Sally Beauty Holdings, Inc. (SBH)
F4Q2011 Earnings Conference Call
November 16, 2011 11:00 AM ET
Karen Fugate – Vice President, Investor Relations
Gary Winterhalter – President & Chief Executive Officer
Mark Flaherty – Senior Vice President & Chief Financial Officer
Simeon Gutman – Credit Suisse
William Reuter – Bank of America/Merrill Lynch
Meredith Adler – Barclays Capital
Erika Maschmeyer – RBW
John Connor – Barclays Capital
Celeste Everett – Goldman Sachs
Karru Martinson – Deutsche Bank
Jill Caruthers – Johnson Rice
Christina Metcalf [ph] – Oppenheimer
Jason Gere – RBC Capital Markets
Previous Statements by SBH
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Thank you. Before we begin, I would like to remind you that certain comments including matters such as forecasted financial information, contract 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 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 the Sally Beauty Holdings’ SEC filings, including its most recent Annual Report on Form 10-K being filed today. 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, 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.
Thank you, Karen, and good morning everyone. Thank you for joining us for our fiscal 2011 fourth quarter and full-year earnings call. I will begin today’s discussion with a high-level review of our full-year financial results, and Mark will then take you through the fourth quarter in more detail.
Our strong fourth quarter performance topped off another superb year for Sally Beauty Holdings. Consolidated sales in fiscal 2011 were over $3 billion and adjusted EBITDA grew 24% to $503 million. We applied our cash flow to reduce long-term debt by $147 million and increased our store base by 6.2%, including acquisitions.
Fiscal 2011 ended with consolidated net sales of $3.3 billion, strong growth of 12.1%. This performance was primarily the result of same-store sales growth of 6.1%, acquisition-related growth of 4.2%, growth from new store openings of 1.8%, and the favorable impact of foreign currency exchange. Gross profit ended the year at $1.6 billion, growth of 13.5%. Gross profit margin expanded 60 basis points to 48.8%. Operating margin in fiscal 2011 improved by 200 basis points to 13.7%. This increase was the result of gross profit margin expansion in both business segments and the favorable impact of $21.3 million from a litigation settlement, including non-recurring charges.
GAAP net earnings were $213.7 million, up 48.6% over last year with earnings per share of $1.14. Adjusted earnings per share excluding the impact of litigation settlement were $1.07. Fiscal 2011 adjusted EBITDA ended the year at $503 million, an increase of $98 million or growth of 24% over fiscal 2010. In just five years since we became a public company, we have added over $200 million in adjusted EBITDA to our annual results.
We ended the fiscal year with a total store count of 4,309, an increase of 6.2% or 250 net new stores. Organic store openings contributed 4.1% to our store count and acquisitions added another 2.1%. We generated $292 million in net operating cash, which funded our investments in company growth and the reduction in long-term debt of $147 million. Recently, we completed a successful equity road show on behalf of private equity shareholder, CD&R. We are very pleased with the response from the new and existing shareholders and look forward to meeting with you in the coming year.
On the debt side, we also launched a very successful offering of senior notes. The proceeds from this offering will be used to redeem our high yield notes, which will result in a lower cost of capital.
Turning to segment performance in fiscal 2011, starting with Sally Beauty Supply. Same-store sales for Sally Beauty grew 6.3% versus 4.1% in the prior year. Net sales reached $2 billion for strong growth of 9.7%, driven primarily by higher transactions and average ticket in Sally North America as well as double-digit growth in the international businesses.
Gross profit margin at Sally Beauty expanded 80 basis points for the year and reflects the continued shift in product and customer mix. In support of our strategy to extend our presence in Europe, we recently acquired the Netherlands based Floral Group, with revenues of 23 million Euros. Floral is the largest professional beauty supply group in the Netherlands and operates three businesses that serve the professional and retail consumer through 19 stores and 33 direct sales consultants.