as of march, 2011 - sally beauty holdings · as of march, 2011. sallybeauty. ... sally beauty...

SALLYBEAUTYHOLDINGS, INC. 1

As of March, 2011


Cautionary Notice Regarding Forward-Looking StatementsCautionary Notice Regarding Forward-Looking StatementsStatements in this presentation and the schedules hereto which are not purely historical facts or which depend upon future events may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” or similar expressions may also identify such forward-looking statements.Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, but not limited to, risks and uncertainties related to: the highly competitive nature of, and the increasing consolidation of, the beauty products distribution industry; anticipating changes in consumer preferences and buying trends or and managing our product lines and inventory; potential fluctuation in our same store sales and quarterly financial performance; our dependence upon manufacturers who may be unwilling or unable to continue to supply products to us; the possibility of material interruptions in the supply of beauty supply products by our manufacturers; products sold by us being found to be defective in labeling or content; compliance with laws and regulations or becoming subject to additional or more stringent laws and regulations; product diversion; the operational and financial performance of our Armstrong McCall, L.P. business; the success of our Internet-based business; successfully identifying acquisition candidates or successfully completing desirable acquisitions; integrating businesses acquired in the future; opening and operating new stores profitably; the impact of a continued downturn in the economy upon our business; the success of our cost control plans; protecting our intellectual property rights, specifically our trademarks; conducting business outside the United States; disruption in our information technology systems; natural disasters or acts of terrorism; the preparedness of our accounting and other management systems to meet financial reporting and other requirements; being a holding company, with no operations of our own, and depending on our subsidiaries for cash; our substantial indebtedness; the possibility that we may incur substantial additional debt; restrictions and limitations in the agreements and instruments governing our debt; generating the significant amount of cash needed to service all of our debt and refinancing all or a portion of our indebtedness or obtaining additional financing; changes in interest rates increasing the cost of servicing our debt ; the potential impact on us if the financial institutions we deal with become impaired; the representativeness of our historical consolidated financial information with respect to our future financial position, results of operations or cash flows; our reliance upon Alberto-Culver for the accuracy of certain historical services and information; the share distribution of Alberto-Culver common stock in our separation from Alberto-Culver not constituting a tax-free distribution; actions taken by certain large shareholders adversely affecting the tax-free nature of the share distribution of Alberto-Culver common stock; the voting power of our largest stockholder discouraging third party acquisitions of us at a premium; and the interests of our largest stockholder differing from the interests of other holders of our common stock.Additional factors that could cause actual events or results to differ materially from the events or results described in the forward-looking statements can be found in our most recent Annual Report on Form 10-K for the year ended September 30, 2010, as filed with the Securities and Exchange Commission. Consequently, all forward-looking statements in this presentation are qualified by the factors, risks and uncertainties contained therein. We assume no obligation to publicly update or revise any forward-looking statements.


Company Highlights

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

Sally Beauty Supply in business for 50 years

Annual revenue of $2.9 billion

Strong cash flow generation

4,178 stores located in 10 countries (1)

Experienced and motivated leadership team

Industry leading position with ~31% channel share

Proven resilience in recessionary cycles

Well-positioned for long-term growth

(1) As of December 31, 2010


Overview – Who We Are

3,061 stores (1)1,117 stores (1)

1,141 sales consultants (1)

• Retail consumers (73% of sales)

• Professional stylists (27% of sales)

• Stores - “booth” renting stylists (65% of sales)

• Full Service sales – small to medium sized salons (35% of sales)

SalesSSS growthOperating incomeProfit margin

$1,834.64.1%

$320.517.5%

$1,081.46.2%

$112.510.4%

Note:Financial results from Fiscal Year End 2010, September 30, 2010.(1) As of December 31, 2010 (fiscal 2011 first quarter)(2) Operating income is net Unallocated Expenses and Share Based Compensation

SALES: $2,916.1EBITDA: $404.9Operating Income: $340.9 (2)

Profit Margin: 11.7%

Cash Flow from Ops: $217.1

Fiscal Year 2010($ in millions)

Segments

Distribution Channel

Customers

2010 FinancialHighlights

SalesSSS growthOperating incomeProfit margin

Industry Channels of Distribution (U.S.)

Open Line

Direct

Mega‐Salon

Professional Beauty Products

Distribution Channels

41% (2)

13%

33%

12% Professional Beauty Products~$4.0 billion (1)

Distribution Channels

$1.6B

13% (2)$0.5B

34% (2)$1.4B

33%

12% (2)$0.5B

L’Oreal’s

Manufacturerdirect to large–format salons.

Manufacturer direct to manufacturer ownedsalons or “high‐end” salons.

