Sally Beauty Holdings, Inc. Q1 FY2025 earnings call

• Continued momentum in both Sally and BSG segments with net and comparable sales growth, gross margin expansion, and improved profitability.
• Strategic pillars focus on enhancing customer centricity, growing high-margin owned brands, amplifying innovation, and increasing operational efficiency.
• Sally brand refresh underway with store pilots in Orlando, expecting full rollout in H2 2025.
• Licensed colors on-demand service successful, with over 75 licensed colors and over 4,000 consultations per week.
• Marketplace initiatives performing well, with DoorDash and Instacart contributing to Sally's e-commerce growth.
• Product innovation across segments, including K18 launch at BSG and new product launches at Sally in Q2.
• Happy Beauty pilot stores performing well, providing insights for future strategy.
• Fuel for Growth program on track to generate cumulative gross margin and SG&A benefits of ~$70M in fiscal 2025.
• Foundational assets include strong operating model, extensive product assortment, loyal customer base, and commitment to customer service/education.

Sally Beauty: Q1 net sales were $525 million, up 0.4% despite a 90 basis point foreign currency headwind. Comparable sales grew 1.7%, driven by hair color and digital marketplaces. Gross margin increased 100 basis points to 59.6%. Segment operating margin was 15.2%, up 40 basis points. BSG: Net sales were $412 million, up 1.1%, with comparable sales growth of 1.4%. Comparable transactions increased 3% and average ticket was flat. Gross margin increased 30 basis points to 39.7%. Segment operating margin was 12.2%, up 130 basis points.

• Full year 2025 comparable sales expected to be flat to up 2%.
• Consolidated net sales guidance updated lower due to unfavorable FX impact.
• Adjusted operating margin expected to be in the range of 8.5% to 9%.
• Q2 2025 comps expected to be approximately flat, adjusted operating margin 8% to 8.3%.

• Macroeconomic factors such as harsh flu season, weather, wildfires, and new administration headlines impacting consumer behavior.
• Tariff uncertainties with potential impact on product costs, though exposure is not overly significant relative to peers.

Q: Regarding Q2 guidance, dynamics of Sally relative to BSG and comp trajectory, traffic vs ticket.

A: Denise Paulonis mentioned focus on full year comp plan, Q2 has known headwinds for BSG (lapping franchise load-ins and unfavorable calendar), macro environment in Jan created choppier consumer patterns, but back half has innovation and performance marketing to drive growth. Marlo Cormier talked about operating margin cadence continuing Fuel for Growth benefits.

Q: Promotional environment, gross margin puts and takes.

A: Denise Paulonis said promotional levels flat vs last year, value important, customers buy on promotions. Marlo Cormier said gross margin expansion in Q1, expected to continue but moderate, shrink improvement started last year, Fuel for Growth initiatives continue.

Q: Innovation, traffic, demand.

A: Denise Paulonis said innovation robust in hair and nail spaces, Q1 traffic benign except holiday season compression, Q2 had flu, weather, news cycles impact, but demand healthy especially in color business.

Q: Margin levers tapering, top line inflection.

A: Denise Paulonis said confident in mid-single-digit operating margin growth, Marlo Cormier talked about Fuel for Growth program ongoing with long-term benefits.

Q: Q2 deceleration improvement, tariffs.

A: Denise Paulonis said macro items reflected in guidance, will navigate with innovation, service, and brand initiatives. Marlo Cormier talked about tariff exposure being low, similar playbook to previous rounds with switching vendors, volume increases, and price increases.