Sally Beauty Holdings, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information contained in our 2025 10-K, including the Risk Factors section therein, and the condensed consolidated interim financial statements and related notes included elsewhere in this Quarterly Report. Financial Summary for the Three Months Ended June 30, 2026 (the “Quarter”) • Consolidated net sales for the quarter increased $2.2 million, or 0.2%, to $935.5 million, compared to the three months ended June 30, 2025 (the “prior year quarter”). Consolidated net sales for the quarter included a $4.7 million favorable impact from changes in foreign currency exchange rates; • Consolidated comparable sales were flat compared to the prior year quarter; • Consolidated gross profit increased $9.3 million, or 1.9%, to $490.2 million, compared to the prior year quarter. Consolidated gross margin increased 90 bps to 52.4% compared to the prior year quarter; • Consolidated operating earnings increased $8.2 million, or 10.5%, to $86.4 million, compared to the prior year quarter. Operating margin increased 80 bps to 9.2% compared to the prior year quarter; • Consolidated net earnings increased $8.4 million, or 18.3%, to $54.1 million, compared to the prior year quarter; • Diluted earnings per share was $0.55 compared to $0.44 for the prior year quarter; and • Cash provided by operations was $80.9 million compared to $69.4 million for the prior year quarter. Comparable Sales We believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period. Our comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and from e-commerce revenue. Additionally, comparable sales include sales to franchisees and full service sales. Our comparable sales exclude the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquired stores is excluded from our comparable sales calculation until 14 months after the acquisition. Our calculation of comparable sales might not be the same as other retailers, as the calculation varies across the retail industry. 17 Table of Contents Overview Key Operating Metrics The following table sets forth information concerning key measures on which we rely to evaluate our operating performance (dollars in thousands): Three Months Ended June 30, Nine Months Ended June 30, 2026 2025 Increase (Decrease) 2026 2025 Increase (Decrease) Net sales: Sally $ 538,570 $ 526,782 $ 11,788 2.2 % $ 1,591,407 $ 1,552,803 $ 38,604 2.5 % BSG 396,920 406,525 (9,605) (2.4) % 1,190,633 1,201,545 (10,912) (0.9) % Consolidated $ 935,490 $ 933,307 $ 2,183 0.2 % $ 2,782,040 $ 2,754,348 $ 27,692 1.0 % Gross profit: Sally $ 330,966 $ 320,866 $ 10,100 3.1 % $ 968,240 $ 940,519 $ 27,721 2.9 % BSG 159,283 160,119 (836) (0.5) % 481,040 476,123 4,917 1.0 % Consolidated $ 490,249 $ 480,985 $ 9,264 1.9 % $ 1,449,280 $ 1,416,642 $ 32,638 2.3 % Segment gross margin: Sally 61.5 % 60.9 % 60 bps 60.8 % 60.6 % 20 bps BSG 40.1 % 39.4 % 70 bps 40.4 % 39.6 % 80 bps Consolidated 52.4 % 51.5 % 90 bps 52.1 % 51.4 % 70 bps Net earnings: Segment operating earnings: Sally $ 89,356 $ 83,305 $ 6,051 7.3 % $ 245,402 $ 240,484 $ 4,918 2.0 % BSG 48,973 50,672 (1,699) (3.4) % 150,248 145,075 5,173 3.6 % Segment operating earnings 138,329 133,977 4,352 3.2 % 395,650 385,559 10,091 2.6 % Unallocated expenses (a) 51,933 55,804 (3,871) (6.9) % 161,389 137,693 23,696 17.2 % Consolidated operating earnings 86,396 78,173 8,223 10.5 % 234,261 247,866 (13,605) (5.5) % Interest expense 13,693 15,709 (2,016) (12.8) % 42,478 49,440 (6,962) (14.1) % Earnings before provision for income taxes 72,703 62,464 10,239 16.4 % 191,783 198,426 (6,643) (3.3) % Provision for income taxes 18,621 16,740 1,881 11.2 % 49,449 52,479 (3,030) (5.8) % Net earnings $ 54,082 $ 45,724 $ 8,358 18.3 % $ 142,334 $ 145,947 $ (3,613) (2.5) % . Comparable sales growth (decline): Sally 1.6 % (1.1) % 270 bps 1.4 % 0.1 % 130 bps BSG (2.1) % 0.5 % (260) bps (0.9) % (0.2) % (70) bps Consolidated — % (0.4) % 40 bps 0.4 % — % 40 bps Number of stores at end of period (including franchises): Sally 3,066 3,096 (30) (1.0) % BSG 1,320 1,329 (9) (0.7) % Consolidated 4,386 4,425 (39) (0.9) % (a) Unallocated expenses consist of corporate and shared costs and are included in SG&A expenses in our condensed consolidated statements of earnings. Additionally, unallocated expenses include certain costs associated with our “Fuel for Growth” initiative as well as the $26.6 million gain related to the sale of our corporate headquarters during the nine months ended June 30, 2025. See Note 7, Property and Equipment, Net, for more information related to the sale of our corporate headquarters. 