Third party distribution to salons and beautyprofessionals via sales force and “professional only” stores

Distributes professionalproduct to the public via retail stores

Exclusive/Full Service

Source: Professional Consultants & Resources, 2010 Study.(1) Professional beauty supply channel size based upon a 2010 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2010

manufacturer-level sales for professional beauty supplies were approximately $4.0 billion. (2) Represents an estimated breakdown of salon haircare product sales in 2010 by channel of distribution.

Local and regional operators

Competition:

Competition:


$1.6 $1.7 $1.8 $2.0

$2.1 $2.2 $2.3 $2.4 $2.6 $2.7

$2.9 $2.9 $3.0 $3.1 $3.3 $3.4

$3.5 $3.7

$3.8 $3.8

0.0

1.0

2.0

3.0

$4.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Stable & Consistent Industry Growth

U.S. Beauty Supply Industry has experienced steady growth with a CAGR of ~5%(1)

($ bn)

Source: Professional Consultants & Resources, 2010 Study.(1) Based on manufacturer sales of professional beauty supplies in the U.S.

RecessionResistantIndustry

2008-2009 growth of

1.5%

$4.0

2009 - 2010 growth of

4.4%

At manufacturer dollars


Our Leading U.S. Industry Position

•Estimated 19% channel share (2)

•Largest open-line retailer/distributor inU.S. based on store count

•Competition is limited

•Estimated 12% channel share (2)

•Leading full service/exclusive distributor in North America•1.2x sales of next largest competitor

(1) Professional beauty supply channel size is a management estimate, based upon a 2010 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2010 manufacturer-level sales for professional beauty supplies were over $4.0 billion. Retail sales of $7.7 billion is calculated using gross margin of 48.9% (from SBH’s actual gross margin in the U.S. for FY2010) as the spread between manufacturer cost and retail sales.

(2) Estimated U.S. channel share calculated as follows: (i) Sally Beauty Supply’s U.S. net sales for the fiscal year ended September 30, 2010 divided by estimated marketplace size of $7.8 billion and (ii) BSG’s U.S. net sales for the fiscal year ended September 30, 2010 divided by estimated marketplace size of $7.8 billion.

Sally Beauty Holdings estimated channel share 31%

U.S. professional beauty supply marketplace, in retail dollars, was roughly $7.8 billion in 2010(1)


Drivers of Stable, Positive Comp Trends for SBH

Sally’s “control” brands are higher margin and increasing as a percent of sales

Increasing sales of DIY products as customers delay trips to salons and increase more “at-home” maintenance care purchases

Higher traffic levels and higher average ticket driven by roll-out of CRM marketing efforts

Improving international markets providing growth opportunities


Sales and EBITDA growth

Sales/Gross Margin Adjusted EBITDA

$247 $258 $294

$310 $342 $353

$405

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

FY04 FY05 FY06 FY07 FY08 FY09 FY10A

djus

ted

EB

ITD

A (

$ in

mill

ions

)

$2,098 $2,254 $2,373 $2,514 $2,648 $2,637

$2,916

43.5%44.0%44.5%45.0%45.5%46.0%46.5%47.0%47.5%48.0%48.5%

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

FY04 FY05 FY06 FY07 FY08 FY09 FY10

Gro

ss M

argi

n

Sale

s ($

in m

illio

ns)

(1)

(1) Includes a negative impact from unfavorable foreign currency exchange of $86 millionor 3.2% of sales.

Sales: +10.6% GM: +100 bps

+14.9%

SALLYBEAUTYHOLDINGS, INC.

Drivers of Earnings Growth

10

Revenue• Organic growth • Same store sales growth• Acquisitions

Gross Margin Expansion• Sally’s “exclusive” label sales growing as a % of sales• Customer mix shifting in both businesses• Low cost sourcing (brushes, electricals, etc)

Debt Reduction• Historically paid down debt• Consistently use portion of cash flow to pay down debt• Taken leverage ratio down 2 turns since going public

(1) Calculated over 6 year period 2004-2010

Strong Earnings Growth

$0.24

$0.42

$0.54

$0.78

2007 2008 2009 2010

EPS (GAAP) 44% growth

$229

$283 $297$341

2007 2008 2009 2010

Operating Income(in millions)

15% growth

11

Strong performance since going public in late 2006……..


