Sally Beauty(SBH) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Consolidated revenue for Q2 was $945.9 million, a decrease of 3% year-over-year, primarily due to 69 fewer stores and a 0.5% decline in same-store sales [53][54] - Consolidated gross margin was 49.5%, down 40 basis points compared to the prior year, with challenges in Europe and Beauty Systems Group offsetting improvements in the U.S. and Canadian business [56] - Adjusted operating earnings were $106.7 million, with an adjusted operating margin of 11.3%, compared to $117.9 million and 12.1% in the prior year [60] - Adjusted diluted earnings per share decreased by 5.6% to $0.51, driven by lower sales and gross margin [60] Business Line Data and Key Metrics Changes - Sally Beauty same-store sales decreased by 0.3%, with segment revenue of $565.6 million, a decrease of 2.5% year-over-year [64] - Beauty Systems Group same-store sales declined by 0.9%, with net sales of $380.2 million, down 3.8% compared to the prior year [67] - Owned and exclusive brands comprised approximately 45% of Sally Beauty Supply's revenue and 53% of Beauty Systems Group sales, indicating a strong focus on proprietary products [14] Market Data and Key Metrics Changes - The U.S. and Canadian retail business showed good momentum despite challenges in February, while the global e-commerce business grew over 30% year-over-year [54] - European operations faced headwinds due to Brexit uncertainties and civil protests in France, impacting sales negatively [54][56] Company Strategy and Development Direction - The company is focused on a transformation plan that includes launching a new mobile-first e-commerce platform, enhancing supply chain modernization, and reducing debt levels [9][10] - Investments are being made in technology, store experience, and loyalty programs to drive customer engagement and sales [21][22] - The company aims to improve retail fundamentals and customer experience through new store concepts and technology like the ColorView kiosk [24][26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges in the retail environment but expressed confidence in the transformation efforts and expected improvements in the second half of the year [40][41] - The company is maintaining its full-year guidance, anticipating solid momentum from transformation initiatives and new brand launches [40][41] - Management is optimistic about the potential for margin improvement in the second half, driven by cost-saving initiatives and new product introductions [76][82] Other Important Information - The company initiated a debt tender offer, repurchasing approximately $60 million of senior notes, reducing the leverage ratio to 2.8 times [44] - The loyalty program has seen promising results, with over 14.5 million active members and a significant percentage of transactions tied to the program [23][92] Q&A Session Summary Question: Impact of February on Sales and European Business Outlook - Management did not quantify the specific impact of February but noted it was a challenging month for many retailers. They expect European operations to stabilize in the second half [74][75] Question: Margin Outlook for the Second Half - Management indicated that investments made in the first half would start to pay off in the second half, with a focus on improving pricing and promotional efficiency [76][82] Question: Full-Year Operating Earnings Guidance - Management expects operating earnings to decline slightly for the full year, with stronger performance anticipated in the second half due to new product launches and cost-saving measures [81][82] Question: Cash Flow Expectations - Management remains confident in cash generation capacity and plans to reduce inventory to improve cash flow [85][87] Question: Loyalty Program Performance - The loyalty program has transitioned smoothly, with accelerated sign-ups and expectations for improved store traffic in the second half [89][92] Question: Store Base Strategy - Management is assessing the store base and plans to invest in both digital and physical store experiences moving forward [94][96] Question: Brand Lifecycle Impact - Management acknowledged the need to refill the product pipeline and expects headwinds to subside in the coming quarters as new products are introduced [105][106]