax rates were **25.8%** and **26.5%** for the three and six months ended March 31, 2021, respectively, a decrease from the prior year primarily due to a valuation allowance in a foreign subsidiary in the prior year[52](index=52&type=chunk)[53](index=53&type=chunk) - On April 1, 2021, the company called the entire outstanding balance of **$197.4 million** on its **5.50%** senior notes due 2023, incurring **$2.8 million** in losses on extinguishment of debt[54](index=54&type=chunk) [Item 2. Management's Discussion And Analysis Of Financial Condition And Results Of Operations](index=17&type=section&id=Item%202.%20Management's%20Discussion%20And%20Analysis%20Of%20Financial%20Condition%20And%20Results%20Of%20Operations) Management discusses financial performance, highlighting significant increases in net sales, gross profit, and net earnings, driven by improved market conditions and strategic initiatives - Consolidated net sales for the three months ended March 31, 2021, increased by **$55.3 million**, or **6.3%**, to **$926.3 million**[60](index=60&type=chunk) - Consolidated same store sales increased **6.5%** for the three months ended March 31, 2021, and global e-commerce sales increased **56%**[60](index=60&type=chunk) - Consolidated net earnings for the three months ended March 31, 2021, increased by **$24.9 million**, or **186.6%**, to **$38.3 million**[60](index=60&type=chunk) - Cash provided by operations was **$92.6 million** for the three months ended March 31, 2021, up from **$13.8 million** in the prior year[60](index=60&type=chunk) - The company continues to make progress on key business initiatives, including leveraging digital capabilities, growing customer engagement, and completing its transformation journey by year-end[59](index=59&type=chunk) [Overview](index=18&type=section&id=Overview) Overview (in thousands) | Metric (in thousands) | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2020 | Change ($) | Change (%) | 6 Months Ended Mar 31, 2021 | 6 Months Ended Mar 31, 2020 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | **Net Sales:** | | | | | | | | | | SBS | $542,664 | $519,509 | $23,155 | 4.5% | $1,090,334 | $1,088,657 | $1,677 | 0.2% | | BSG | $383,664 | $351,514 | $32,150 | 9.1% | $772,016 | $762,574 | $9,442 | 1.2% | | Consolidated | $926,328 | $871,023 | $55,305 | 6.3% | $1,862,350 | $1,851,231 | $11,119 | 0.6% | | **Gross Profit:** | | | | | | | | | | SBS | $317,161 | $289,067 | $28,094 | 9.7% | $632,973 | $598,057 | $34,916 | 5.8% | | BSG | $150,068 | $140,690 | $9,378 | 6.7% | $304,980 | $306,548 | $(1,568) | (0.5)% | | Consolidated | $467,229 | $429,757 | $37,472 | 8.7% | $937,953 | $904,605 | $33,348 | 3.7% | | **Segment Gross Margin:** | | | | | | | | | | SBS | 58.4% | 55.6% | 280 bps | | 58.1% | 54.9% | 320 bps | | | BSG | 39.1% | 40.0% | (90) bps | | 39.5% | 40.2% | (70) bps | | | Consolidated | 50.4% | 49.3% | 110 bps | | 50.4% | 48.9% | 150 bps | | | **Net Earnings:** | | | | | | | | | | Consolidated Operating Earnings | $75,511 | $43,265 | $32,246 | 74.5% | $179,833 | $137,652 | $42,181 | 30.6% | | Net Earnings | $38,312 | $13,368 | $24,944 | 186.6% | $95,503 | $66,583 | $28,920 | 43.4% | | **Same Store Sales Growth (Decline):** | | | | | | | | | | SBS | 4.9% | (7.0)% | 1,190 bps | | 0.7% | (4.0)% | 470 bps | | | BSG | 9.9% | (7.4)% | 1,730 bps | | 2.1% | (3.0)% | 510 bps | | | Consolidated | 6.5% | (7.1)% | 1,360 bps | | 1.2% | (3.6)% | 480 bps | | [Results of Operations](index=19&type=section&id=Results%20of%20Operations) - SBS net sales increased by **$23.2 million** (**4.5%**) for the three months ended March 31, 2021, driven by same store sales growth of **$24.3 million** and a positive foreign currency exchange impact of **$5.6 million**[63](index=63&type=chunk) - BSG net sales increased by **$32.2 million** (**9.1%**) for the three months ended March 31, 2021, primarily due to same store sales growth of **$23.8 million** and increased distributor sales consultants[65](index=65&type=chunk) - Consolidated gross profit increased by **$37.5 million** (**8.7%**) for the three months ended March 31, 2021, with gross margin increasing by **110 basis points** to **50.4%**[60](index=60&type=chunk)[67](index=67&type=chunk) - SBS's gross margin increased due to fewer promotions, partially offset by personal-protective equipment inventory write-downs[68](index=68&type=chunk) - Consolidated selling, general and administrative expenses, as a percentage of net sales, decreased **180 basis points** to **42.2%** for the three months ended March 31, 2021[70](index=70&type=chunk) - Unallocated SG&A expenses increased by **$20.8 million** (**40.8%**) for the three months, mainly due to **$31.2 million** in COVID-19 related donation expenses for personal-protective equipment inventory[74](index=74&type=chunk) - Interest expense increased primarily from incremental interest on senior notes issued in April 2020, partially offset by lower interest rates on term loan B and its repayment[76](index=76&type=chunk)[90](index=90&type=chunk) [Liquidity