Sally Beauty Holdings (SBH) is one of the largest retailers and distributors of professional beauty supplies in the US. While the US accounts for most of its sales, the company also has stores in Canada, Europe, and South America. Some 5,000 Sally Beauty Supply stores and the company's Beauty Systems Group (BSG) business sell more than 10,000 hair, skin, and nail products. SBH also sells its products online. BSG employs some 936 professional distributor sales consultants and operates 1,174 CosmoProf and Armstrong McCall stores that sell products only to salons and beauty professionals.
SBH operates through two business segments: Sally Beauty Supply (SBS), which accounted for 60% of fiscal 2016 (September year end) sales, operates more than 5,000 stores, most of which are company owned. SBS stores offer products for hair, skin, and nails and carry brands such as Clairol, L'Oreal, Wella, and Conair, as well as an extensive selection of proprietary merchandise. Beauty Systems Group (BSG) contributed 40% of sales and operates stores under the CosmoPro and Armstrong McCall names. They carry as many as 10,000 professionally branded products, including Paul Mitchell, Sabastian, Joico, and Aquage, which are targeted exclusively for professional and salon use, and resale to salon customers.
Texas-based SBH rung up 83% of its fiscal 2016 sales in the US. International markets, including Puerto Rico, Canada, Colombia, Mexico, Chile, Peru, Belgium, France, Germany, the Netherlands, Spain, Ireland, and the UK, accounted for the rest.
Sales and Marketing
Through its company-owned and franchised locations, SBS stores target retail customers and salon professionals, while BSG exclusively targets salons and salon professionals. The company relies on print ads, digital marketing, trade shows, and product education for salon professionals to promote its products.
The company has experienced historic growth the last five years. In fiscal 2016 SBH's net revenues jumped 3% to peak at a record-setting $3.95 billion due to higher BSG sales. BSG revenues increased by 5.5% driven by a 3.6% rise in sales from company-operated stores that have been opened for 14 months or more. In addition, sales through distributor sales consultants increased by 1.3%.
SBH's net income, however, has been decreasing over the last four years (2013-2016). In fiscal 2016 net income dropped by 5% to $222.94 million due to higher selling, general, and administrative expenses and interest expense. Selling, general and administrative expenses spiked by 4% due to higher incremental expenses (including employee compensation, rent and other occupancy-related expenses) resulting from stores opened or acquired in the preceding 12 months. Interest expense surged by 23%, principally due to the impact of debt refinancing, including a loss on extinguishment of debt of $33.3 million.
Net cash inflow increased by 17% to $351.0 million in fiscal 2016 mainly due to favorable changes in inventory and fewer net losses on the disposal of property and equipment.
The aging populations in Europe and the US are helping drive demand for SBH's hair color, hair loss prevention products, and other products and services designed to mask the signs of aging. The company also caters to African-American and Hispanic customers with a broad selection of ethic products. The beauty supply distributor believes that its focus on ethnic products gives it an advantage over the competition.
SBH is focusing on upgrading its SBS stores, as well as its technology, merchandising, packaging, marketing capabilities, and expanding its international footprint.
In fiscal 2016 the company launched a store refresh initiative which included new flooring, LED lighting and up-to-date graphics. It also upgraded merchandising displays in key categories such as nails, lashes and cosmetics with new shelving, graphics and lighting. In fiscal 2017 it plans to upgrade SBS' haircare and hair color displays.