j.p. morgan smid cap conference november 28, 2012 gary …/media/files/s/... · 2016. 6. 24. ·...
TRANSCRIPT
-
J.P. Morgan Smid Cap Conference
November 28, 2012
Gary Winterhalter, Chairman, President and CEO
-
2
Company Highlights
Sally Beauty Holdings is a leading international specialty retailer
and distributor of professional beauty products Sally Beauty Supply in business for 50 years
Annual revenue of over $3.5 billion
Strong cash flow generation
4,499 stores located in 11 countries (1)
Experienced and motivated leadership team
Industry leading position with ~32% channel share
Proven resilience in recessionary cycles
Well-positioned for long-term growth
(1) As of September 30, 2012
-
3
Overview of Our Concepts
(1) Fiscal year 2012 adjusted earnings excludes a $25.6mm, net of tax, charge related to the issuance of the new Senior Notes and the redemption of the old Sr. and Sr. Sub notes and a $10.2 million charge for a potential settlement of litigation. (2) Adjusted EBITDA is a non-GAAP financial measure; see appendix for EBITDA and EPS reconciliations. (3) As of September 30, 2012. (4) Operating income does not include Unallocated Expenses and Share Based Compensation.
3,309 stores (3)
1,190 stores (3)
1,044 sales consultants (3)
• Retail consumers (75% of sales) • Booth renters, professional stylists,
small salons (25% of sales)
• Stores – Booth renters, professional stylists, small salons (65% of sales)
• Full Service sales – small to medium sized salons (35% of sales)
Sales SSS growth Operating income (4)
Profit margin
$2,198mm 6.5%
$430mm 19.5%
$1,352mm 6.1%
$182mm 13.8%
Sales SSS growth Operating income (4)
Profit margin
YoY Sales $3,524mm Gross Profit Margin 49.5 % 70 bps GAAP EPS
Adjusted EBITDA (2) $591mm
Segments
Distribution Channel
Customers
2012 Financial Highlights
Consolidated Results
$1.24
7.8%
17.6%
8.8%
Fiscal Year 2012 Fiscal Year 2011 YoY Sales $3,269mm 12.1%
Gross Profit Margin 48.8% 60 bps
$1.14 46.2%
Adjusted EBITDA (2) $503mm 24.1%
GAAP EPS Adjusted EPS $1.42 (1) 32.7% $1.07 39.0% Adjusted EPS
-
4
Our Customer
Open-Line Retail Exclusive / Full-Service
3,309 stores 1,190 stores 1,044 consultants
Professional stylists Salons
Retail Consumers $$$ High-end $ Value
Customers:
Distribution:
Note: Store count as of September 30, 2012.
SBH plays an important role in the supply chain
-
5
Industry Channels of Distribution (U.S.)
Professional Beauty
Products ~$4.24 billion (1)
Distribution Channels
Mega-Salon Manufacturer direct to
large-format salons
13% (2) $0.5B
41% (2) $1.6B
35% (2) $1.4B
11% (2) $0.5B
Direct Manufacturer direct to manufacturer-owned salons or “high-end”
salons
Open-Line Distributes professional
product to the public via retail stores
Competition: Local and regional
operators
Exclusive / Full-Service
Third party distribution to salons and beauty
professionals via sales force and “professional
only” stores
Competition: L’Oreal’s
Area of focus for
SBH
Source: Professional Consultants & Resources, 2011 Study. (1) Professional beauty supply channel size based upon a 2011 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2011 manufacturer-level sales for professional beauty supplies were approximately $4.24 billion. (2) Represents an estimated breakdown of salon haircare product sales in 2011 by channel of distribution.
-
6
Stable & Consistent Industry Growth
U.S. Beauty Supply Industry has experienced steady growth with a CAGR of ~5%(1)
($ in
bill
ions
)
Source: Professional Consultants & Resources, 2011 Study. (1) Based on manufacturer sales of professional beauty supplies in the U.S.
Recession Resistant Industry
2010-2011 growth of
6.0%
$4.0
At manufacturer dollars
-
7
Our Leading U.S. Industry Position
(1) Professional beauty supply channel size is a management estimate, based upon a 2011 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2011 manufacturer-level sales for professional beauty supplies were $4.24 billion. Retail sales of $8.4 billion is calculated using gross margin of 49.5% (from SBH’s actual gross margin in the U.S. for FY2011) as the spread between manufacturer cost and retail sales.
(2) Estimated U.S. channel share calculated as follows: (i) Sally Beauty Supply’s U.S. net sales for the fiscal year ended September 30, 2011 divided by estimated marketplace size of $8.4 billion and (ii) BSG’s U.S. net sales for the fiscal year ended September 30, 2011 divided by estimated marketplace size of $8.4 billion.
U.S. professional beauty supply marketplace, in distribution dollars, was roughly $8.4 billion in 2011 (1)
• Estimated 13% channel share (2)
• Leading exclusive / full-service distributor in North America
• 1.2x sales of next largest competitor
Sally Beauty Holdings estimated channel share 32%
• Estimated 19% channel share (2)
• Largest open-line retailer/distributor in U.S. based on store count
• Fragmented marketplace
-
Business Overview
-
75%
25%
9
Sally Beauty Supply: Overview
Sally Beauty Supply global footprint
3,309(1) stores worldwide
2,638 stores in U.S. (including Puerto Rico)
671 stores in Canada, the UK, Ireland, Belgium, Netherlands, France, Germany, Spain, Chile & Mexico
Average store size 1,700 sq. ft., 90% selling space
Professional open-line business - merchandise assortment not available through mass retailers
(1) As of September 30, 2012.
Sales Mix
Retail
Professional
-
10
Sally Beauty Supply: Strong, Consistent Financial Track Record
$1,047 $1,132$1,208 $1,296
$1,359 $1,419$1,567 $1,673
$1,696$1,835
$2,012$2,199
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
($ in millions)
Net Sales
2.6% 2.7%
6.8%6.0% 5.7%
2.7%3.8%
2.4% 2.4% 2.7%
1.2%2.1%
4.1%
6.3% 6.5%
0.0%
2.0%
4.0%
6.0%
8.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Same Store Sales Growth
Growth of 9.2%
-
11
Sally Beauty’s Customer Profile
Serves retail and professional customers
~90% of customers are women Professional customers work in small salon or “booth” renter Retail customer household income primarily $50k to $80k 34 to 65 years old is the primary customer age range
-
8%
8%
14%
10%
16%
22%
22%
12
Sally Beauty Supply: Merchandise Offering
Hair Care
Hair Color
Skin and Nail Care
Electrical Appliances
Brushes, Cutlery and Accessories
Ethnic Products
Other Beauty Items
We offer a diversified mix of beauty products
Note: Percentage of sales by merchandise category for fiscal year 2012.
-
13
2,511 2,6942,844 2,923 3,032
3,158 3,309
0
1,000
2,000
3,000
4,000
2006 2007 2008 2009 2010 2011 2012
Sally Beauty Supply Growth Initiatives
Expand store base organically and through acquisitions
Plan to grow store base 4 to 5 percent in FY2013
Potential for current 2,638 U.S. store base to grow to over 3,000 stores
Increase customer traffic through loyalty programs and customer relationship management (CRM)
Further expand Internet channel
Drive gross margin expansion
Growth Initiatives
92 83 110 60 108 Organic 0 100 40 19 1
Openings
Acquisition
Capital Required $70k
Average Inventory $85k
Positive Contribution Margin 4 Months
Cash Payback on Investment 2 Years
Worldwide Sally Beauty Supply Stores
Sally Beauty Supply Store Economics
126 0
129 22
-
14
Grow Sally Beauty Supply Internationally
671 Sally Beauty stores located in 10 countries
Stores located in Canada, the UK, Ireland, Belgium, France, Netherlands, Germany, Spain, Chile & Mexico
22% of Sally Beauty Supply sales from international
Sales mix differs from U.S.
~80-85% professional
~15-20% retail
Existing International Platform Long-Term Store Growth Potential (1)
(1) Store count as of September 30, 2012.