Strong Performance in FY 2010

FY2010 % ChangeSame Store Sales +4.6% +280 bps

Sales $2,916.1m 10.6%

Gross Profit Margin 48.2% 100 bps

Operating Earnings $340.9m 14.9%

GAAP EPS $0.78 44.4%

Adjusted EBITDA $404.9m 14.9%

12

Fiscal Year 2010, ending September 30, 2010


Fiscal First Quarter 2011 Results

Strong YoY performance across the CompanyConsolidated net sales of $794 million, up 12.6% YoY – Same store sales growth of 6.8% compared to 3.8% in 1Q10– Traffic and average ticket up in both segments

Gross profit margin of 47.8%, expansion of 50 bps over prior year– Sally Beauty Supply +70 bps; Beauty Systems Group +90 bps

Operating margin expansion of 160 bps, to 11.6%– Sally Beauty Supply +120 bps; Beauty Systems Group +160 bps– Realized SG&A leverage and acquisition synergies

Net earnings of $41 million, up 57% YoY– EPS of $0.22 vs. $0.14 in the fiscal 2010 first quarter


Solid Balance Sheet

14

No near-term maturities• Completed prepayment of Term loan ‘A’ in 3Q10 • November, 2010 refinanced the ABL with market-leading terms• Term loan ‘B’ matures FY 2014• Covenant “light”

Consolidated leverage ratio ~3.7x’s (as 9/30/10)

• Lowered by over 2 turns in four years

Proven ability to operate with leverage

Ample liquidity• Strong cash flow • ABL of $400 million (refinanced 11/10)


Current Debt Structure

Amount Rate

Maturity

(Fiscal Year)

ABL ($400mm) $43.2 Prime +1.25% to 1.75% or LIBOR +2.25% to 2.75%

2015 (1)

Other 6.2 4.05% to 7% 2010 to 2014

Term Loan B 843.9 Prime + 1.25 to 1.5% or Libor +2.25 to 2.5% (2)

2014

Senior Notes 430.0 9.25% 2015

Senior Sub. Notes 275.0 10.50% 2017

Total Debt, excl cap leases $1,598.3

Debt As of December 31, 2010

($ In Millions)

(1) In November 2010 (fiscal year 2011) the Company replaced the ABL facility with a new ABL facility which has a 5-year maturity, contains substantially the same commitments for additional borrowing as the previous ABL facility and provides for interest at Prime plus 1.25% to 1.75% or LIBOR plus 2.25% to 2.75%.

(2) $300 million fixed by Interest Rate Swaps which expire May 2012

63% fixed / 37% variable

Prepaid $120 million in long term debt in FY2010


Strategies for long-term growth

Continue to build out organically

Acquisitions both domestic and international

Use capital & liquidity to build long-term shareholder value


Appendix


Sally Beauty Supply• Sally Beauty Supply global footprint

3,061 (1) stores worldwide2,651 stores in US, Canada, Mexico410 stores throughout Europe & Chile

• Average store size 1,700 sq. ft., 90% selling space• Sales mix approximately 27% professional and 73%

retail • Professional open-line business - merchandise

assortment not available through mass retailers.• 42% exclusive-label merchandise in the U.S.

(private/control label)

Driving Unit Growth is a Strategic Focus(1) As of December 31, 2010


2.6% 2.7%

6.8%6.0% 5.7%

2.7%3.8%

2.4% 2.4% 2.7%

1.2%2.1%

4.1%

6.4%

0.0%

2.0%

4.0%

6.0%

8.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11

$0$200$400$600$800

$1,000$1,200$1,400$1,600$1,800$2,000

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11

$1,047

$1,132 $1,208$1,296

$1,359$1,419

$1,567$1,673 $1,696

$1,835

$481

Sally’s Historical Sales Results

Note: Fiscal Year-end December 31, 2010

Same Store Sales

Net Sales

($ in

Mill

ions

)Growth of 9.7%


Sally’s Customer Profile

Retail customers represent73% of shoppers; professional customers 27%

~90% of customers are women

Professional customers work in small salon or “booth” renter

Retail customer household income primarily $50k to $80k

34 to 65 years old is the primary customer age range


Sally’s Merchandise Offering

21%

23%

14%

12%

15%

8%7%

ElectricalAppliances

Hair Care

Hair Color

Skin and Nail Care

Brushes, Cutleryand Accessories

Ethnic Products

Other BeautyItems

ClairolWellaZotos

ConairHelen of TroyL’Oreal

IonBeyond the

Zone

Finger PaintsSilk Elements

Leading Third-Party Brands

Exclusive Label Brands

Note: Percentage of sales by merchandise category for fiscal year 2010.

FY2010 exclusive label brands were 42% of U.S. segment sales.

