What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-04 compared with 2020-07-31 · 96 added, 147 removed, 50 unchanged (83% of the section changed)

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This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and our other filings with the Securities and Exchange Commission, including the Risk Factors sections therein, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and notes to those financial statements.

The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year, in particular as a result of the effects of the COVID-19 pandemic.

Highlights for the Three Months Ended June 30, 2020:

During the three months ended June 30, 2020, we re-opened substantially all global customer-facing store operations, except for parts of our operations in Mexico and South America, on a rolling basis;

Consolidated net sales for the three months ended June 30, 2020, decreased $269.9 million, or 27.7%, to $705.3 million, compared to the three months ended June 30, 2019;

Our global e-commerce sales increased 278.0% compared to the three months ended June 30, 2019;

Consolidated same store sales decreased 26.6% for the three months ended June 30, 2020.

SBS same store sales decreased 25.9% and BSG same store sales decreased 27.9%;

Consolidated gross profit for the three months ended June 30, 2020, decreased $160.4 million, or 33.3%, to $321.8 million compared to the three months ended June 30, 2019.

Gross margin decreased 390 basis points to 45.6% for the three months ended June 30, 2020, compared to the three months ended June 30, 2019;

Consolidated operating earnings for the three months ended June 30, 2020, decreased $118.7 million, or 98.8%, to $1.4 million compared to the three months ended June 30, 2019.

Operating margin decreased 1,210 basis points to 0.2% for the three months ended June 30, 2020, compared to the three months ended June 30, 2019;

For the three months ended June 30, 2020, we had a net loss of $23.5 million compared to net earnings of $71.2 million for the three months ended June 30, 2019;

For the three months ended June 30, 2020, we had diluted loss per share of $0.21, compared to diluted earnings per share of $0.59 for the three months ended June 30, 2019.

This was driven primarily due to COVID-19 impact, aggressive tactical inventory clearance actions and restructuring;

Cash provided by operations was $198.3 million for the three months ended June 30, 2020, compared to $93.7 million for the three months ended June 30, 2019;

As a result of COVID-19, we issued $300 million of Senior Secured Notes.

Highlights for the Three Months Ended December 31, 2020

During the three months ended December 31, 2020, we experienced further disruption to sales from COVID-19, including temporary store closures in international markets, government-mandated store capacity restrictions and salon shut-downs in California and parts of Canada for part of the quarter;

Consolidated net sales for the three months ended December 31, 2020, decreased $44.2 million, or 4.5%, to $936.0 million, compared to the three months ended December 31, 2019;

Consolidated same store sales decreased 3.7% for the three months ended December 31, 2020, while our global e-commerce sales increased 48.0%, compared to the three months ended December 31, 2019;

Consolidated gross profit for the three months ended December 31, 2020, decreased $4.1 million, or 0.9%, to $470.7 million, compared to the three months ended December 31, 2019.

Gross margin increased 190 basis points to 50.3% for the three months ended December 31, 2020, compared to the three months ended December 31, 2019;

Consolidated operating earnings for the three months ended December 31, 2020, increased $9.9 million, or 10.5%, to $104.3 million, compared to the three months ended December 31, 2019.

Operating margin increased 150 basis points to 11.1% for the three months ended December 31, 2020, compared to the three months ended December 31, 2019;

Consolidated net earnings for the three months ended December 31, 2020 increased $4.0 million, or 7.5%, to $57.2 million, compared to the three months ended December 31, 2019;

For the three months ended December 31, 2020, we had diluted earnings per share of $0.50, compared to $0.45 for the three months ended December 31, 2019;

Cash provided by operations was $37.4 million for the three months ended December 31, 2020, compared to $62.3 million for the three months ended December 31, 2019.

Impact of COVID-19 on Our Business and Business Strategy Update

Our results of operations for the three months ended June 30, 2020, were significantly impacted by the effects of COVID-19 as we experienced a rolling shut down of customer-facing operations at all global stores starting in mid-March through mid-April, followed by the rolling restart of store operations from mid-April until the end of June.

