Sally Beauty Holdings, Inc.

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's fourth quarter and full year fiscal 2025 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 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'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 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. Fiscal 2025 was a meaningful year for the company, highlighted by strong operating and financial performance in the context of a rapidly changing and uncertain macro environment. We're pleased to report both Q4 and full-year results that exceeded our expectations. For our fourth quarter, we delivered comparable sales growth of 1.3%, 100 basis points of gross margin expansion to 52.2%, adjusted operating margin of 9.4%, and a 10% increase in adjusted diluted earnings per share to 55 cents. On a full year basis, we delivered $3.7 billion in revenue, positive comparable sales, gross margin north of 51%, and adjusted operating margin of 8.9%, which is up 40 basis points to the prior year and above the high end of our guidance range. Adjusted diluted earnings per share came in at $1.90, representing 12% growth compared to last year. Our core strategic pillars drove customer engagement and sales, contributing approximately 260 basis points of comp sales growth for the full year. The business also generated strong cash flow from operations of $275 million, which we deployed towards investing for growth, further strengthening our balance sheet with $119 million of debt pay down, and returning value to shareholders through more than $50 million of share repurchases. These results are a testament to the executional excellence across our organization and demonstrate the underlying strength of our business model. We have resilient customers, defensible categories, and strategic initiatives built to drive growth and increase profitability. Touching on some of the strategic highlights of the year, we advanced the business through several important initiatives. We maintained our leadership position in color, delivering growth of 7% in fiscal Q4 and 4% for full year 2025. We delivered on our promise of customer centricity, driving strong growth in our licensed colorist on-demand consultation service by delivering standout education and advice. We extend our reach and fuel digital growth with the expansion of our marketplaces strategy, adding Uber Eats to our already strong roster of partners, which includes DoorDash, Instacart, Amazon, and Walmart. We delivered a continuous pipeline of product innovation adding new powerhouse brands like K18 at BSG, and expanding our partnership with Sauce Beauty, as well as adding newness in color from Wella and Eero Eero at Sally. We launched a comprehensive Sally brand refresh, which we are now calling Sally Ignited, designed to transform the business from a trusted beauty supplier to a modern, dynamic beauty powerhouse. We generated an incremental $46 million of benefits through our Fuel for Growth program in fiscal 2025, building our cumulative run rate benefits to $74 million. Of that cumulative total, approximately $42 million flowed to the bottom line, with the remaining $32 million being reinvested in the business. And lastly, we were responsible stewards of capital, focused on building long-term value for all of our stakeholders. Entering fiscal 2026, we have proven our ability to navigate a complex and dynamic external backdrop, and we will continue to execute, leveraging the power of our competitive and structural advantages, our global scale, our compelling value proposition, and the strong fundamentals for our business to drive top-line and bottom-line growth. Throughout the year, our teams will focus on actioning four key growth drivers. understanding and activating the customer, unlocking and harvesting digital value, differentiating with product assortment and innovation, and accelerating new growth pathways. I'll discuss each of these. Our customer activation strategy is focused on acquisition, retention, and share of wallet. Much of our success is rooted in our customer-centric capabilities. we've always been intensely focused on delivering unmatched levels of education, service, and advice. Today, we're deepening our understanding of customers beyond the transactional view. By leveraging our rich customer data, advanced analytics, such as our enhanced media mix model, and robust customer research, we can better target high potential segments. This will enable us to improve customer engagement across touchpoints, that include performance marketing and personalization at both Sallie and BSG, as well as refreshed brand marketing and our licensed colors on-demand offering at Sallie. On the performance marketing front, we are refining our paid search, social media, PR, and influencer strategies informed by our enhanced media mix model to acquire new customers and drive sales growth. When it comes to personalization, We are focused on expanding our personalization experiences across all customer touchpoints, deepening