Cautionary Notice Regarding Forward-Looking Statements

Transcription

1 March

2 Cautionary Notice Regarding Forward-Looking Statements Statements in this presentation 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: our limited history as a stand-alone company; the preparedness of our accounting and other management systems to meet financial reporting and other requirements and the upgrade of our existing financial reporting system; the representativeness of our historical consolidated financial information with respect to our future financial position, results of operations or cash flows; realizing the anticipated benefits of our separation from Alberto-Culver; since our separation from Alberto-Culver, our inability to achieve the benefits of scale that were achieved by Alberto-Culver prior to our separation from Alberto-Culver; being a holding company, with no operations of our own, and depending on our subsidiaries for cash; the highly competitive and consolidating nature of the beauty products distribution industry; anticipating changes in consumer preferences and buying trends or to manage our product lines and inventory; our dependence upon manufacturers who may be unwilling or unable to continue to supply products to us; 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 business; the success of our new Internetbased business; successfully identifying acquisition candidates or successfully completing desirable acquisitions; integration of businesses acquired in the future; opening and operating new stores profitably; the success of our cost control plans; protecting our intellectual property rights, specifically our trademarks; conducting business in international markets; disruption in our information technology systems; natural disasters or acts of terrorism; 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 or increasing our interest expense due to our interest rate swap agreements; 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; significant restrictions on our ability to issue equity securities; 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 and Quarterly Report on Form 10-Q 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. 1

3 Industry Position 2

4 Stable & Consistent Industry Growth U.S. Beauty Supply Industry has experienced steady growth with no single year below 3% (1) ($ bn) $ $1.6 $1.7 $1.8 $2.0 $2.1 $2.2 $ % CAGR $2.7 $2.6 $2.4 $2.9 $2.9 $3.0 $3.1 $3.3 $3.4 $3.5 $ Y-o-Y % Growth N/A 5.5% 5.8% 6.8% 6.4% 6.1% 4.3% 5.2% 6.1% 5.7% 4.7% 3.0% 3.7% 3.1% 3.5% 3.6% 3.7% 5.3% Source: Professional Consultants & Resources, 2007 Study. (1) Based on manufacturer sales of professional beauty supplies. 3

5 Attractive, Highly Fragmented Customer Base The fragmented nature of the salon industry enables distributors to play an important role in the supply chain Small salons or booth renters represent 75% of the industry Primary store customer Frequent re-stocking needs Undercapitalized stylists Lack of storage space Growing trend toward booth renting Larger salons represent potential customers for distributor sales consultants 5-9 Employees U.S. Salon Marketplace Employees 17% 20+ Employees 6% 2% 75% 1-4 Employees Total Number of Salons: 227,370 Source: Professional Consultants and Resources, 2007 Study. 4

6 Professional Beauty Supply Channel Overview Large addressable marketplace with approximately $6.7 billion of sales in 2007 (1) Beauty Supply Products $3.7 billion in Manufacturer Sales Exclusive / Full Service Open Line Direct Mega Channel Description Serves salons and salon professionals Distributes professionalonly products Retail consumers and salon professionals Small retail formats Channel for high-end products Large-format salons supplied directly by manufacturers Cash and carry stores and sales force Manufacturing $ Size (mm) $1,554 $1,221 $444 $481 % of Total (2) 42% 33% 12% 13% Key Players BSG Beauty Alliance (L Oreal) Maly s (L Oreal) Sally Local and Regional Operators Estée Lauder: Aveda Bumble & Bumble L Oréal: Kérastase Regis Hair Cuttery Ulta Beauty Brands Beauty First Current Focus P&G: Wella Sebastian Source: Professional Consultants & Resources, 2007 Study. (1) Professional beauty supply channel size based upon a 2007 study of manufacturer-level sales conducted by Professional Consultants & Resources and gross margins of 45% are management estimates. The study estimates that 2007 manufacturerlevel sales for professional beauty supplies were approximately $3.7 billion. (2) Represents an approximate percentage breakdown of salon hair care product sales in 2007, by channel of distribution. 5

