Sally Beauty Holdings, Inc.

Good morning, ladies and gentlemen, and welcome to the Sally Beauty Holdings conference call to discuss the company's fiscal 2021 fourth quarter and full year results. All participants have been placed in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Additional instructions will be given at that time. Now, I would like to turn the call over to Mr. Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings. Please go ahead.

Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Polonis, our new president and chief executive officer, and Marlo Corbier, chief financial officer. Before we begin, 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 sallybeautyholdings.com forward slash investorrelations. I'd 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 factor section of our most recent annual report on Form 10-K and other filings with the SEC. Any forward-looking statements made in 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 Denise to begin the formal remarks.

Thank you, Jeff, and good morning, everyone. I'm thrilled to be here with a little over a month under my belt, and I'm looking forward to meeting and talking to our analysts and shareholders in the coming months. Having served on the Sally Beauty board since 2018, I'm fortunate to be bringing firsthand perspective and a deep working knowledge of the business on day one. I see a significant opportunity to utilize my leadership skills and retail and finance background to drive the business into a new era of profitable growth. capitalizing on all the new capabilities enabled by the transformation of the business over the past four years. Virtually every aspect of the company's infrastructure has been retooled across technology, marketing, merchandising, supply chain, HR, finance, and talent, creating a robust platform from which we will grow. I'm incredibly proud of our exceptional teams who took on this challenge and helped us evolve into a modern, dynamic, omni-channel beauty retailer that is now set up for long-term success. Before talking a bit more about our future, let me share a few highlights from last year. In fiscal 2021, full-year net sales grew 10%, gross margins exceeded 50%, and adjusted EPS was up over 97%. Additionally, we generated strong cash flow from operations of $382 million. We delivered consistent performance throughout the year and concluded fiscal 2021 with fourth quarter results ahead of expectations, reflecting strong operational execution. We're particularly pleased to see ongoing momentum and consistency across the business, despite the various impacts of the pandemic. As we embark on our new fiscal year, our mission to recruit and retain color customers remains a core component of our roadmaps. and continued tailwinds around self-expression through hair, product sustainability and innovation, and the growing number of independent stylists continue to reinforce the strength of our color and care business. Putting the customer first and enhancing their experience with us is critical to our success. We're continuing to prioritize the customer through personalization, inspiration, education, and training. We're also focused on creating the easiest shopping experience for our customers. Through our robust omnichannel platform and multiple fulfillment options, our customers can get product how they want it and when they want it faster than ever before. Against the backdrop, we'll be focusing on four strategic growth pillars to drive the top line in fiscal 2022. Leveraging our digital platform, driving loyalty and personalization, delivering product innovation, and advancing our supply chain. First, I'll talk about digital. As we increasingly become the unrivaled source for color inspiration, education, and training, our goal is to create an easy, reliable, omni-channel platform for our DIY enthusiasts and stylists. At BSG, we completed a critical set of strategic initiatives in fiscal 2021 that positioned us to become the go-to platform for stylists. We redesigned the Cosmoprof website, introduced new value-added services around ordering, and rolled out focus and two-hour delivery. In addition, we'll be connecting our store network to the Cosmoprof app this month to further enhance focus and two-hour delivery. In short, our BSG stylists can now access everything sold by Cosmoprof on their phone and within two hours. Bringing together all these initiatives truly positions BSG as a compelling resource for the stylist community. providing them with the tools they need to run their businesses most efficiently and profitably. At Sally, we've seen a positive customer response to our expanded fulfillment model, and we're continuing to gain traction across BOPIS, ship-from-store, and rapid two-hour delivery. In our most recent quarter, Sally U.S. and Canada stores fulfilled 34% of e-commerce sales, as BOPIS fulfilled 34% of e-commerce sales, as both have comprised 22% and ship from store accounted for 8%. Rapid 2-hour delivery was launched in the middle of the quarter and represented 4% of Sally US and Canada e-commerce sales. Additionally, the adoption of these new fulfillment options exhibits our power of scaling our new tools and capabilities to meet the strong desire our customers have for this incredible convenience. We're also laser-focused on improving in-stocks across our store and VC network through our new JDA platform so our customers are able to access our inventory, however they choose to shop, and get most products in just two to three hours. As we continue to scale and optimize a full suite of omnichannel services for both our SALI and BSG customers, we believe e-commerce can reach 15% or more of sales in the coming years. In fiscal 2021, global e-commerce sales penetration was just over 7%. Importantly, we know that an omni-channel customer at Sala US and Canada spends approximately 75% to 80% more with us annually than a brick-and-mortar customer. So this is not just a sales channel shift. It is a tremendous opportunity for growth. Moving now to our second growth pillar, loyalty and personalization, which ties directly to our digital strategy. As many of you know, the rise of personalization has changed the table stakes in retail. With our rapidly growing loyalty program and a new push towards personalization, we have a significant opportunity to drive increased customer engagement and sales. At StyleUS in Canada, approximately 74% of our fourth quarter sales came from our loyalty program. At BSG, because stylists have to register to shop with us, we have data on 100% of our customers. Additionally, approximately 8% of our BSG sales in the quarter came from our rewards credit cards that was launched about a year ago. These are remarkable numbers, and we've only scratched the surface in leveraging this asset. In fiscal 2022, we'll be utilizing data science to engage our customers with inspiration, education, and personalized offers at every touchpoint. At SALI, this includes recommendations on product usage, reminders to replenish on time, and incorporating DIY and educational components at key moments in their journey. At BSG, this means showcasing new product arrivals, reminding stylists to restock their back bar, and notifications to replenish key stylist products. We believe these actions will drive higher customer lifetime value by minimizing attrition, growing spend per transaction, and increasing purchase frequency. Fiscal 2022 will also see us investing further in digital marketing and social media campaigns to drive traffic and sales. Our current marketing campaign, You by Sally, continues to generate a tremendous amount of attention from customers and the trade. Celebrating the transformative power of hair color, the campaign has received extensive coverage from beauty editors and generated millions of views on social media. Our third growth pillar is product innovation. Fiscal 2022 will be highlighted by a big infusion of innovation across Valley and BSG, and we'll be driving a large part of that ourselves. The pipeline of new products is robust and includes our own and third-party brands across multiple categories. We will continue to emphasize and support sustainable and clean products, which are increasingly being selected and commanding a premium from customers. Importantly, we believe our authority in color and care provides a logical path and powerful platform for standing up new brands that go beyond our four walls. The first initiative is our new exclusive brand line of vivid colors at Sally called Strawberry Leopard. Launched to a positive response in October, this is a youthful, Gen Z-focused brand that speaks to our ability to increasingly attract younger consumers who value self-expression. Concurrently with the launch, we created an individual digital platform for Strawberry Leopard that immerses consumers in the brand egos and enables a direct shopping experience. As the brand gains velocity, we expect to unlock potential opportunities for expansion into additional distribution channels, including mass, beauty, and third-party e-commerce. The innovation pipeline at BSG is equally exciting, starting with Olaplex's new toning shampoo that just launched in September. Olaplex is a great example of a high-profile brand that continues to innovate and remains a key partner to us. Looking ahead, we're continuing to focus on being at the forefront of innovation with new product and brand launches to excite the consumer planned for 2022 and beyond. Turning now to our fourth growth pillar, another critical element of our focus on putting the customer first is supercharging our supply chain to ensure that we are in stock in color and care every time. A great deal of the heavy lifting has been done, and we're now executing the final phase of JDA implementation. The system is up and running in all BSG locations and the majority of our Sally stores. We're currently rolling out JDA to our remaining locations and fully integrating with our North Texas DC. Once completed, we'll have a highly automated, integrated network with the best-in-class capabilities across inventory forecasting, localized assorsement, pricing and promotions, and in-stocks. We believe our initiatives under these four growth pillars will allow us to drive top-line growth of 3 to 4 percent and generate strong operating cash flows this year. This reflects our ability to maintain strong gross margins while mitigating inflationary pressures through careful cost controls, pricing levers, and store optimization. To that end, our 90-store optimization pilot remains in progress. We are continuing to gather and analyze data from the sample. And I'm pleased to note that we're significantly exceeding our sales transfer targets. In fiscal 2022, we expect to launch a multi-year program designed to maximize the value of our large store portfolio while offsetting inflationary headwinds. By rationalizing this leak, we can improve productivity and profitability while delivering a convenient omni-channel experience that benefits our customers. We're entering fiscal 2022 with solid infrastructure, a well-defined roadmap for growth, and favorable industry dynamics that support the significant opportunity in front of us. In the coming months, I look forward to working with the team to build out additional growth opportunities that will fuel our business and create meaningful shareholder value in 2023 and beyond. In addition, I'd like to thank all of our associates across our store networks, field operations, distribution centers, and support centers throughout the globe for their passion, dedication, and hard work which helped us finish a strong 2021. Thank you for everything you do each day to make us better and for serving our customers. With that, I'll turn the call over to Marlo to discuss the financials, and then we'll look forward to taking your questions.