Sally Beauty Holdings, Inc.

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's second quarter fiscal 2024 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 Jeff Harkin, Vice President of Investor Relations and Treasurer.

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'd 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 fuller remarks.

Thank you, Jeff, and good morning, everyone. Our teams navigated dynamic sales trends during the second quarter while continuing to execute against our strategic priorities and deliver engaging experiences for our customers. Net sales came in at the lower end of our expectations at $908 million, down 1%, and comparable sales declined 1.5%. Our sales results reflect notable strength and momentum in our BSG segment, offset by softer sales performance at Sally amidst weather challenges in January and ongoing customer frugality. Adjusted gross margin was 51%, which came in lower than we anticipated due to higher promotional penetration as well as an unfavorable sales next shift out of our highest margin Sally U.S. business. We continue to execute solid cost controls with an adjusted SG&A of 1% versus last year in line with our expectations. The business generated solid cash flow from operations of $37 million, allowing us to return value to shareholders via continued share repurchase activity. We also strengthened the balance sheet with the refinancing of our 2025 senior unsecured notes. More on that later from Marlowe. Let's take a look at performance by segment. At BSG, Q2 comparable sales were up 2%, a bit ahead of our expectations. This represents the second consecutive quarter of positive comp and reflects continuing improvement in salon demand trends paired with a robust flow of product innovation. Comparable transactions increased 2%, and average ticket value was flat to the prior year. We are pleased to see momentum returning to BSG, with color and care both in positive territory. It is clear that our stylists are seeking value, which was reflected in the strength of our quarterly customer appreciation sales. In our Sally segment, sales were at the low end of our expectations for the quarter, as our customers continued to exhibit cautious shopping behavior. Q2 comparable sales declined 4%, with comparable transactions down 5%, and average ticket value up 1%. Looking at the cadence of the quarter, as we shared on our Q1 call, we started the quarter with about $10 million of weather impact to January, which put outsized pressure on transactions for the quarter. Subsequently, Sally returned to a more normalized traffic and transaction trend line at the end of the month and into early February. Although transactions continued to improve throughout the quarter, our Sally US and Canada customers demonstrated price sensitivity, leaning into promotions more heavily than we've seen in recent quarters, negatively impacting average unit retail. While promo offerings were approximately flat year over year, we believe the macro backdrop had a heightened impact on the increased take rate of promotional items by our lower income consumers who are seeking value in response to the inflationary environment including elevated credit card and buy now, pay later balances with higher interest rates. As we've seen both our stylists and our retail customers increase their promotional purchases in recent months, we are partnering with our vendors and we are adjusting our tactics, including looking at the design, depth, and duration of our offers. We're taking these actions while remaining intensely focused on retaining and growing loyalty among our shoppers by leveraging our strategic initiatives from innovation to marketplaces and beyond. To that end, our ongoing focus on our core strategic initiatives, enhancing our customer centricity, growing our high margin own brands and amplifying innovation, and increasing the efficiency of our operations is bearing fruit. In Q2, Product innovation, territory expansion, and new services contributed over 250 basis points to our comparable sales results, and we remain on track to achieve 200 to 300 basis points of contribution from these initiatives for the full year. There are a number of highlights from the quarter and actions planned for the second half. Starting with product innovations. This continues to be an important driver of growth and customer engagement in both our BSG and Sally segments. At BSG, we recently secured substantial territory expansions with two important brands. We added key geographies with Moroccan Oil, and we're now selling Amica across all stores and e-com in the U.S. and Canada. We also added two new compelling brands to our stable, Briogeo and Aprey. both of which have earned a cult following fueled by innovation. Considered a pioneer in scalp care, Briogeo brings a line of clean, plant-based products to approximately 500 Cosmoprof locations nationwide. Founded by the scientists behind Olaplex, APRE brings a new line of highly innovative bonding products to BSG, providing another efficacious tool to support our stylists as they serve their clients. From a trend perspective, blonding, glossing, and express coloring remain strong, as well as