Sally Beauty Holdings, Inc. S T R E N G T H/media/Files/S/Sally-Beauty/... · 907 stores in Canada,...
Transcript of Sally Beauty Holdings, Inc. S T R E N G T H/media/Files/S/Sally-Beauty/... · 907 stores in Canada,...
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As of December 2017
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Sally Beauty Holdings, Inc.
S T R E N G T H[ IN BEAUTY ]
As of June 2018
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H E A D E R
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Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty products and supplies
Industry leading position
Annual consolidated sales of approximately $4 billion
5,170 stores located in 12 countries (1)
Long track record of growth, underpinned by resilient beauty category
Strong cash flow generation
Disciplined capital allocation, with consistent investment in the business
Proven resilience in recessionary cycles
Two distinct business segments
Diversified customer base: 60% salon professional; 40% specialty retail
Company Highlights
(1) As of June 30, 2018 2
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Segments
Net Sales Gross Margin
SegmentOperatingEarnings
(1) See Addendum for a reconciliation of this non-GAAP financial measure.
Consolidated Fiscal 2017 Results
Sales 59.5% 40.5%
60.2% 39.8%
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Open-Line Retail Exclusive / Full-Service
3,775 stores 1,395 stores 837 consultants
Professional stylists
`
Consumers:
DistributionChannel (1)
Salons
Retail Consumers $$$ High-end$ Value
Suppliers/Vendors:
Distributors:
Go To Market
Exclusive, third party professional-only brands
Third party and owned brands not available in mass retail
(1) As of June 30, 2018 4
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Retail stores and E-commerce
Retail consumers ~ 70% of sales Professional stylists ~ 30% of sales
SalesSSS growthEBITEBIT margin
Segment
DistributionChannel
Customers
FY2017Financials
$2.3b-1.6%$385m16.4%
Business Segment Highlights
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SalesSSS growthEBITEBIT margin
Segment
DistributionChannel
Customers
FY2017Financials
Stores for licensed professionalsDirect sales consultants for salons
Professional stylists (chair/suite renters)Salons (via BSG’s direct sales consultants)
$1.6b1.3%$255m16.0%
Business Segment Highlights
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$1.6 $1.8
$2.1 $2.3
$2.6 $2.9 $3.0
$3.3 $3.5
$3.8 $4.0
$4.5 $4.8
$5.1
$5.7
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
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E20
19E
2020
E
($ in
bill
ions
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U.S. Salon Industry Product Sales(at wholesale $’s)
Growth of 1.8%
RecessionResistantIndustry
$5.3
Resilient Industry
Source: Professional Consultants & Resources, 2017 Study. Author: Cyrus Bulsara(1) Professional beauty supply channel size based upon a 2017 study of manufacturer-level sales conducted by Professional Consultants & Resources.
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Development
Source: Forrester Data Online Retail Forecast as per Evercore ISI Equity Research
Online penetration
Sales growth
Profits
Not impacted Online is a complement to
stores
Store growth towards zero
Online moving from complement to competition
Store growth turning negative Store-based vs. online battle for
market shares
Markets settle and growth rates converge
50%
Higher in store-based retail Lower in store-based retail Gross margins deteriorate while
stores are maintained
Converging at low levels
High competition as stores restructure and online matures
Share by channel stabilizes
Competition normalizes and markets settle
Growth Shakeout Maturity
Historically Low Exposure to Digital Disruptions
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Business Segment Review
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Sally Beauty global footprint (1)
3,775 stores worldwide
2,868 stores in U.S. (including Puerto Rico)
907 stores in Canada, Mexico, Chile, Peru, UK, Ireland, Belgium, Netherlands, France, Germany, and Spain
Average store size 1,700 sq. ft., 90% selling space
Professional open-line business - merchandise assortment not available through mass retailers
46% of U.S./Canada sales are exclusive and owned-brand products (1)
