SALLYBEAUTY
HOLDINGS, INC.
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As of March, 2011
As of March, 2011 Cautionary Notice Regarding Forward-Looking - - PDF document
1 HOLDINGS, INC. SALLYBEAUTY As of March, 2011 Cautionary Notice Regarding Forward-Looking Statements Cautionary Notice Regarding Forward-Looking Statements Statements in this presentation and the schedules hereto which are not purely
SALLYBEAUTY
HOLDINGS, INC.
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As of March, 2011
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HOLDINGS, INC.
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Cautionary Notice Regarding Forward-Looking Statements Statements in this presentation and the schedules hereto which are not purely historical facts or which depend upon future events may be forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” or similar expressions may also identify such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, but not limited to, risks and uncertainties related to: the highly competitive nature of, and the increasing consolidation of, the beauty products distribution industry; anticipating changes in consumer preferences and buying trends or and managing
who may be unwilling or unable to continue to supply products to us; the possibility of material interruptions in the supply of beauty supply products by
additional or more stringent laws and regulations; product diversion; the operational and financial performance of our Armstrong McCall, L.P. business; the success of our Internet-based business; successfully identifying acquisition candidates or successfully completing desirable acquisitions; integrating businesses acquired in the future; opening and operating new stores profitably; the impact of a continued downturn in the economy upon our business; the success of our cost control plans; protecting our intellectual property rights, specifically our trademarks; conducting business outside the United States; disruption in our information technology systems; natural disasters or acts of terrorism; the preparedness of our accounting and other management systems to meet financial reporting and other requirements; being a holding company, with no operations of our own, and depending on
agreements and instruments governing our debt; generating the significant amount of cash needed to service all of our debt and refinancing all or a portion of our indebtedness or obtaining additional financing; changes in interest rates increasing the cost of servicing our debt ; the potential impact on us if the financial institutions we deal with become impaired; the representativeness of our historical consolidated financial information with respect to our future financial position, results of operations or cash flows; our reliance upon Alberto-Culver for the accuracy of certain historical services and information; the share distribution of Alberto-Culver common stock in our separation from Alberto-Culver not constituting a tax-free distribution; actions taken by certain large shareholders adversely affecting the tax-free nature of the share distribution of Alberto-Culver common stock; the voting power of
Additional factors that could cause actual events or results to differ materially from the events or results described in the forward-looking statements can be found in our most recent Annual Report on Form 10-K for the year ended September 30, 2010, as filed with the Securities and Exchange
We assume no obligation to publicly update or revise any forward-looking statements.
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HOLDINGS, INC.
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Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty products
Sally Beauty Supply in business for 50 years
Annual revenue of $2.9 billion Strong cash flow generation 4,178 stores located in 10 countries (1) Experienced and motivated leadership team Industry leading position with ~31% channel share Proven resilience in recessionary cycles Well-positioned for long-term growth
(1) As of December 31, 2010
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HOLDINGS, INC.
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3,061 stores (1)
1,117 stores (1) 1,141 sales consultants (1)
sized salons (35% of sales) Sales SSS growth Operating income Profit margin $1,834.6 4.1% $320.5 17.5% $1,081.4 6.2% $112.5 10.4%
Note: Financial results from Fiscal Year End 2010, September 30, 2010 .(1) As of December 31, 2010 (fiscal 2011 first quarter) (2) Operating income is net Unallocated Expenses and Share Based Compensation
SALES: $2,916.1 EBITDA: $404.9 Operating Income: $340.9 (2) Profit Margin: 11.7% Cash Flow from Ops: $217.1
Fiscal Year 2010 ($ in millions)
Segments Distribution Channel Customers 2010 Financial Highlights
Sales SSS growth Operating income Profit margin
Open Line Direct Mega‐Salon
Professional Beauty Products Distribution Channels
41%
(2)
13% 33% 12%
Professional Beauty Products ~$4.0 billion (1) Distribution Channels
$1.6B
13%
(2)
$0.5B
34%
(2)
$1.4B
33% 12%
(2)
$0.5B
L’Oreal’s Manufacturer direct to large–format salons. Manufacturer direct to manufacturer owned salons or “high‐end” salons. Third party distribution to salons and beauty professionals via sales force and “professional only” stores Distributes professional product to the public via retail stores
Exclusive/Full Service
Source: Professional Consultants & Resources, 2010 Study. (1) Professional beauty supply channel size based upon a 2010 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2010 manufacturer-level sales for professional beauty supplies were approximately $4.0 billion. (2) Represents an estimated breakdown of salon haircare product sales in 2010 by channel of distribution.
