What changed in this filing

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Item 1. Business

2022-11-17 compared with 2021-11-22 · 164 added, 184 removed, 95 unchanged (79% of the section changed)

Sally Beauty Holdings, Inc.

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 distributors of professional beauty supplies in the U.S.

based on store count.

At September 30, 2021, we operated two business segments, Sally Beauty Supply (“SBS”) and Beauty Systems Group (“BSG”), with 4,777 company-operated stores, 134 franchised stores and several e-commerce platforms.

Within BSG, we also have one of the largest networks of distributor sales consultants (“DSCs”) for professional beauty products in North America, with 719 sales consultants who sell directly to salons and salon professionals.

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

We provide our customers with a wide variety of leading third-party branded and owned-brand professional beauty supplies, including hair color and care products, styling tools, skin and nail care products and other beauty items.

For each of the fiscal years ended September 30, 2021, 2020 and 2019, over 80% of our consolidated net sales were from customers located in the U.S.

The breadth, depth and professional quality of our hair color and hair care assortment provides us with a differentiated core business in an industry which is otherwise fragmented.

Due to our long presence in the category, our brand heritage, our product and process-specific knowledge and our training of associates, we provide unmatched hair color and hair care expertise to consumers.

We also have strong positioning with suppliers given our focus and our economies of scale of purchasing.

Because we service retail and professional customers through a variety of channels, we are able to reach broad, diversified geographies and customer segments using a variety of product assortments and tactics.

Operating Strategy

Our mission is to empower our customers to express themselves through hair.

Our strategy is to be the expert in hair color and hair care for the consumer and the salon professional.

We emphasize hair color and hair care through our strategic product assortment and compelling customer experiences, while also focusing on our operating efficiency and increasing profitability.

We believe that we offer our customers a strong and differentiated value proposition by providing salon-quality products, including an extensive collection of owned and exclusive-label brands and solutions at attractive prices.

Our focus and experiences with hair color include a strong emphasis on our sales force.

We believe our approach to recruiting, training, and compensation results in a highly knowledgeable, engaged and effective sales force.

Also, as the partner of choice for established brands, as well as product innovators, we offer our customers a broad strategic product assortment.

Our stores are conveniently located and offer a wide selection of competitively priced beauty products, beauty solutions and expertise delivered by our knowledgeable sales associates.

We also continue to expand our selection of textured hair products, including over 50 Black-founded brands, and offer innovation in the nails category that we believe further differentiates us from our competitors.

On the professional side of our business, we believe that our DSCs distinguish us from other full-service/exclusive-channel distributors by providing us with a better understanding of our professional customers’ needs.

In addition to placing orders through our DSCs, our customers have the ability to order through our websites ( www.cosmoprofbeauty.com and www.cosmoprofequipment.com and the CosmoProf mobile commerce-based app) and pick up the products they need between visits from our DSCs by visiting a nearby BSG store.

We believe that our differentiated customer value proposition and strong brands drive customer loyalty.

We continue to invest in initiatives that support our omni-channel strategies.

Our goal is to deliver an easy, reliable shopping experience and deliver best-in-class customer service online and in stores.

In connection with these investments, w e have robust omni-channel fulfillment capabilities such as parcel delivery, 2-hour rapid delivery, and buy online/pick up in-store (“BOPIS”).

Additionally, we have recently relaunched mobile-optimized e-commerce websites and mobile apps.

Professional Beauty Supply Industry Distribution Channels

The professional beauty supply industry serves end-users through four distribution channels:

This channel serves retail consumers and salon professionals through retail stores and e-commerce platforms.

This channel is served by a large number of localized retailers and distributors, with only a few having a regional or national presence and significant channel share.

We believe that SBS, with its nationwide network of retail stores, is the largest open-line distributor in the U.S.

Our extensive store network allows us to service our customers when and where they want to shop with our in-store experience and omni service capabilities, including last-mile delivery.

In addition, SBS’s websites (including www.sallybeauty.com ) and other e-commerce platforms, including our new SBS mobile commerce-based app, provide retail consumers and salon professionals access to product offerings and information beyond our retail stores.

Full-Service/Exclusive

This channel exclusively serves salons and salon professionals and distributes “professional-only” and other products for use in salons and for resale to consumers in salons.

Many brands are distributed through exclusive arrangements with suppliers by geographic territory.

BSG is one of the leading full-service distributors in the U.S.

and Canada, with its network of professional-only stores and DSCs.

In addition, BSG offers its products for sale to salons and salon professionals through e-commerce platforms (including www.cosmoprofbeauty.com, www.cosmoprofequipment.com and the CosmoProf mobile commerce-based app).

This channel focuses on direct sales to salons and salon professionals by large manufacturers.

This is the dominant form of distribution in Europe but represents a smaller channel in the U.S.

due to the highly fragmented nature of the U.S.

salon industry, which makes direct distribution costs prohibitive for many manufacturers.

Mega-Salon Stores

In this channel, large-format salons are supplied directly by manufacturers due to their significant purchase requirements.

