Sally Beauty Holdings, Inc.

Your conference will begin momentarily. Please continue to hold. Cisco 2021 first quarter earnings call. At this time, all lines are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given to you at that time. If you need assistance during the call, you may 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 B. Holdings First Quarter Earnings Conference Call. With me on the call today are Chris Brickman, President and Chief Executive Officer, and Marlo Cormier, Chief Financial Officer. Before we start, I want to remind everyone that we have made a presentation available for today's call that can be viewed from the link provided on our investor site at sallybdholdings.com forward slash investor relations. I would also like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. including those discussed in the risk factors section of our most recent annual report on Form 10-K and other filings with the Securities Exchange Commission. Any forward-looking statements made on this call represent our views only as of today and we undertake no obligations to update them. 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. Now I'd like to turn the call over to Chris to begin the formal remarks.

Thank you, Jeff, and good morning, everyone. We hope that you are all safe and well. At SBH, we are fortunate to have an incredible community of team members, customers, and partners that continue to help us navigate this dynamic environment. In the first quarter, our associates across the organization delivered strong execution despite the ongoing challenges of the pandemic. During a time of significant retail disruption, they remained focused on safely serving our customers and continued to implement the key initiatives we outlined on our year-end earnings call in November. This allowed us to deliver strong gross margins, profitability, and cash flow despite top-line headwinds caused by the pandemic. Indeed, for much of the quarter, especially in the latter weeks, we were operating against a backdrop of temporary store closures, capacity restrictions, salon shutdowns, and an acceleration in COVID rates that most certainly impacted traffic in our open locations. As a result, enterprise same-store sales declined 3.7%. For added perspective, At the end of the quarter, approximately 45% of our store locations were under some level of capacity restriction or closure across the globe. During the quarter, we saw ongoing strength in hair color, which is our chief recruitment vehicle for new customers, both for the retail consumer and the professional stylist. Hair care is closely linked to color. while other categories like nails, skin, and wax are incremental and drive additions to the basket. Despite the top line disruptions, hair color was up 19% at Sally US in Canada. In addition, vivid colors remained on trend and delivered another quarter of strong performance, up approximately 50% at Sally US in Canada over the prior year. In Q1, Vivids accounted for 25% of our total color sales, and they continued to attract a new and younger customer to our stores. Finally, nails were up 7% at Sally US Canada, and salon supplies were up over 50% at BSG compared to the prior year. Although we were operating under challenging circumstances, Our expanded digital capabilities enabled us to serve our customers through multiple fulfillment options. These include buy online, pick up in store, curbside pickup, and ship from store at Sally Beauty, and same-day delivery and curbside pickup at BSG stores. Additionally, our e-commerce business achieved strong growth, up 48% versus a year ago. Despite the external pressures of the macro environment, our teams also did an excellent job on margin and expense control, which resulted in first quarter adjusted EPS of 50 cents, up 6% on a year-on-year basis. We ended the quarter with inventories down 10% compared to the prior year and approximately $538 million of cash on the balance sheet. Subsequent to the close of the quarter, we made this strategic decision to repay the outstanding balance on our fixed rate term loan, making further progress towards deleveraging our balance sheet. More on this from Marlo later in the call. As we reflect back on the investments we've made and the hard work of our teams over the past three and a half years, today we have a business that is well positioned from a strategic, operational, and financial perspective. During our successful transformation journey, we accomplished a number of objectives that set us up to scale over the long term. One, we refocused the business on owning professional hair color and care for both the DIY enthusiast and the professional stylist. Two, we improved our retail fundamentals. Three, we advanced our digital commerce capabilities. Four, we modernized our supply chain. Five, we improved the shopping experience, both in-store and online. And six, we strengthened our retail leadership team. Today, we are executing against a well-defined operating strategy and growth plan. In fiscal 2021, we are focusing on three major priorities. By the end of the year, we expect to have completed the key elements of our transformation. including the full implementation of JDA and the replatforming of our BSG e-commerce site. Second, we expect to be leveraging all of our new capabilities and tools in service of our mission to recruit and retain color customers. And third, we expect to further reduce our debt leverage ratio closer to our target of 2.5. From a tactical perspective, in fiscal 2021, our teams are working to optimize