18 Table of Contents Results of Operations Comparison of Three Months Ended June 30, 2026 to Three Months Ended June 30, 2025 Net Sales Sally . The increase in net sales for Sally was primarily driven by the following (in thousands): Comparable sales $ 8,636 Sales outside comparable sales (a) (1,582) Foreign currency exchange 4,734 Total $ 11,788 (a) Includes closed stores, net of stores opened for less than 14 months. Sally's net sales increase was primarily driven by an increase in comparable sales and positive impacts from foreign exchange rates, partially offset by net store closures during the past twelve months. The increase in comparable sales was primarily driven by growth in hair color and digital marketplaces, partially offset by softness in our hair care category and the strategic exit of the majority of our full service operations across Europe. Sally’s comparable sales reflect increases in number of transactions and average unit retail. BSG . The decrease in net sales for BSG was primarily driven by the following (in thousands): Comparable sales $ (8,454) Sales outside comparable sales (a) (1,102) Foreign currency exchange (49) Total $ (9,605) (a) Includes closed stores, net of stores opened for less than 14 months and sales from acquired stores. BSG's net sales decrease was primarily driven by a decline in comparable sales. The decrease in comparable sales was primarily attributable to softness in the hair care category. BSG's comparable sales reflect a decrease in the number of transactions and a lower average number of units per transaction, partially offset by a higher average unit retail. Gross Profit Sally . Sally’s gross profit increased $10.1 million for the three months ended June 30, 2026 primarily as a result of an increase in net sales and a higher gross margin on units sold. Sally’s gross margin improvement was driven primarily by higher product margins resulting from benefits associated with our Fuel for Growth initiative, partially offset by the write-off of certain inventory related to the strategic exit of the majority of our low-margin full-service operations in Europe. BSG . BSG’s gross profit decreased $0.8 million for the three months ended June 30, 2026 due primarily to lower sales volume, substantially offset by higher gross margin on units sold that we attribute primarily to actions taken under our Fuel for Growth initiative. As a percentage of sales, BSG’s segment gross profit increased 70 basis points compared to the prior year quarter. Selling, General and Administrative Expenses Sally . Sally’s selling, general and administrative (“SG&A”) expenses increased $4.0 million, or 1.7%, for the three months ended June 30, 2026, and included an unfavorable impact from foreign exchange rates of $2.1 million. As a percentage of Sally’s net sales, SG&A expenses for the three months ended June 30, 2026 were 44.9%, compared to 45.1% for the three months ended June 30, 2025. The decrease as a percentage of sales was primarily due to leveraging as a result of higher net sales, partially offset by increased labor and other compensation-related expenses and commission costs from digital marketplaces. BSG . BSG’s SG&A expenses increased $0.9 million, or 0.8%, for the three months ended June 30, 2026. As a percentage of BSG net sales, SG&A expenses for the three months ended June 30, 2026 were 27.8% compared to 26.9% for the three months ended June 30, 2025. The increase in BSG’s SG&A expenses was primarily due to increased labor and other compensation-related expenses and rent expense. Unallocated. Unallocated SG&A expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $3.9 million, or 6.9%, for the three months ended June 30, 2026 primarily due to lower labor and other compensation-related expenses and lower expenses in connection with our Fuel for Growth initiative, partially offset by higher facility expenses related to our new corporate headquarters. 19 Table of Contents Interest Expense Interest expense decreased due primarily to the lower average outstanding principal balance on our Term Loan B compared to the prior year quarter. See Note 10, Short-Term and Long-Term Debt , in Item 1 of this quarterly report for more details. Provision for Income Taxes The effective tax rates were 25.6% and 26.8% for the three months ended June 30, 2026 and 2025, respectively. The decrease in the effective tax rate was primarily attributable to the tax impact of the divestiture of the Spain operations in the prior-year quarter. Comparison of Nine Months Ended June 30, 2026 to Nine Months Ended June 30, 2025 Net Sales Sally . The increase in net sales for Sally was primarily driven by the following (in thousands): Comparable sales $ 21,713 Sales outside comparable sales (a) (7,700) Foreign currency exchange 24,591 Total $ 38,604 (a) Includes closed stores, net of stores opened for less than 14 months. Sally's net sales increase was primarily driven by positive impacts from foreign exchange rates and an increase in comparable sales, partially offset by net store closures during the past twelve months. The increase in comparable sales was primarily driven by strong growth in hair color and digital marketplaces. These increases were partially offset by softer consumer spending associated with the U.S. government shutdown early in the fiscal year, softness in the hair care category, and the impact of our strategic exit of the majority of our full-service operations across Europe. Sally’s comparable sales reflect increases in average unit retail and number of transactions. BSG . The decrease in net sales for BSG was primarily driven by the following (in thousands): Comparable sales $ (10,324) Sales outside comparable sales (a) (2,034) Foreign currency exchange 1,446 Total $ (10,912) (a) Includes closed stores, net of stores opened for less than 14 months and sales from acquired stores. BSG's net sales decrease was primarily driven by a decline in comparable sales. Comparable sales reflect pressure on stylist spending associated with the government shutdown early in the fiscal year and softness in the hair care category, partially offset by strong performance in the color category. BSG's comparable sales reflect a decrease in the number of transactions and a lower average number of units per transaction, partially offset by a higher average unit retail. Gross Profit Sally . Sally’s gross profit increased for the nine months ended June 30, 2026 as a result of an increase in net sales and a higher gross margin on units sold. Sally’s gross margin improvement was driven primarily by higher product margins in the first half of the fiscal year, partially offset by the write-off of certain inventory related to the strategic exit of the majority of our low-margin full service operations in Europe, both as a result of our Fuel for Growth initiative. BSG . BSG’s gross profit increased for the nine months ended June 30, 2026 as a result of a higher gross margin on units sold, partially offset by the impact from the lower sales volume. BSG’s gross margin improvement was driven by higher product margins resulting from benefits associated with our Fuel for Growth initiative. Selling, General and Administrative Expenses Sally . Sally’s SG&A expenses increased $22.8 million, or 3.3%, for the nine months ended June 30, 2026 and included an unfavorable impact from foreign exchange rates of $3.5 million. As a percentage of Sally’s net sales, SG&A expenses for the nine months ended June 30, 2026 were 45.4%, compared to 45.1% for the nine months ended June 30, 2025. The increase as a percentage of sales was primarily due to higher labor and other compensation-related expenses, rent, commission costs from digital marketplaces, and advertising. BSG . BSG’s SG&A expenses decreased $0.3 million, or 0.1%, for the nine months ended June 30, 2026. As a percentage of BSG’s net sales, SG&A expenses for the nine months ended June 30, 2026 were 27.8% compared to 27.6% for the nine 20 Table of Contents months ended June 30, 2025. The increase as a percentage of sales was primarily due to higher rent, partially offset by lower depreciation and amortization expenses. Unallocated. Unallocated SG&A expenses, which represent certain corporate costs that have not been allocated to our reporting segments, increased $23.7 million or 17.2%, for the nine months ended June 30, 2026 primarily due to a $26.6 million gain on the sale of our corporate headquarters in the prior year, higher facility expenses related to our new corporate headquarters, and an increase in information technology expenses, partially offset by lower costs in connection with our Fuel for Growth initiative. Interest Expense Interest expense decreased primarily due to a lower average outstanding balance on our Term Loan B in 2026. See Note 10, Short-term and Long-term Debt , in Item 1 of this quarterly report for more information on our debt. Provision for Income Taxes The effective tax rates were 25.8% and 26.4% for the nine months ended June 30, 2026 and 2025, respectively. The decrease was primarily attributable to the tax impact of the divestiture of the Spain operations in the prior year. Liquidity and Capital Resources Overview Our principal sources of liquidity are cash from operations, cash and cash equivalents, and borrowings under our ABL Facility. A substantial portion of our liquidity needs arise from funding the costs of our operations, working capital, capital expenditures, and payments of interest and principal on our debt. Additionally, under our share repurchase program (see below for more details) we may repurchase shares of our common stock on the open market to return value to our shareholders. At June 30, 2026, we had $655.5 million of available liquidity, which included $482.4 million available for borrowing under our ABL Facility and cash and cash equivalents of $173.1 million. Our working capital (current assets less current liabilities) increased $31.8 million, to $757.3 million at June 30, 2026, compared to $725.5 million at September 30, 2025. The increase was primarily driven by the timing of accrued compensation and benefit expenses within accrued expenses and an increase in cash and cash equivalents, partially offset by the timing of landlord receivables related to our new corporate headquarters within accounts receivable, other and the timing of interest payments