What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-05 · 62 added, 46 removed, 291 unchanged (27% of the section changed)

12 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 808,298 at

March 31, 2022, and $ 767,403 at September 30, 2021

June 30, 2022, and $ 767,403 at September 30, 2021

Operating lease assets

Intangible assets, excluding goodwill, net of accumulated amortization of

$ 40,528 at March 31, 2022, and $ 38,957 at September 30, 2021

$ 40,336 at June 30, 2022, and $ 38,957 at September 30, 2021

Liabilities and Stockholders’ Equity

15 unchanged sentences

113,138 shares issued and 106,963 and 112,913 shares outstanding at

March 31, 2022, and September 30, 2021, respectively

June 30, 2022, and September 30, 2021, respectively

Preferred stock, $ 0.01 par value.

11 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Cost of goods sold

13 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Other comprehensive (loss) income:

26 unchanged sentences

Balance at March 31, 2022

Other comprehensive loss

Share-based compensation

Stock issued for equity awards

Employee withholding taxes paid

related to net share settlement

Balance at June 30, 2022

Comprehensive

11 unchanged sentences

Balance at March 31, 2021

Other comprehensive income

Share-based compensation

Stock issued for stock options

Balance at June 30, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

3 unchanged sentences

(In thousands)

Six Months Ended March 31,

Nine Months Ended June 30,

Cash Flows from Operating Activities:

Adjustments to reconcile net earnings to net cash (used) provided by operating

Adjustments to reconcile net earnings to net cash provided by operating

Depreciation and amortization

12 unchanged sentences

Other liabilities

Net cash (used) provided by operating activities

Net cash provided by operating activities

Cash Flows from Investing Activities:

3 unchanged sentences

Cash Flows from Financing Activities:

Repayments of long-term debt

Proceeds from issuance of long-term debt

Repayments of long-term debt, including prepayment costs

Debt issuance costs

Payments for common stock repurchased

17 unchanged sentences

Sally Beauty Holdings is an international specialty retailer and distributor of professional beauty supplies with operations in North America, South America and Europe.

We are one of the largest distributers of professional beauty supplies in the U.S.

We are one of the largest distributors of professional beauty supplies in the U.S.

based on store count, operating under two segments, Sally Beauty Supply (“SBS”) and Beauty Systems Group (“BSG”).

1 unchanged sentence

Within BSG, we also have one of the largest networks of distributor sales consultants (“DSCs”) for professional beauty products in North America, who sell directly to salons and salon professionals.

SBS targets retail consumers, salons and salon professionals, while BSG targets salons and salons professionals.

SBS targets retail consumers, salons and salon professionals, while BSG targets salons and salon professionals.

Basis of Presentation

2 unchanged sentences

These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of March 31, 2022 and September 30, 2021, and our consolidated results of operations, consolidated comprehensive income, consolidated statements of stockholders’ equity for the three and six months ended March 31, 2022 and 2021 and our consolidated cash flows for the for the six months ended March 31, 2022 and 2021.

In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of June 30, 2022, and September 30, 2021, and our consolidated results of operations, consolidated comprehensive income, consolidated statements of stockholders’ equity for the three and nine months ended June 30, 2022 and 2021, and our consolidated cash flows for the nine months ended June 30, 2022 and 2021.

Principles of Consolidation

12 unchanged sentences

Significant estimates and assumptions are part of our accounting for sales allowances, deferred revenue, valuation of inventory, amortization and depreciation, intangibles and goodwill, and other reserves.

We believe these estimates and assumptions are reasonable however they are based on management’s current knowledge of events and actions and changes in facts and circumstances may result in revised estimates, and impact actual results.

We believe these estimates and assumptions are reasonable;

however, they are based on management’s current knowledge of events and actions, and changes in facts and circumstances may result in revised estimates and impact actual results.

Impact of COVID-19

Our operating results for the three and six months ended March 31, 2022, were adversely impacted by the COVID-19 pandemic and its continuing effects on the economy, including inflationary pressures, continued supply chain disruptions, increased freight costs, labor shortages and increased labor costs.

Given the uncertainty around the continuing effects of the COVID-19 pandemic and its economic impact we cannot reasonably predict the effect they will have on future periods.

If we become materially and adversely impacted, we may have to consider adjustments to our strategic plans, inventory, liquidity, operational and capital expenditure plans.

