Investor Presentation - Sally Beauty Holdings, Inc.

Investor Presentation - Sally Beauty Holdings, Inc.

Sally Beauty Holdings, Inc. Overview
August 2015
Company Highlights
Sally Beauty Holdings is a leading international specialty retailer
and distributor of professional beauty products
 Annual consolidated sales of over $3.8 billion
 Strong cash flow generation
 Approximately 4,941 stores located in 13 countries
 Industry leading position with ~33% channel share
 Proven resilience in recessionary cycles
 Well-positioned for long-term growth
 Two distinct business segments
(1) As of June 2015, fiscal 2015 third quarter
(1)
Company Highlights
Consolidated Fiscal 2014 Results
Net Sales
Gross Margin
Segments
•
Customers
•
Retail consumers
• 75% of sales
Professional stylists, small salons,
chair/suite rentals
• 25% of sales
•
•
Stores – Chair/suite rentals
• 65% of sales
Full Service Sales - small to medium
sized salons
• 35% of sales
Company Highlights
Segment
Distribution
Channel
3,655 stores worldwide (1)
Retail consumers (75% of sales) Customers
FY2014
Financials
(1) As of June 2015, fiscal 2015 third quarter
Professional stylists (25% of sales)
Sales
SSS growth
EBIT
EBIT margin
$2.3b
1.3% vs. (0.6%) in FY13
$432m
18.7%
Company Highlights
Segment
Distribution
Channel
Customers
1,286 stores (1)
952 direct sales consultants (1)
Professional stylists (chair/suite renters)
Salons (via BSG’s direct sales consultants)
FY2014
Financials
(1) As of June 2015, fiscal 2015 third quarter
Sales
SSS growth
EBIT
EBIT margin
$1.4b
3.5% vs. 4.2% in FY13
$217m
15.0%
Company Highlights
Open‐Line Retail
3,655 stores
Distribution:
Customers:
`
Exclusive / Full‐Service
1,286 stores
952 consultants
Professional stylists
$ Value
Retail Consumers
Salons
$$$ High-end
SBH plays an important role in the supply chain
(1) As of June 2015, fiscal 2015 third quarter
Industry Growth
U.S. Salon Industry Product Sales
Growth of 3.1%
(at wholesale $’s)
$5.0
$4.5
$4.0
$3.0
$2.5
$2.0
$4.8 $4.5 $4.6 $4.2 $4.0 $3.7 $3.8 $3.8 $3.5 $3.3 $3.4 $3.1 $2.9 $2.9 $3.0 $2.6 $2.7 $2.4 $2.2 $2.3 $2.1 $2.0 $1.8 $1.7 $1.6 $1.5
$1.0
$0.5
Source: Professional Consultants & Resources (PCR) / www.proconsultants.us
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
$‐
1990
($ in billions)
$3.5
Recession
Resistant
Industry
Industry Overview
Haircare Products – Sales by Salon Channel
At Manufacturers’ $’s (2014) – Only U.S.
All other Beauty Supply
Stores
Mega-Salon
Manufacturer direct to
large-format salons
Direct Sales
Manufacturer direct to
manufacturer-owned
salons or “high-end”
salons
Open-Line
Distributes
professional product to
the public via retail
stores
Competition:
Local and regional
operators
12% (2)
$0.4B
13% (2)
$0.4B
Haircare Product
Sales of $3.1b by
Distribution Channels
41% (2)
$1.3B
33% (2)
$1.0B
Exclusive /
Full-Service
Third party distribution
to salons and beauty
professionals via sales
force and
“professional only”
stores
Competition:
L’Oreal’s
Area of
focus for
SBH
Source: Professional Consultants & Resources, 2014 Study.
(1) Professional beauty supply channel size based upon a 2014 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study
estimates that 2014 salon haircare product sales (at manufacturer dollars) were approximately $3.1 billion.
(2) Represents an estimated breakdown of salon haircare product sales in 2014by channel of distribution.