Local and regional operators Competition: Competition:
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HOLDINGS, INC.
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$1.6 $1.7 $1.8 $2.0 $2.1 $2.2 $2.3 $2.4 $2.6 $2.7 $2.9 $2.9 $3.0 $3.1 $3.3 $3.4 $3.5 $3.7 $3.8 $3.8 0.0 1.0 2.0 3.0 $4.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
U.S. Beauty Supply Industry has experienced steady growth with a CAGR of ~5%(1) ($ bn)
Source: Professional Consultants & Resources, 2010 Study. (1) Based on manufacturer sales of professional beauty supplies in the U.S.
Recession Resistant Industry
2008-2009 growth of 1.5%
$4.0
2009 - 2010 growth of 4.4%
At manufacturer dollars
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HOLDINGS, INC.
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U.S. based on store count
distributor in North America
(1) Professional beauty supply channel size is a management estimate, based upon a 2010 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2010 manufacturer-level sales for professional beauty supplies were over $4.0 billion. Retail sales of $7.7 billion is calculated using gross margin of 48.9% (from SBH’s actual gross margin in the U.S. for FY2010) as the spread between manufacturer cost and retail sales. (2) Estimated U.S. channel share calculated as follows: (i) Sally Beauty Supply’s U.S. net sales for the fiscal year ended September 30, 2010 divided by estimated marketplace size of $7.8 billion and (ii) BSG’s U.S. net sales for the fiscal year ended September 30, 2010 divided by estimated marketplace size of $7.8 billion.
U.S. professional beauty supply marketplace, in retail dollars, was roughly $7.8 billion in 2010(1)
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HOLDINGS, INC.
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Sally’s “control” brands are higher margin and increasing as a percent of sales Increasing sales of DIY products as customers delay trips to salons and increase more “at-home” maintenance care purchases Higher traffic levels and higher average ticket driven by roll-out of CRM marketing efforts Improving international markets providing growth opportunities
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HOLDINGS, INC.
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Sales/Gross Margin Adjusted EBITDA
$247 $258 $294 $310 $342 $353 $405 $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 FY04 FY05 FY06 FY07 FY08 FY09 FY10
Adjusted EBITDA ($ in millions)
$2,098 $2,254 $2,373 $2,514 $2,648 $2,637 $2,916 43.5% 44.0% 44.5% 45.0% 45.5% 46.0% 46.5% 47.0% 47.5% 48.0% 48.5% $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500 FY04 FY05 FY06 FY07 FY08 FY09 FY10 Gross Margin Sales ($ in millions)
(1) (1) Includes a negative impact from unfavorable foreign currency exchange of $86 million
Sales: +10.6% GM: +100 bps +14.9%
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Revenue
Gross Margin Expansion
Debt Reduction
(1) Calculated over 6 year period 2004-2010
$0.24 $0.42 $0.54 $0.78
2007 2008 2009 2010
EPS (GAAP)
44% growth
$229 $283 $297 $341
2007 2008 2009 2010
Operating Income (in millions)
15% growth
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Strong performance since going public in late 2006……..
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HOLDINGS, INC.