and Capital Resources](index=21&type=section&id=Liquidity%20and%20Capital%20Resources) - Working capital decreased by **$278.3 million** to **$591.4 million** at March 31, 2021, primarily due to the reclassification of 2023 Senior Notes to current maturities of long-term debt[92](index=92&type=chunk) - Cash and cash equivalents were **$408.3 million** at March 31, 2021[93](index=93&type=chunk) - The company had **$496.9 million** available for borrowing under its ABL facility as of March 31, 2021, with no outstanding borrowings[94](index=94&type=chunk) - No common stock was repurchased during the six months ended March 31, 2021, with **$726.1 million** remaining under the 2017 Share Repurchase Program authorization[95](index=95&type=chunk) - At March 31, 2021, total debt was **$1.60 billion**, consisting of **$1.18 billion** in senior notes and a **$422.6 million** term loan[100](index=100&type=chunk) Summarized Balance Sheet (in thousands) | Summarized Balance Sheet (in thousands) | March 31, 2021 | September 30, 2020 | | :-------------------------------------- | :------------- | :----------------- | | Inventory | $736,497 | $615,092 | | Intercompany receivable | $72,845 | $75,892 | | Current assets | $1,177,328 | $1,166,250 | | Total assets | $2,272,374 | $2,281,896 | | Current liabilities | $438,933 | $325,380 | | Total liabilities | $2,550,861 | $2,657,033 | Summarized Statement of Income (in thousands) | Summarized Statement of Income (in thousands) | Six Months Ended March 31, 2021 | | :-------------------------------------------- | :------------------------------ | | Net sales | $1,553,633 | | Gross profit | $787,895 | | Earnings before provision for income taxes | $114,872 | | Net earnings | $85,546 | [Item 3. Quantitative And Qualitative Disclosures About Market Risk](index=23&type=section&id=Item%203.%20Quantitative%20And%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks including foreign currency fluctuations, interest rates, and government actions, with no material changes since September 30, 2020 - The company is subject to market risks from foreign currency fluctuations, interest rates, and government actions[109](index=109&type=chunk) - No material changes to market risks have occurred since September 30, 2020[109](index=109&type=chunk) [Item 4. Controls And Procedures](index=23&type=section&id=Item%204.%20Controls%20And%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2021, concluding they are effective with no material changes to internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were effective as of March 31, 2021, providing reasonable assurance for timely and accurate information disclosure[110](index=110&type=chunk)[115](index=115&type=chunk) - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[116](index=116&type=chunk) PART II — OTHER INFORMATION [Item 1. Legal Proceedings](index=25&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal claims and lawsuits, but does not anticipate a material adverse impact on its financial position, cash flows, or results of operations, and believes it is in material compliance with applicable laws - The company is involved in various routine legal claims and lawsuits[119](index=119&type=chunk) - The ultimate resolution of these matters is not expected to have a material adverse impact on the company's financial position, cash flows, or results of operations[119](index=119&type=chunk) - The company believes it is in material compliance with relevant U.S. and international laws and regulations[120](index=120&type=chunk) [Item 1A. Risk Factors](index=25&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2020 - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2020[121](index=121&type=chunk) [Item 6. Exhibits](index=25&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report, including corporate organizational documents, certifications from the CEO and CFO, and financial information formatted in iXBRL - Exhibits include the Third Restated Certificate of Incorporation, Amended and Restated Bylaws, List of Subsidiary Guarantors, CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350), and financial information in iXBRL format[122](index=122&type=chunk)

Financial Data and Key Metrics Changes - For Q1 2021, the company reported a consolidated same-store sales decline of 3.7% due to COVID-related disruptions, with approximately 45% of stores under capacity restrictions or closures by the end of the quarter [8][25][21] - Adjusted EPS for the quarter was $0.50, reflecting a 6% year-on-year increase, while adjusted operating margin improved by 130 basis points to 11.2% [12][31] - Gross margin for Q1 was 50.3%, up 190 basis points from the previous year, driven by strong performance in the Sally segment [27][31] Business Line Data and Key Metrics Changes - In the Sally Beauty segment, same-store sales declined by 3.3%, with e-commerce sales up 46% year-on-year [32] - The BSG segment experienced a 4.6% decline in same-store sales, but e-commerce grew by 51% compared to the prior year [33] - Hair color sales increased by 19% in the US and Canada, with vivid colors up approximately 50% year-on-year, accounting for 25% of total color sales [10][11] Market Data and Key Metrics Changes - The company noted that traffic in open locations declined year-on-year, but average ticket size and units per transaction increased [25] - E-commerce sales represented about 7% of total sales, with expectations for significant growth as digital capabilities are optimized [85] Company Strategy and Development Direction - The company is focusing on three major priorities for fiscal 2021: completing transformation initiatives, leveraging new capabilities to recruit and retain color customers, and reducing debt leverage ratio closer to 2.5 [14][20] - Key initiatives include expanding delivery service models, replatforming the BSG digital storefront, and enhancing loyalty programs [15][19][18] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's competitive positioning and the strong foundation built during the transformation journey, despite ongoing pandemic-related challenges [22][23] - The outlook for Q2 indicates a continued decline in net sales due to ongoing store closures and restrictions, with expectations for a moderate softening from Q1 levels [21][37] Other Important Information - The company ended Q1 with $538 million in cash and a zero balance on its $600 million revolving line of credit, with inventories down 10% year-on-year [34][36] - The leverage ratio stood at 2.78, with plans to further reduce debt levels using excess cash [36] Q&A Session Summary Question: What is driving the softer Q2 outlook? - Management indicated that the decline is primarily due to store restrictions and closures, particularly in Europe and Canada, which are expected to last longer than anticipated [42] Question: How is the company managing promotions and gross margins? - Management noted that promotions are being used selectively to drive traffic and basket additions, rather than to recruit new color customers [45][46] Question: What is the outlook for vivid color trends post-pandemic? - Management believes that the trend for vivid colors is sustainable, as it has been growing prior to the pandemic and aligns with consumer desires for self-expression [52] Question: How is the company addressing shipping expenses? - Management highlighted that initiatives like buy online, pickup in store (BOPIS) are expected to help reduce shipping expenses over time [55] Question: How does the company view the competitive landscape with new retail partnerships? - Management sees these partnerships as not directly competitive, as they focus more on cosmetics rather than the core color category [95]

PART I — FINANCIAL INFORMATION [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the quarter ended December 31, 2020, prepared in accordance with GAAP [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of December 31, 2020, total assets increased to **$3.0 billion** from **$2.9 billion**, driven by cash and inventory, while equity significantly rose to **$98.9 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2020 | Sep 30, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $537,644 | $514,151 | | Inventory | $895,984 | $814,503 | | Total current assets | $1,545,878 | $1,433,097 | | Total assets | $2,999,648 | $2,895,147 | | **Liabilities & Equity** | | | | Total current liabilities | $590,336 | $563,362 | | Long-term debt | $1,798,154 | $1,796,897 | | Total liabilities | $2,900,782 | $2,879,704 | | Total stockholders' equity | $98,866 | $15,443 | [Condensed Consolidated Statements of Earnings](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) For the three months ended December 31, 2020, net sales decreased to **$936.0 million**, yet operating earnings increased to **$104.3 million** and diluted EPS rose to **$0.50** Condensed Consolidated Statements of Earnings (in thousands, except per share data) | Metric | Q1 2021 (ended Dec 31, 2020) | Q1 2020 (ended Dec 31, 2019) | | :--- | :--- | :--- | | Net sales | $936,022 | $980,208 | | Gross profit | $470,724 | $474,848 | | Operating earnings | $104,322 | $94,387 | | Net earnings | $57,191 | $53,215 | | Diluted EPS | $0.50 | $0.45 | [Condensed Consolidated Statements of Cash Flows](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended December 31, 2020, operating cash flow decreased to **$39.0 million** due to inventory, while cash and cash equivalents increased to **$537.6 million** Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2020 | Three Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $38,986 | $62,325 | | Net cash used by investing activities | ($17,508) | ($42,819) | | Net cash used by financing activities | ($312) | ($24,421) | | Net increase (decrease) in cash | $23,493 | ($4,233) | | Cash and cash equivalents, end of period | $537,644 | $67,262 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed information on accounting policies, segment performance, debt, and the impact of COVID-19, including a subsequent