8
Business Segment Overview
Sally Beauty : Overview
 Sally Beauty Supply global footprint
 3,655(1) stores worldwide
 2,848 stores in U.S. (including Puerto Rico)
 807 stores in Canada, the UK, Ireland,
Belgium, Netherlands, France, Germany,
Spain, Chile, Colombia, Peru & Mexico
 Average store size 1,700 sq. ft., 90% selling
space
 Professional open-line business merchandise assortment not available
through mass retailers
 Destination for professional hair care
and solutions
(1) As of June 2015, fiscal 2015 third quarter
Sally Beauty : Initiatives
Initiatives are centered‐around creating points of difference in our stores, our merchandise,
and our marketing
Nail Studio – Highlighting vast selection
Store Refresh in U.S.
Sally Beauty : Marketing Initiatives
Blogger
Network
In Store Solution Guide
Direct Mail
Exterior Sign
Pro Flyer
Email
Access Hollywood
TV Morning Shows
SB.com
Auto-Replenish CRM
Beauty Box
Text
Digital
Video
Targeted
Digital Ads
Social Media
Sally Beauty : Initiatives
National television campaign:
Sponsorship of Lifetime® Project Runway
Sally Beauty : Historical Sales
Sally Beauty Supply Net Sales
Growth of 1.1%
$2,800
$2,400
$2,000
$1,600
$1,208
$1,296
$1,359
2003
2004
2005
$1,419
2006
$1,567
$1,673
$1,696
2007
2008
2009
$1,835
$2,012
$2,199
$2,230
$2,309
$1,747
$1,200
$800
$400
$0
2010
2011
2012
2013
2014
YTD15
Sally Beauty Supply Same Store Sales
8.0%
6.3%
6.5%
6.0%
4.0%
4.1%
3.8%
2.7%
2.4%
2.4%
2.7%
2.0%
2.1%
1.2%
1.3%
1.7%
2014
YTD15
-0.6%
0.0%
2003
-2.0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Sally Beauty : Merchandise Offering
Other Beauty
Items
Ethnic
Products
22%
8%
We offer a diversified mix of beauty products Brushes,
Cutlery and
Accessories
Electrical
Appliances
45% of
Sales from
Hair Care
& Color
14%
23%
10%
Hair Color
17%
Skin and
Nail Care
*Fiscal year 2014 Hair Care
7%
Sally Beauty Growth Initiatives
Worldwide Sally Beauty Supply Stores
Growth Initiatives
 Expand store base organically and
through acquisitions; domestic and
international
3,158
2,923 3,032
3,309
3,424 3,563
2008
2009
2012
2013
2014
2.8%
3.7%
3.4%
4.0%
4,000
3,000
2,844
2,511 2,694
2,000
 Plan to grow store base 3 to 4 percent in
FY2015 and beyond
1,000
0
 Increase customer traffic through loyalty
Growth
programs and customer relationship
management (CRM)
 Further enhance e-commerce platform
2006
2007
7.3% 5.6%
2010
2011
4.2% 4.8%
3.5%
Sally Beauty Supply Store Economics US
Capital Required
$70k
Average Inventory
$85k
Positive Contribution Margin
Cash Payback on Investment
4 Months
2 Years
Sally Beauty Supply: International Opportunity
Existing International Platform
Long‐Term Store Growth Potential (1)
 807 Sally Beauty stores located in 13 countries
 Stores located in Canada, the UK,
Republic of Ireland, Belgium, France, the
Netherlands, Germany, Spain, Chile,
Colombia, Peru & Mexico
 25% of Sally Beauty sales from international
Current
(Canada)
(Mexico)
(UK / Ireland)
110
~250
192
~250
260
~300
197
600‐800
40
~45
7
~40
 Sales mix differs from U.S./Canada
 UK/Europe
 ~80-85% professional
 ~15-20% retail
Potential
(Belgium, France, Germany, Spain, Netherlands)
(Chile)
 Mexico and South America almost 100% retail
(Peru)
1
(1) As of June 2015, fiscal 2015 third quarter
~50
(Colombia)
Total
807
~1,500+
Most recent international store opening: Colombia, S.A.
