As of March, 2011 Cautionary Notice Regarding Forward-Looking - - PDF document

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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


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SLIDE 1

SALLYBEAUTY

HOLDINGS, INC.

1

As of March, 2011

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SLIDE 2

SALLYBEAUTY

HOLDINGS, INC.

2

Cautionary Notice Regarding Forward-Looking Statements

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

  • ur product lines and inventory; potential fluctuation in our same store sales and quarterly financial performance; our dependence upon manufacturers

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

  • ur manufacturers; products sold by us being found to be defective in labeling or content; compliance with laws and regulations or becoming subject to

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

  • ur subsidiaries for cash; our substantial indebtedness; the possibility that we may incur substantial additional debt; restrictions and limitations in the

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

  • ur largest stockholder discouraging third party acquisitions of us at a premium; and the interests of our largest stockholder differing from the interests of
  • ther holders of our common stock.

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

  • Commission. Consequently, all forward-looking statements in this presentation are qualified by the factors, risks and uncertainties contained therein.

We assume no obligation to publicly update or revise any forward-looking statements.

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SALLYBEAUTY

HOLDINGS, INC.

3

Company Highlights

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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SLIDE 4

SALLYBEAUTY

HOLDINGS, INC.

4

Overview – Who We Are

3,061 stores (1)

1,117 stores (1) 1,141 sales consultants (1)

  • Retail consumers (73% of sales)
  • Professional stylists (27% of sales)
  • Stores - “booth” renting stylists (65%
  • f sales)
  • Full Service sales – small to medium

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

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SLIDE 5

Industry Channels of Distribution (U.S.)

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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SLIDE 6

SALLYBEAUTY

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

Stable & Consistent Industry Growth

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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SALLYBEAUTY

HOLDINGS, INC.

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Our Leading U.S. Industry Position

  • Estimated 19% channel share (2)
  • Largest open-line retailer/distributor in

U.S. based on store count

  • Competition is limited
  • Estimated 12% channel share (2)
  • Leading full service/exclusive

distributor in North America

  • 1.2x sales of next largest competitor

(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.

Sally Beauty Holdings estimated channel share 31%

U.S. professional beauty supply marketplace, in retail dollars, was roughly $7.8 billion in 2010(1)

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SALLYBEAUTY

HOLDINGS, INC.

8

Drivers of Stable, Positive Comp Trends for SBH

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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SLIDE 9

SALLYBEAUTY

HOLDINGS, INC.

9

Sales and EBITDA growth

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

  • r 3.2% of sales.

Sales: +10.6% GM: +100 bps +14.9%

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SLIDE 10

SALLYBEAUTY

HOLDINGS, INC.

Drivers of Earnings Growth

10

Revenue

  • Organic growth
  • Same store sales growth
  • Acquisitions

Gross Margin Expansion

  • Sally’s “exclusive” label sales growing as a % of sales
  • Customer mix shifting in both businesses
  • Low cost sourcing (brushes, electricals, etc)

Debt Reduction

  • Historically paid down debt
  • Consistently use portion of cash flow to pay down debt
  • Taken leverage ratio down 2 turns since going public

(1) Calculated over 6 year period 2004-2010

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SLIDE 11

Strong Earnings Growth

$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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SLIDE 12

SALLYBEAUTY

HOLDINGS, INC.

Strong Performance in FY 2010

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%

12

Fiscal Year 2010, ending September 30, 2010

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SALLYBEAUTY

HOLDINGS, INC.

Fiscal First Quarter 2011 Results

Strong YoY performance across the Company Consolidated net sales of $794 million, up 12.6% YoY

– Same store sales growth of 6.8% compared to 3.8% in 1Q10 – Traffic and average ticket up in both segments

Gross profit margin of 47.8%, expansion of 50 bps

  • ver prior year

– Sally Beauty Supply +70 bps; Beauty Systems Group +90 bps

Operating margin expansion of 160 bps, to 11.6%

– Sally Beauty Supply +120 bps; Beauty Systems Group +160 bps – Realized SG&A leverage and acquisition synergies

Net earnings of $41 million, up 57% YoY

– EPS of $0.22 vs. $0.14 in the fiscal 2010 first quarter

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SLIDE 14

SALLYBEAUTY

HOLDINGS, INC.