our customer insights to drive the richness of the personalization decisioning and targeting, and strengthening our omnichannel communication and customer connection. A great example of our refined marketing campaigns is our plan for holiday at Sally. We're bringing elevated marketing to our stores and digital channel that has contemporary, unified look and feel designed to resonate with today's beauty consumer while staying true to Sally's brand heritage. Our holiday messaging platform, Save While You Skip the Salon, was created based on our latest customer data and insights and represents a tactical shift from the buying bulk promotions of recent quarters. Additionally, at Sally, we are embedding Licensed Colors on Demand, or LCOD, into our brand marketing strategy to reinforce our key pillars of expertise and accessibility. Our leading indicators offer a compelling view of the lifetime value of our LCOD customer. 12-month spend is almost two times higher than non-LCOD customers, including about two additional transactions per year. New and reactivated customers comprise more than 50% of the LCOD customer base, And the number of consultations at fiscal year-end was averaging a record 5,000-plus per week. Additionally, our licensed colors are strengthening their knowledge of the care category and beginning to test care consultations where we're seeing positive early response. Moving now to our digital strategy. On the Sally side, there's a clear opportunity to build on the momentum of our marketplace's success. which continues to be a key driver of e-commerce sales at Sally US and Canada. In fiscal Q4, Sally US and Canada's e-commerce sales increased 34% over the prior year and comprised 9% of total sales. Our teams are focused on unlocking greater digital value through the marketplace expansion, leveraging our speed-to-market delivery capabilities, and strengthening our digital foundations. This will include website and app enhancements that feature an elevated beauty persona, modern navigation, and a more seamless customer journey designed to drive increased engagement and conversion. On the BSG side, mobile app usage accounts for a significant portion of our digital traffic, with increasing reliance on our app for education and transacting. We are targeting the spring of 2026, for a substantial update to the BSG app and e-commerce platform designed to deliver improved user experience and enhanced personalization. We believe this will fuel long-term benefits, including higher conversion, increased retention and engagement, and enhanced brand loyalty. We're also in the early stages of developing an exclusive digital ecosystem designed to expand BSG's relationship with a stylist and increasingly integrate into their businesses, This will include a centralized hub for education, community, and services, one that will enable us to leverage data to continuously create incremental value for both our stylists and brand partners. Turning to products assortment and innovation. For the Sally segment, we are focused on driving multi-category performance by continuing to bring in new brands and products while expanding and nurturing categories beyond color. The most obvious opportunities exist in the strategic categories of care and nails, where we already have a strong presence and authority. In addition, we added fragrances as a new category in our top 1,000 Sally US stores at the beginning of November. We're also leveraging our higher margin own brand offerings and have a number of initiatives on deck for fiscal 2026. First, we are refreshing and relaunching some of our key brands, including Texture ID, Inspired by Nature, and ION Semi-Brakes. And we're bringing infrared innovation to the market with a dynamic collection of ION styling tools. We believe that building momentum with our higher margin-owned brands will enable us to drive increased customer retention and frequency at Sally, fueling long-term growth and profitability. For the BSG segment, we are pleased to serve as a trusted and valued resource to our BSG stylists who are always seeking the latest and greatest in trends and innovation. With our ability to reach nearly every stylist in the U.S. and Canada, we provide a valuable platform for brands to grow, and we have found that one great brand begets another. Of note, innovation drove upwards of 30% of BSG's total hair care sales in fiscal 2025. For perspective, that's up approximately three times from just a few years ago. In fiscal 2026, we have another exciting lineup of innovation coming. Key trends include glossing, glonding, smoothing, molecular repair, and scalp care. And we'll be in stock with highly desired brands like Briogeo, ColorWow, Danger Jones, K18, Moroccan Oil, Schwarzkopf, and Unite. In addition, we see incremental opportunities for BSG to build upon its strong track record of expanding its distribution rights. This can take shape by partnering with existing brands, pursuing opportunistic acquisitions, and adding new brands, all strategies we've successfully