Located in high‐end shopping mall Demographic is retail consumer
Sally store design examples
Store designs vary by country and customer demographic
Chile, S.A.
U.S.
Peru, S.A.
United Kingdom
Beauty Systems Group: Overview
 Beauty Systems Group – 1,286(1) (professional
stores & 952 professional distributor sales
consultants
 1,118 company-operated / 168 franchised stores
(Armstrong McCall)
 952 professional distributor sales consultants
 Average store size 2,700 sq. ft.
 Sells to salons and salon professionals
 Professional exclusive / full-service business –
includes merchandise assortment of premium
brands sold through salons and not available in
mass or at Sally stores
 LoxaBeauty.com, the online retail solution for
salon/stylists, launched in March 2014
(1) As of June 2015, fiscal 2015 third quarter
BSG: Strong, Consistent Financial Track Record
BSG Net Sales $1,600
$1,400
$1,257
$1,200
$1,000
$800
$802
$1,325
$1,392
$1,445
$1,123
$1,081
$895
$954
$945
$975
$941
2005
2006
2007
2008
2009
Growth of 3.8%
$616
$600
$400
$200
$0
2003
2004
2010
2011
2012
2013
2014
YTD15
BSG Same Store Sales Growth 12.0%
10.1%
8.5%
6.9%
8.0%
4.6%
6.2%
5.5%
6.1%
4.2%
4.1%
4.0%
5.1%
3.5%
1.0%
0.0%
(0.6%)
(4.0%)
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
YTD15
BSG: Merchandise Offering
Other
Beauty
Items
Electrical
Appliances
Hair Care
7%
6%
Skin and
Nail Care
We offer a diversified mix of beauty products not carried in Sally stores or mass retail
35%
10%
Promotional
Items
12%
31%
Hair Color
*Fiscal year 2014 BSG: Industry Growth
Growth Initiatives
Store Growth
Store Growth
1,151 1,190 1,245 1,265
1,200
 Expand store base organically
874
991
828
929
1,027
2006
6
2007
46
2008
44
2009
16
2010
36
0
0
5.6%
11
6.2%
800
 Further penetrate existing geographies
 Enter new territories
 Expand gross margins as sales shift
to the stores
400
0
Organic
Acquisition
Growth
 Seek potential fold-in acquisition
opportunities
46
6.7%
2011
39
2012
39
0
85
0
3.6% 12.0% 3.4%
2013 2014
20
43
0
12
4.6% 1.6%
BSG Store Economics
Capital Required
Average Inventory
Positive Contribution Margin
Cash Payback on Investment
$80k
$150k
4 Months
2 Years
Consolidated Results
Solid Balance Sheet
 No near-term maturities
 In November 2011, refinanced Sr. and Sr. Sub
Notes for $750mm of 6.875% Senior Notes due
2019
 In May 2012, refinanced the Term Loan B with
$700mm of 5.75% Senior Notes due 2021
Long‐term debt (as of 6/2015)
Revolving ABL facility
5.750% Senior Notes (FY2022)
6.875% Senior Notes (FY2019)
5.500% Senior Notes (FY2023)
 Targeted consolidated pro forma leverage ratio of
2.0x – 2.5x
Total Debt
Amount
($mm)
$0.0
$857.0
$750.0
$200.0
% of
Total Debt 0.0%
47.4%
41.5%
11.1%
$1,807.0
100.0%