debt repayment event - The company's operating results for the quarter may not be indicative of the full fiscal year due to uncertainty around the continuing effects of the **COVID-19 pandemic**[34](index=34&type=chunk) - As of December 31, 2020, the company was in compliance with all **debt covenants**[46](index=46&type=chunk) - On January 5, 2021, the company fully repaid **$213.2 million** of its term loan B, resulting in an approximate **$1 million loss** on debt extinguishment[61](index=61&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management%27s%20Discussion%20And%20Analysis%20Of%20Financial%20Condition%20And%20Results%20Of%20Operations) Management discusses Q1 FY2021 financial results, covering COVID-19 impacts, key operating metrics, segment performance, and liquidity, noting improved operating margin despite a **4.5% sales decrease** - The **COVID-19 pandemic** continued to impact Q1 FY2021 results through temporary store closures, restricted capacity, and salon shut-downs[65](index=65&type=chunk)[67](index=67&type=chunk) Q1 FY2021 Financial Highlights vs. Q1 FY2020 | Metric | Q1 FY2021 | Change vs. Q1 FY2020 | | :--- | :--- | :--- | | Consolidated Net Sales | $936.0M | -4.5% | | Consolidated Same Store Sales | -3.7% | -340 bps | | Global E-commerce Sales | N/A | +48.0% | | Gross Margin | 50.3% | +190 bps | | Operating Margin | 11.1% | +150 bps | | Diluted EPS | $0.50 | +$0.05 | [Results of Operations](index=19&type=section&id=Results%20of%20Operations) Consolidated net sales decreased by **4.5%** to **$936.0 million** due to COVID-19, but gross margin improved by **190 basis points**, and operating earnings increased by **10.5%** to **$104.3 million** Segment Net Sales and Operating Earnings (in thousands) | Segment | Net Sales (Q1'21) | % Change YoY | Operating Earnings (Q1'21) | % Change YoY | | :--- | :--- | :--- | :--- | :--- | | SBS | $547,670 | -3.8% | $95,128 | +28.2% | | BSG | $388,352 | -5.5% | $48,572 | -22.2% | - The decrease in SBS net sales was primarily due to lower unit volume from temporary store closures, partially offset by higher average unit prices and fewer promotions[71](index=71&type=chunk)[72](index=72&type=chunk) - The decrease in BSG net sales was driven by lower unit volume from store and salon closures, particularly impacting **distributor sales consultants**[73](index=73&type=chunk)[74](index=74&type=chunk) - Consolidated SG&A expenses decreased due to cost-saving initiatives, including lower compensation and advertising, partially offset by increased shipping costs from higher **e-commerce volume**[77](index=77&type=chunk) [Liquidity and Capital Resources](index=20&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintained strong liquidity with **$537.6 million** cash and **$461.0 million** ABL availability, despite a decrease in operating cash flow to **$39.0 million** due to inventory investments - The company believes existing cash, funds from operations, and ABL facility availability are sufficient to fund working capital, capital expenditures, and debt repayments over the next **12 months**[86](index=86&type=chunk) - No shares were repurchased in the quarter; approximately **$726.1 million** remains authorized under the 2017 Share Repurchase Program[88](index=88&type=chunk) - Net cash from operating activities decreased by **$23.3 million** year-over-year, mainly due to increased inventory purchases to improve stock levels[90](index=90&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=22&type=section&id=Item%203.%20Quantitative%20And%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports no material changes to its market risks, including foreign currency, interest rates, and government actions, since September 30, 2020 - There have been no material changes to the company's **market risks** since September 30, 2020[102](index=102&type=chunk) [Controls and Procedures](index=22&type=section&id=Item%204.%20Controls%20And%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2020, with no material changes to internal controls during the quarter - The **CEO and CFO** concluded that as of December 31, 2020, the company's **disclosure controls and procedures** are effective for timely and accurate reporting[107](index=107&type=chunk) - No changes in **internal control over financial reporting** occurred during the most recent fiscal quarter that materially affected these controls[108](index=108&type=chunk) PART II — OTHER INFORMATION [Legal Proceedings](index=23&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings but does not expect a material adverse impact on its financial position or operations - The company is involved in ordinary course claims and lawsuits but does not expect their resolution to have a **material adverse impact**[110](index=110&type=chunk) [Risk Factors](index=23&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the Annual Report on Form 10-K for detailed risk factors, confirming no material changes since September 30, 2020 - There have been no material changes from the **risk factors** disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2020[112](index=112&type=chunk) [Exhibits](index=23&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Quarterly Report on Form 10-Q, including corporate documents, subsidiary guarantors, and required CEO and CFO certifications - The report includes required **CEO and CFO certifications** under Rule 13a-14(a)/15d-14(a) and Section 1350[113](index=113&type=chunk)

