Sally Beauty Holdings, Inc.

Good morning, everyone, and welcome to Sally Beauty Hoding's conference call to discuss the company's first quarter fiscal 2024 results. All participants have been placed into a listen-only mode. After management 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 Jeff Harkins. Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Polonis, President and Chief Executive Officer, and Marlo Cormier, Chief Financial Officer. Before we begin, I would like to remind everyone 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 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 Denise to begin the formal remarks.

Thank you, Jeff, and good morning, everyone. We're pleased with our start to fiscal 2024 marked by financial performance that was in line with our forecast. First quarter net sales of $931 million declined 2.7%, primarily reflecting the lapping of store closures that occurred in December 2022, while comparable sales declined 0.8% in the quarter. An adjusted gross margin was above 50% and in line with our expectations. An adjusted operating margin came in at 7.9%. Additionally, we generated solid operating cash flows of more than $50 million, enabling us to return value to shareholders through $20 million of share repurchases. In our BSG segment, Q1 comparable sales were up 1% as we saw a modest strengthening in salon demand trends, coupled with strong momentum from recent product launches and our acquisition of Volvo in New York. Comparable transactions increased 3%, while average ticket value declined 2%. In our salary segment, customer shopping behavior remained fairly consistent with recent quarters, as they continued buying primarily to meet. P1 comparable sales were down 2%, with comparable transactions down 4%, and average ticket value up 2%. Our teams continue to execute well against our core strategic initiatives of enhancing our customer centricity, growing our high margin owned brands and amplifying innovation, and increasing the efficiency of our operations. To that end, we continue to expect that product innovation, territory expansion, and new services will contribute 200 to 300 basis points to our top line performance this year. During the first quarter, In line with our expectations, these initiatives contributed over 200 basis points to our comparable sales results, with product innovation being the predominant driver. Let me share a few highlights. Starting with product innovation, we are seeing momentum across both our own and third-party brands. In Q1, own brand sales penetration for the global Sally Beauty segment was 34%, up 20 basis points over the prior year. Additionally, our BondBar and Ion lines continue to perform well, with notable strengths in BondBar Care and Ion Color. Of note, Ion remains our largest owned brand in the US and Canada, and BondBar has grown to be our fifth largest owned brand in just over a year's time in the market. We're also seeing strong performance in the textured hair category, where we have a pipeline of innovation planned for later this year. Beginning next month, we'll have several product launches happening throughout 2024 across color, care, styling tools, and appliances, encompassing both our proprietary lines and national brands. Turning to innovation at BSG, standout performers include Amica, as well as Ultimate Repair, Moroccan Oil, and ColorWow. During the first quarter, we expanded our distribution territory for both Moroccan Oil and ColorWow, and we have additional expansion opportunity across our brand portfolio. Additionally, we captured the first full quarter of sales from our Goldwell of New York acquisition. The BSU segment also has a robust pipeline of innovation planned for this year, which will be particularly meaningful to our stylists as we partner with them to profitably grow their businesses. You can expect to see launches in both new and existing brands across blonding, glossing, and express coloring, as well as conscious beauty and textured hair. Our ongoing focus on customer centricity continues to serve us well. In Q1, we generated 77% of sales from our 16 million Valley US and Canada loyalty members, while our BSG Rewards credit card purchases represented 8% of sales. Our new concepts and services are building momentum, and we are tracking to our plans for full year fiscal 24. Our Licensed Colorist on Demand initiative is helping us extend our reach and continues to gain traction. In Q1, 36% of our customers who engaged in the service were new to Sally. That's up from just north of 30% in Q4. At quarter end, we had 40 licensed colorists on the platform, and plan to expand that to approximately 100 this fiscal year as demand for the service grows. We're also gaining traction against our Marketplace initiative, which launched with Walmart in Q4 of last year, building on the success we have had with Amazon. In the coming quarters, we plan to add DoorDash and Instacart, which will enable us to leverage in-store fulfillment. Turning now to Happy Beauty Co., At fiscal year end, we had 10 pilot stores in operation, and we were very pleased with Q1 performance, which included the holiday selling season. We expected the stores to be an attractive gift-giving destination and were gratified to see that take shape, with consistent increases in traffic, conversion, and average transaction value throughout November and December. We are continuing to build awareness of Happy Beauty with grassroots marketing initiatives and remain enthusiastic about the potential to build a sizable store portfolio over the long term. When we look across the business, at both our Sally and BSG segments, at our customers and how they're behaving, and at the same time, consider the potential of our newer growth strategies, we're confident that we're on the right course to reignite sales. Building on our Q1 results, which were in line with our expectations, we're maintaining our full-year fiscal 2024 guidance, which calls for net sales and comparable sales to be approximately flat. This reflects 200 to 300 basis points of anticipated growth from our strategic initiative, which I mentioned earlier, offset by the expectation that macro factors will continue to pressure consumer spending. In the second half of the year, we expect to see sequential improvement in comparable sales as we further advance our strategic initiatives. We are also continuing to prioritize profitability. Our Fuel for Growth initiative is underway, and we remain on track to capture previously announced pre-tax benefits of $20 million in fiscal 2024. I want to highlight that this is a comprehensive program that is fundamentally changing the way we operate, and supports our long-term growth algorithm for a low double-digit operating margin. To that end, we recently partnered with an external resource and have begun to uncover incremental opportunities around merchandising margins, non-trade spend, inventory efficiency, supply chain, automation, and outsourcing that will take effect in fiscal years 2025 and 2026. As an outgrowth of this initial assessment, We've identified another tranche of potential pre-tax benefits totaling approximately $50 million in fiscal 2025, with cumulative run rate benefits in fiscal 2026 expected to approach $120 million. We'll have more to share on our roadmap as we continue our analysis in the coming months. We're pleased to have started fiscal 2024 with strong execution and look forward to further advancing our initiatives across customer centricity, innovation, and efficiency throughout the year. We believe these focus areas are important pillars to attract new customers, increasing our share of wallet, and strengthening our competitive position. Our teams are highly engaged. Our deep understanding of shopping behavior and purchasing patterns among our retail customers and BSG stylists is enabling us to effectively navigate the dynamic macro environment. Our strong market positioning and the traction we're seeing in our initiative underpin our confidence in the long-term growth algorithm we've previously communicated, which calls for low- to mid-single-digit top-line growth and low double-digit operating margins. We greatly appreciate your continued support and remain committed to increasing value for all of our stakeholders. Now, I'll turn the call over to Marlo to discuss the financials.