Store re-openings were triggered by local regulation;

the adoption of our new COVID-19 related safety protocols involving store cleaning, masks, and gloves;

limiting the number of customers in stores at one time;

in-store social distancing guidelines;

and the recall from furlough of sufficient store staff.

As of June 30, 2020, we have re-opened substantially all global customer-facing store operations, other than parts of our network in Mexico and South America, and saw strong consumer and professional demand in our re-opened stores.

As part of our re-opening, we also announced that we recalled all furloughed associates in the field and at the headquarters in the U.S.

and Canada, effective as of June 8, 2020, except for associates working in the limited number of stores which remained closed at that time.

Additional associates in Europe and Latin America will return in our fourth quarter.

As a result of COVID-19, we reprioritized our transformation plans to accelerate key digital and supply chain initiatives, and pivoted to cash management and expense reduction.

We have resumed our work on the implementation of a new merchandising system and the start-up of the new North Texas distribution node, but continue to pause on efforts such as our national brand relaunch.

Additionally, due to the evolving COVID-19 pandemic and the related business uncertainty, we continue to defer non-digital capital investments and address our short-term cost structure.

On April 15, 2020, we amended our ABL facility to increase the revolving commitment thereun der from $500.0 million to $600.0 million, establish a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increase pricing on the revolving loans and modify certain covenant and reporting terms.

To further strengthen our liqu idity, on April 24, 2020, we closed on $300.0 million of 8.75% senior secured second-lien notes due 2025.

The effects of the COVID-19 pandemic and related responses had a material impact on the entirety of our fiscal 2020 third quarter results of operations, cash flows and financial position.

Furthermore, due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the material adverse impact of the pandemic will likely continue for the remainder of our fiscal 2020 year and may continue into our fiscal 2021 year and possibly beyond.

As mentioned above, we continued to see the impact of COVID-19 on our sales into our first fiscal quarter as we had temporary store closures in international markets, restricted store capacity in certain markets and salon shut-downs in California and parts of Canada for part of the quarter.

However, we continued to make progress against our key business initiatives, which include leveraging and optimizing our elevated digital capabilities, growing customer engagement and loyalty, and completing the final steps in our successful transformation journey.

The effects of the COVID-19 pandemic and related responses had a noticeable impact on our first quarter fiscal year 2021 results of operations and cash flows.

Furthermore, due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.

Key Operating Metrics

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Three Months Ended

Nine Months Ended

Increase (Decrease)

Gross profit:

Segment gross margin:

Net earnings (loss):

Net earnings:

Segment operating earnings:

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Interest expense

Earnings (loss) before provision for income taxes

Provision (benefit) for income taxes

Net earnings (loss)

Earnings before provision for income taxes

Provision for income taxes

Number of stores at end-of-period (including franchises):

Same store sales growth (decline) (b) :

Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our consolidated statements of earnings (loss).

See Note 15 of the Notes to Condensed Consolidated Financial Statements for details on our restructuring charges.

Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our consolidated statements of earnings.

See Note 12, Restructuring , of the Notes to Condensed Consolidated Financial Statements for details on our restructuring charges.

For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year.

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Results of Operations

The Three Months Ended June 30, 2020, compared to the Three Months Ended June 30, 2019

The Three Months Ended December 31, 2020, compared to the Three Months Ended December 31, 2019

Consolidated .

Consolidated net sales include a negative impact from changes in foreign currency exchange rates of $3.2 million, or 0.5% of consolidated net sales.

Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $3.5 million, or 0.4% of consolidated net sales.

The decrease in net sales for SBS was primarily driven by the following (in thousands):

Same store sales

Sales outside same store sales

Foreign currency exchange

SBS experienced lower unit volume caused primarily by the impact of the temporary closure of all our customer-facing store operations due to the effects of COVID-19, partially offset by strong demand upon re-opening.