7 Leading Industry Position Only retailer / distributor with a national distribution footprint Sally estimated 24% channel share (2) Professional Beauty Supply Channel (1) Leading open-line retailer / distributor in U.S., based on store count 24% Sally Beauty Supply (2) Competition limited to local and regional operators BSG estimated 13% channel share (2) Other Players 63% 13% Beauty Systems Group (2) Leading full-service / exclusive distributor in U.S. 1.4x sales of next competitor Size of Marketplace: $6.7 billion (1) (1) Professional beauty supply channel size is a management estimate, based upon a 2007 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2007 manufacturer-level sales for professional beauty supplies were approximately $3.7 billion. (2) Estimated channel share calculated as follows: (i) Sally Beauty Supply s net sales for the fiscal year ended September 30, 2007 of $1.6 billion divided by estimated marketplace size of $6.7 billion and (ii) BSG s net sales for the fiscal year ended September 30, 2007 of $0.9 billion divided by estimated marketplace size of $6.7 billion. 6

8 Company Overview 7

9 Sally Beauty Holdings The largest distributor of professional beauty supplies in the U.S. 3,631 stores worldwide Approximately 1,100 distributor sales consultants in the U.S. Operations in the U.S., Puerto Rico, Mexico, Canada, the UK, Japan, Ireland, Germany, Spain and the Netherlands Two operating segments Sally Beauty Supply Beauty Systems Group FY07 Net Sales FY07 Segment Earnings BSG $946 mm 38% BSG $65 mm 19% 62% Sally $1,567 mm 81% Sally $273 mm FY07 Net Sales: $2,514 mm FY07 Segment Earnings: $338 mm Note: Store count as of December 31,

10 Operating Segments Sally Beauty Supply Retail stores 2,701 stores worldwide / 25 franchised stores 2,274 stores throughout the U.S. (incl. Puerto Rico) Average store size 1,700 sq. ft., 90% selling space Sales mix approximately 30% professional and 70% retail Professional open-line business - merchandise assortment not available through mass retailers. Approximately 40% exclusive-label merchandise in the U.S. (private/control label) Note: Store count as of December 31, Beauty Systems Group Professional stores & sales force (1) 728 company-operated / 177 franchised stores Approx. 1,100 distributor sales consultants 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. 9

11 Seasoned and Experienced Management Team Proven management team with an average of 21 years of industry experience Name Title Years of Sally Experience Years of Beauty Industry Experience Gary Winterhalter President, CEO John Golliher President, Beauty Systems Group 8 33 Neil Riemer President, Armstrong McCall 7 22 Michael Spinozzi President, Sally Beauty Supply 2 2 David Rea SVP, Chief Financial Officer 1 1 W. Richard Dowd SVP, Distribution and Chief Information Officer Bennie Lowery SVP, General Merchandise Manager, Beauty Systems Group Raal Roos SVP, General Counsel, Secretary Team Average 12 years 21 years 10

12 Focus During Fiscal Year 2008 Unit growth at Sally Beauty Supply Drive Beauty Systems Group results back toward historical levels of profitability Improve operating margins in the Sally International business 11

13 Sally Beauty Supply 12

14 Sally s Geographic Footprint Total Worldwide Sally stores: stores: 2,676 2,726 Total U.S. stores: 2,249 2,274 Canada stores: 21 Mexico stores: 62 Mexico stores: 81 International stores: 350 Note: As of December 31,

15 Sally s Retail Customer Profile Retail customers represent 70% of shoppers, professional customers 30% Approximately 90% of our customers are women Although total customer age ranges are from 19 through 74 years old, 35 to 54 years old is the primary range Household income of primarily $50k to $75k Source: Confidential Company research. 14

16 Sally s Merchandise Offering We offer a diversified mix of beauty products Ethnic Products Other Beauty Items 10 % 5% 18 % Hair Care Brushes, Cutlery and Accessories 14 % 21% Hair Color Electrical Appliances 14 % 18 % Skin and Nail Care Leading Third-Party Brands Clairol Wella Zotos Conair Helen of Troy L Oreal Exclusive Label Brands Ion Beyond the Zone Finger Paints Silk Elements FY07 exclusive label brands were approximately 40% of U.S. segment sales. Note: Percentage of sales by merchandise category for fiscal year

17 Sally s Differentiated Value Proposition Reasons to shop Sally Beauty Supply stores creates customer loyalty Product Selection 5,400 to 7,700 SKUs Sally sells the products that my hairstylist uses. Comprehensive product assortment Beauty Supply to the Professionals High in-stock positions Credible source of supply Superior Customer Service Educated salespeople Hire cosmetologists I recommend Sally to clients with special hair needs. I always find professional help from Sally s associates! 16