FY2010 % Change Same Store Sales +4.6% +280 bps Sales $2,916.1m 10.6% Gross Profit Margin 48.2% 100 bps Operating Earnings $340.9m 14.9% GAAP EPS $0.78 44.4% Adjusted EBITDA $404.9m 14.9%
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Fiscal Year 2010, ending September 30, 2010
SALLYBEAUTY
HOLDINGS, INC.
– Same store sales growth of 6.8% compared to 3.8% in 1Q10 – Traffic and average ticket up in both segments
– Sally Beauty Supply +70 bps; Beauty Systems Group +90 bps
– Sally Beauty Supply +120 bps; Beauty Systems Group +160 bps – Realized SG&A leverage and acquisition synergies
– EPS of $0.22 vs. $0.14 in the fiscal 2010 first quarter
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HOLDINGS, INC.
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HOLDINGS, INC. 15
Amount Rate Maturity (Fiscal Year) ABL ($400mm) $43.2 Prime +1.25% to 1.75% or LIBOR +2.25% to 2.75% 2015 (1) Other 6.2 4.05% to 7% 2010 to 2014 Term Loan B 843.9 Prime + 1.25 to 1.5% or Libor +2.25 to 2.5% (2) 2014 Senior Notes 430.0 9.25% 2015 Senior Sub. Notes 275.0 10.50% 2017 Total Debt, excl cap leases $1,598.3
Debt As of December 31, 2010 ($ In Millions)
(1) In November 2010 (fiscal year 2011) the Company replaced the ABL facility with a new ABL facility which has a 5-year maturity, contains substantially the same commitments for additional borrowing as the previous ABL facility and provides for interest at Prime plus 1.25% to 1.75% or LIBOR plus 2.25% to 2.75%. (2) $300 million fixed by Interest Rate Swaps which expire May 2012
63% fixed / 37% variable Prepaid $120 million in long term debt in FY2010
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HOLDINGS, INC. 16
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HOLDINGS, INC. 18
3,061 (1) stores worldwide 2,651 stores in US, Canada, Mexico 410 stores throughout Europe & Chile
retail
assortment not available through mass retailers.
(private/control label)
(1) As of December 31, 2010
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HOLDINGS, INC. 19
2.6% 2.7% 6.8% 6.0% 5.7% 2.7% 3.8% 2.4% 2.4% 2.7% 1.2% 2.1% 4.1% 6.4% 0.0% 2.0% 4.0% 6.0% 8.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11
$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 $1,800 $2,000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11
$1,047 $1,132 $1,208 $1,296 $1,359 $1,419 $1,567 $1,673 $1,696
$1,835
$481
Note: Fiscal Year-end December 31, 2010
Same Store Sales Net Sales
($ in Millions) Growth
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HOLDINGS, INC. 20
Retail customers represent 73% of shoppers; professional customers 27% ~90% of customers are women Professional customers work in small salon or “booth” renter Retail customer household income primarily $50k to $80k 34 to 65 years old is the primary customer age range
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HOLDINGS, INC. 21
21% 23% 14% 12% 15% 8% 7% Electrical Appliances Hair Care Hair Color Skin and Nail Care Brushes, Cutlery and Accessories Ethnic Products Other Beauty Items
Clairol Wella Zotos Conair Helen of Troy L’Oreal Ion Beyond the Zone Finger Paints Silk Elements
Leading Third-Party Brands Exclusive Label Brands
Note: Percentage of sales by merchandise category for fiscal year 2010. FY2010 exclusive label brands were 42% of U.S. segment sales.
We offer a diversified mix of beauty products
SALLYBEAUTY
HOLDINGS, INC. 64 95 83 62 92 83 110 60 109 1 2 100 40 19 20 40 60 80 100 120 140 160 180 200
Worldwide Sally Net New Store Openings
Acquisition Organic
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Organic U.S. Sally Beauty Supply stores:
Low capital required $60k Average inventory of $85k Positive contribution margins within
four months
Approximately two year cash
payback on the initial investment
Minimal staffing requirements and
low rent expense
As of September 30, 2010
65 95 83 64 92 183 150 79 109
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HOLDINGS, INC. 23
and through acquisitions
label
through loyalty programs and customer relationship management (CRM)
channel
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HOLDINGS, INC. 24
Net sales: $1,835 mm
International
(Europe/Chile)
$312 mm U.S., Canada and Mexico $1,523 mm Total of410 International Stores (1)
Belgium, France, Germany, Spain & Chile
~80-85% professional ~15-20% retail
through acquisition of InterSalon in Santiago, Chile
and via acquisitions
(1) Fiscal Year-end December 31, 2010
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HOLDINGS, INC. 25
professional stores & distributor sales consultants (1)
959 company-operated / 158
franchised stores (Armstrong McCall)
1,141 distributor sales consultants (1)
business – includes merchandise assortment of premium brands sold through salons and not available in mass or at Sally stores.
(1) BSG operates stores under the CosmoProf service mark. (1) As of December 31, 2010
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HOLDINGS, INC. 26
$0 $200 $400 $600 $800 $1,000 $1,200
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11 $405 $535 $616 $802 $895 $954 $946 $975 $941 $1,081 $313
Note: Fiscal Year-end December 31. 2010
Same Store Sales Net Sales
($ in Millions) 5.8% 15.5% 14.4% 8.3% 4.4% 4.6% 8.5% (0.6%) 4.1% 10.1% 6.9% 1.0% 6.2% 7.8% (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11 Growth
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HOLDINGS, INC. 27
Paul Mitchell Wella JOICO/ISO Goldwell Graham Webb TIGI Matrix/Redken Sebastian
Hair Color
30% 37% 13% 8% 5% 7%
Hair Care Electrical Appliances Other Beauty Items Skin and Nail Care Promotional Items
We offer a diversified mix of beauty products not carried in Sally stores
Leading Third-Party Brands
Note: Percentage of sales by merchandise category for fiscal year 2010
SALLYBEAUTY
HOLDINGS, INC. 24 8 26 37 6 46 44 16 36 195 123 93 11 46 50 100 150 200 250
Acquisition Organic
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Organic BSG U.S. stores:
Low capital required $75k Average inventory of $150k Positive contribution margins
within 4 months
Approximately 2 year cash
payback on the initial investment
Minimal staffing requirements
and low rent expense
As of September 30, 2010
219 8 149 130 6 46 55 62 36
BSG Net New Store Openings
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HOLDINGS, INC. 29
geographies
network
suppliers
acquisition opportunities
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HOLDINGS, INC.
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HOLDINGS, INC. 31
(1) Transaction expenses of $41.5 for termination of the Regis transaction. (2) Transaction expenses of $21.5 for separation of the Company from Alberto-Culver in November 2006. See Notes to Consolidated Financial Statements in the Company’s annual report on Form 10-K for the fiscal years ended September 30, 2007 and 2006.
FY04 FY05 FY06 FY07 FY08 FY09 FY10 1Q11 Net Earnings $105.3 $116.5 $110.2 $44.5 $77.7 $99.1 $143.8 $40.9 Interest expense, net of interest income 2.2 3.0 0.1 146.0 159.1 132.0 113.0 29.5 Provision for income taxes 62.1 73.2 69.9 38.0 46.2 65.7 84.1 21.9 Depreciation and amortization 24.6 33.9 38.0 42.6 48.5 47.1 51.1 14.1 Non-cash charge related to Alberto- Culver stock conversion 27.0 4.0 – – – – Share-based compensation – – 5.2 13.1 10.2 8.6 12.8 7.8 Transaction expenses – – 41.5 (1) 21.5(2) Sales-based service fee charged by Alberto-Culver 26.1 27.6 28.9 3.8 Adjusted EBITDA $247.3 $258.2 $293.8 $309.5 $341.7 $352.5 $404.9 $114.3 ($ in Millions)