actioned in recent years. Lastly, looking at our strategy for new growth pathways. For our Sally business, we view Sally Ignited as a true game changer for our platform going forward. Sally Ignited is a comprehensive initiative encompassing both physical and digital refreshes, category and brand expansion, and immersive experiences focused on discovery and community. We see a tremendous opportunity to supercharge a fundamentally better store experience, especially as we double down on multi-category expansion, continue to deliver a relentless flow of innovation, and lean into momentum in areas like LCOD and marketplaces. Our mission is to ensure that the Sally brand emotionally connects with our customers while creating a discovery-focused, omnichannel specialty beauty experience, all enabling us to more effectively compete in today's product-obsessed beauty marketplace. At the end of fiscal 2025, we had completed 30 store refreshes. The stores are modern, on-trend, open, warm, and inviting, with a new layout that increases the ease of wayfinding. We've continued to see customers spending more time in-store and cross-shopping categories at an increased rate. Key indicators, including UPT and ATV, are trending above the rest of the fleet. We are planning to bring Sally Ignited to an additional 50 locations throughout the remainder of fiscal 2026. Because these refreshes are mostly occurring in stores that were previously slated for updates or relocation, the investment is not incremental to our planned capital spending for the year. Looking further ahead, we continue to have conviction in the opportunity to refresh up to 1,500 stores or approximately two-thirds of the Sally fleet. Sally's strong brand equity and 60 years of heritage certainly provide a powerful foundation from which to build. In fact, we are incredibly proud that just last month, Sally was ranked as the number three beauty retail brand in the prestigious Ellis Partners Consumer Sentiment Index for 2025. Turning to our VSG business, we're looking at new category expansion. We're focused on expanding VSG's addressable market by entering adjacent product categories, either organically or through acquisition. We recently began testing a couple of brands in the skin and spa space while pursuing estheticians. More to come on this in the coming quarters. Now moving to an update on our Happy Beauty initiative, which currently has 20 stores. We've leaned into Happy Beauty as an indie brand headquarters known for on-trend brands and key categories such as skincare and fragrance. Leading up to the holiday season, we recently completed key merchandising updates and implemented new marketing tactics, including increased influencer engagement and messaging that highlights indie brands, test before you buy, dupes, and value. We're putting a lot of energy behind the holiday selling season and believe that coming out of that period, we'll be better positioned to understand the trajectory of the concept and the optimal path forward. Underpinning the top-line growth drivers I discussed is a core discipline focused on profitability unlocks. In fiscal 2025, we generated meaningful operating efficiencies through our Fuel for Growth programs. This work is ongoing and encompasses merchandising, sourcing, supply chain, best cost location, and non-trade spend, where we have carried out deep dives and are continuing to extract value. In the first two years of the program, we generated cumulative run rate gross margin and SG&A benefits of $74 million, above our original expectation for $70 million, and we expect to capture cumulative run rate savings of $120 million by the end of our current fiscal year. Key levers we're focused on include SKU optimization, further supply chain optimization, promotion, and pricing. The expected benefits will continue to be an important contributor to gross margin and bottom line profitability in fiscal 2026. Looking further ahead, we're committed to delivering significant value for our customers, associates, and shareholders. Our focused strategies and consistent execution position us to achieve compounding growth while the strength and flexibility of our balance sheet will enable us to remain disciplined capital allocators. As part of our long-range planning, we're introducing financial targets to reflect our three-year planning horizon, ending with fiscal 2028. On an annual basis, we expect to generate net sales growth in the range of 1% to 3%, adjusted operating earnings growth of 3% to 5%, adjusted diluted EPS growth of at least 10%, including approximately 50% of free cash flow going to share repurchases, capital expenditures in the range of $90 to $120 million, and free cash flow of approximately $200 million. Our foundation is strong and our focus is clear. Our fiscal 2025 performance underpins our confidence that we have the strategy, capabilities, and team in place to scale and win with significant runway for growth and value creation. Now I'll turn the call over to Marla to discuss the financials.