18 Sally s Marketing Programs E-Commerce Channel 17

19 Sally s Historical Sales Results Net Sales ($ in Millions) $1,600 $1,400 $1,200 $1,000 $1,047 7% CAGR $1,132 $1,208 $1,296 $1,359 $1,419 $1,567 $800 $600 $400 $200 $ Same Store Sales 8.0% 6.0% 6.8% 6.0% 5.7% 4.0% 2.6% 2.7% 2.7% 3.8% 2.4% 2.4% 2.7% 2.0% 0.0% Note: Fiscal Year-end September

20 Sally Beauty Supply Worldwide Sally Net New Store Openings For Sally Beauty Supply U.S. stores: Low capital required $60k Average inventory of $85k Acquisition Organic Positive contribution margins within 3 months Approximately 2 year cash payback on the initial investment Minimal staffing requirements and low rent expense Source: Net new store openings from Sally Beauty Holdings 10-K filings. 19

21 Sally Beauty Supply: International International $256 mm 16% 84% U.S. & Canada $1,311 mm FY07 Sally Beauty Supply segment net sales: $1,567 mm Stores located in the UK, Germany, Ireland, Spain and Japan Major acquisition in the UK during FY07 Sales mix approximately 80% professional, 20% retail consumer 20

22 Sally s Growth Initiatives We plan to: Expand store base Enter Internet channel Drive gross margins Increase exclusive label Customer mix shift Additional foreign sourcing opportunities Drive customer traffic Loyalty programs and customer relationship management Integrate recent acquisition Drive combined entity profitability Seek potential additional foreign acquisitions 21

23 Beauty Systems Group 22

24 Beauty Systems Group s Geographic Footprint Total BSG stores: 905 CosmoProf stores: 728 Total Stores: 860 Armstrong McCall franchise stores: 177 Note: As of December 31,

25 BSG s Merchandise Offering We offer a diversified mix of beauty products. Other Beauty Items Ethnic Products Brushes, Cutlery and Accessories Electrical 4%2% 1% Appliances 8% Skin and Nail Care 9% 40% Hair Care Promotional Items 13 % 23% Hair Color Leading Third-Party Brands Paul Mitchell Wella/Sebastian JOICO/ISO Farouk/Chi Graham Webb TIGI Goldwell Matrix/Redken Note: Percentage of sales by merchandise category for fiscal year

26 BSG s Marketing Programs 25

27 BSG s Historical Sales Results Net Sales ($ in Millions) $1,000 $900 $800 $700 $600 $500 $400 $300 $200 $100 $0 15% CAGR $954 $946 $895 $802 $616 $535 $ Same Store Sales 25.0% 20.0% 15.0% 10.0% 5.0% 5.8% 15.5% 14.4% 8.3% 4.4% 4.6% 8.5% 4.1% 10.1% 0.0% (5.0%) (0.6%) Note: Fiscal Year-end September

28 Beauty Systems Group BSG Net New Store Openings For BSG U.S. stores: Low capital required $75k Average inventory of $150k 200 Positive contribution margins within 4 months Acquisition Organic Approximately 2 year cash payback on the initial investment Minimal staffing requirements and low rent expense Source: Net new store openings from Sally Beauty Holdings 10-K filings. 27

29 BSG s Changing Competitive Landscape L Oreal is entering into direct competition with BSG in the U.S. (Beauty Alliance and Maly s) Further L Oreal revenue loss over time is possible due to increased competition from L Oreal-affiliated distribution networks (L Oreal represents 33% of BSG sales in FY06, 24% in FY07, 18% in Q1 FY08) As consolidation of distributors continues, BSG will seek potential fold-in acquisition opportunities. The salon industry is highly fragmented and BSG s store network is a competitive advantage. 28

30 BSG s Growth Initiatives We plan to: Expand store base Further penetrate existing geographies Enter new territories Improve profitability Optimize distribution network Continue integration Increase offerings with new suppliers Seek potential fold-in acquisition opportunities CosmoProf Store Interior 29

31 Financial Review 30

32 FY07 Financial Highlights ($ in thousands, except per share data) FY 2007 FY 2006 Change Sales $2,513,772 $2,373, % Gross profit $1,153,747 $1,086, % Gross margin % 45.9% 45.8% +10 bps Operating earnings $228,585 $180, % Interest expense, net 1 $145,972 $92 +$145,880 Taxes $38,121 $69, % Net earnings $44,492 $110,193 -$65,701 Diluted EPS $ N/A Same stores sales % 4.5% 2.8% +1.7% Adjusted EBITDA $309,536 $293, % 1 FY 2007 Interest expense reflects interest expense from the date of the separation transaction (11/16/06), as well as $3.0 million of non-cash interest expense due to marked-to-market changes in the fair value of the Company s interest rate swaps. 31

