Sally Beauty(SBH) - 2021 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements 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 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 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 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 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] - As of December 31, 2020, the company was in compliance with all debt covenants[46] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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][67] 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 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][72] - The decrease in BSG net sales was driven by lower unit volume from store and salon closures, particularly impacting distributor sales consultants[73][74] - 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] Liquidity and Capital Resources 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] - No shares were repurchased in the quarter; approximately $726.1 million remains authorized under the 2017 Share Repurchase Program[88] - Net cash from operating activities decreased by $23.3 million year-over-year, mainly due to increased inventory purchases to improve stock levels[90] Quantitative and Qualitative Disclosures About Market Risk 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] Controls and Procedures 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] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that materially affected these controls[108] PART II — OTHER INFORMATION Legal Proceedings 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] Risk Factors 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] Exhibits 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]