Financial Data and Key Metrics Changes - Consolidated revenue for Q4 was $958 million, a decrease of less than 1% compared to the prior year, with same store sales increasing by 1.3% [33][34] - Adjusted EPS grew by 9% year-over-year, reaching $0.63, while GAAP diluted earnings per share increased by approximately 7% to $0.62 [41][42] - Consolidated gross margin for the quarter was 51.1%, the highest in at least eight years, representing a 150 basis point increase from the prior year [38][39] Business Line Data and Key Metrics Changes - Sally Beauty retail business in the U.S. and Canada achieved same store sales growth of 3.7%, with hair color sales up over 22% [12][13] - Global Sally Beauty segment revenue was $577 million, an increase of about 1% compared to the prior year, while the Beauty Systems Group segment saw net sales of $381 million, a decrease of 3.3% [43][48] - E-commerce sales for the quarter reached $63 million, representing a growth of 69% year-over-year, with U.S. and Canadian platforms growing over 113% [35][55] Market Data and Key Metrics Changes - The global e-commerce business showed strength with an 86% growth in the quarter, driven by U.S. and Canadian platforms [45] - The Beauty Systems Group faced challenges due to COVID-19, with salon closures impacting same store sales negatively [47][49] - Latin America experienced significant declines in same store sales due to store closures from COVID-19 [43] Company Strategy and Development Direction - The company is focused on digital transformation, enhancing customer experience through initiatives like Buy Online/Pickup In-Store [24][30] - Continued investment in partnerships with Black-Owned brands in the textured hair category is a priority for fiscal year 2021 [27] - The company aims to optimize its supply chain and improve inventory management through new platforms and distribution centers [28][54] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's resilience and ability to navigate the ongoing impacts of COVID-19, expecting increased volatility in the first half of fiscal 2021 [18][19] - The company anticipates that sales in 2021 should exceed 2019 levels, despite fewer stores in operation [60] - Management highlighted the importance of maintaining strong liquidity and cash flow while preparing for potential market disruptions [66] Other Important Information - The company generated over $131 million in free cash flow during the quarter, a 67% increase compared to the prior year [51] - The company ended the quarter with a strong liquidity position, holding $514 million in cash and a zero balance on its revolving line of credit [54] - The company completed a small acquisition in Quebec, Canada, adding 10 stores and exclusive distribution rights to professional hair color brands [53] Q&A Session Summary Question: Can you provide context on category performance and the cadence of sales? - Management noted strong performance in hair color and nails, but weakness in other categories like cosmetics and hair extensions, with a barbell effect observed in sales throughout the quarter [71][72] Question: What are the expectations for e-commerce growth and its impact on retail? - The company aims for e-commerce penetration to reach 10%, with a shift in online consumer behavior towards higher-margin categories like color and care [75][76] Question: How is the company managing inventory levels and what are the expectations moving forward? - Management acknowledged that inventory levels were at a six-year low but are actively working to replenish stock, particularly in high-demand categories [78][79] Question: What is the outlook for salon demand and market share? - Management indicated that salon demand is down but not significantly, with expectations of gaining market share through new accounts and color conversions [104] Question: Can you elaborate on gross margin sustainability and future trends? - Management expressed confidence in the sustainability of gross margin improvements, attributing it to better inventory management and promotional strategies [101][110]

Sally Beauty Holdings, Inc. (NYSE:SBH) Q3 2020 Earnings Conference Call July 30, 2020 8:30 AM ET Company Participants Jeff Harkins - Vice President, Investor Relations Chris Brickman - President & Chief Executive Officer Aaron Alt - President of Sally Beauty Supply & Chief Financial Officer Conference Call Participants Rupesh Parikh - Oppenheimer Mark Altschwager - Baird Oliver Chen - Cowen Steph Wissink - Jefferies [Call starts abruptly] Operator [Operator Instructions] I would now like to turn the confere ...