33 FY07 Segment Information ($ in thousands) Twelve Months Ended September 30, 2007 % of Sales 2006 % of Sales Net sales: Sally Beauty Supply $1,567,365 $1,419,332 Beauty Systems Group 946, ,768 Total net sales $2,513,772 $2,373,100 Operating earnings: Sally Beauty Supply $273, % $235, % Beauty Systems Group 64, % 88, % Segment operating earnings $338, % $323, % Unallocated corporate expenses $(71,085) (68,150) Share-based compensation expense (13,065) (5,186) Sales-based service fee charged by Alberto-Culver (3,779) (28,852) Transaction expenses (21,502) (41,475) Interest expense, net of interest income (145,972) (92) Earnings before provision for income taxes $82,613 $180,109 32

34 FY08 YTD Financial Highlights ($ in thousands, except per share data) Sales FY 2008 $655,787 Three Months Ended December 31, FY 2007 $629,879 Change +4.1% Gross profit $306,169 $284, % Gross margin % 46.7% 45.2% +150 bps Operating earnings $69,876 $36, % Interest expense, net 1 $46,483 $19,103 +$27,380 Taxes $9,050 $14, % Net earnings $14,343 $3,141 +$11,202 Diluted EPS $0.08 $0.02 +$0.06 Same stores sales % 2.1% 5.0% -2.9% Adjusted EBITDA $87,220 $77, % 1 FY 2008 first quarter Interest expense includes $5.7 million of non-cash expense due to marked-to-market changes in the fair value of the Company s interest rate swaps. 33

35 FY08 YTD Segment Information ($ in thousands) Three Months Ended December 31, 2008 % of Sales 2007 % of Sales Net sales: Sally Beauty Supply $408,290 $371,949 Beauty Systems Group 247, ,930 Total net sales $655,787 $629,879 Operating earnings: Sally Beauty Supply $71, % $65, % Beauty Systems Group 21, % 18, % Segment operating earnings $92, % $84, % Unallocated corporate expenses $(17,205) (16,984) Share-based compensation expense (5,592) (5,707) Sales-based service fee charged by Alberto-Culver -- (3,779) Transaction expenses -- (21,457) Interest expense, net of interest income (46,483) (19,103) Earnings before provision for income taxes $23,393 $17,185 34

36 Adjusted EBITDA ($ in millions) $350 $300 $250 $247 $258 $294 $310 $200 $150 $100 $50 $77 $87 $0 FY04 FY05 FY06 FY07 Q1 FY07 Q1 FY08 Note: Net earnings as reported in the Company s annual report on Form 10-K were: FY04 $105; FY05 $116; FY06 $110; FY07 $44. See attached appendix for reconciliation of non-gaap financial measures. 35

37 Current Debt Structure Debt As of December 31, 2007 ($ In Millions) Amount Rate Maturity (Fiscal Year) ABL ($400mm) $53.4 Prime + up to 0.5% or Libor % 2012 Term Loan A Prime % or Libor % (1) 2013 Term Loan B Prime % or Libor % (1) 2014 Senior Notes % 2015 Senior Sub. Notes % 2017 Total Debt, excl cap leases $1,812.5 (1) $500 million fixed by Interest Rate Swaps 36

38 Non-GAAP Financial Measures Reconciliations ($ in Millions) FY04 FY05 FY06 FY07 Q1 FY07 Q1 FY08 Net Earnings $105.3 $116.5 $110.2 $44.5 $3.1 $14.3 Interest expense, net of interest income Provision for income taxes Depreciation and amortization Non-cash charge related to Alberto- Culver stock conversion Share-based compensation Transaction expenses 41.5 (1) 21.5 (2) 21.5 (2) Sales-based service fee charged by Alberto- Culver Adjusted EBITDA $247.3 $258.2 $293.8 $309.5 $77.0 $87.2 (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 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

39 Key Investment Highlights Leading Industry Position Attractive and Consistent Industry Fundamentals Attractive Growth Opportunities Margin Improvement Opportunities Seasoned and Experienced Management Team Strong Historical Financial Performance and Cash Flows 38