Destination for professional quality hair care and solutions with a love it or return it guarantee
Sally Beauty U.S. Store
Sally Beauty Highlights
(1) As of June 30, 2018 10
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Sally Beauty Product Mix
Hair Care
Hair Color
Skin and Nail Care
ElectricalAppliances
Brushes,Cutlery andAccessories
Other BeautyItems
We offer a diversified mix of beauty products
*Fiscal year 2017
~50% ofSales areHair careHair color
MulticulturalProducts
11
21%
26%
15%
13%
8%
8%9%
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Sally International
907 Sally stores located in 11 countries
Stores located in Canada, Mexico, Chile,Peru, UK, Ireland, Belgium, France, the Netherlands, Germany, and Spain
~26% of Sally sales from international
Sales mix differs from U.S./Canada
UK/Europe
o ~80-85% professionalo ~15-20% retail
Mexico and South America almost 100% retail
Existing International Platform Store Count by Geography (1)
232
202(Belgium, France,
139
40
268
Total 907
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(Canada)
(Mexico)
(UK / Ireland)
Germany, Spain, Netherlands)
(Chile)
(Peru)
(1) As of June 30, 2018 12
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3.8%2.4% 2.4% 2.7%
1.2%2.1%
4.1%
6.3% 6.5%
-0.6%1.3% 1.7% 1.7%
-1.6%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
~ 50 bps negative impact from Hurricanes/Leap Year comparison
$1,296 $1,359 $1,419 $1,567 $1,673 $1,696
$1,835 $2,012
$2,199 $2,230 $2,309 $2,330 $2,365 $2,345
$0$400$800
$1,200$1,600$2,000$2,400$2,800
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Sally Beauty Net Sales (1),(2)
Sally Beauty Same Store Sales
(1) The unfavorable impact of foreign currency exchange on net sales for the fiscal year 2017 was $30.8 million, or 1.3% of net sales(2) Salon Success net sales are included in the 2017 Sally Beauty net sales (included in Beauty Systems Group in prior years)
Sally Beauty Historical Sales
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Beauty Systems Group Highlights
Beauty Systems Group – 1,395(1) professional-onlystores & professional distributor sales consultants
1,228 company-operated / 167 franchised stores (Armstrong McCall)
837 professional distributor sales consultants
Average store size 2,700 sq. ft.
Sells exclusively to salons and salon professionals
Professional exclusive / full-service business –includes merchandise assortment of premium brands sold through salons and not available in mass retail or Sally Beauty stores
In 2017, CosmoProf launched the mobile app for stylists
(1) As of June 30, 2018 14
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Beauty Systems Group Highlights
We offer a diversified mix of beauty products not carried in Sally stores or mass retail
Hair Care
Skin and Nail Care
ElectricalAppliances
PromotionalItems
Other BeautyItems
Hair Color
~70% of Sales areHair careHair color*Fiscal year 2017
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33%
37%
6%
8%
8%8%
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Beauty Systems Group Highlights
$802 $895 $954 $945 $975 $941
$1,081 $1,257 $1,325
$1,392 $1,445 $1,505 $1,588 $1,593
$0$200$400$600$800
$1,000$1,200$1,400$1,600$1,800
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
BSG Net Sales (1),(2)
8.5%
(0.6%)
4.1%
10.1%
6.9%
1.0%
6.2% 5.5% 6.1%4.2% 3.5%
5.7% 5.5%
1.3%
(4.0%)
0.0%
4.0%
8.0%
12.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
~ 50 bps negative impact from Hurricanes/Leap Year comparison
BSG Same Store Sales Growth
(1) BSG net sales were not materially impacted by foreign currency exchange rates for fiscal year 2017 (2) Salon Success net sales are included in the 2017 Sally Beauty net sales (included in Beauty Systems Group in prior years) 16
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Consolidated Financials
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$0.44$0.52
$0.77
$1.07
$1.42$1.48
$1.53 $1.53
$1.72$1.80
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$1.80
$2.00
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Consolidated Sales and Adj. EPS
5%YoY
Sales (1) EPS (adjusted) (2)
(1) The impact from unfavorable foreign currency exchange in the 2017 fiscal year was $30.0 million, or 0.8%(2) See Addendum for a reconciliation of this non-GAAP financial measure.