Key Industry and Business Trends

We believe the following key industry and business trends and characteristics will influence our business and our financial results going forward:

High level of marketplace fragmentation.

salon industry is highly fragmented with salons and barbershops.

Given the fragmented nature of the salon industry, we believe that salon operators will continue to depend on full-service/exclusive distributors and open-line channels for a majority of their beauty supply products.

Rapidly evolving consumer trends.

Our industry is characterized by continuously changing fashion-related trends that drive new styles, including hair and nail styles, and continuing demand for beauty products .

In addition, we expect millennials and the aging baby-boomer population in the U.S.

to continue to drive sales growth in certain professional beauty product categories, including through an increase in the usage of hair color and care products.

Our focus on hair color as a form of self-expression resonates with the Gen Z shoppers as their individualism is expressed through their hair journey.

We know convenience is important to customers and shopping patterns have changed post-COVID.

We have made significant investments in projects to “meet them where they are”, including new capabilities and tools on our mobile-native websites and mobile apps.

In addition, we continue to optimize our delivery modalities (curbside and in-store pickup, 2-hour/rapid delivery, as well as traditional delivery methods).

Increasing use of owned and exclusive-label brand products.

We offer an extensive range of owned and exclusive-label brand professional beauty products.

Our lines of owned and exclusive-label brand products have matured and become better known in our retail stores and e-commerce platforms, continuing to represent and ever increasing percentage of our overall sales.

Growth in chair renting and frequent stocking needs.

Salon professionals primarily rely on just-in-time inventory due to capital constraints and limited warehouse and shelf space.

In addition, chair renters and suite renters, who now comprise a significant percentage of the total U.S.

salon professionals, are often responsible for purchasing their own supplies.

The number of chair renters and suite renters has significantly increased as a percentage of total salon professionals in recent years, and we expect this trend to continue.

Chair renters and suite renters, given their smaller and more frequent purchasing patterns, are dependent on frequent trips to professional beauty supply stores.

We expect that these factors will continue to drive demand for conveniently located professional beauty supply stores, like BSG and SBS.

Business Segments

We operate in two business segments:

(i) SBS, an open-line retailer of professional beauty supplies offering professional beauty supplies to both retail consumers and salon professionals, in North America, South America and Europe, and (ii) BSG, including its franchise-based business Armstrong McCall, a full-service beauty supply distributor offering professional brands directly to salons and salon professionals through our own sales force and professional-only stores, many in exclusive geographical territories, in North America.

SBS stores generally operate under the Sally Beauty banner, while BSG stores generally operate under the CosmoProf banner.

Neither the sales nor the product assortment for SBS or BSG are generally seasonal in nature.

The following table sets forth the percentage of our sales attributable to each of our major sales channels:

Fiscal Year Ended September 30,

Company-operated stores

Franchise stores

Distributor sales consultants

Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty supplies.

As experts in hair color and care, we aim to empower our customers to express themselves through their hair and beyond.

We operate two business segments that offer beauty products in key categories, including hair care, hair color, styling tools and nails.

Sally Beauty Supply (“SBS”) – An omni-channel retailer that offers professional-quality beauty supplies at attractive prices and provides education to retail consumers and salon professionals throughout North America, South America and Europe.

SBS operates primarily through retail stores (generally operating under the Sally Beauty banner) and digital platforms, including our www.sallybeauty.com website and a mobile commerce-based app.

We believe SBS, with its nationwide network of retail stores, is the largest open-line distributor of beauty products in the U.S.

Beauty Systems Group (“BSG”) – A leading full-service omni-channel distributor that offers professional beauty supplies exclusively to salons and salon professionals throughout the U.S.

These salon professionals primarily rely on just-in-time inventory due to capital constraints and limited warehouse and shelf space.

BSG operates through company-operated stores (generally operating under the Cosmo Prof banner), franchised stores, distributor sales consultants (“DSCs”) and digital platforms, including our www.cosmoprofbeauty.com website, a mobile commerce-based app and chain portals.

The breadth, depth and professional quality of our hair color and care assortment provides us with a differentiated core business in an industry which is otherwise fragmented.

Due to our long presence, brand heritage, product and process-specific knowledge and training of associates, we provide unmatched hair color and care expertise to consumers.

We also have strong positioning with suppliers given our focus and economies of scale of purchasing.

By operating in a variety of channels, we are able to reach broad, diversified geographies and customer segments using a variety of product assortments and tactics.

Operating and Growth Strategy

Our operating and growth strategy is guided by our vision to own professional hair color and care for both the do-it-yourself” (“DIY”) enthusiast and professional stylist.

SBS’s differentiation is to offer a vast array of hair color and care solutions for in home use, and this is supported by the content and education we provide our customers.

While at BSG, we are the largest North American distributor of professional hair color and care, offering stylists and salons the most extensive portfolio of third party brands in the market.

For fiscal 2023, we will be leveraging and building upon the modern retail infrastructure we’ve built in recent years and focusing on three key strategic initiatives to drive growth and profitability:

Enhancing our customer centricity;

Growing high margin owned brands at Sally Beauty and amplify innovation;

Increase the efficiency of operations and optimize our capabilities.

