Sally Beauty Holdings, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Sally Beauty Holdings third 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 thank you for joining us. With me on the call today are Chris Brickman, President and Chief Executive Officer, and Marlo Cormier, Chief Financial Officer. Before we begin, I want to remind everyone that we've made a presentation available for today's call that can be viewed from the link provided on our investor site at sallybdholdings.com. 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 SEC. Any forward-looking statements made at this call are 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 are pleased to report a strong third quarter. which eclipsed the $1 billion mark on the top line. We delivered a net sales increase of 45%, gross margins above 50%, and strong bottom line performance in operating cash flow of $86 million. The quarter was highlighted by solid execution by our teams and increasing consumer demand as the pandemic recedes in many of our operating markets. We believe our ability to drive this level of performance while continuing to navigate sporadic closures and restrictions speaks to the core capabilities and operational enhancements we've put in place. For perspective, during the quarter, we experienced capacity restrictions and store closures across parts of Canada and Latin America. Europe continues to be unpredictable with a spate of openings and closings throughout the quarter. Today, Europe is mostly open except a small number of stores operating under restricted capacity. Looking at other macro factors, stimulus largely ran its course early in the quarter, supply chain disruptions have persisted, and pandemic variants are becoming a new reality. While at the same time, consumers are demonstrating an increasing desire to return to pre-pandemic behaviors. Despite these fluid market conditions, our business remains strong, particularly in our core categories of color and care. For example, we are seeing a notable resurgence in demand for color and a great deal of experimentation with the Gen Z customer who is focused on self-expression. In fact, our new marketing campaign, You by Sally, celebrates and brings to life the transformative power of hair color. In our view, the pandemic brought out a heightened desire for self-expression among our consumers. Wearing vivid, bright colors has become a tool for creativity, driving what was previously a niche category to mainstream status. The reaction to our You by Sally campaign among both customers and the trade has been tremendous. Since launching in early June, the campaign has received extensive coverage from beauty editors, and our official music video, Having Colored Hair Doesn't Make You Unprofessional, has generated more than 75 million TikTok views. During Q3, the color category increased 36% and vivid colors grew by 52% at Sally US and Canada versus the prior year. Vivids represented 29% of our total color sales for Sally US and Canada in the quarter. demonstrating the staying power of this emerging category. We also completed the reset of our color offerings to the front of all Sally US stores during Q3, and we're extremely pleased with the results. We're showcasing our core competencies up front, the stores look fantastic, and our customers have been responding positively. BSG also saw strength in color during the quarter, which was up 57% versus the prior year. Other key categories also performed well in Q3 with hair care up 74% and nails up 47% at SallyUS in Canada and hair care up 65% at BSG. We have continued to see a strengthening within going out categories at SallyUS and while we believe that has the potential to gain further traction over the next one to two quarters, As consumers return to pre-pandemic activities, we are mindful of how the news cycle around Delta and other variants may influence consumer behavior. I am pleased to tell you that we are continuing to make significant progress against the three major priorities we outlined for fiscal 2021. Those include substantially completing the remaining elements of our transformation, leveraging all of our new capabilities and tools in service of our mission to recruit and retain color customers and bringing our debt leverage ratio closer to our target of two and a half times. Across both the SALI and BSG segments, we are providing our customers with a robust omnichannel experience and view this as an important growth driver. As we continue to scale and optimize a full suite of omnichannel services for our customers, We see e-commerce growing to 15% of sales in the coming years. In Q3, global e-commerce sales were $71 million and represented approximately 7% of total net sales. Sally U.S. and Canada had 43% of e-commerce sales fulfilled by our stores. And BOPIS continues to gain traction and comprise 22% of Sally U.S. and Canada e-commerce sales in the quarter. That's up from 20% in Q2 and 11% in Q1. Additionally, we've just started testing rapid delivery at SALI US and Canada, which will fully roll out in the next one to two quarters. At BSG, we completed the replatforming of our website on schedule and introduced both focus and rapid two-hour delivery in all BSG territories. Both of these new fulfillment options, which bring tremendous convenience and value to our stylists, are currently being tested and refined with the expectation of being fully operational in Q4. Another significant development at BSG is a new partnership with Regus. In the coming months, we'll become one of their primary distributors as they pivot to a full franchise model. We have a significant opportunity to continue leveraging our digital capabilities while optimizing the store portfolio to deliver a superior Omni experience for the customer. We are in the early stages of our initial 90 store test, which as a reminder includes the closure of approximately 70 Sally Beauty and 20 BSG locations throughout the U.S. Over the next several months, we'll be proactively engaging with our customers in those markets and analyzing sales transfer to inform our path forward. Another important area of focus is loyalty and CRM, which is enabling us to capture tremendous data and drive deeper and more frequent interactions with our customers. In Q3, purchases from our loyalty members at Sally US and Canada exceeded 73% of total sales, and BSG US exceeded 8% of total sales. The BSG program is approaching its one-year anniversary, and we're pleased with how quickly the stylist community is adopting our private label rewards card. Turning now to our JDA implementation, which represents one of the final elements in our multi-year transformation journey. BSG is currently up and running on both demand and fulfill across its U.S. network and will be expanding across Canada and to our SALI facilities next. with the expectation that we'll be up and running across the entire network by the end of the calendar year. Additionally, we used excess cash to reduce our debt levels by over $200 million in the third quarter, bringing our leverage ratio below 2.5 times. More on this from Marlo later. As we approach the final months of our fiscal year, we feel very good about our positioning and capabilities. and the exceptional team we have in place to execute on our mission. That said, we are aware that the latest consumer sentiment figures and new pandemic variants are creating macro uncertainty. At the same time, supply chain disruptions are persisting. Looking at the near-term picture, we anticipate that fourth quarter net sales will be approximately flat to up 2% versus last year as comparisons normalize. As a reminder, in the fourth quarter of fiscal 2020, net sales were roughly flat to the prior year, reflecting some pent-up demand in the first part of the quarter as restrictions eased and salons reopened. Looking further ahead, we believe the business is poised to achieve our long-term algorithm of low single-digit same-store sales beginning in fiscal 2022. In summary, We remain laser focused on our mission to recruit and retain color customers, drive operational excellence, and utilize our new capabilities and tools to connect more deeply with our customers. Conventional wisdom says there are three key dynamics driving success with the consumer right now. Innovation, convenience, and personalization. We couldn't agree more, and we're seeing that play out across both Sally and BSG. Vivids, bonding, and lightning are driving innovation, and there is more excitement on the horizon from both us and our vendors. Rapid delivery and focus are driving convenience and speed to market. And loyalty and data are driving personalization through customer insights, engagement, and conversion. This is particularly powerful given how sticky our customer is. Our transformation work of the past three to four years has upgraded our entire operating infrastructure and set us up for long-term success. It's not often that a retailer has the runway to rewrite its playbook. We are incredibly proud of our teams for helping us successfully reinvent the business and create a robust platform for future growth. We know there's more work ahead and plenty of opportunity. Our mandate now is to optimize and scale. With that, I'll turn the call over to Marlo to discuss the financials, and then we'll look forward to taking your questions.