Sally Beauty Holdings, Inc. (SBH)

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Sally Beauty Holdings Inc. (SBH)

F2Q2013 Results Earnings Call

May 2, 2013 11:00 AM ET

Executives

Karen Fugate - Vice President, Investor Relations

Gary Winterhalter - Chairman, President and CEO

Mark Flaherty - Senior Vice President and CFO

Analysts

Simeon Gutman - Credit Suisse

Meredith Adler - Barclays

Erika Maschmeyer - Baird

Jason Gere - RBC Capital Markets

Taposh Bari - Goldman Sachs

Christopher Ferrara - Bank of America Merrill Lynch

Ike Boruchow - Stern Agee

Linda Bolton Weiser - B. Riley

Jill Caruthers - Johnson & Rice

Presentation

Operator

Good morning, ladies and gentlemen. And welcome to the Sally Beauty Holdings Conference Call to discuss the company’s Fiscal 2013 Second Quarter Results. All participants have been placed in a listen-only mode. After managements prepared remarks, I will facilitate a question-and-answer session, and initially each caller will be limited to two questions. Additional instructions will be given at that time.

Now, I would like to turn the conference over to, Karen Fugate, Vice President of Investor Relations.

Karen Fugate

Thank you. Before we begin, I would like to remind you that certain comments, including matters such as forecasted financial information, contracts or business and trend information made during this call may contain forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934.

Many of these forward-looking statements can be identified by the use of the words such as may, will, should, expect, anticipate, estimate, assume, continue, project, plan, believe and similar words or phrases.

These matters are subject to a number of factors that could cause actual results to differ materially from expectations. Those factors are described in Sally Beauty Holdings’ SEC filings, including its most recent annual report on Form 10-K for the fiscal year ended September 30, 2012. The company does not undertake any obligation to publicly update or revise its forward-looking statements.

The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website.

With me on the call today are Gary Winterhalter, Chairman, President and Chief Executive Officer; and Mark Flaherty, Senior Vice President and Chief Financial Officer.

Now I would like to turn the call over to Gary.

Gary Winterhalter

Thank you, Karen, and good morning, everyone. Thank you for joining us for our fiscal 2013 second quarter earnings call. I’ll begin today’s discussion with a high level review of our financial results and business initiatives. Mark will then take you through the second quarter into more detail.

As you may have seen from our press release this morning, our fundamental business drivers are solid and we executed well on our operating initiatives. Sales performance during the quarter was challenging and reflects in part the difficult comparisons against record sales growth in the prior year.

Our consolidated same store sales decreased by 0.8%, after growing by 9.1% in the second quarter of last year. If you remember, on our first quarter earnings call in February, we were optimistic that same store sales growth would be in the low single digits for the second quarter based on our sales performance in January.

We also commented that March results would need to be strong to offset the difficult year-over-year comparisons and two fewer days in the quarter. Unfortunately, the unexpected softness in our non-Beauty Club traffic, the difficult comparisons against record growth in certain categories and 180 basis point impact of two less sales days contributed to weaker than expected results. Unfavorable weather compared to last year also played a part.

Consolidated sales in the second quarter were $898 million and grew 1% versus 10.9% in the prior year quarter. This sales growth is attributed to net new stores while partially offset by softness in retail traffic. Sales growth was adversely impacted by two less selling days, which we believe equated to approximately $15 million in loss sales compared to last year.

Gross profit margin in the second quarter reached 49.5%, a margin expansion of 40 basis points driven by all our business units. Net earns were $64.9 million, down 4.3% from the prior year quarter. Earnings per share were $0.36 or growth of 2.9%.

During the quarter, we repurchased 7 million shares of our common stock for a total of $191 million, completing our $300 million authorization launched in October and beginning our new $700 million authorization announced on March 5th.

I’m pleased with our capability to drive shareholder value via our stock buyback initiatives. It’s only been a year since we first began to buyback our stock and we’ve already repurchased 19.6 million shares.

Turning to segment performance, starting with Sally Beauty Supply. As you know, Sally Beauty was up against the strongest comps in the history of our company. This combined with softness in retail traffic and certain product categories contributed to our first negative comp quarter at Sally.

Although I’m disappointed we broke our long standing track record of same store sales growth, I believe the second half comparisons will be easier and the core fundamentals of our businesses are sound. Same store sales for Sally Beauty in the second quarter declined 1.6% versus a record growth of 9.3% in the prior year.

Net sales reached $556 million, an increase of 0.4% versus growth of 12.9% in the prior year. Sales performance at Sally was impacted by the continuation of difficult comparisons against record growth in the nail, hair extension and appliance categories and lower retail traffic driven in part by two fewer days.

Read the rest of this transcript for free on seekingalpha.com