Sally Beauty Holdings Shares Q1 Results

Sally Beauty Holdings, Inc. has reported financial results for its first quarter ended December 31, 2019.
 
Consolidated net sales were $980.2 million in the quarter, down 0.9% compared to the prior year, driven by a decrease in same store sales as a result of the shortened holiday retail calendar, technology implementation issues impacting pricing and promotion in our new point-of-sale system, a smaller store base with 57 fewer stores and an unfavorable impact from foreign currency translation of approximately 10 basis points on reported sales.
 
“Although we made significant progress on our transformation program during the first quarter, we fell short of both our top-line and bottom-line goals. I would highlight two key factors that contributed to the shortfall. First, traffic declined at both Sally Beauty Supply and specialty retail in general, resulting from the shortened holiday season. Second, implementation-related technology disruptions led to product pricing issues, the misapplication and unintended increase of promotional discounts, and a resulting disruption of our planned marketing activities during the quarter,” said Chris Brickman, president and chief executive officer.
 
“As we enter the second quarter, we believe we have addressed the most critical of the technology challenges we faced during the first quarter and we have already taken aggressive management steps to improve financial performance,” Brickman continued. “We want to be clear that our first priority is to complete the transformation and put in place the right retail and digital capabilities to set the company up for long-term success. We are focused on unlocking the full potential of our highly differentiated business and we will invest additional resources as appropriate over the year if that is required to deliver our objectives. To be prudent, while we are maintaining our top-line expectations, we are modifying guidance for Adjusted Operating Earnings and now expect that metric to be approximately flat to the prior year.”
 
“In summary, we remain confident that we have the right plan, that the business is highly differentiated and defensible, and that we will return to growth and provide value creation potential for our shareholders over the long-term. A challenging quarter will not distract us from completing our transformation goals and delivering future growth,” Brickman concluded.
 
Fiscal 2020 First Quarter Financial Detail
 
Consolidated gross profit for the first quarter was $474.8 million, a decrease of $5.9 million from the prior year. Gross margin for the first quarter was 48.4%, a decrease of 20 basis points compared to the prior year, with decreases in the U.S. and Canadian businesses of Sally Beauty Supply offsetting increases in Beauty Systems Group.
 
GAAP net earnings in the first quarter were $53.2 million, a decrease of $12.5 million, or 19.0%, compared to the prior year. Adjusted EBITDA in the first quarter was $127.5 million, a decrease of $16.1 million, or 11.2%, compared to the prior year, and adjusted EBITDA margin was 13.0%, a decrease of approximately 150 basis points from the prior year.
 
Since the beginning of fiscal year 2019, the company has reduced its debt levels by over $200 million. Early in the first quarter, the company also repurchased 0.8 million shares at an aggregate cost of $11.4 million.
 
Fiscal 2020 First Quarter Segment Results
 
Sally Beauty Supply: Net sales were $569.1 million in the quarter, a decrease of 2.0% compared to the prior year, driven primarily by 36 fewer stores and an unfavorable foreign exchange impact of approximately 20 basis points.Total segment same store sales decreased by 1.1% for the quarter, driven by a decrease in same store sales in the U.S. and Canada of 1.4%. The Sally Beauty businesses in the U.S. and Canada represented 77% of the segment sales for the quarter. Europe was a positive contributor to same store sales for Sally Beauty.
 
Beauty Systems Group: Same store sales increased by 1.2% for the quarter. Net sales were $411.1 million in the quarter, an increase of 0.5% compared to the prior year. Foreign currency translation had no impact on the quarter. At the end of the quarter, net store count was 1,369, a decrease of 21 from the prior year. At the end of the quarter, there were 740 distributor sales consultants, compared to 822 in the prior year.
 
Fiscal Year 2020 Guidance
 
The company is maintaining its revenue and same store sales guidance, while adjusting its Adjusted Operating Earnings guidance to flat to the prior year. This reflects the implementation challenges of the first quarter, steps already taken to recover and a commitment to invest as necessary to complete the ongoing Transformation Plan. However, when combined with the benefit of the debt reduction and share repurchases to date, the company is maintaining its EPS guidance for the year, but at the lower end of the range.