We believe focusing in these areas will position our company for future growth and further enhance our ability to meet our customers where they are.

Store Design and Locations

Sally Beauty Supply

SBS stores are designed to highlight SBS’s extensive product offering and differentiated position in hair color and hair care.

and Canada, SBS stores average approximately 1,700 square feet in size and are located primarily in strip shopping centers, which are occupied by other high traffic retailers such as grocery stores, mass merchants and home improvement centers.

SBS applies strong category management processes, including store specific planograms, to maintain consistent merchandise presentation across its store base.

SBS has retail stores in the U.S.

(including Puerto Rico), Canada, Mexico, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands, Spain and Chile.

Stores are designed to highlight our extensive product offerings and differentiated position in hair color and care.

We apply strong category management processes, including store specific planograms, to maintain consistent merchandise presentation across our store base.

and Canada, our average store offers an average of 7,000 beauty products and is approximately 1,700 square feet in size.

Stores are typically located in strip shopping centers, which are occupied by other high traffic retailers such as grocery

stores, mass merchants and home improvement centers.

Store formats, including average size and product selection, vary by marketplace to meet the needs of the customer.

SBS balances its store renewals, remodels and expansions between new and existing geographies and regularly evaluates each store’s performance and strategically closes stores as necessary.

In its existing marketplaces, SBS adds stores as necessary to provide additional coverage.

In new marketplaces, SBS generally seeks to expand in geographically contiguous areas to leverage its experience.

SBS selects geographic areas and store sites on the basis of demographic information, the quality and nature of neighboring tenants, store visibility and location accessibility.

As of September 30, 2021, SBS had 3,547 company-operated retail stores, 2,685 of which are located in the U.S.

(including Puerto Rico), with the remaining 862 company-operated retail stores located in Canada, Mexico, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands, Spain, Chile and Peru.

SBS also supplied two franchised stores located in the United Kingdom and Belgium.

We calibrate store renewals, remodels and expansions between new and existing geographies.

In existing marketplaces, we add stores to provide additional coverage and strategically close or relocate underperforming stores as necessary.

In new marketplaces, SBS selects geographic areas and store sites on the basis of demographic information, the quality and nature of neighboring tenants, store visibility and location accessibility.

SBS generally seeks to expand in geographically contiguous areas to leverage its experience.

SBS’s store count for the last three fiscal years is summarized in the following table:

Beginning store count

Franchises closed

Ending store count

Beauty Systems Group

BSG stores, including its franchise-based Armstrong McCall stores, are designed to create a professional shopping environment that highlights its extensive product offering and embraces the salon professional.

Company-operated BSG stores average approximately 2,700 square feet and are located primarily in secondary strip shopping centers, since the stores are a ‘destination’ for professionals not requiring a traffic-supporting neighbor retail location.

BSG store layouts are designed to provide variety and options to the salon professional.

Stores are segmented into

distinctive areas arranged by product type, with certain areas dedicated to leading third-party brands.

The selection of these and other brands varies by territory.

As of September 30, 2021, BSG operated 1,230 company-operated stores, with 1,100 located in the U.S.

(including Puerto Rico) and the remaining 130 company-operated retail stores located in Canada.

In addition, as of September 30, 2021, BSG supplied 132 franchised stores.

All SBS and BSG stores have implemented recommended practices and procedures within stores to ensure our customers and employees experience a safe and healthy environment, including, but not limited to, increased cleaning frequency and social distancing signage.

BSG stores, including franchise-based Armstrong McCall stores, are designed to highlight our extensive product offerings to salons and salon professionals.

Our stores on average offer approximately 8,000 professional beauty products tailored to the territory and are segmented into distinctive areas arranged by product type, with certain areas dedicated to leading third-party brands.

Our company-operated stores average approximately 2,800 square feet and are located primarily in secondary strip shopping centers, being a destination exclusively for licensed cosmetologists.

BSG’s store count for the last three fiscal years is summarized in the following table:

Beginning store count

Franchises opened

Franchises closed

Ending store count

In fiscal 2022, the Board approved t he planned closure of 330 SBS and 35 BSG stores mostly over the next fiscal year, which was the result of a strategic evaluation that included a market analysis of certain locations where we believe we are able to recapture demand and improve profitability.

For more information on the Distribution Center Consolidation and Store Optimization Plan, see Note 16, Restructuring , in t he Notes to Consolidated Financial Statements in Item 8 contained in this Annual Report .

We believe our product offerings, led by our hair color and care categories, provides us a competitive advantage.

During the last three fiscal years, our hair color and care products made up between 60% and 70% of our total consolidated sales.

Key products included within our sales categories are as follows:

Hair Color – Developer/lightener, semi-permanent/demi-permanent/permanent hair color, toner

Hair Care – Shampoo and conditioner, hair gels and creams, hair spray

Styling Tools – Hair Dryer, irons, curling rods/rollers/pins, brushes/combs, clippers/trimmers/accessories, shears, razors, salon accessories

Nails – Polish/gel/acrylics/dips, nail accessories & supplies

Skin and Cosmetics – Cosmetics, cosmetic accessories, hair removal, skincare, jewelry

Other Beauty Products – Salon chairs/dryers/basics

Additionally, as a top destination to shop for professional color and care, our goal is to be in stock in these core categories at every opportunity.

To accomplish this, we have made great strides in fiscal 2022 toward increasing speed to market and improving our in-stock levels - notwithstanding macro-related supply chain disruptions.

Sally Beauty Supply

SBS stores and websites carry an extensive selection of professional beauty supplies for retail customers, salons and salon professionals, featuring an average of 7,000 SKUs of beauty products in our stores across a variety of product categories including hair color and care, skin and nail care, styling tools and other beauty products.

SBS’s stores and e-commerce platforms carry products from one or more of the leading manufacturers in each category, including third-party brands such as Wella ® , Clairol ® , OPI ® , Conair ® and L’Oreal ® , as well as an extensive selection of owned and exclusive-label brand products.

We believe that delivering an extensive selection of leading third-party, owned and exclusive-label brand professional beauty products at attractive prices through knowledgeable sales associates and convenient store locations is what differentiates SBS.

Additionally, we believe that carrying a wide selection of the latest premier branded merchandise is critical for SBS in building long-term relationships with its customers and attracting new customers.

As beauty trends continue to evolve, SBS will continue to offer the changing professional beauty product assortment necessary to meet the needs of retail consumers and salon professionals.

In addition, SBS’s extensive selection of owned and exclusive-label brand professional beauty products are only available at SBS stores and through its e-commerce platforms.

We believe that SBS’s owned and exclusive-label brand products offer equal or better quality than higher-priced leading third-party brands, providing the customer attractive alternatives to those brands at lower prices.

Generally, SBS’s owned-brand products have higher gross margins than the leading third-party branded products and, we believe, offer continued sales and profit growth potential.

During the fiscal year ended September 30, 2021, owned and exclusive-label brand products accounted for approximately 45% of SBS’s product sales in the U.S.

SBS intends to continue to invest in the growth of its owned and exclusive-label brands and to actively promote these products.

SBS carries an extensive selection of leading third-party, owned and exclusive-labeled brand professional beauty supplies across a variety of product categories.

As leaders in the beauty industry, we believe we are uniquely positioned to adapt and innovate within our brands, partnerships and product offerings to provide the looks customers want.

We believe this focus helps us attract new customers and keep long-term relationships with existing customers.

During fiscal year 2022, we launched Strawberry Leopard, a new exclusive vivid color line, which resonates to a growing Gen Z customer base.

Additionally, in the beginning of fiscal year 2023, we will be launching bondbar, a new owned brand hair repair line, to meet the demand for powerful hair repair solutions at an accessible price .

Furthermore, we continue to expand our selection of textured hair products, including over 50 Black-founded brands, and offer innovation in the nails category that we believe further differentiates us from our competitors.

We believe that our owned and exclusive-labeled brands, available only at SBS, offer equal or better quality than higher-priced leading third-party brands.

During the last three fiscal years, our owned and exclusive-labeled brands accounted for approximately 45% of our U.S.

and Canada product sales.

Beauty Systems Group

BSG’s stores and e-commerce platforms carry an extensive selection of third-party branded products, such as Paul Mitchell ® , Wella ® , Matrix ® , Schwarzkopf ® , Kenra ® , Goldwell ® , Joico ® and Olaplex ® , for salons and salon professionals at competitive prices.

We feature an average of 10,000 SKUs in our BSG stores across a variety of product categories including hair color and care, skin and nail care, styling tools and other beauty items.

Additionally, BSG has exclusive and non-exclusive distribution rights for well-known brands in certain geographies with several key vendors.

As part of its growth strategy, BSG continues to pursue the acquisition of additional distribution rights.

We believe that carrying an extensive selection of branded merchandise is critical to maintaining relationships with our professional customers.

We believe BSG is the largest full-service distributor of professional beauty supplies in North America exclusively targeting salons and salon professionals.

Through BSG’s large store base, e-commerce platforms and sales force, including Armstrong McCall, BSG is able to access a significant portion of the highly fragmented U.S.

professional beauty salon products industry.

BSG carries an extensive selection of leading third-party branded products, many of which are under exclusive distributions rights, at competitive prices across a variety of product categories.

We have exclusive and non-exclusive distribution rights with several key vendors for well-known brands in certain geographies and continue to pursue the acquisition of additional distribution rights.

As the largest North American distributor of professional hair color and care, carrying an extensive selection of branded merchandise is critical to maintaining relationships with our professional customers.

During the fiscal year, a large wholesale competitor, continued to transform their business to a third-party distribution model.

In connection with their transformation, we acquired certain inventories and began servicing a large number of their storefronts.

Marketing and Advertising

SBS’s marketing programs are designed to drive customer traffic by differentiating SBS as a source of professional advice, solutions and salon-quality products at competitive prices, all backed by our “Love It or Return It” guarantee.

We believe that recent initiatives have differentiated SBS through value added education and content, such as launching DIY University by Sally Beauty last year and through our SallyCrew educators.

These programs provide hands-on education on a wide range of topics from the latest trends in hair color, textured hair, hair styling, and nails.

We continuously adapt our marketing initiatives and adjust our media and messaging mix to achieve a high return on our marketing and advertising dollars.

We target existing and potential customers through an integrated marketing approach designed to reach the customer through a variety of media, including digital advertising, email, social media, text messaging, direct mail and print advertising.

We continue to refine the strategy for sallybeauty.com and our other e-commerce platforms, becoming a more personalized and content-rich experience that empowers and inspires customers to discover new styles and find the confidence to try new products.

We are building more robust tools to help customers understand not just what but how, and to do so in a way that is fast, easy, and built for mobile devices, where our customers increasingly are accessing us.

Beyond generating e-commerce sales, we believe our website and new SBS mobile app are important vehicles to reach consumers researching beauty products online who could potentially visit our stores as a result of their experience on our website or our SBS mobile app.

Our customer loyalty and customer relationship management (“CRM”) programs in the U.S.

and Canada help generate loyalty through our Sally Beauty Rewards Program and our private label rewards credit card.

In return, we are able to collect valuable point-of-sale customer data as a means of increasing its understanding of customers’ needs and enhancing its ability to market to them in more personalized, relevant ways.

We continue to assess and update our customer loyalty and CRM programs in an effort to further enhance the customer experience and promote repeat sales from both retail customers and salon professionals.

Sally Beauty Supply

We target existing and potential customers through an integrated marketing approach designed to reach the customer through a variety of media channels, including digital advertising, e-mail, social media, text messaging, mobile app push notifications, direct mail and print advertising.

SBS’s marketing initiatives are designed to drive customer traffic through added education, content and community building.

In recent years, we revealed “Sally Crew” and launched “DIY University by Sally Beauty” to educate customers on a wide range of topics from the latest trends in hair color, textured hair, hair styling and nails and to make customers feel confident about mastering DIY hair color, hair care and nails.

Our Sally Crew Ambassadors consist of content creators and/or professional stylists who are DIY experts in their areas of focus and aim to inspire, educate and empower beauty enthusiasts.

This year, we expanded our DIY University content to provide easy-to-follow tutorials with convenient access to different product assortments discussed.

Additionally, we launched the Sally Beauty Associate Affiliate Program to encourage our associates to share their unique expertise with customers on social media to curate a community of inspiring, diverse creators who are using SBS merchandise for their DIY beauty, nails, hair and self-expression.

Beauty Systems Group

BSG’s marketing programs are designed to promote its extensive selection of brand name products at competitive prices and to educate, motivate and empower existing and potential customers.

We typically work closely with our vendors to provide customers promotional offers for certain products to target existing and potential customers.

We distribute promotional material through multiple channels, including print mail, e-mail, SMS, mobile app push notifications, social media, trade shows, educational events, store personnel and DSCs.

As of September 30, 2022, we had a network of 718 DSCs which personally consults, supports and sells directly to salons and salon

professionals.

In addition, we believe that our digital platforms enhance other efforts intended to promote awareness of our products by salons and salon professionals.

Customer Loyalty

and Canada, our Sally Beauty Rewards Program is driven to earn SBS customer loyalty and was recognized as one of “2022 America’s Best Loyalty Programs” by Newsweek & Statista.

The program is free to join, and it provides our loyalty customers the ability to earn points on their SBS purchases, that convert to Sally Beauty Rewards when certain thresholds are attained.

Through the program, these customers may also receive exclusive savings and personalized marketing offers.

Sally Beauty Reward members

In the U.S., we also offer our SBS customers the opportunity to apply for the Sally Beauty Rewards Credit Card that provides additional benefits to being a Sally Beauty Rewards member.

Additionally, we offer our SBS professional-customers and BSG customers the opportunity to apply for the Cosmo Prof Rewards Credit Card, which provides discounts on Cosmo Prof purchases or points through the Sally Beauty Rewards Program on SBS purchases.

Through these programs, we are able to collect valuable point-of-sale customer data as a means of increasing our understanding of customers and enhancing our ability to personalize our marketing.

We will continue to monitor and evolve our Sally Beauty Rewards Program in an effort to further enhance the customer experience and promote repeat sales from both retail customers and salon professionals.

Outside the U.S.

and Canada, our customer loyalty and marketing programs vary by marketplace.

BSG’s marketing programs are designed primarily to promote its extensive selection of brand name products at competitive prices and to educate, motivate and empower its customers to grow professionally.

BSG communicates on a frequent basis with its customers and potential customers, and distributes promotional material through multiple communication channels, including trade shows, educational events, store personnel, DSCs, print mail, e-mail, app push notifications and social media.

In addition, we believe that BSG’s websites ( www.cosmoprofbeauty.com and www.cosmoprofequipment.com ) and the CosmoProf mobile commerce-based app enhance other efforts intended to promote awareness of BSG’s products by salons and salon professionals.

