Sally Beauty Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Sally Beauty Holdings fourth quarter conference call. At this time, all lines are in a listen-only mode. Later, we will conduct the question-and-answer session. Instructions will be given to you at that time. If you need assistance during the call today, press star and then zero, and an operator will assist you offline. And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Jeff Harkins. Please go ahead.

Thank you. Good morning, everyone, and welcome to the Sally Beauty Holdings Fourth Quarter Earnings Conference Call. Before we begin, I'd like to remind everyone that we have made a presentation available for today's call that can be viewed from the link provided in our earnings press release from this morning or on our investor site at sallybeautyholdings.com, Investor Relations. I would also like to remind you that certain comments, including matters such as forecasted financial information, contracts for business, and Trind information made during this call may contain 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. Many of these forward-looking statements can be identified by the use of words such as believe, project, expect, can, may, estimate, should, plan, target, intend, could, will, would, anticipate, potential, confident, optimistic, and similar words or phrases. These statements are subject to a number of factors that could cause actual results to differ materially from expectations. Those factors are described in Sally B. Holdings' filings with the Securities and Exchange Commission, including its most recent annual report on Form 10-K. 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 Chris Brickman, President and Chief Executive Officer, Aaron Ault, President of Sallie Beauty Supply and Chief Financial Officer, and Marlo Cormier, Senior Vice President of Finance and Chief Accounting Officer. Chris will start by offering some thoughts on our very respectable fourth quarter. He will also touch on our thoughts about the current economic environment and our outlook on fiscal year 2021 and finish with our key focus and investments in fiscal year 2021 as we move towards the completion of our transformation plan. Aaron will then discuss our fourth quarter and full year financial results, touch on our cash liquidity, and also provide some perspective on fiscal year 2021. Finally, Chris, Aaron, Marlo, and I will be available to answer your questions. Now I'd like to turn the call over to Chris.

Thank you, Jeff, and good morning, everyone. I want to start by thanking all of our SBH team members across the globe whose dedication and hard work helped us deliver a great fourth quarter. Your efforts have turned us into an agile operator with real strength in both digital and physical retail, and you have set us up well for the future. I could not be more proud of our team and what they accomplished in spite of the countless challenges we experienced in fiscal year 2020. During our last earnings call, we discussed the nimbleness and agility displayed by our teams and associates during the third quarter. As our business responded to store closures and consumer uncertainty, our teams quickly pivoted to launch new e-commerce capabilities and service models. In June, we saw strong sales as a majority of our stores reopened. As we moved into July and the fourth quarter, we continued to see strong sales with the business normalizing. Of course, the environment continued to evolve around us, as exemplified by California shutting down salons in many counties for parts of July and August. All in, we delivered enterprise-positive same-store sales of 1.3%, with strength in retail, helping to compensate for soft but still positive same-store sales in the wholesale business. Here are some of the key highlights regarding our fourth quarter. Our Sally Beauty retail business in the U.S. and Canada delivered same-store sales growth of 3.7% for the quarter. We saw continued strength in our core category of hair color, where we continued to gain share in the retail and pro channels For the fourth quarter, hair color was up over 22% in Sally Beauty's U.S. and Canadian retail business with unit growth and increased AUR. We also saw strength in the nail category for Sally Beauty's U.S. and Canadian retail business, which was up 11%. We continue to see solid strength and growth in our global e-commerce business. We delivered the highest gross margin in SBH history. driven primarily by the U.S. and Canadian retail business and our strategy of fewer, deeper, bigger promotions. We grew adjusted EPS over the prior year by 9%. We ended the quarter with less debt and a strong balance sheet. And we continued our focus on cost controls, cash management, and liquidity and generated over $131 million in free cash flow. Operationally, we also continue to invest in our business and launch new programs. Following our fast launch of ship from store and same-day delivery in Q3, we launched buy online, pick up in store at Sally Beauty, and it will reach all U.S. stores nationwide within a few weeks. We completed the national rollout of our new private label rewards credit card program to both Sally and BSG customers in the U.S., In just the first month, we had approvals for over 80,000 new card members with a slight weighting to the professional stylist over the retail consumer. We launched the second edition of Cultivate, which offers financial support, product distribution, and mentorship for female-owned beauty brands. We executed a number of small acquisitions on the BSC side, gaining brand distribution rights, a small number of stores, and new customers. We expanded our ship-from-store capabilities to 2,400 stores in the U.S. and nine provinces in Canada. And we successfully placed our new North Texas distribution center into service in August. Now let's turn to our thoughts on the current economic environment and our outlook for next year. Looking ahead to fiscal 2021, we will have to remain agile as our consumers continue to deal with the impact of COVID-19. While