on our long-term debt. We anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), cash expected to be generated by operations, and funds available under our ABL Facility will be sufficient to fund our working capital and capital expenditure requirements over the next twelve months. Cash Flows Nine Months Ended June 30, (in thousands) 2026 2025 Net cash provided by operating activities $ 247,461 $ 153,952 Net cash used by investing activities (84,257) (12,940) Net cash used by financing activities (138,584) (137,863) Net Cash Provided by Operating Activities The increase in cash provided by operating activities was primarily driven by the timing of the settlement of accounts payable, an increase in cash receipts from customers, lower income taxes paid, and the receipt of landlord receivables related to our new corporate headquarters, partially offset by a strategic reduction in slower-moving inventory in the prior year. Net Cash Used by Investing Activities Cash used in our investing activities was higher in the 2026 period primarily due to a $25 million increase in capital expenditures, which included the build out of our new corporate headquarters and investments in stores through our Sally Ignited initiative, and the impact of the lapping of the $44 million in cash proceeds received in 2025 from the sale of our former corporate headquarters. Net Cash Used by Financing Activities Cash used by financing activities was fairly consistent with the prior year. The primary financing activities were repurchases of our common stock, which increased compared to last year, and debt repayments, which decreased in 2026. 21 Table of Contents Debt and Guarantor Financial Information At June 30, 2026, we had $815.0 million in outstanding debt principal, excluding unamortized debt issuance costs and debt discounts, in the aggregate, of $7.4 million. Our debt consists of $600.0 million in 2032 Senior Notes outstanding, and $215.0 million remaining on our Term Loan B. We utilize our ABL Facility for the issuance of letters of credit, certain working capital and liquidity needs, and to manage normal fluctuations in our operating cash flow. In that regard, we may from time to time draw funds under the ABL Facility for general corporate purposes including funding of capital expenditures, acquisitions, debt repayments and share repurchases. Amounts drawn on our ABL Facility are generally paid down with cash provided by our operating activities. During the nine months ended June 30, 2026, there were no borrowings under the ABL Facility. We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants. Guarantor Financial Information Our 2032 Senior Notes were issued by our wholly owned subsidiaries, Sally Holdings LLC and Sally Capital Inc. (together, the “Issuers”). The notes are unsecured debt instruments guaranteed by us and certain of our wholly owned domestic subsidiaries (together, the “Guarantors”) and have certain restrictions on the ability of our subsidiaries to make certain restrictive payments to Sally Beauty. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors. The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these combined entities have been eliminated. The following table presents the summarized balance sheet information for the Issuers and the Guarantors: (in thousands) June 30, 2026 September 30, 2025 Cash and cash equivalents $ 96,578 $ 85,360 Inventory $ 740,965 $ 721,975 Current assets $ 936,328 $ 927,667 Total assets $ 2,197,609 $ 2,177,968 Intercompany payable $ 18,977 $ 15,117 Current liabilities $ 464,670 $ 474,079 Total liabilities $ 1,833,133 $ 1,883,754 The following table presents the summarized statement of earnings information for the Issuers and the Guarantors for the nine months ended June 30, 2026 (in thousands): Net sales $ 2,249,699 Gross profit $ 1,193,288 Earnings before provision for income taxes $ 172,390 Net earnings $ 128,524 Share Repurchase Programs Under our current share repurchase program, we may from time to time repurchase our common stock on the open market. During the nine months ended June 30, 2026 and 2025, we repurchased 4.9 million shares and 3.3 million shares of our common stock for $71.4 million and $33.0 million, respectively, under our share repurchase program, excluding the impact of excise taxes. See Note 5, Stockholders’ Equity . Contractual Obligations Other than our voluntary debt repayments, as discussed above, there have been no material changes outside the ordinary course of our business to our contractual obligations since September 30, 2025. Off-Balance Sheet Financing Arrangements At June 30, 2026 and September 30, 2025, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs. 22 Table of Contents Critical Accounting Estimates There have been no material changes to our critical accounting estimates or assumptions since September 30, 2025. Recent Accounting Pronouncements See Note 2 of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information. 23 Table of Contents