We offer a diversified mix of beauty products


64

9583

62

92 83110

60

109

1 2

100

40

19

0

0

20

40

60

80

100

120

140

160

180

200

Worldwide Sally Net New Store Openings

Acquisition

Organic

22

Sally Beauty SupplyOrganic U.S. Sally Beauty Supply stores:

Low capital required $60k

Average inventory of $85k

Positive contribution margins within four months

Approximately two year cash payback on the initial investment

Minimal staffing requirements and low rent expense

As of September 30, 2010

65 95 83 64 92 183 150 79 109


Growth Initiatives

• Expand store base organically and through acquisitions

• Drive gross margin expansion• Increase mix of exclusive

label• Continue mix shift to retail• Low cost sourcing

• Increase customer traffic through loyalty programs and customer relationship management (CRM)

• Further expand Internet channel


International Footprint

2010 Sally Beauty SupplyNet sales: $1,835 mm

International(Europe/Chile)

$312 mm

U.S., Canada and Mexico

$1,523 mm

Total of410 International Stores (1)

• Stores located in the UK, Ireland, Belgium, France, Germany, Spain & Chile

• Sales mix differs from U.S.~80-85% professional~15-20% retail

• Late FY2009, entered South America through acquisition of InterSalon in Santiago, Chile

• Large opportunity to expand organically and via acquisitions

(1) Fiscal Year-end December 31, 2010


Beauty Systems Group• Beauty Systems Group – 1,117

professional stores & distributor sales consultants (1)

959 company-operated / 158 franchised stores (Armstrong McCall) 1,141 distributor sales consultants (1)

• Average store size 2,700 sq. ft.• Sells to salons and salon professionals• Professional exclusive/full service

business – includes merchandise assortment of premium brands sold through salons and not available in mass or at Sally stores.

(1) BSG operates stores under the CosmoProf service mark.

(1) As of December 31, 2010


$0

$200

$400

$600

$800

$1,000

$1,200

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11

$405

$535$616

$802

$895$954 $946 $975

$941

$1,081

$313

Historical Sales Results

Note: Fiscal Year-end December 31. 2010

Same Store Sales

Net Sales

($ in Millions)

5.8%

15.5% 14.4%

8.3%

4.4% 4.6%

8.5%

(0.6%)

4.1%

10.1%6.9%

1.0%

6.2%7.8%

(5.0%)

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1Q11

Growth of 17.3%


BSG’s Merchandise Offering

Paul MitchellWellaJOICO/ISOGoldwell

Graham WebbTIGIMatrix/RedkenSebastian

Hair Color

30%

37%

13%

8%

5%7%

Hair Care

ElectricalAppliances

Other BeautyItems

Skin and Nail Care

Promotional Items

We offer a diversified mix of beauty productsnot carried in Sally stores or mass retail

Leading Third-Party Brands

Note: Percentage of sales by merchandise category for fiscal year 2010


24 8 26 37 6 46 4416

36

195

12393

011 46

0

50

100

150

200

250

Acquisition

Organic

28

Beauty Systems Group

Organic BSG U.S. stores:

Low capital required $75k

Average inventory of $150k

Positive contribution margins within 4 months

Approximately 2 year cash payback on the initial investment

Minimal staffing requirements and low rent expense

As of September 30, 2010

219 8 149 130 6 46 55 62 36

BSG Net New Store Openings


BSG’s Growth Initiatives• Expand store base organically

• Further penetrate existing geographies

• Enter new territories

• Improve profitability• Optimize distribution

network• Continue integration efforts• Broaden offerings with new

suppliers

• Seek potential fold-in acquisition opportunities


Reconciliations to non-GAAP Financial Measures


Non-GAAP Financial Measures Reconciliations

(1) Transaction expenses of $41.5 for termination of the Regis transaction. (2) Transaction expenses of $21.5 for separation of the Company from Alberto-Culver in November 2006.See Notes to Consolidated Financial Statements in the Company’s annual report on Form 10-K for the fiscal years ended

September 30, 2007 and 2006.

FY04 FY05 FY06 FY07 FY08 FY09 FY10 1Q11 Net Earnings $105.3 $116.5 $110.2 $44.5 $77.7 $99.1 $143.8 $40.9

Interest expense, net of interest income 2.2 3.0 0.1 146.0 159.1 132.0 113.0 29.5 Provision for income taxes 62.1 73.2 69.9 38.0 46.2 65.7 84.1 21.9 Depreciation and amortization 24.6 33.9 38.0 42.6 48.5 47.1 51.1 14.1 Non-cash charge related to Alberto-Culver stock conversion 27.0 4.0 – – – –

Share-based compensation – – 5.2 13.1 10.2 8.6 12.8 7.8 Transaction expenses – – 41.5 (1) 21.5(2) Sales-based service fee charged by Alberto-Culver 26.1 27.6 28.9 3.8

Adjusted EBITDA $247.3 $258.2 $293.8 $309.5 $341.7 $352.5 $404.9 $114.3

($ in Millions)

as of march, 2011 - sally beauty holdings · as of march, 2011. sallybeauty. ... sally beauty...

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