Sally Beauty Holdings, Inc. (NYSE:SBH) Q2 2020 Earnings Conference Call May 6, 2020 8:30 AM ET Company Participants Jeff Harkins - Vice President, Investor Relations Chris Brickman - President and Chief Executive Officer Aaron Alt - President of Sally Beauty Supply and Chief Financial Officer Marlo Cormier - Senior Vice President of Finance and Chief Accounting Officer Conference Call Participants Mark Altschwager - Baird Rupesh Parikh - Oppenheimer Oliver Chen - Cowen Olivia Tong - Bank of America Merrill ...

Financial Data and Key Metrics Changes - Consolidated revenue for Q1 was $980.2 million, down $9.2 million from the prior year, primarily due to fewer net stores and modestly lower same-store sales [39][40] - Consolidated gross margin decreased by 20 basis points to 48.4% compared to the prior year, with Beauty Systems Group and European operations seeing increases, while Sally Beauty US and Canada experienced declines [40][41] - GAAP diluted earnings per share were $0.45, a decrease of 17% from $0.54 in the prior year, driven by lower revenue and increased operating expenses [41][43] Business Line Data and Key Metrics Changes - Sally Beauty segment revenue was $569.1 million, a decrease of 2% compared to the prior year, with same-store sales down 1.1% [44][45] - Beauty Systems Group achieved net sales of $411.1 million, an increase of 0.5% year-over-year, with same-store sales up 1.2% [47][48] - E-commerce revenue for Sally Beauty grew by 31.8%, while Beauty Systems Group's e-commerce platform grew by 23.7% [45][47] Market Data and Key Metrics Changes - The US and Canada business represented 77% of the Sally Beauty segment sales for the quarter, with Europe contributing positively to same-store sales [44][45] - The global digital business grew 27.6%, with the US and Canada business growing the most at 37.8% [18][39] Company Strategy and Development Direction - The company is focused on completing its transformation plan and enhancing its digital capabilities, aiming to become a mobile-first digital retailer [10][22] - The strategy includes improving retail fundamentals, advancing digital commerce capabilities, and seeking cost savings to fund transformation efforts [22][51] - The company plans to launch new products and expand its brand portfolio, including the introduction of the Redken color brand in Europe [27][28] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in Q1 due to technology integration issues and a shortened holiday shopping season, but expressed confidence in the ongoing transformation efforts [19][21] - The company expects to see improvements in traffic trends and sales in the US and Canada since Christmas, maintaining guidance for positive comps for the year [38][68] - Management emphasized the importance of addressing technology risks and ensuring interdependencies are managed effectively [71] Other Important Information - The company has reduced its debt levels by over $200 million since the beginning of fiscal year 2019, with a leverage ratio of 2.68 times [43] - The company is in the process of consolidating its digital teams to enhance digital efforts across both Sally Beauty and Beauty Systems Group [16] Q&A Session Summary Question: Insights on Charlotte market remodels and learnings - Management highlighted positive results from remodels in Charlotte and Las Vegas, focusing on assortment and technology integration [55][56] Question: Professional brands and M&A considerations - Management is focused on acquiring regional distribution rights and has a robust pipeline for own brand development [57] Question: Investment plans for the rest of the year - Management indicated that investment profiles were heavier in Q2 and that they expect growth to be back-loaded [62] Question: Timing for positive comps in both segments - Management expects to see positive comps for the year and is confident in addressing issues that contributed to Q1 performance [68] Question: Technology investment evaluations post-Q1 - Management acknowledged risks around technology transformations but believes they are well-positioned to execute projects moving forward [71] Question: Impact of gross margin and inventory management - Management noted that while gross margin was impacted by pricing issues, they are actively managing inventory levels without sacrificing cash flow [78][79]