Other consists of non-store sales, which include catalog and internet sales of our Sinelco Group subsidiaries.

SBS experienced lower unit volume caused primarily by the impact of the temporary closure of certain customer-facing store operations in various markets globally due to the effects of COVID-19 and fewer company-operated stores.

The challenges faced by lower unit volume were partially offset by an increase in average unit prices, resulting from a change in product mix to higher-priced products and the cancellation of most promotional activity.

The decrease in net sales for BSG was primarily driven by the following (in thousands):

Same store sales

Sales outside same store sales

Foreign currency exchange

BSG experienced lower unit volume primarily as a result of the temporary closure of all of our customer-facing store operations in the U.S.

and Canada due to the effects of COVID-19.

The negative impact of the temporary closures were partially offset by an increase in average unit prices resulting primarily from lower promotional activity.

Consolidated .

Consolidated gross profit decreased for the three months ended June 30, 2020, primarily due to lower net sales in both segments and a lower gross margin in SBS, partially offset by a higher gross margin in BSG.

While point-of-sale margin was stronger across both segments versus the prior year, driven by fewer promotions and favorable shift in product mix, it was more than offset by on-shelf inventory clearance efforts related to slow moving inventory plus a non-cash write down of inventory of $27.1 million and a reduction in vendor allowances from fewer promotions and reduced inventory purchases.

SBS’s gross profit decreased for the three months ended June 30, 2020, as a result of a lower net sales and a lower gross margin.

SBS’s gross margin decreased primarily as a result of the combination of lower vendor allowances and from aggressive inventory clearance efforts at the end of the quarter, partially offset by the positive impact from fewer promotions and favorable product mix.

BSG’s gross profit decreased for the three months ended June 30, 2020, primarily as a result of a lower net sales, partially offset by a higher gross margin.

BSG’s gross margin increased primarily as a result of fewer promotions and higher margin product mix, partially offset by lower vendor allowances from fewer promotions and reduced inventory purchases and inventory clearance actions.

Selling, General and Administrative Expenses

Consolidated .

Consolidated selling, general and administrative expenses decreased primarily as a result of cost saving initiatives in response to COVID-19, including savings associated with furloughed employees, lower advertising and promotional expenses, rent abatements and the suspension or elimination of all non-critical projects and non-essential spend.

These decreases were partially offset by increased shipping costs resulting from increased e-commerce volume and incremental store expenses for personal protective equipment.

Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 770 basis points to 44.6% for the three months ended June 30, 2020.

This deleveraging was driven by lost sales as a result of the impact of COVID-19.

SBS’s selling, general and administrative expenses decreased $25.9 million, or 11.5%, for the three months ended June 30, 2020, primarily due to our response to COVID-19.

The decrease was driven by lower compensation and compensation-related expenses of $45.5 million (primarily as a result of previously announced furloughs), lower rent expense of $6.3 million (driven by rent abatements) and lower advertising expenses of $5.0 million.

These decreases were partially offset by an increase in shipping costs of $23.3 million, resulting primarily from increased e-commerce volume, and incremental store expense for personal protective equipment.

BSG’s selling, general and administrative expenses decreased $ 20.4 million , or 20.4% , for the three months ended June 30, 2020 , primarily due to our response to COVID-19.

The decrease was driven by lower compensation and compensation-re lated expenses of $21.5 million, primarily as a result of previously announced furloughs, and lower advertising expenses of $3.9 million.

These decreases were partially offset by an increase in shipping costs of $4.7 million, resulting primarily from incre ased e-commerce volume.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $0.6 million, or 1.8%, for the three months ended June 30, 2020, primarily from costs associated with disaster payments and other costs incurred in response to COVID-19, partially offset by lower compensation expenses resulting from furloughed employees.

Restructuring

For the three months ended June 30, 2020, we incurred restructuring charges of $5.8 million primarily in connection with the Transformation Plan.

For the three months ended June 30, 2019, we recognized charges of $1.9 million in connection with the supply chain modernization plan.