Our operating results for the fiscal years 2022 and 2021 were adversely impacted by the COVID-19 pandemic and its effects on the global economy.

Given the uncertainty around the continued effects of the COVID-19 pandemic and macro-environment, we cannot reasonably predict the effect they will have on future periods.

If once again we become materially and adversely impacted, we may have to consider adjustments to our operations, inventory, liquidity, capital expenditures and accounting estimates and reserves.

Revenue Recognition

2 unchanged sentences

We estimate sales returns based on historical data.

Changes to our contract liabilities, which are included in accrued liabilities in our condensed balance sheets, for the periods were as follows (in thousands):

Six Months Ended March 31,

Changes to our contract liabilities, which are included in accrued liabilities in our condensed consolidated balance sheets, for the periods were as follows (in thousands):

Nine Months Ended June 30,

Beginning Balance

19 unchanged sentences

Carrying amounts and the related estimated fair value of our long-term debt, excluding capital lease obligations and debt issuance costs, are as follows:

March 31, 2022

June 30, 2022

September 30, 2021

7 unchanged sentences

The fair value of the senior notes was measured using unadjusted quoted market prices.

The fair value of other long-term debt was measured using quoted market prices for similar debt securities in active markets or widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.

The fair value of Term Loan B was measured using quoted market prices for similar debt securities in active markets or widely accepted valuation techniques, such as discounted cash flow analyses, using observable inputs, such as market interest rates.

Stockholders’ Equity

2 unchanged sentences

In July 2021, our Board of Directors approved a term extension of the share repurchase program for the four-year period ending September 30, 2025 .

As of March 31, 2022, we had authorization of approximately $ 595.8 million of additional potential share repurchases remaining under our share repurchase program.

As of June 30, 2022, we had authorization of approximately $ 595.8 million of additional potential share repurchases remaining under our share repurchase program.

Information related to our shares repurchased and subsequently retired were as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

Number of shares repurchased

9 unchanged sentences

Reclassification to net earnings, net of tax

Balance at March 31, 2022

Balance at June 30, 2022

The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings was not material.

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Weighted-average basic shares

4 unchanged sentences

Goodwill and Intangible Assets

During the three months ended March 31, 2022, we completed our annual assessment for impairment of goodwill and other intangible assets.

During our second fiscal quarter, we completed our annual assessment for impairment of goodwill and indefinite-lived intangible assets.

For goodwill, we used a qualitative analysis and our actual and forecasted results are exceeding the estimates from the last quantitative test.

Additionally, we considered potential triggering events and determined there were none for the three months ended June 30, 2022.

No material impairment losses were recognized in the current or prior periods presented in connection with our goodwill and other intangible assets.

Three Months Ended

Six Months Ended

Nine Months Ended

(in thousands)

Intangible assets amortization expense

Additionally, during the six months ended March 31, 2022, the decrease in goodwill was primarily from the effects of foreign currency exchange rates of $ 1.5 million.

Additionally, during the nine months ended June 30, 2022, the decreases in goodwill and other intangibles were primarily from the effects of foreign currency exchange rates of $ 8.3 million and $2.2 million, respectively.

Accrued Liabilities

2 unchanged sentences

Compensation and benefits

Interest payable

Deferred revenue

1 unchanged sentence

Insurance reserves

Interest payable

Property and other taxes

1 unchanged sentence

Total accrued liabilities

Short-term Borrowings and Long-term Debt

During the three months ended June 30, 2022, we issued a notice of redemption (the “Redemption Notice”), to redeem on May 31, 2022, the entire $ 300 million aggregate outstanding principal amount of the 8.75 % Senior Secured Second Lien Notes due 2025 (“8.75% Senior Notes”).

The redemption was made pursuant to the terms of the Indenture dated April 24, 2020, at a redemption price equal to 104.375 % of the principal amount of the 8.75% Senior Notes plus accrued but unpaid interest to, but not including, the redemption date.

On May 31, 2022, we redeemed these 8.75 % Senior Notes with excess cash on hand and $ 150.0 million in borrowings from our ABL facility.

In connection with the redemption, we recognized a loss on the extinguishment of debt of $ 16.4 million within interest expense, which included a redemption premium of $ 13.1 million and the write-off of unamortized deferred financing costs of $ 3.3 million .

At June 30, 2022, our ABL facility had $ 167.0 million in outstanding borrowings and $ 314.2 million available for borrowing, including the Canadian sub-facility, subject to the conditions contained therein.

Derivative Instruments and Hedging Activities

During the six months ended March 31, 2022, we did no t purchase or hold any derivative instruments for trading or speculative purposes.

During the nine months ended June 30, 2022, we did no t purchase or hold any derivative instruments for trading or speculative purposes.

See Note 3, Fair Value Measurements , for the classification and fair value of our derivative instruments.

3 unchanged sentences

dollars by our foreign subsidiaries.

At March 31, 2022, we held forwards, which expire ratably through September 30, 2022 , with a notional amount, based upon exchange rates at March 31, 2022, as follows (in thousands):

At June 30, 2022, we held forwards, which expire ratably through September 30, 2022 , with a notional amount, based upon exchange rates at June 30, 2022, as follows (in thousands):

Notional Currency

3 unchanged sentences

As the forwards are exercised, the realized value is recognized into cost of goods sold, based on inventory turns, in our condensed consolidated statements of earnings.

For the six months ended March 31, 2022 and 2021, we recognized a loss of $ 0.4 million and a gain of $ 0.4 million, respectively.

The effects of our foreign currency forwards were not material for the three months ended March 31, 2022 and 2021.

Based on March 31, 2022 valuations and exchange rates, we expect to reclassify losses of approximately $ 0.1 million into cost of goods sold over the next 12 months.

For the nine months ended June 30, 2022 and 2021, we recognized a loss of $ 0.2 million and a gain of $ 0.1 million, respectively.

The effects of our foreign currency forwards were not material for the three months ended June 30, 2022 and 2021.

Based on June 30, 2022, valuations and exchange rates, we expect to reclassify gains of approximately $ 1.6 million into cost of goods sold over the next 12 months.

Interest Rate Caps

2 unchanged sentences

Accordingly, changes in fair value of the interest rate caps are recorded quarterly, net of income tax, and are included in AOCL.

For the six months ended March 31, 2022 and 2021, we recognized expense of $ 0.4 million and $ 0.2 million, respectively, into interest expense on our condensed consolidated statements of earnings.

The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three months ended March 31, 2022 and 2021.

For the nine months ended June 30, 2022 and 2021, we recognized expense of $ 1.3 million and $ 0.8 million, respectively, into interest expense on our condensed consolidated statements of earnings.

The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three months ended June 30, 2022 and 2021.

Over the next 12 months, we expect to reclassify approximately $ 0.7 million into interest expense, which represents the original value of the expiring caplets.

Segment Reporting

Segment data for the three and six months ended March 31, 2022 and 2021, is as follows (in thousands):

Segment data for the three and nine months ended June 30, 2022 and 2021, is as follows (in thousands):

Three Months Ended

Six Months Ended

Nine Months Ended

Sally Beauty Supply ("SBS")

9 unchanged sentences

for income taxes

Sales between segments, which are eliminated in consolidation, were not material during the three and six months ended March 31, 2022 and 2021.

Sales between segments, which are eliminated in consolidation, were not material during the three and nine months ended June 30, 2022 and 2021.

Disaggregation of net sales by segment

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Styling tools and supplies

2 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Styling tools and supplies

3 unchanged sentences

Three Months Ended

Six Months Ended

Nine Months Ended

Company-operated stores

1 unchanged sentence

Three Months Ended

Six Months Ended

Nine Months Ended

Company-operated stores

1 unchanged sentence

Franchise stores

Subsequent Event

On April 29, 2022, we announced that our wholly-owned subsidiaries, Sally Holdings LLC (“Holdings”) and Sally Capital Inc.

(together with Holdings, the “Issuers”), issued a notice of redemption (the “Redemption Notice”), to redeem on May 31, 2022, the entire $ 300.00 million aggregate principal amount of the 8.750 % Senior Secured Second Lien Notes due 2025 (“Notes”) which remain outstanding.

The redemption is being made pursuant to the terms of the Indenture dated April 24, 2020, at a redemption price equal to 104.375 % of the principal amount of the Notes plus accrued but unpaid interest to, but not including, the redemption date.

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 1. Financial Statements