Solid Balance Sheet

14

No near-term maturities

  • Completed prepayment of Term loan ‘A’ in 3Q10
  • November, 2010 refinanced the ABL with market-leading terms
  • Term loan ‘B’ matures FY 2014
  • Covenant “light”

Consolidated leverage ratio ~3.7x’s (as 9/30/10)

  • Lowered by over 2 turns in four years

Proven ability to operate with leverage Ample liquidity

  • Strong cash flow
  • ABL of $400 million (refinanced 11/10)
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SALLYBEAUTY

HOLDINGS, INC. 15

Current Debt Structure

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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SALLYBEAUTY

HOLDINGS, INC. 16

Strategies for long-term growth

Continue to build out organically Acquisitions both domestic and international Use capital & liquidity to build long-term shareholder value

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SALLYBEAUTY

HOLDINGS, INC.

Appendix

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SALLYBEAUTY

HOLDINGS, INC. 18

Sally Beauty Supply

  • Sally Beauty Supply global footprint

3,061 (1) stores worldwide 2,651 stores in US, Canada, Mexico 410 stores throughout Europe & Chile

  • Average store size 1,700 sq. ft., 90% selling space
  • Sales mix approximately 27% professional and 73%

retail

  • Professional open-line business - merchandise

assortment not available through mass retailers.

  • 42% exclusive-label merchandise in the U.S.

(private/control label)

Driving Unit Growth is a Strategic Focus

(1) As of December 31, 2010

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SALLYBEAUTY

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

Sally’s Historical Sales Results

Note: Fiscal Year-end December 31, 2010

Same Store Sales Net Sales

($ in Millions) Growth

  • f 9.7%
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SALLYBEAUTY

HOLDINGS, INC. 20

Sally’s Customer Profile

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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SALLYBEAUTY

HOLDINGS, INC. 21

Sally’s Merchandise Offering

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

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SLIDE 22

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

22

Sally Beauty Supply

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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SALLYBEAUTY

HOLDINGS, INC. 23

Growth Initiatives

  • Expand store base organically

and through acquisitions

  • Drive gross margin expansion
  • Increase mix of exclusive

label

  • Continue mix shift to retail
  • Low cost sourcing
  • Increase customer traffic

through loyalty programs and customer relationship management (CRM)

  • Further expand Internet

channel

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SALLYBEAUTY

HOLDINGS, INC. 24

International Footprint

2010 Sally Beauty Supply

Net sales: $1,835 mm

International

(Europe/Chile)

$312 mm U.S., Canada and Mexico $1,523 mm Total of410 International Stores (1)

  • Stores located in the UK, Ireland,

Belgium, France, Germany, Spain & Chile

  • Sales mix differs from U.S.

~80-85% professional ~15-20% retail

  • Late FY2009, entered South America

through acquisition of InterSalon in Santiago, Chile

  • Large opportunity to expand organically

and via acquisitions

(1) Fiscal Year-end December 31, 2010

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SALLYBEAUTY

HOLDINGS, INC. 25

Beauty Systems Group

  • Beauty Systems Group – 1,117

professional stores & distributor sales consultants (1)

959 company-operated / 158

franchised stores (Armstrong McCall)

1,141 distributor sales consultants (1)

  • 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.

(1) BSG operates stores under the CosmoProf service mark. (1) As of December 31, 2010

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SALLYBEAUTY

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

Historical Sales Results

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

  • f 17.3%
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SALLYBEAUTY

HOLDINGS, INC. 27

BSG’s Merchandise Offering

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

  • r mass retail

Leading Third-Party Brands

Note: Percentage of sales by merchandise category for fiscal year 2010

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SLIDE 28

SALLYBEAUTY

HOLDINGS, INC. 24 8 26 37 6 46 44 16 36 195 123 93 11 46 50 100 150 200 250

Acquisition Organic

28

Beauty Systems Group

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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SALLYBEAUTY

HOLDINGS, INC. 29

BSG’s Growth Initiatives

  • Expand store base organically
  • Further penetrate existing

geographies

  • Enter new territories
  • Improve profitability
  • Optimize distribution

network

  • Continue integration efforts
  • Broaden offerings with new

suppliers

  • Seek potential fold-in

acquisition opportunities

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SALLYBEAUTY

HOLDINGS, INC.

Reconciliations to non- GAAP Financial Measures

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SALLYBEAUTY

HOLDINGS, INC. 31

Non-GAAP Financial Measures Reconciliations

(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)