See Note 15 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.

Interest Expense

The increase in interest expense is primarily from higher outstanding principal balance on our ABL facility and the newly issued Senior Secured Notes.

See “Liquidity and Capital Resources” below for additional information.

Provision (Benefit) for Income Taxes

The effective tax rates were 9.1% and 24.6%, for the three months ended June 30, 2020, and 2019, respectively.

The effective tax rate for the third quarter of the current year was negatively impacted by foreign losses which cannot be tax benefitted.

The Nine Months Ended June 30, 2020, compared to the Nine Months Ended June 30, 2019

Consolidated .

Consolidated net sales include a negative impact from changes in foreign currency exchange rates of $7.3 million, or 0.3% of consolidated net sales.

The decrease in net sales for SBS was primarily driven by the following (in thousands):

Same store sales

Sales outside same store sales

Foreign currency exchange

SBS experienced lower unit volume caused by the temporary closure of all of our customer-facing store operations due to the effects of COVID-19, lower customer traffic and the reduction in company-operated stores during the last 12 months.

The segment also experienced a lapped non-recurring benefit from the prior year.

These headwinds were partially offset by increased e-commerce sales and an increase in average unit prices.

The increase in the average unit prices was a result of targeted price increases earlier in the year, a change in product mix to higher-priced products and a promotional efficiency effort, partially offset by implementation related technology disruptions in the first fiscal quarter which led to incorrect POS pricing, elevated promotional discounts and higher loyalty program redemptions.

The decrease in net sales for BSG was primarily driven by the following (in thousands):

Distributor sales consultants

Same store sales

Sales outside same store sales

Foreign currency exchange

BSG experienced lower unit volume primarily as a result of the temporary closure of all of our customer-facing store operations in the U.S.

and Canada due to the effects of COVID-19.

The negative effects of these temporary closures were partially offset by increased e-commerce sales and an increase in a verage unit prices resulting primarily from lower promotional activity and the introduction of certain third-party brands with higher average unit prices in the preceding 12 months.

Other consists of stores outside same store sales, included recently acquired businesses, and sales to our franchisees.

BSG experienced lower unit volume primarily as a result of the temporary closure and restricted capacity of certain customer-facing store operations in various markets in the U.S.

and Canada as well as salon closures in parts of California and Canada due to the effects of COVID-19.

These negative impacts were partially offset by an increase in average unit prices resulting primarily from lower promotional activity.

Consolidated .

Consolidated gross profit decreased for the nine months ended June 30, 2020, primarily due to lower net sales in both segments and a lower gross margin in SBS, partially offset by a higher gross margin in BSG.

SBS’s gross profit decreased for the nine months ended June 30, 2020, primarily as a result of a lower net sales and a lower gross margin.

SBS’s gross margin decreased primarily as a result of aggressive inventory clearance actions in the current quarter, the implementation related technology disruptions in the first quarter and non-recurring benefits that we lapped from the prior year, partially offset by fewer promotions.

BSG’s gross profit decreased for the nine months ended June 30, 2020, primarily as a result of lower net sales, partially offset by a higher gross margin.

BSG’s gross margin increased primarily from a shift in the purchased product mix and fewer promotions, partially offset by aggressive inventory clearance actions in the current quarter.

Consolidated gross profit decreased for the three months ended December 31, 2020, due to lower net sales in both segments and a lower gross margin in BSG, partially offset by a higher gross margin in SBS.

SBS’s gross profit increased for the three months ended December 31, 2020, as a result of a higher gross margin, partially offset by lower net sales.

SBS’s gross margin increased primarily as a result of fewer promotions.

BSG’s gross profit decreased for the three months ended December 31, 2020, as a result of lower net sales and a lower gross margin.

BSG’s gross margin decreased primarily as a result of higher capitalized inventory costs from lower inventory purchases.

Selling, General and Administrative Expenses

Consolidated .