In addition, we believe the redesign of www.cosmoprofbeauty.com , the implementation of BOPIS, rapid delivery, and the upgrade of the CosmoProf mobile commerce-based app, which offers barcode scanning, updated order tracking and a digital membership card, enhance efforts intended to promote awareness and adoption of BSG products and services for salons and salon professionals.

As of September 30, 2021, BSG had a network of 719 DSCs, which exclusively consult, support and sell directly to salons and salon professionals.

In order to provide a knowledgeable sales consultant team, BSG actively recruits and trains individuals with industry knowledge or sales experience.

We believe that DSCs with broad product knowledge and direct sales experience are more successful in driving sales.

Our sales commission program is an important component of the compensation of our DSCs, which is designed to drive sales and to focus DSCs on selling products that are best suited to individual salons and salon professionals.

Our Customers

We appeal to a wide demographic consumer profile and offer an extensive selection of professional-grade beauty products sold directly to retail consumers, salons and salon professionals.

Historically, these factors have provided us with reduced exposure to downturns in economic conditions in the countries in which we operate.

Digital Strategy

We continue to grow our digital footprint not only through our marketing and customer relationship efforts, but also through our digital platforms in each segment.

We believe we are uniquely positioned to continue expanding our digital sales penetration thanks to our omni-channel business model, which enables us meet our customers where they are;

in store or online, or through a hybrid approach such as our “buy online, pick up in store” (BOPIS) option.

Additionally, our digital strategy of enhancing our customer centricity aims to expand our services ecosystem to support professional stylists as well as increase education and expertise to inspire and support all of our customers.

To that end, we are excited to continue our digital expansion through new initiatives such as a stylist platform powered by Salon HQ and Studio by Sally.

The stylist platform is a BSG initiative with a customizable digital storefront platform that gives our stylists the ability to curate a product selection from thousands of choices and enable clients to purchase directly from their shops without having to hold inventory.

Whereas Studio by Sally, a pilot store program set to kick off in fiscal 2023, will have a digital-first focus, from virtual check-in and digital education throughout the store, to DIY demos streaming at the store-front and take-home videos from individual salon sessions.

Studio by Sally will allow for personalized appointments with a licensed stylist who will train and educate the consumer on how to color their own hair and achieve their desired results.

We currently receive our merchandise through nine U.S.

distribution centers and several distribution centers in various other countries.

Our distribution centers service our stores, orders from our DSCs and ship-to-customer orders through various freight carriers.

We procure our owned-branded merchandise through domestic and foreign vendors.

We work closely with our overseas vendors to fulfill production orders and schedule ocean and freight carriers to deliver to our distribution centers.

Over the past several years, we have made significant investments in our end-to-end supply chain systems and processes to build a best-in-class merchandising and supply chain platform for the future.

As we leverage these new systems and processes, we expect to more effectively and efficiently manage and forecast our inventory to ensure appropriate in-stock levels.

Additionally, customers are looking for more convenient options for receiving merchandise and it is helping drive their purchasing decisions.

As such, we have made significant investments to “meet them where they are.” When ordering through our digital platforms, our customers can select different fulfillment options, including:

deliver by common carrier (from-store or distribution centers);

and 2-hour delivery.

During the fiscal year, we expanded our partnership with DoorDash for both SBS and BSG, and we added a 2-hour delivery option to the Sally and BSG mobile apps.

Our business is generally not seasonal, but typically has higher sales in our first quarter related to the holiday sales period.

Our Competition

The global beauty industry is highly competitive.

SBS competes with domestic and international beauty product wholesale and retail outlets, including local and regional open-line beauty supply stores, professional-only beauty supply stores, mass merchandisers, online retailers, drug stores, department stores and supermarkets, as well as salons that sell hair care products.

BSG competes primarily with domestic and international beauty product wholesale suppliers, including online retailers, and manufacturers selling professional beauty products directly to salons and individual salon professionals.

The primary competitive factors in the beauty products distribution industry are the price at which branded and owned-brand products are sold to customers;

The primary competitive factors in our industry are:

the price of branded and owned-brand products;

exclusive distribution contracts;

the quality, perceived value, consumer brand name recognition, packaging and variety of the products sold;

the quality, perceived value, brand name recognition, packaging and variety of the products sold;

customer service;

the efficiency of distribution networks;

efficiency of distribution networks;

and the availability of desirable store locations.

SBS competes primarily with beauty product wholesale and retail outlets, including local and regional open-line beauty supply stores, professional-only beauty supply stores, mass merchandisers, online retailers, drug stores, department stores and supermarkets as well as salons that sell hair care products.

BSG competes primarily with beauty product wholesale suppliers, including online retailers and manufacturers selling their products directly to salons and salon professionals.

We face competition from certain manufacturers that use their own sales forces to distribute their professional beauty products directly or that align themselves with our competitors.

Some of these manufacturers are vertically integrating through the acquisition of distributors and stores.

We also face competition from authorized and unauthorized retailers and internet sites offering professional salon-only products.

Some of these manufacturers are vertically integrated through the acquisition of distributors and stores.

We also face competition from authorized and unauthorized retailers as well as internet sites offering professional salon-only products.

Our Suppliers

We purchase our merchandise directly from manufacturers through supply contracts and by purchase orders.

For fiscal year 2021, our five largest suppliers – Wella Company, Henkel AG & Co.

KGaA, the Professional Products Division of L'Oreal USA S/D, Inc., or L’Oreal, John Paul Mitchell Systems, and Beauty Quest Group – accounted for approximately 29% of our consolidated merchandise purchases.

Products are purchased from these and many other manufacturers on an at-will basis or under contracts which can generally be terminated without cause upon 90 days or less notice or expire without express rights of renewal.

We purchase our merchandise directly from manufacturers through supply contracts and purchase orders.

For fiscal year 2022, our five largest suppliers – Henkel AG & Co.

KGaA, Wella Company, the Professional Products Division of L'Oreal USA S/D, Inc., or L’Oreal, John Paul Mitchell Systems, and Olaplex Inc.

– accounted for approximately 42% of our consolidated merchandise purchases.

We have developed a long-standing, mutually beneficial relationship, some exclusive, with these suppliers and many others, which we believe is core to our competitive advantage.

We purchase products from these and many other manufacturers on an at-will basis or under contracts which can generally be terminated without cause upon 90 days or less notice or expire without express rights of renewal.

Intellectual Property

and in other countries where we operate, we have registered or legally protected trademarks, copyrights, internet domain names, service marks and tradenames that are used to promote and market our business, stores, digital platforms and products.

We believe many of these are well recognized and have significant value, including but not limited to:

Sally®, Sally Beauty®, Cosmo Prof®, Armstrong McCall®, ION® and Beyond the Zone®.

Our Company Purpose & Values

In late 2021, we released our new Company Purpose & Values, with the intent of establishing our rallying cry and focus our teams on the impact we intend to have in the world.

Our Company Purpose & Values are intended to establish our rallying cry and focus our teams on the impact we intend to have in the world.

TO INSPIRE A MORE COLORFUL, CONFIDENT AND WELCOMING WORLD

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Take care of each other, our community and our planet.

Our Associates

At September 30, 2021, we had approximately 29,000 global associates and we believe they are our greatest asset with their combined skills, knowledge, work/life experiences and capabilities.

At the front line interacting with our customers or behind-the-scenes supporting our field teams, our associates play a huge role in our business.

While we often emphasize our technology-based transformation and our wide variety of amazing hair and beauty products as key attributes, nothing happens or succeeds without our people.

More information on our Purpose & Values can be found at:

https://www.sallybeautyholdings.com/our-company/purpose-and-values .

Human Capital Management

As of September 30, 2022, we had approximately 29,000 global associates, including approximately 13,000 full-time associates.

We believe they are our greatest asset with their combined skills, knowledge, work/life experiences and capabilities.

At the front line interacting with our customers or behind-the-scenes supporting our field teams, our associates play a major role in our business.

While we often emphasize our technology-based transformations and our wide variety of professional beauty products as key attributes, nothing happens or succeeds without our people.

In return for what they do for us, among many other things, we strive to:

Ensure our associates work in a safe, healthy environment – the importance of which has only risen in light of COVID-19;

Provide competitive total rewards packages that attract and retain talent in every facet of our business – stores, direct sales, distribution centers and corporate headquarters;

Ensure our associates work in a safe, healthy environment;

Provide competitive compensation and benefits packages that attract and retain talent in every facet of our business – stores, direct sales, distribution centers and corporate headquarters.

Our benefits range from medical, dental and vision care – including options for our part-time associates – to 401(k), short and long-term disability and a robust Employee Assistance Program.

Starting fiscal year 2023, we will be providing six weeks of paid parental leave for mothers, fathers or partners upon the birth or placement of a child;

Provide meaningful, engaging learning and development that grows our associates’ knowledge and capability with respect to our business and skills that will help them in business and life;

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We strive to create a safe and healthy work environment for all associates

SBH places a high value on the health and safety of our associates, customers, suppliers and vendors.

This commitment is evidenced, in part, by our background check policy for new hires, training and policy implementations related to handling both associate and customer incidents, partnerships to maintain the stores and make necessary repairs, as well as ongoing support in the field and at the support center.

Additionally, SBH values our partnerships with suppliers and vendors and understands the impact they can have on our associates.

We place a high value on the health and safety of our associates, customers, suppliers and vendors.

This commitment is evidenced, in part, by our background check policy for new hires, training and policy implementations related to handling both associate and customer incidents, partnerships to maintain the stores and make necessary repairs, recent actions taken to protect our customers and associates against COVID-19 as well as ongoing support in the field and at the support center.

Additionally, we value our partnerships with suppliers and vendors and understand the impact they can have on our associates.

Thus, SBH has included rules governing their conduct, both with respect to expectations while interacting with our associates and, with our foreign suppliers, assurances that they too are providing a safe and healthy working environment for their associates.

Over the course of our fiscal year 2021, we have continued to adapt and respond to the various impacts of COVID-19 across our business.