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$2,648 $2,637
$2,916
$3,269
$3,524 $3,622 $3,754 $3,834
$3,953 $3,938
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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Q3 FY18 and Fiscal YTD Results
Q3 FY18 Financial Results
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• Reported EPS of $0.48, decrease of 2.0% Includes benefits of U.S. Tax Reform offset
by restructuring charges and expenses from previously disclosed data security incidents
• Adjusted EPS of $0.60, growth of 15.4% Includes benefits of U.S. Tax Reform
• Net sales of $996m, -0.2% vs. prior year Same store sales growth (2.0%) Favorable foreign exchange +90 bps
• Operating Free Cash Flow $79.0m, growth of 70.9% vs. prior year
• Repurchased 3.2m shares / $50.1m
(1) Excludes the $0.17 related to the net benefit of the revaluation of the deferred income tax accounts partially offset by the repatriation tax
Fiscal YTD Financial Results
• Reported EPS of $1.62, growth of 26.6% Includes benefits of U.S. Tax Reform
• Adjusted EPS of $1.65, growth of 23.1% Includes benefits of U.S. Tax reform due to
the reduced federal statutory rate but excludes the one-time net benefits in Q1(1)
• Net sales of $2,967m, +0.1% vs. prior year Same store sales growth (1.9%) Favorable foreign exchange +130 bps
• Operating Free Cash Flow $219.8m, growth of 40.6% vs. prior year
• Repurchased 9.9m shares / $164.7m
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Steady Cash Flow Generation
SBH Free Cash Flow ($m) (1)
$228.5 $225.6$239.2
$194.3 $202.3
$254.8
2012A 2013A 2014A 2015A 2016A 2017A
39% 37% 39% 32% 32%
Cash conversion (%) (2)
(1) Free Cash Flow defined as cash flow from operations minus capital expenditures; See Addendum for reconciliation of this non-GAAP financial measure(2) Cash conversion defined as FCF/Adjusted EBITDANote: Free Cash Flow for 2015 and 2016 reflects increased capital expenditures primarily related to store openings and ongoing information technology upgrades in both business
segments, store remodels and upgrades to certain distribution centers
41%
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Capital Allocation
$515
$327
$228 $209
$346
2013 2014 2015 2016 2017
Cash used per year to acquire stock(in millions)
Over past five years, $1.6 billion of capital allocated to stock repurchases
In August 2017, launched a new share repurchase program to repurchase up to $1.0 billion, at the discretion of the Board of Directors, of common stock through the end of fiscal year 2021
Going forward, capital allocation will be in the order of priority to invest in the business, pay down debt and return cash to shareholders
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Long-term capital structure
$1,045.9
$750.0
$-
$200.0
$400.0
$600.0
$800.0
$1,000.0
$1,200.0
2018 2019 2020 2021 2022 2023 2024 2025 2026
No near-term maturities
July 2017, successfully refinanced $850m high yield debt with lower-rate term loan B
$546m floating (L+225 bps)(1)
$300m fixed (4.50%)
Targeted consolidated leverage ratio (Net Debt/EBITDA) of 2.5x to 3.0x
Ample liquidity
Strong cash flow
$500 million asset-based revolving credit facility
(1) Repriced in March 2018. Lowered interest rated spread by 25 bps.
Long-term debt maturities ($ millions)
Consolidated Debt
AMOUNT ($MM)
% OF TOTAL DEBT
TERM LOAN B (FY2024) $845.9 47.1% 5.500% SENIOR NOTES (FY2024) $200.0 11.1% 5.625% SENIOR NOTES (FY2026) $750.0 41.8% TOTAL DEBT $1,795.9 100.0%
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Chart1
2018
2019
2020
2021
2022
2023
2024
2025
2026
Term B
