What changed in this filing

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Item 1. Financial Statements

2023-02-02 compared with 2022-08-04 · 108 added, 101 removed, 252 unchanged (45% of the section changed)

12 unchanged sentences

Property and equipment, net of accumulated depreciation of $ 849,202 at

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

December 31, 2022, and $ 820,811 at September 30, 2022

Operating lease assets

Intangible assets, excluding goodwill, net of accumulated amortization of

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

$ 28,820 at December 31, 2022, and $ 26,794 at September 30, 2022

Liabilities and Stockholders’ Equity

15 unchanged sentences

107,024 shares issued and 107,284 and 106,970 shares outstanding at

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

December 31, 2022, and September 30, 2022, respectively

Preferred stock, $ 0.01 par value.

11 unchanged sentences

Three Months Ended

Nine Months Ended

Cost of goods sold

13 unchanged sentences

Three Months Ended

Nine Months Ended

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation adjustments

1 unchanged sentence

Foreign exchange contracts, net of tax

Other comprehensive (loss) income, net of tax

Other comprehensive income (loss), net of tax

Total comprehensive income

7 unchanged sentences

Balance at September 30, 2022

Other comprehensive loss

Other comprehensive income

Share-based compensation

2 unchanged sentences

related to net share settlement

Repurchases and cancellations of

Balance at December 31, 2022

Other comprehensive loss

Share-based compensation

Stock issued for equity awards

Employee withholding taxes paid

related to net share settlement

Repurchases and cancellations of

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

1 unchanged sentence

Balance at September 30, 2021

Other comprehensive income

Other comprehensive loss

Share-based compensation

2 unchanged sentences

related to net share settlement

Repurchases and cancellations of

Balance at December 31, 2021

Other comprehensive loss

Share-based compensation

Stock issued for equity awards

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)

Nine Months Ended June 30,

Three Months Ended December 31,

Cash Flows from Operating Activities:

Adjustments to reconcile net earnings to net cash provided by operating

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

by operating activities:

Depreciation and amortization

1 unchanged sentence

Amortization of deferred financing costs

Loss on early extinguishment of debt

Impairment of long-lived assets, including operating lease assets

Loss on disposal of equipment and other property

8 unchanged sentences

Other liabilities

Net cash provided by operating activities

Net cash provided (used) by operating activities

Cash Flows from Investing Activities:

5 unchanged sentences

Repayments of long-term debt, including prepayment costs

Debt issuance costs

Payments for common stock repurchased

3 unchanged sentences

Effect of foreign exchange rate changes on cash and cash equivalents

Net decrease in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of period

9 unchanged sentences

Significant Accounting Policies

Business Operations

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 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”).

Our operations consist of company-operated stores, franchise 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, who sell directly to salons and salon professionals.

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

Basis of Presentation

The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC.

The unaudited condensed consolidated interim financial statements of Sally Beauty Holdings, Inc.

and its subsidiaries included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC.

Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures included herein are adequate for the interim period presented.

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, 2022.

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.

In the opinion of management, these unaudited 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 December 31, 2022, and September 30, 2022, and our consolidated results of operations, consolidated comprehensive income, consolidated cash flows and consolidated statements of stockholders’ equity for the three months ended December 31, 2022 and 2021.

Principles of Consolidation

The condensed consolidated interim financial statements include all accounts of Sally Beauty Holdings, Inc.

The unaudited condensed consolidated interim financial statements include all accounts of Sally Beauty Holdings, Inc.

and its subsidiaries.

8 unchanged sentences

These estimates may use forecasted financial information based on reasonable information available, however are subject to change in the future.

Additionally, unknown future impacts of COVID-19 may impact those estimates and assumptions as well.

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.

1 unchanged sentence

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 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

3 unchanged sentences

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,

Three Months Ended December 31,

Beginning Balance

4 unchanged sentences

Fair Value Measurements

Financial instruments measured on recurring basis

Consistent with the three-level hierarchy defined in ASC Topic 820, Fair Value Measurement , as amended, we categorize our financial assets and liabilities as follows:

We measure on a recurring basis and disclose the fair value of our financial instruments under the provisions of ASC Topic 820, Fair Value Measurement, as amended (“ASC 820”).

We define “fair value” as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date.