As mentioned above, our main focus has been on health and safety.

Such efforts included

various safety protocols such as detailed cleaning protocols, personal protective equipment requirements, and visual cues regarding social distancing, mask-wearing, etc.

At times of peak case counts or the emergence of the new variants, we have instituted rolling, rapid testing for COVID-19 at a number of our distribution centers.

We have continued to maintain and update these protocols, monitor for compliance and make improvements and adjustments where needed throughout fiscal year 2021.

We have also managed through closures and capacity restrictions where required by local law, and sought to provide as much notice and support to our teams as reasonably possible.

Labor Practices

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We ensure compliance with other important labor and employment law issues through a variety of processes and procedures, using both internal and external expertise and resources.

We also emphasize the importance of taking care of our associates in our Company’s Code of Business Conduct and Ethics, which is the standard of conduct that applies to all of our associates, executive officers and Board of Directors.

We also emphasize the importance of taking care of our associates in our Company’s Code of Business Conduct and Ethics, the standard of conduct that applies to all of our associates, executive officers and Board of Directors.

The Code reflects the core principles of conducting our business as a good corporate citizen in compliance with all laws, rules and regulations applicable to us and the conduct business with regard for the welfare of our associates and providing equal opportunity to all associates and job applicants.

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We live our values, listen to our associates and take action

We make significant efforts to ensure our associates are engaged and excited about the work they are doing and contributions they are making to our Company and our customers.

We make significant efforts to ensure our associates are informed, engaged and excited about the work they are doing and contributions they are making to our Company and our customers.

We are committed to providing associates with what they need to thrive and grow their career.

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Importantly, we devote significant effort and resources to the development of our associates, including providing almost all of our associates access to state-of-the-art learning management systems.

We use these platforms to provide specifically designed and interactive e-learning courses in sales and service, product and hair knowledge, compliance training, and health and safety.

We use these platforms to provide specifically designed and interactive award-winning e-learning courses in sales and service, product and hair knowledge, compliance training, and health and safety.

We also place significant value and attention on responding to feedback and input from associates.

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At Sally Beauty we celebrate differences, inclusivity and self-expression.

This fundamental aspect of SBH is rooted in our belief that beauty is for everyone and everyone should find their own path to beauty.

This fundamental aspect of SBH’s culture is rooted in our belief that beauty is for everyone and everyone should find their own path to beauty.

Our associates and our customers care about celebrating diversity and self-expression.

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Our SBH Team in the U.S.

& Canada is over 91% female and over 50% racially/ethnically diverse.

& Canada is over 90% women and over 48% people of color.

In 2019 and 2020, Forbes named our Company one of America’s Best Employers for Diversity.

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For us, these are key drivers of the success of the business, as our associates should – and do – reflect the various qualities of our customers and what they desire and expect from SBH.

During the fiscal year, we proudly launched our first Employee Resource Groups (ERGs), starting with four groups that represent out Black, Hispanic, Women and LGBTQ+ associates.

These ERGs are off to a strong start, and we look forward to embedding our ERGs within how we do business, both internally and externally, then expanding to other groups and focus areas in the future.

In Our Customer Base :

Our customers span the entire continuum of gender and ethnic diversity.

We sell products to treat and style every kind of hair;

We sell beauty products to treat and style every kind of hair;

we deliver a tailored assortment of beauty products that serve the local communities where our over 4,000 U.S.

and Canadian stores are located.

and Canada stores are located.

Serving the diverse demographics and needs of our customers drives a culture and workforce that embraces and reflects the communities we serve.

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We recognize the value these initiatives bring to our Company, our associates, our customers and the communities we serve.

More information on our approach to Diversity, Inclusion & Belonging can be found at:

https://www.sallybeautyholdings.com/our-company/diversity-inclusion-and-belonging .

We are subject to a wide variety of laws and regulations, which historically have not had a material effect on our business.

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We also face comprehensive regulation outside the U.S., focused primarily on product labeling and safety issues.

As of September 30, 2021, SBS and BSG supplied franchised stores located in the U.S.

and certain countries in Europe.

As a result of these franchisor-franchisee relationships, we are subject to regulation when offering and selling franchises in the applicable countries.

As of September 30, 2022, we supplied franchised stores primarily located in the U.S.

As a result of these franchisor-franchisee relationships, we are subject to regulation when offering and selling franchises.

The applicable laws and regulations affect our business practices, as franchisor, in a number of ways, including restrictions placed upon the offering, renewal, termination and disapproval of assignment of franchises.

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Access to Public Filings

Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and amendments to such reports are available, without charge, on our website, www.sallybeautyholdings.com , as soon as reasonably possible after they are filed electronically with the Securities and Exchange Commission, or SEC, under the Exchange Act.

Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and amendments to such reports are available, without charge, on our website, www.sallybeautyholdings.com , as soon as reasonably possible after they are filed electronically with the Securities and Exchange Commission, or SEC, under the Exchange Act.

The SEC maintains an internet site that contains our reports, proxy and information statements, and other information we file electronically with the SEC at www.sec.gov.

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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-K

Item 1. Business