 Ample liquidity
 Strong cash flow
Long‐term debt Maturity
 ABL Revolver of $500 million
 Refinanced July 26, 2013; lowered rate and increased
availability to $500 million
$1,000
$800
 October 2013, issued $200 million aggregate
principal amount of 5.50% Senior Notes due 2023
$857 $900
$750 $700
$600
$500
$400
$300
$200
$200 $100
$‐
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Sales and EPS Growth for total Company
Sales
EPS (adjusted)
$3,754
$3,524 $3,622
$3,500
$1.60
$3,269
(1)
$2,916
$3,000
$2,870
$2,648$2,637
$2,514
$1.48
$1.53
$1.42
$1.40
$1.15
$1.20
$1.07
$2,500
$1.00
$2,000
2.2%
YoY
$0.77
$0.80
$0.60
$1,500
2.0%
YoY
$0.52
$0.44
$0.40
$0.32
$1,000
$0.20
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14 YTD15
(1) Includes $59.7 million, or 210 points of growth, of unfavorable F(X) exchange rates
YT
D
15
14
20
13
20
12
20
11
20
10
20
09
20
20
07
20
$0
08
$0.00
$500
Addendum: Adjusted EBITDA Reconciliation
Adjusted EBITDA
Net Earnings (GAAP)
FY10
FY13
FY14
1Q15
2Q15
3Q15
YTD2015
$ 233.1
$ 261.2
$ 246.0
$ 54.9
$ 61.5
$ 62.5
$ 178.9
112.5 $ 138.4
$ 107.7
$ 116.3
$ 29.2
$ 29.3
$ 29.2
$ 87.7
Provision for income taxes
84.1
122.2 $ 127.9
$ 151.5
$ 144.7
$ 32.1
$ 38.2
$ 39.2
$ 109.5
Depreciation and amortization
51.1
59.7 $ 64.7
$ 72.2
$ 79.7
$ 20.6
$ 21.0
$ 22.6
$ 64.2
Share‐based compensation
12.8
15.6 $ 16.9
$ 19.2
$ 22.1
$ 7.8
$ 2.8
$ 2.9
$ 13.5
Expenses from data security incidents
$ 213.7
FY12
113.0
Interest expense, net of interest income
$ 143.8
FY11
‐
‐
‐
2.5
0.2
1.5
Germany restructure
Litigation settlement and non‐recurring charges
Adjusted EBITDA
‐ (21.3)
$ 404.8
$ 502.5
$ 143.8
$ 213.7
10.2
$ 591.1
‐
$ 611.8
‐
$ 611.3
‐
$ 144.8
3.2
5.0
1.1
1.1
‐
$ 154.4
‐
$ 160.6
‐
$ 459.8
Adjusted net earnings and adjusted diluted earnings per share
Net Earnings (GAAP)
$ 233.1
$ 261.2
$ 246.0
$ 54.9
$ 61.5
$ 62.5
$ 178.9
Marked‐tomarket adjustment for certain interest rat $ (2.4)
‐
‐
‐
‐
‐
‐
‐
‐
Loss on extinguishment of debt
‐
‐
37.8
‐
‐
‐
‐
‐
‐
Interest expense on redeemed debt
‐
‐
5.1
‐
‐
‐
‐
‐
‐
Amortization of deferred financing costs
‐
‐
0.2
‐
‐
‐
‐
‐
‐
Litigation settlement and non‐recurring items, net (1
‐
(21.3)
10.2
‐
‐
‐
‐
‐
‐
Loss from securiy breach incidents
‐
‐
‐
‐
2.5
0.2
1.5
3.2
5.0
Management transition costs
‐
‐
‐
‐
3.5
1.1
1.1
Germany restructure
Tax provision for the adjustments to net earnings
Adjusted net earnings
0.9
$ 142.3
7.9
$ 200.3
(19.2)
$ 267.2
‐
(2.3)
0.1
(0.6)
(1.6)
(2.5)
$ 261.2
$ 249.7
$ 55.2
$ 62.5
$ 65.2
$ 182.4
Diluted adjusted net earnings per share (non‐GAAP) $ 0.77
$ 1.07
$ 1.42
$ 1.48
$ 1.53
$ 0.35
$ 0.39
$ 0.41
$ 1.15
Diluted GAAP net earnings per share:
$ 1.14
$ 1.24
$ 1.48
$ 1.51
$ 0.35
$ 0.39
$ 0.39
$ 1.13
$ 0.78