Consolidated selling, general and administrative expenses decreased primarily as a result of lower compensation and compensation-related expenses, partially offset by costs associated with disaster payments and in response to COVID-19 and higher shipping costs.

Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 470 basis points to 42.1% for the nine months ended June 30, 2020.

This deleveraging was driven by lost sales as a result of the impact of COVID-19.

SBS’s selling, general and administrative expenses decreased $13.7 million, or 2.0%, for the nine months ended June 30, 2020.

This increase reflects lower compensation and compensation-related expense of $43.1 million, primarily as a result of previously announced furloughs.

This decrease was partially offset by an increase in shipping costs of $27.6 million, resulting primarily from increased e-commerce volume.

BSG’s selling, general and administrative expenses decreased $15.5 million, or 5.2%, for the nine months ended June 30, 2020.

This increase reflects lower compensation and compensation-related expense of $21.3 million, primarily as a result of previously announced furloughs.

This decrease was partially offset by an increase in shipping costs of $5.9 million, resulting primarily from increased e-commerce volume.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $16.2 million, or 14.7%, for the nine months ended June 30, 2020, primarily from costs associated with disaster payments in response to COVID-19, partially offset by lower compensation expenses resulting from furloughed employees.

Consolidated selling, general and administrative expenses decreased primarily as a result of cost saving initiatives in response to COVID-19, including savings associated with lower compensation and compensation-related expenses and advertising expenses, and the suspension or elimination of all non-critical projects and non-essential spend.

These decreases were partially offset by increased shipping costs resulting from increased e-commerce volume and incremental costs from businesses acquired in the past 12 months.

Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 50 basis points to 39.1% for the three months ended December 31, 2020, due to the decrease in sales.

SBS’s selling, general and administrative expenses decreased $14.1 million, or 6.0%, for the three months ended December 31, 2020, primarily due to our response to COVID-19.

The decrease was driven by lower compensation and compensation-related expenses of $12.0 million and lower advertising expenses of $4.9 million.

These decreases were partially offset by an increase in shipping costs of $3.0 million, resulting primarily from increased e-commerce volume, and incremental store expense for personal protective equipment and cleaning protocols related to COVID-19 safety procedures.

BSG’s selling, general and administrative expenses increased $2.9 million, or 2.8%, for the three months ended December 31, 2020.

The increase was driven primarily by an increase in shipping costs of $3.0 million, resulting primarily from increased e-

commerce volume, and incremental expenses from recently acquired businesses in the past 12 months.

These increases were partially offset by lower compensation and compensation-related expenses of $1.5 million.

Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $0.6 million, or 1.5%, for the three months ended December 31, 2020, primarily from lower costs associated with travel in response to COVID-19.

Restructuring

For the nine months ended June 30, 2020, we incurred restructuring charges of $11.5 million in connection with Project Surge and the Transformation Plan.

For the nine months ended June 30, 2019, we recognized charges of $6.7 million in connection with the supply chain modernization plan, partially offset by a $6.6 million gain from selling our secondary headquarters and fulfillment center in Denton, Texas, and the 2018 Restructuring Plan.

See Note 15 of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.

For the three months ended December 31, 2020, we incurred restructuring charges of $0.2 million primarily in connection with the Project Surge.

For the three months ended December 31, 2019, we recognized charges of $2.5 million in connection with Project Surge and the Transformation Plan.

See Note 12, Restructuring , of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report for more information about our restructuring plans.

Interest Expense

The decrease in interest expense is primarily from lower outstanding principal balances on our term loan B and our senior notes during the first and second quarters, partially offset by a higher average outstanding ABL balance during the nine months ended June 30, 2020 and the newly issued Senior Secured Notes.

The increase in interest expense is primarily from incremental interest on the senior notes issued in April 2020 of $6.6 million, partially offset by the impact of lower interest rates on our term loan B variable tranche of $1.8 million and a lower outstanding balance on our term loan B fixed tranche of $0.9 million.

See “Liquidity and Capital Resources” below for additional information.