$597
$1,050
1045.9
0
750
Sheet1
Term BSr. Notes 6.78%2014
2018
2019
2020
2021
2022
2023
2024$ 1,045.9
2025$ - 0
2026$ 750.0
2023
2023$ 750.0
Amount
($mm)
% of
Total Debt
Term Loan B (FY2024)
$845.9
47.1%
5.500% Senior Notes (FY2024)
$200.0
11.1%
5.625% Senior Notes (FY2026)
$750.0
41.8%
Total Debt
$1,795.9
100.0%
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Long-Term Strategy
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Short-Term Tactical Plan
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SBH Highlights
Greater resilience to online disruption vis-a-vis most other retail verticals
Strong cash flow generation, despite meaningful investment in the business
Track record of strong profitable growth coupled with attractive business model and economics
Maintain appropriate capital structure
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3
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Attractive beauty retail sector underpinned by growing and resilient beauty category1
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APPENDIX
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EBITDA and EPS Reconciliation
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Adjusted EBITDA FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17Net Earnings (GAAP) 44.5$ 77.7$ 99.1$ 143.8$ 213.7$ 233.1$ 261.2$ 246.0$ 235.1$ 222.9$ 215.1$
Interest expense, net of interest income 146.0 159.1 132.0 113.0 112.5 138.4 107.7 116.3 116.8 144.2 132.9Provision for income taxes 38.0 46.2 65.7 84.1 122.2 127.9 151.5 144.7 143.4 131.1 130.6Depreciation and amortization 42.6 48.5 47.1 51.1 59.7 64.7 72.2 79.7 89.4 99.7 112.3Share-based compensation 13.1 10.2 8.6 12.8 15.6 16.9 19.2 22.1 16.8 12.6 10.5Transaction expenses (1) 21.5 - - - - - - - - - -Sales-based service fee charged by Alberto-Culver 3.8 - - - - - - - - - -Expenses from data security incidents - - - - - - - 2.5 5.6 14.6 -Restructuring charges - - - - - - - - 5.3 - 22.7Litigation settlement and non-recurring items, net (2) - - - - (21.3) 10.2 - - - 2.6 -
Adjusted EBITDA 309.5$ 341.7$ 352.5$ 404.8$ 502.5$ 591.1$ 611.8$ 611.3$ 612.4$ 627.7$ 624.1$
Adjusted net earnings and adjusted diluted earnings per shareNet Earnings (GAAP) 44.5$ 77.7$ 99.1$ 143.8$ 213.7$ 233.1$ 261.2$ 246.0$ 235.1$ 222.9$ 215.1$
Marked-to-market adjustment for certain interest rate swaps 3.0 4.6 - (2.4) - - - - - - -Expenses associated with the spin-off from Alverto Culver 13.4 - - - - - - - - - -Loss on extinguishment of debt - - (5.3) - - 37.8 - - - 33.3 28.0Interest expense on redeemed debt - - - - - 5.1 - - - 2.1 -Amortization of deferred financing costs - - - - - 0.2 - - - - -Litigation settlement and non-recurring items, net (2) - - - - (21.3) 10.2 - - - - -Loss from securiy breach incidents - - - - - - - 2.5 5.6 14.7 -Management transition costs - - - - - - - 3.5 - 2.0 -Restructuring charges - - - - - - - - 5.3 - 22.7Other - - - - - - - - - 0.6 -Tax provision for the adjustments to net earnings (1.4) (1.7) 2.1 0.9 7.9 (19.2) - (2.3) (4.0) (20.1) (17.6)
Adjusted net earnings 59.5$ 80.6$ 95.9$ 142.3$ 200.3$ 267.2$ 261.2$ 249.7$ 241.9$ 255.6$ 248.2$ Diluted adjusted net earnings per share (non-GAAP): 0.33$ 0.44$ 0.52$ 0.77$ 1.07$ 1.42$ 1.48$ 1.53$ 1.15$ 1.72$ 1.80$ Diluted GAAP net earnings per share: 0.24$ 0.42$ 0.54$ 0.78$ 1.14$ 1.24$ 1.48$ 1.51$ 1.13$ 1.50$ 1.56$
(1) Transaction expenses of $21.5 for separation of the Company from Alberto-Culver in November 2006.(2) Results for fiscal year 2011, reflect a $27.0 mill ion benefit of a l itigation settlement and non-recurring charges of $5.7 mill ion.
Sheet1
Adjusted EBITDAFY04FY05FY06FY07FY08FY09FY101Q112Q113Q11FY111Q122Q123Q12FY121Q132Q133Q13FY13FY141Q152Q153Q15FY15FY16FY17
Net Earnings (GAAP)$ 105.3$ 116.5$ 110.2$ 44.5$ 77.7$ 99.1$ 143.8$ 40.9$ 49.3$ 69.1$ 213.7$ 30.1$ 67.8$ 69.5$ 233.1$ 59.0$ 64.9$ 72.4$ 261.2$ 246.0$ 54.9$ 61.5$ 62.5$ 235.1$ 222.9$ 215.1
Interest expense, net of interest income2.23.00.1146.0159.1132.0113.029.527.827.7112.564.022.426.9138.426.726.827.0107.7116.329.229.329.2116.8144.2132.9
Provision for income taxes62.173.269.938.046.265.784.121.928.639.4122.219.241.540.1127.936.236.243.1151.5144.732.138.239.2143.4131.1130.6
Depreciation and amortization24.633.938.042.648.547.151.114.114.815.359.715.615.916.364.716.817.218.872.279.720.621.022.689.499.7112.3
Share-based compensation--5.213.110.28.612.87.82.42.515.68.02.92.816.99.13.33.219.222.17.82.82.916.812.610.5
Transaction expenses (1)--41.521.5---------------------
Sales-based service fee charged by Alberto-Culver26.127.628.93.8---------------------
Expenses from data security incidents---------5.7---------2.50.21.53.25.614.6-
Restructuring charges--------1.15.3-22.7
Litigation settlement and non-recurring items, net (2)---------(27.0)(21.3)---10.2---------2.6-
Adjusted EBITDA$ 220.3$ 254.2$ 293.8$ 309.5$ 341.7$ 352.5$ 404.8$ 114.2$ 122.9$ 132.7$ 502.5$ 136.9$ 150.5$ 155.7$ 591.1$ 147.7$ 148.3$ 164.5$ 611.8$ 611.3$ 144.8$ 154.4$ 160.6$ 612.4$ 627.7$ 624.1
Adjusted net earnings and adjusted diluted earnings per share
Net Earnings (GAAP)$ 44.5$ 77.7$ 99.1$ 143.8$ 69.1$ 213.7$ 30.1$ 67.8$ 69.5$ 233.1$ 59.0$ 64.9$ 72.4$ 261.2$ 246.0$ 54.9$ 61.5$ 62.5$ 235.1$ 222.9$ 215.1
Marked-to-market adjustment for certain interest rate swaps3.04.6-(2.4)----------------
Expenses associated with the spin-off from Alverto Culver13.4----------------
Loss on extinguishment of debt--(5.3)---34.63.237.8---------33.328.0
Interest expense on redeemed debt------5.15.1---------2.1-
Amortization of deferred financing costs------0.20.2-----------
Litigation settlement and non-recurring items, net (2)----(21.3)(21.3)--10.2-----------
Loss from securiy breach incidents-------2.50.21.53.25.614.7-
Management transition costs-------3.5-2.0-
Restructuring charges--------1.15.3-22.7
Other---------0.6-
Tax provision for the adjustments to net earnings(1.4)(1.7)2.10.97.97.9(14.4)(1.2)(19.2)----(2.3)0.1(0.6)(1.6)(4.0)(20.1)(17.6)
Adjusted net earnings$ 59.5$ 80.6$ 95.9$ 142.3$ 55.8$ 200.3$ 55.7$ 67.8$ 71.6$ 267.2$ 59.0$ 59.0$ 72.4$ 261.2$ 249.7$ 55.2$ 62.5$ 65.2$ 241.9$ 255.6$ 248.2
Diluted adjusted net earnings per share (non-GAAP): $ 0.33$ 0.44$ 0.52$ 0.77$ 0.30$ 1.07$ 0.29$ 0.35$ 0.38$ 1.42$ 0.32$ 0.36$ 0.42$ 1.48$ 1.53$ 0.35$ 0.39$ 0.41$ 1.15$ 1.72$ 1.80
Diluted GAAP net earnings per share:$ 0.24$ 0.42$ 0.54$ 0.78$ 0.37$ 1.14$ 0.16$ 0.35$ 0.37$ 1.24$ 0.32$ 0.36$ 0.42$ 1.48$ 1.51$ 0.35$ 0.39$ 0.39$ 1.13$ 1.50$ 1.56
(1) Transaction expenses of $21.5 for separation of the Company from Alberto-Culver in November 2006.
(2) Results for fiscal year 2011, reflect a $27.0 million benefit of a litigation settlement and non-recurring charges of $5.7 million.
Sheet2
Sheet3
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Free Cash Flow
28
2012 2013 2014 2015 2016 2017Cash Flow from Operations 297.6$ 310.5$ 316.0$ 300.8$ 351.0$ 344.4$ Less: Capital Expenditures 69.1$ 84.9$ 76.8$ 106.5$ 148.7$ 89.6$ Free Cash Flow 228.5$ 225.6$ 239.2$ 194.3$ 202.3$ 254.8$
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