the transformation investments we've made and unlock more robust functionality across retail fundamentals, digital commerce, and supply chain. Let me take you through our key initiatives. First is our expanded delivery service model. As I mentioned earlier, our new capabilities are enabling us to serve our customers with multiple fulfillment options. which we believe will ultimately foster greater customer loyalty and stickiness. It's early days, but adoption rates are growing fast. For example, at Sally US in Canada, Bopas accounted for 11% of our e-commerce sales for the quarter after launching nationwide in November, and Bopas sales surpassed 20% of our e-commerce sales for the month of December, while ship from store represented 31% of our e-commerce sales during the quarter. On the BSG side, same-day delivery is adding tremendous value to our professional stylists by providing them with the flexibility to quickly react to the needs of their customers and adeptly manage their business. In the second half, we'll be adding the rollout of BOPUS to the BSG segment, providing another element of convenience for our stylists. The second initiative is replatforming the BSG digital storefront, which is on track for completion in early Q3. This new, more robust platform will enable deeper and more effective digital engagement with our stylists as we move along the customer funnel from recruitment to transaction. The digital journey begins with a focus on education, innovation, and tools that enable them to more effectively and profitably run their business, including features like product reorders, easy bulk orders, simplified tax reporting, and navigation enhancements. Turning now to our third area of focus, loyalty and CRM. We are rapidly gaining traction on the rollout of our private label rewards credit card to both SALI and BSG customers in the US. At the end of the first quarter, we had 163,000 cardholders and our rewards card accounted for 2% of sales in the SALI segment and 5% in the BSG segment. We're capturing critical insights into customer needs and purchasing behavior. and expect this program to grow significantly in the coming months and quarters. In addition, we have bolstered our marketing team in recent months and now have the talent to exploit this data and utilize CRM to develop highly targeted digital programs and strengthen the connected shopping experience across marketing, commerce and service. We expect loyalty to become another critical differentiator for SBH and something that further expands our competitive moat. The fourth key initiative for fiscal 2021 is completing the rollout of JDA, our new merchandising and supply chain platform. Both JDA and our new North Texas Distribution Center are running smoothly in the initial months, and our teams are working to bring JDA to our remaining DCs in the latter part of this year. This will be a significant milestone, as it represents the final step in our multi-year transformation journey. Through our thoughtful investments and strategic repositioning over the past three to four years, we have evolved SBH into a market leader with a solid infrastructure and robust digital capabilities that position us to own professional hair color and care. Underlying this is our continued focus on generating strong profitability and cash flow and returning value to shareholders. There is certainly more work to do as we shift from the heavy lifting of our transformation to a new phase of growth that will see us optimize and drive scale. We believe our ability to generate strong cash flow, carefully manage inventories, and prudently control discretionary spending will allow us to continue to strategically invest in capabilities, tools, and teams in support of our mission to recruit and retain color customers. As we move through the first half of fiscal 2021, it is clear that the environment will continue to be choppy, creating additional top-line headwinds at least in the near term. Today, we are operating under mandated store closures in Europe, Canada, and Latin America, capacity restrictions in several domestic markets, and reduced capacity at salons in California, which were closed for most of January. Because these disruptions are continuing, and there is still a great deal of uncertainty related to potential restrictions going forward. We expect net sales to decline in our second fiscal quarter, softening modestly from Q1 levels. During this time, we are remaining agile and our teams are running the business with operational and financial rigor to preserve profitability and prudently manage cash. Most importantly, with our transformation journey nearing completion, We feel highly confident in our competitive positioning, the strong foundation we've built, and the capabilities we've established, and the ability of our teams to execute. In short, we believe SBH is positioned for a return to consistent top-line growth when pandemic headwinds abate. Before turning the call to Marlo, I want to express my appreciation to all of our team members and associates around the globe for playing an important role in our successful transformation and continuing to work tirelessly in service of our customers as we navigate the dynamic COVID environment. I also want to say how pleased we are to have Marlo in the role of Chief Financial Officer. After joining us last spring as Senior Vice President of Finance, she has quickly and seamlessly transitioned to the new position and serves as a valuable member of our executive team. Now over to Marlo to discuss the financials.