Provision (Benefit) for Income Taxes

The effective tax rates were 37.2% and 24.5%, for the nine months ended June 30, 2020, and 2019, respectively.

The increase in the effective tax rate was primarily driven by the establishment of a valuation allowance in a foreign subsidiary and increased foreign losses, as compared to the prior period, which cannot be tax benefitted.

Additionally, for the nine months ended June 30, 2019, the provision for income taxes included an income tax benefit due to an adjustment to our previously recorded transition tax on unrepatriated foreign earnings as a result of the Tax Cuts and Jobs Act.

Provision for Income Taxes

The effective tax rates were 27.0% and 26.9%, for the three months ended December 31, 2020, and 2019, respectively.

Liquidity and Capital Resources

We are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on our outstanding indebtedness and from funding the costs of operations, working capital, capital expenditures, debt repayment and share repurchases.

Working capital (current assets less current liabilities) increased $118.1 million, to $825.6 million at June 30, 2020, compared to $707.5 million at September 30, 2019, resulting primarily from the impact of the adoption of the new lease standard.

At June 30, 2020, cash and cash equivalents were $838.8 million.

Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), funds expected to be generated by operations and funds available under the ABL facility will be sufficient to fund working capital requirements, potential acquisitions, finance anticipated capital expenditures, including information technology upgrades and store remodels and debt repayments over the next 12 months.

Working capital (current assets less current liabilities) increased $85.8 million, to $955.5 million at December 31, 2020, compared to $869.7 million at September 30, 2020, resulting primarily from an increase in inventory.

The increase in inventory resulted from investments in key products to reach desired inventory levels.

At December 31, 2020, cash and cash equivalents were $537.6 million.

Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), funds expected to be generated by operations and funds available under the ABL facility will be sufficient to fund working capital requirements, potential acquisitions, anticipated capital expenditures, including information technology upgrades and store remodels, and debt repayments over the next 12 months.

Due to the impact of COVID-19, we have shifted our focus to being proactive in maintaining our financial flexibility.

We utilize our ABL facility for the issuance of letters of credit, for certain working capital and liquidity needs and to manage normal fluctuations in our operational cash flow.

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 operational 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, interest payments due on our indebtedness, paying down other debt and opportunistic share repurchases.

During the nine months ended June 30, 2020, the weighted-average interest rate on our borrowings under the ABL facility was 2.85%.

During late March, in support of our operations and out of an abundance of caution, we preemptively drew on our ABL facility as a result of COVID-19.

The amounts drawn are generally paid down with cash provided by our operating activities.

As of June 30, 2020, we had $81.0 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

During the nine months ended June 30, 2020, we entered into an amendment to our ABL facility to, among other things, increase the revolving commitment thereunder from $500.0 million to $600.0 million, establish a FILO (first-in, last-out) tranche of indebtedness in the amount of $20.0 million, increase pricing on the revolving loans and modify certain covenant and reporting terms.

We also issued $300.0 million of Senior Secured Notes in a private offering in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended.

During the three months ended December 31, 2020, we did not borrow on our ABL facility.

As of December 31, 2020, we had $461.0 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities.

Share Repurchase Programs

During the three months ended June 30, 2020, we did not repurchase any common stock.

During the nine months ended June 30, 2020, we repurchased and subsequently retired approximately 4.7 million shares of our common stock at an aggregate cost of $61.4 million.

We funded these share repurchases with existing cash balances, cash from operations and borrowings under the ABL facility.

As of June 30, 2020, we had authorization of approximately $726.1 million of additional potential share repurchases remaining under the 2017 Share Repurchase Program.

During the three months ended December 31, 2020, we did not repurchase any common stock.

As of December 31, 2020, we had authorization of approximately $726.1 million of additional potential share repurchases remaining under the 2017 Share Repurchase Program.

Historical Cash Flows

Historically, our primary source of cash has been net funds provided by operating activities and, when necessary, borrowings under our ABL facility.

While historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions, we have shifted our focus in the short-term to reduce non-essential cash expenditures and preserve our cash balances.

Net Cash Provided by Operating Activities

Net cash provided by operating activities during the nine months ended June 30, 2020, increased $70.6 million to $274.4 million, compared to the nine months ended June 30, 2019, mainly due to the reduction in inventory purchases as a result of COVID-19 and the timing of our vendor receivables, partially offset by the decrease in net earnings.

Net cash provided by operating activities during the three months ended December 31, 2020, decreased $23.3 million to $39.0 million, compared to the three months ended December 31, 2019, mainly due to increased inventory purchases, in connection with inventory investments to improve stock levels for key products, and the timing of our vendor receivables, partially offset by an increase in our accounts payable in connection with increased inventory purchases.

Net Cash Used by Investing Activities

Net cash used by investing activities during the nine months ended June 30, 2020, increased $34.1 million to $91.6 million, compared to the nine months ended June 30, 2019.

This change was primarily a result of higher capital expenditures, related to our investments in information technology, and the sale of our secondary headquarters and fulfillment center in the prior year with no comparable sale in this year.

Net Cash Provided (Used) by Financing Activities

The change in financing activities cash flows was primarily a result of additional borrowings, out of an abundance of caution in connection with COVID-19, under our ABL facility and the issuance of $300.0 million in new Senior Secured Notes and partially offset by the repurchase of $61.4 million of our common stock.

Long-Term Debt

At June 30, 2020, we had $2,258.7 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $17.4 million.

Our debt consisted of $1,177.4 million of senior notes outstanding, a term loan B with an outstanding principal balance of $685.8 million and $395.5 million of principal borrowings outstanding under our ABL facility.

See Note 10, Short-term Borrowings and Long-term Debt , for more information on our debt.

Net cash used by investing activities during the three months ended December 31, 2020, decreased $25.3 million to $17.5 million, compared to the three months ended December 31, 2019.

This change was primarily a result of our focus on reduced capital expenditures.

Net Cash Used by Financing Activities

Net cash used by financing activities during the three months ended December 31, 2020, decreased $24.1 million to $0.3 million, compared to the three months ended December 31, 2019.

The decrease was driven by the absence of debt borrowings and minimal repayments during the current quarter and not repurchasing our common stock under our share repurchase program.

Long-Term Debt and Guarantor Financial Information

At December 31, 2020, we had $1,813.2 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $14.8 million.

Our debt consisted of $1,177.4 million of senior notes outstanding and a term loan with an outstanding principal balance of $635.8 million.

As of December 31, 2020, there were no outstanding principal borrowings under our ABL facility.

We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.

See Note 9, Short-term Borrowings and Long-term Debt , and Note 13, Subsequent Event , for more information on our debt.

Guarantor Financial Information

We are providing the following information in compliance with Rule 13-01 of Regulation S-X for guaranteed issued securities that have been registered under such regulation.

Currently, our issued securities consist of the 5.625% Senior Notes due 2025 and the 5.50% Senior Notes due 2023.

These debt instruments were issued by our wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc.

(the “Issuers”), under a shelf registration statement.

These 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 to pay 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 has been eliminated.

The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of December 31, 2020 and September 30, 2020 (in thousands):

December 31, 2020

September 30, 2020

Intercompany receivable

Current assets

Current liabilities

Total liabilities

The following table presents the summarized statement of income information for three months ended December 31, 2020 (in thousands):

Earnings before provision for income taxes

Contractual Obligations

1 unchanged sentence

Off-Balance Sheet Financing Arrangements

At June 30, 2020, and September 30, 2019, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.

At December 31, 2020, and September 30, 2020, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.

Critical Accounting Estimates

There have been no material changes to our critical accounting estimates or assumptions since September 30, 2020.

Accounting Changes and Recent Accounting Pronouncements

See Note 3 of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.

Recent Accounting Pronouncements

See Note 3, Recent Accounting Pronouncements , of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis