Sally Beauty Holdings, Inc.

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's second quarter fiscal 2026 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 Adrian Lee, our new 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 Mitigation 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 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. I'd like to start by welcoming Adrienne to Sally Beauty Holdings. She's been with us just under two weeks now and launched into her role with tremendous energy and focus. Adrienne brings deep operational, strategic, and financial expertise to our executive leadership team, and we are thrilled to have her on board as we continue to advance our strategic initiatives and focus on long-term value creation. Looking at our second quarter performance, the results demonstrate the compounding benefits of our strategic growth drivers. Total sales of $903 million, up 2.3% versus last year, and comparable sales growth of 1.3% were at the high end of our expectations. Strong gross margins and effective cost control enabled us to deliver bottom line results above our guidance range, with adjusted operating income coming in at $73 million and adjusted diluted EPS of 44 cents. This drove strong cash flow from operations of $73 million, which we utilized to continue to invest for growth, further strengthening our balance sheet with $20 million of debt pay down, and return value to shareholders through $25 million of share repurchases. In our Sally segment, our customer remained resilient, and we saw positive response to our initiatives, including marketing and personalization, digital enablement, and product innovation. This drove segment comparable sales growth of 2.5%, highlighted by comparable sales increase of 4.4% in our Sally US and Canada business, with comparable transactions and average transaction value both up 2%. Our core color category delivered another quarter of impressive performance at Sally, up 11% on a total segment basis, and up 12% at Sally US in Canada. Beyond Strength in Color, we also delivered 3% growth in the Nail category, and momentum continued to build in the Fragrance category. After launching Fragrance in our top 1,000 Sally US stores last November, we expanded to 2,000 locations during fiscal Q2 and continued to see results ahead of our expectations. While trends in hair care remained soft, Performance improved sequentially, and we are preparing for a category reset in the fourth quarter, which will include refined assortments and enhanced merchandising initiatives. Overall, the Sally segment delivered strong results with a business that is resilient, differentiated, and well-positioned for the future. Now moving to our BSG segment. We delivered improved profitability on flat top-line results with operating margin up 90 basis points to 12.4%. From a category perspective, color performed well, growing 3% in the quarter. We're in the progress on initiatives in the care category, where sales have been trending generally flat in recent quarters. New brands, innovation, and distribution expansion continue to be priorities. Additionally, by leveraging our market leadership position, we see an opportunity to better communicate the differentiated value we provide. Now I'll turn to an update on some of the initiatives under our four key growth drivers. The first is understanding and activating the customer, which is focused on acquisition, retention, and share of wallet. On the Sally side, our Save and Skip the Salon marketing campaign continues to resonate with customers, supported by disciplined execution across planning and promotional activities. Additionally, our teams are actioning new marketing strategies to engage customers where they are through local events. For example, as part of our ColorFest celebration in March, one of our featured events was a pop-up at The Grove in Los Angeles. This was strategically located in a high-traffic destination close to Sally Stores and met with tremendous response, driving traffic and engagement, new customer acquisition, and over 300 million PR impressions. On the heels of this success, we're planning additional experiences designed to drive customer engagement and acquisition. Similarly, in late February, we announced the continuation of our Rooted in Success campaign, which is dedicated to celebrating community along with the next generation of beauty. For this latest campaign, we've been holding events across 13 historically black colleges and universities, which will continue through fiscal Q3. or activating student leaders as brand ambassadors, and creating authentic community-driven moments where they can discover and engage with brands. And we're amplifying this platform in collaboration with Essence Magazine. Our teams are thinking outside the box to build awareness and reach both new and existing customers, and the results are evident. The strength of our Licensed Colorist on Demand platform is also driving customer acquisition. In fiscal Q2, average weekly consultations exceeded 5,200, and the number of new customers increased by 35% over the prior year. LCOD customers' annual spend is also 80% higher than non-LCOD customers, driven by increased frequency. Additionally, our new hair care consultation strategy continues to gain traction, and we believe this will help reinvigorate category sales in the coming quarters. In our BSG segment, we are increasing our usage of integrated marketing partnerships with our key brands, which is fostering increased engagement with our stylists. In the latter part of the year, we will be building on the use of AI and applying our initial learnings to drive more personalized experiences, particularly among our most highly engaged stylists. Moving now to our second growth driver, unlocking and harvesting digital value. The early results from the launch of our updated Sally app are compelling. In just two months' time, we've seen increased engagement, higher quality conversion, larger average order value, reduced cart abandonment, and improved order completion rate. Notably, as our customers utilize the new app, improved store-level inventory visibility has also led to more customers selecting buy online, pick up in store for fulfillment, our most profitable e-commerce fulfillment options. Looking ahead, we believe there's a meaningful opportunity to continue to drive conversion efficiency, reduced friction, and a more profitable fulfillment mix through the app. Also at Sally, as part of our growing marketplace strategy and increasing focus on discovery-driven shopping, we are excited to expand into social commerce with the March launch of Sally Beauty on TikTok Shop. The site features our entire owned brand product portfolio, as well as an initial offering of national brands which we will expand upon as the channel continues to grow. Turning to BSG, in April, BSG successfully rolled out its updated app, strengthening the stylus experience through improved functionality, including faster checkout and simplified reordering based on order history. The app enhancements will also include the ability to add future capabilities around education, geo-targeting, inventory, and personalization. In addition, we saw good growth in two-hour delivery, driven by marketing and better in-store communication. Looking at our third growth driver, differentiating with product assortment and innovation. In the Sally segment, we're engaging our customers with a robust pipeline of innovation across both own and national brands. Most recently, our high-margin Ion Lux brand launched a new infrared collection of tools aimed at minimizing hair damage. Infrared is amongst the fastest evolving trends in styling, and we're particularly excited to offer this innovation to our customers with affordable pricing as they prioritize hair health. In our BSG segment, innovation continues to drive loyalty, engagement, and sales. New brands like Stylus Blood Milkshake and Keratin Complex, as well as expansion within existing brands, are driving results. In fiscal Q2, we added Epilog, the full-range permanent hair color from Danger Jones, and in the second half, we'll be launching Moroccan Oil in two new states. In the nail category, refreshed assortments and merchandising initiatives generated an improved trend in fiscal Q2, which is expected to continue into the second half of the year. Our final growth driver is accelerating new growth pathways. I'll start with our Sally Ignited initiative, which builds on our core strengths including trusted customer service and professional hair expertise, while modernizing the experience to drive relevant engagement and growth with the next generation of consumers. During fiscal Q2, we completed two store refreshes, bringing us to 40 completed locations. We have another 40 refreshes planned in the back half, which puts us on track with our plan to have approximately 80 Sally Ignited stores in the market by the end of our fiscal year. Ignited stores are delivering strong KPI momentum, driven by higher cross-category penetration, UPT, and ATV, which is translating into incremental growth. Further, we are pleased to see increased dwell time, positive response to our enhanced nail assortment, and strong engagement with our newest category, fragrance. During the balance of the year, we'll continue to read and react as we plan for an increasingly skilled rollout beginning in fiscal 2027. Looking at the BSG segment, our entry into skin and spa category is progressing well. Recall that we launched with two brands, Image and Matter of Fact, in 250 stores. Initial performance has been strong, and we are planning to add another 250 stores in the fourth quarter. During fiscal Q2, we activated targeted marketing programs for estheticians to build awareness and drive consideration and conversion. We believe our authority in the beauty space puts us at a significant advantage and provides us with an organic opportunity to build a meaningful position in the category over the long term. Finally, we are excited to launch Amika Skin Care in all U.S. and Canadian stores starting in June. As we continue to focus on accelerating the top line, the work we've accomplished under our Fuel for Growth program is translating into higher quality, more profitable growth. Halfway through the year, we are on track to capture approximately $45 million of gross margin and SG&A benefits in fiscal 2026. That will bring us to $120 million of cumulative run rate savings over a three-year period, which is in line with our stated goal at the start of the program. We're entering the second half of fiscal 2026 with momentum and confidence. We've tightened our top-line guidance range to reflect three key dynamics. First and foremost, we are incredibly excited about the strength we are seeing in this Valley segment. Consumers are clearly responding to our customer-centric engagement strategies, compelling product offerings, and key growth initiatives. Next, in BSG, our teams are focused on leveraging our market leadership position to return to growth in the segment. Finally, we are taking a pragmatic stance regarding the ongoing geopolitical environment and its potential effects on consumer behavior. In closing, I appreciate the hard work of our teams who continue to demonstrate that our beauty expertise, curated assortments, and value proposition resonate with our DIY Sally customers and BSG stylists across market conditions. We believe our competitive and structural advantages position us to drive long-term growth and meaningful shareholder value. Now I'll turn the call to Adrienne to discuss the financials.