Sally Beauty(SBH) - 2022 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements The company's Q1 2022 financials reflect YoY growth in sales and net earnings, offset by a significant decrease in operating cash flow due to inventory investment Condensed Consolidated Balance Sheets Total assets were $2.86 billion as of December 31, 2021, with a notable increase in inventory and a decrease in cash Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 | Sep 30, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $298,140 | $400,959 | | Inventory | $1,005,838 | $871,349 | | Total current assets | $1,415,530 | $1,383,575 | | Total assets | $2,855,942 | $2,847,132 | | Liabilities & Equity | | | | Total current liabilities | $681,752 | $664,881 | | Long-term debt | $1,381,926 | $1,382,530 | | Total liabilities | $2,574,921 | $2,566,391 | | Total stockholders' equity | $281,021 | $280,741 | Condensed Consolidated Statements of Earnings Net sales for Q1 2022 grew 4.7% YoY to $980.3 million, with net earnings increasing 20.4% to $68.8 million Statement of Earnings Summary (in thousands, except per share data) | Metric | Q1 FY2022 (ended Dec 31, 2021) | Q1 FY2021 (ended Dec 31, 2020) | Change (%) | | :--- | :--- | :--- | :--- | | Net sales | $980,251 | $936,022 | +4.7% | | Gross profit | $500,129 | $470,724 | +6.2% | | Operating earnings | $112,780 | $104,322 | +8.1% | | Net earnings | $68,838 | $57,191 | +20.4% | | Diluted EPS | $0.60 | $0.50 | +20.0% | Condensed Consolidated Statements of Cash Flows Net cash used by operations was $5.7 million in Q1 2022, a significant decline from the prior year, driven by inventory increases and share repurchases Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Dec 31, 2021 | Three Months Ended Dec 31, 2020 | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | $(5,685) | $38,986 | | Net cash used by investing activities | $(26,709) | $(17,508) | | Net cash used by financing activities | $(70,185) | $(312) | | Net (decrease) increase in cash | $(102,819) | $23,493 | - The primary driver for the decrease in operating cash flow was a significant investment in inventory, which increased by $137.3 million during the quarter[27] - The company used $75.0 million for common stock repurchases during the quarter, compared to none in the prior-year period[27] Notes to Condensed Consolidated Financial Statements The notes detail the performance of the two operating segments, SBS and BSG, both of which reported sales and earnings growth - The company operates through two segments: Sally Beauty Supply (SBS), which targets retail consumers and professionals, and Beauty Systems Group (BSG), which targets salons and professionals[29] - During the three months ended December 31, 2021, the company repurchased 3.675 million shares for a total cost of $75.0 million[40] Segment Performance (in thousands) | Segment | Net Sales (Q1 2022) | Net Sales (Q1 2021) | Segment Operating Earnings (Q1 2022) | Segment Operating Earnings (Q1 2021) | | :--- | :--- | :--- | :--- | :--- | | Sally Beauty Supply (SBS) | $561,530 | $547,670 | $100,623 | $95,128 | | Beauty Systems Group (BSG) | $418,721 | $388,352 | $58,546 | $48,572 | | Total | $980,251 | $936,022 | $159,169 | $143,700 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses strong Q1 2022 performance, driven by comparable sales growth, and strategies for managing supply chain challenges Executive Overview and Highlights Q1 2022 performance was strong, driven by growth in hair color and care categories and execution of strategic pillars Q1 FY2022 Financial Highlights (YoY) | Metric | Value/Change | | :--- | :--- | | Consolidated Net Sales | +4.7% to $980.3M | | Consolidated Comparable Sales | +6.1% | | Gross Margin | +70 bps to 51.0% | | Operating Margin | +40 bps to 11.5% | | Net Earnings | +20.4% to $68.8M | | Diluted EPS | $0.60 (vs. $0.50) | Results of Operations Consolidated net sales increased 4.7% in Q1 2022, with gross margin improving to 51.0% and operating earnings growing 8.1% - SBS net sales increased by $13.9 million (2.5%), driven by a 4.4% increase in comparable sales reflecting strong customer demand and higher average unit prices, particularly in color categories[64][66] - BSG net sales increased by $30.4 million (7.8%), driven by an 8.6% increase in comparable sales, due to higher unit prices, salons operating at full capacity, and strong e-commerce growth[64][67] - Consolidated gross margin increased by 70 basis points, attributed to pricing leverage in both segments, partially offset by higher distribution and freight costs[64][68][69] - Interest expense decreased by 22.1% due to lower outstanding debt principal following paydowns in fiscal year 2021[74] Liquidity and Capital Resources The company maintains sufficient liquidity through cash and its ABL facility while executing a $75.0 million share repurchase - Working capital increased by $15.1 million to $733.8 million at Dec 31, 2021, primarily due to increased inventory levels to meet demand and mitigate supply chain risks[76] - As of December 31, 2021, the company had $481.1 million available for borrowing under its ABL facility[78] - During the quarter, 3.7 million shares were repurchased for $75.0 million, with approximately $651.1 million remaining under the share repurchase authorization[79] Quantitative and Qualitative Disclosures About Market Risk There were no material changes to the company's market risks, including foreign currency and interest rates, since September 30, 2021 - There have been no material changes to the company's market risks from September 30, 2021[93] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of December 31, 2021, with no material changes to internal controls - Based on an evaluation as of December 31, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures are effective in providing reasonable assurance[98] - No changes in internal control over financial reporting occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[99] PART II — OTHER INFORMATION Legal Proceedings Ongoing legal matters are not expected to have a material adverse impact on the company's financial position or results - The company does not expect that the resolution of its ordinary-course legal proceedings will have a material adverse impact on its consolidated financial position[102] Risk Factors No material changes were reported to the risk factors disclosed in the company's most recent Annual Report on Form 10-K - No material changes have occurred regarding the risk factors disclosed in the company's Annual Report for the fiscal year ended September 30, 2021[104] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 3.7 million shares for $75.0 million in Q1 2022, with $651.1 million remaining under its authorization Issuer Purchases of Equity Securities (Q1 FY2022) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares Remaining for Purchase | | :--- | :--- | :--- | :--- | | Oct 2021 | - | - | $726,120,621 | | Nov 2021 | 1,495,824 | $20.85 | $694,938,779 | | Dec 2021 | 2,179,273 | $20.11 | $651,120,625 | | Total | 3,675,097 | $20.41 | $651,120,625 | - The share repurchase program, authorizing up to $1.0 billion in repurchases, was extended in July 2021 and expires on September 30, 2025[106] Exhibits This section lists all exhibits filed with the Form 10-Q, including required CEO/CFO certifications and iXBRL data - Exhibits filed with the report include CEO and CFO certifications under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as iXBRL financial statements[108]