conscious beauty and textured hair products. In our Sally Beauty segment, innovation is also paramount across both owned and third-party brands. Major trends include dark vivids, toners with built-in color, and sustainable products, which we are beginning to telegraph under a new mindful banner. In Q2, Owned brand sales penetration for the global Sally Beauty segment was 34%, up 60 basis points over the prior year. During the second half of the year, we have additional innovation forthcoming in skincare and men's grooming. Our latest marketing campaign, rooted in success, demonstrates our focus on creating branding moments that go beyond our Sally Beauty banner. Launched in connection with Black History Month, The campaign celebrates entrepreneurism and creativity. We'll be building on this early success and the momentum we're seeing during other key moments throughout the year, including Pride Month and Hispanic Heritage Month. Turning now to customer centricity, let me start with a few updates on our new concepts and services. Starting with Licensed Colorist on Demand. This service is available nationwide online and is now linked to all Sally US stores. Momentum continues to build. We saw over 3,000 consultations per week throughout Q2, with growth month over month throughout the quarter. In Q2, 40% of customers who engaged in the service were new to SALI. While it remains early days to understand the long-term benefit of the service, I'd note that for existing customers, we are seeing an uptick in visit frequency in the months following their consultation. Additionally, average ticket value increased to $35 from $33 in Q1. We're also seeing strong results from our marketplace initiative, with both Amazon and Walmart performing well. Additionally, we are up and running with DoorDash as of March, and we'll launch Instacart in Q3. View our marketplaces as an important omni-channel offering for our customers, allowing us to meet our existing customers where they are, while also building awareness with new consumers. Looking at Studio by Sally, we're generating key ICE insights around format, store layout, services, and education, all of which is informing new ways to engage the customer. Although we're seeing pockets of strength, results are mixed and we need more time to evaluate our KPIs before we take definitive steps to expand the initiative. More to come on this in the quarters ahead. Moving now to Happy Beauty Co. As we test the concept and read results, we're pleased with the performance of our initial 10 pilot stores. Traffic is continuing to build as our teams implement creative marketing strategies around social media, grassroots initiatives, and DIY events in stores. Gifting continues to be a strong driver, and we've been seeing that in the lead-up to Mother's Day this weekend. Average ticket and units per transaction are tracking strongly, and we've recently started testing a luxury closeout section on items above $10. Early uptake there is positive. Based on the strength of our initial Happy Beauty rollout, we plan to open up to an additional 10 pilot stores prior to Thanksgiving in the Dallas and Phoenix markets. These additional stores will further test the demographic and co-tenancy profiles that are showing strength As part of the expanded pilot, we will also test small locations, which we believe could be well-suited for the concept, given their inherent traffic and exposure to demographic profiles that are resonating in our pilot to date. Longer term, we have conviction there will be an opportunity for more accelerated expansion in fiscal 2025 and beyond. Profitability remains a priority across the organization, and our teams are coalesced around our Fuel for Growth initiatives. We're on track to capture previously announced pre-tax benefits of $20 million in fiscal 2024, and as shared on our last earnings call, we have identified another tranche of potential pre-tax benefits totaling approximately $50 million in fiscal 2025, with cumulative run rate benefits in fiscal 2026 approaching $120 million. In closing, this was a quarter with a number of learnings to build upon as we look to the future. We're pleased to see momentum return to BSG with comparable sales in positive territory for two consecutive quarters. We believe the path to continued growth there will be driven by a combination of innovation, distribution expansion, and strengthening salon demand. On the SALI side, We anticipate that macro pressures will persist in the near term and remain sharply focused on controlling the controllables, which includes enhancing customer centricity through our marketplaces and licensed colorist on-demand initiatives. As we remain focused on delivering engaging customer experiences and executing our strategic initiatives, we are responding to the continued shift in customer dynamics with thoughtful adjustments to our promotional cadence and maintaining strict cost disciplines. We greatly appreciate the ongoing support of our shareholders, and we remain committed to serving our customers and driving long-term profitable growth and value creation for all of our stakeholders. Now I'll turn the call over to Marlo to discuss the financials.