our business is certainly defensive and more resilient than many retail peers, we expect an increased level of volatility, particularly in the first half of the year. Regardless of COVID-19, we remain confident in the direction we are headed, the investments we have made in our transformation plan over the past few years, and the resiliency of our categories. As we stated on our last earnings call, we feel we are well positioned to handle the uncertainty in the near term due to three key factors. First, our businesses are on trend. The Sally Beauty business is the industry leader in professional color for home use and is perfectly aligned with the increasing DIY trend. Our customers can find all of their needed solutions or products for hair, nail, and skin either online or in our stores. Additionally, they can find how-to content on our digital sites, starting with Hair Color 101 all the way through more complex application techniques. Alternatively, a consumer can talk to a Sally associate at a store who has been trained in hair color. We plan to retain and build on the new customers who have discovered us as they experiment with DIY hair and nails and try out new exciting colors. and we are ready to serve our traditional customers with more convenient service options as they become increasingly comfortable with returning to stores over time. On the BSG side, while the salon business seems to be recovering more slowly, we are the industry leader in stylist safety with our large assortment of PPE including hand sanitizer, barbicide, gloves, masks and capes. In addition, we have more convenience store locations, more DSCs that are now digitally enabled, and many of which are now trained and certified in salon safety protocols. And now we offer improved delivery service options to ensure we are convenient and safe for our professional customers. We will continue to build on this leadership position. Second, we have the ability to operate effectively in an environment that will continue to be impacted by COVID-19. Customers and team members can feel confident in our stores, which have instituted the protocols required to operate safely. We have proven that we can rapidly evolve our service model to provide our customers with more choice on how they interact with us and more access to our inventory chain wide. Third, we are sitting in an excellent liquidity position with strong cash flow and cash on the balance sheet. Aaron will discuss this more during his remarks. Finally, I will spend a few minutes talking about the key projects and investments that we will focus on in fiscal year 2021. First, we will continue our digital transformation. by optimizing against experience and service offerings, such as buy online, pick up in store, which is rolling out across all Sally stores in the U.S. in November, and optimizing the impact of digital to the income statement by addressing operating changes which will lead to cost savings. We will also replatform the BSG digital experience, focus firmly on the pro, and add further fulfillment options for BSG in the second half of fiscal year 2021. Second, now that we have completed the rollout of our private label rewards credit card program in the U.S., we will be intensely focused on growing and optimizing the portfolio and program. On the Sally side, the program will enhance the existing Sally Beauty Rewards loyalty program by adding additional reward points to the customer's spend. Additionally, the Sally eCommerce site is already set up to provide instant credit for online applications and accessibility to shop with their card online. On the BSD side, card benefits include an additional 3% discount on purchases and adds better flexibility for stylists and pros to manage their cash flow and business. Through benchmark data, we know that private label credit card holders typically spend more per transaction as well as having better retention rates. Therefore, our focus will be on driving activations while increasing basket size and share of wallet. This also translates to P&L benefits related to interchange relief from traditional bank cards as well as adding royalties from new account openings. Third, as a significant part of our company history, growth, and current assortment, our style and beauty division is partnered with over 25 black-owned brands in our current textured hair category. In fiscal year 2021, we have committed to growing these successful partnerships and expanding our offering to additional Black-owned brands across both the Sally Beauty and BSD businesses. Now that we have JDA, our new merchandising and supply chain platform, and our new North Texas distribution center, both up and live on a limited scale, our focus will be on expanding both of these initiatives Once fully rolled out, JDA will improve product assortment by store location, improve out-of-stocks, and greatly improve visibility and forecasting of inventory. Once fully functional, the North Texas DC will be our first distribution center that services all channels for both business segments and will deliver the benefits of increased speed to market, lower operating costs, and will reduce the demand on our other DCs in our network. In summary, While we continue to operate in an uncertain environment, at Sally Beauty Holdings, we believe we are a stronger company with even greater ability to deliver long-term sustainable growth driven by our enhanced capabilities in how we connect with our customers digitally, through our loyalty and credit card programs and expanded differentiated offerings, our enhanced infrastructure and omnichannel capabilities, and increased talent base, all of which are supported by a strong balance sheet and cash flow. The bottom line, the challenges we faced in 2020 had simply made us better. They pushed us to accelerate our digital transformation, to simplify and focus our business strategy, and build a team that is prepared to win in a transformed retail environment. Now I will turn it over to Aaron to discuss our financial results and our liquidity in more detail.