ASC 820 establishes a three-level hierarchy for measuring fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

The three levels of that hierarchy are defined as follows:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities;

Level 2 - Pricing inputs are other than quoted prices in active markets, included in Level 1, that are either directly or indirectly observable;

Level 3 - Unobservable pricing inputs in which little or no market activity exists, therefore requiring an entity to develop its own model with estimates and assumptions.

Financial instruments measured at fair value on recurring basis

Consistent with the fair value hierarchy, we categorized our financial assets and liabilities as follow:

(in thousands)

4 unchanged sentences

Foreign exchange contracts

Non-designated cash flow hedges

Other current assets

Interest rate caps

Other current assets

Financial Liabilities:

Foreign exchange contracts

Designated cash flow hedges

Accrued liabilities

Financial instruments not measured at fair value

Non-designated cash flow hedges

Accrued liabilities

Total liabilities

The fair value for interest rate caps and foreign exchange contracts were measured using widely accepted valuation techniques, such as discounted cash flow analyses and observable inputs, such as market interest rates and foreign exchange rates.

Other fair value disclosures

The carrying amounts of cash equivalents, trade and other accounts receivable and accounts payable and borrowing under our ABL facility approximate their respective fair values due to the short-term nature of these financial instruments.

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

June 30, 2022

December 31, 2022

September 30, 2022

5 unchanged sentences

Total long-term debt

The table above excludes amounts, if any, related to our ABL facility as the balance approximates fair value due to the short-term nature of our borrowings.

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

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.

1 unchanged sentence

Share Repurchases

In August 2017, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $ 1.0 billion of its common stock, subject to certain limitations governed by our debt agreements.

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 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

Nine Months Ended

Number of shares repurchased

Total cost of share repurchased

Accumulated Other Comprehensive Loss

In August 2017, our Board of Directors (“Board”) approved a share repurchase program authorizing us to repurchase up to $ 1.0 billion of its common stock, subject to certain limitations governed by our debt agreements.

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

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

For the three months ended December 31, 2022, we did no t repurchase shares under our share repurchase program.

For the three months ended December 31, 2021, we repurchased 3.7 million shares of common stock at a total cost of $ 75.0 million.

Accumulated Other Comprehensive Income (Loss)

The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):

3 unchanged sentences

Balance at September 30, 2022

Other comprehensive loss before

Other comprehensive income (loss) before

reclassification, net of tax

Reclassification to net earnings, net of tax

Balance at June 30, 2022

Balance at December 31, 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

Nine Months Ended

Weighted-average basic shares

4 unchanged sentences

Goodwill and 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.

W e considered potential triggering events and determined there were none for the three months ended December 31, 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

Nine Months Ended

(in thousands)

Intangible assets amortization expense

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.

Additionally, during the three months ended December 31, 2022, the changes in goodwill and other intangibles were primarily from the effects of foreign currency exchange rates of $ 6.4 million and $ 1.7 million, respectively.

During the three months ended December 31, 2021, the changes in goodwill were primarily from the effects of foreign currency exchange rates of $ 0.9 million.

Accrued Liabilities

5 unchanged sentences

Insurance reserves

Interest payable

Property and other taxes

Interest payable

Operating accruals and other

1 unchanged sentence

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.

At December 31, 2022, our ABL facility had $ 65.0 million in outstanding borrowings and $ 417.7 million available for borrowing, including the Canadian sub-facility, subject to the conditions contained therein.

Derivative Instruments and Hedging Activities

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

During the three months ended December 31, 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.

1 unchanged sentence

Foreign Currency Forwards

We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on inventory purchases in U.S.

We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on forecasted inventory purchases in U.S.

dollars by our foreign subsidiaries.

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):

At December 31, 2022, we held forwards, which expire ratably through September 30, 2023 , with a notional amount, based upon exchange rates at December 31, 2022, as follows (in thousands):

Notional Currency

1 unchanged sentence

Canadian Dollar

Quarterly, the changes in fair value related to the foreign currency forwards are recorded into AOCL.

Quarterly, the changes in fair value related to these foreign currency forwards are recorded into AOCL.

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 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.

For the three months ended December 31, 2022 and 2021, we recognized a gain of $ 0.3 million and a loss of $ 0.3 million, respectively.

Based on December 31, 2022, valuations and exchange rates, we expect to reclassify losses 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 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.

For the three months ended December 31, 2022 and 2021, we recognized expense of $ 0.1 million and $ 0.4 million, respectively, into interest expense on our condensed consolidated statements of earnings.

Over the next 12 months, we expect to reclassify gains of

approximately $ 2.6 million into interest expense, which represents estimated interest rate settlements less the original value of the expiring caplets.

Non-Designated Derivative Instruments

We also use foreign exchange contracts to mitigate our exposure to exchange rate changes in connection with certain intercompany balances not permanently invested.

At December 31, 2022, we held forwards, which expire on various dates in the first month of both the second and third fiscal quarters of fiscal year 2023, with a notional amount, based upon exchange rates at December 31, 2022, as follows (in thousands):

Notional Currency

Notional Amount

British Pound

Canadian Dollar

We record changes in fair value and realized gains or losses related to these foreign currency forwards into selling, general and administrative expenses.

For the three months ended December 31, 2022 and 2021, the effects of these foreign exchange contracts on our condensed consolidated financial statements were gains of $ 0.4 million in both years.

Segment Reporting

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

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

Three 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 nine months ended June 30, 2022 and 2021.

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

Disaggregation of net sales by segment

The following tables disaggregate our segment revenues by merchandise category.

We have reclassified certain prior year amounts to conform to current year presentation.

We have reclassified certain prior year amounts within BSG to conform to current year presentation.

Three Months Ended

Nine Months Ended

Styling tools and supplies

2 unchanged sentences

Three Months Ended

Nine Months Ended

Styling tools and supplies

3 unchanged sentences

Three Months Ended

Nine Months Ended

Company-operated stores

Franchise stores

Three Months Ended

Nine Months Ended

Company-operated stores

1 unchanged sentence

Franchise stores

Restructuring

Restructuring expenses, included in Cost of Goods Sold (“COGS”) and Restructuring for the three months ended December 31, 2022 and 2021 are as follows (in thousands):

Three Months Ended

Included in COGS

Distribution Center Consolidation

and Store Optimization Plan

Included in Restructuring

Distribution Center Consolidation

and Store Optimization Plan

Transformation Plan

Total in Restructuring

Total Restructuring Expenses

Amounts included within COGS are related to adjustments to our expected obsolescence reserve related to the Plan (as defined below).

Amounts included within Restructuring (SG&A) are related to stores and distribution centers closed during the quarter in accordance with the Plan (as defined below).

Distribution Center Consolidation and Store Optimization Plan

In the fourth quarter of fiscal year 2022, our Board approved the Distribution Center Consolidation and Store Optimization Plan authorizing the closure of 330 SBS stores and 35 BSG stores, and the closure of two BSG distribution centers in Clackamas, Oregon and Pottsville, Pennsylvania (“the Plan”).

During the three months ended December 31, 2022, we completed the closure of the two BSG distributions centers.

We believe that consolidating the operation of these two distribution centers into our larger distribution centers will increase product availability, shorten delivery times and reduce overall costs.

As of December 31, 2022, we have closed 327 SBS stores and 14 BSG stores as part of the Plan.

Stores identified for early closure were part of a strategic evaluation which included a market analysis of certain locations where we believe we will be able to recapture demand at other nearby store locations and improve overall profitability.

By optimizing our store base, we are further focusing on our customers’ shopping experience and our product offerings.

The Plan will continue to be executed throughout fiscal year 2023 and into the first half of fiscal year 2024, and therefore it may include future charges related to store closures such as exit costs, lease negotiation penalties, termination benefits and adjustments to estimates.

The liability related to the Plan, which is included in accrued liabilities on our consolidated balance sheets, is as follows:

(in thousands)

September 30,

Cash Payments

Non-Cash Amounts

Closing costs - leases (a)

Closing costs - payroll expenses (b)

Impairment - property and equipment (c)

Inventory transfer costs

Impairment - operating lease assets (c)

Lease-related closing costs include contract terminations costs as well as other rental obligations associated with closing stores.

Payroll-related closing costs include one-time termination benefits related to the closure of our distribution centers as well as other payroll expenses associated with closing stores.

Remaining carrying value for the long-lived assets, including operating lease assets, were not material and approximate their fair value.

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