(Canada) ~250
(Mexico) 149 ~250
(UK / Ireland) 258 ~300
(Belgium, France, Germany, Spain, Netherlands)
150 600-800
(Chile) 33 ~45
Other South American Countries 0 green field
Total 671 ~1,500+
Potential Current
81
-
15
Beauty Systems Group: Overview
Beauty Systems Group – 1,190 professional stores & 1,044 professional distributor sales consultants
1,031 company-operated / 159 franchised stores (Armstrong McCall)
1,044 professional distributor sales consultants
Average store size 2,700 sq. ft.
Sells to salons and salon professionals
Professional exclusive / full-service business – includes merchandise assortment of premium brands sold through salons and not available in mass or at Sally stores
(1) BSG operates stores under the CosmoProf service mark.
As of September 30, 2012, fiscal year -end
-
16
BSG: Strong, Consistent Financial Track Record
$405$535
$616$802
$895 $954 $945 $975 $941$1,081
$1,257 $1,325
$0
$200$400
$600$800
$1,000$1,200
$1,400
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
($ in millions)
Net Sales
5.8%
15.5% 14.4%
8.3%
4.4% 4.6%
8.5%
(0.6%)
4.1%
10.1%6.9%
1.0%
6.2% 5.5% 6.1%
(4.0%)
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Same Store Sales Growth
Growth of 5.4%
-
17
BSG: Merchandise Offering
We offer a diversified mix of beauty products not carried in Sally stores or mass retail
7%5%
10%
12%
30%
36% Hair Care
Hair Color
Skin and Nail Care
Electrical Appliances
Promotional Items
Other Beauty Items
Note: Percentage of sales by merchandise category for fiscal year 2012.
-
18
828 874929 991
1,0271,151 1,190
0
400
800
1,200
2006 2007 2008 2009 2010 2011 2012
Beauty Supply Group Growth Initiatives
Expand store base organically
Further penetrate existing geographies
Enter new territories
Opened 39 net new stores in FY2012
Improve profitability
Optimize distribution network
Continue integration efforts
Broaden offerings with new suppliers
Seek potential fold-in acquisition opportunities
6 46 44 16 36 0 0 11 46 0
Organic
Openings
Acquisition
Capital Required $80k
Average Inventory $150k
Positive Contribution Margin 4 Months
Cash Payback on Investment 2 Years
Growth Initiatives BSG Stores
BSG Store Economics
39 85
39 0
-
Consolidated Financial Results
-
20
Strong Performance in Fiscal Year 2012
Consolidated Fiscal Year 2012 Results
(1) Adjusted EPS and Adjusted EBITDA is a non-GAAP financial measures; see appendix for reconciliations.
(1)
Same Store Sales 6.4%
Consolidated Sales $3,524m
Gross Profit Margin 49.5%
Adjusted EPS (1) $1.42
Adjusted EBITDA (1) $591m
+30 bps
+7.8%
+70 bps
32.7%
17.6%
-
21
$59.5
Sales and EPS Growth for total Company
Sales
$2,514$2,648 $2,637
$2,916
$3,269
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
FY07 FY08 FY09 FY10 FY11 FY12
(1) Includes a negative impact from unfavorable foreign currency exchange of $86 million, or 3.2% of sales.
($ in millions)
(1)
EPS (ADJUSTED)
$0.32
$0.44$0.52
$0.77
$1.07
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
2007 2008 2009 2010 2011 2012
Net Income $142.4 $95.9 $80.5 $200.3 4.5%
Same Store Sales 4.6% 1.8% 2.6% 6.1%
7.8% YoY
6.4%
32.7% YoY
$267.2
$3,524 $1.42
-
22
Numerous Opportunities for Growth
Increase Sales Productivity of our Stores
Expand our Store Base Organically
Grow Internationally
Increase Operating Efficiency and Profitability
Pursue Strategic Acquisitions
-
23
Increase Sales Productivity of Our Stores
Customer Mix
Increasing percentage of retail customers
“Control” brands
Higher margin products
Increasing as a percent of sales
CRM initiative
Driving more retail traffic and higher average ticket
Customer Mix
Increasing percentage of stylists shopping in the stores
Higher margin sale
Diversification and growth of product portfolio
Additional brands
Expansion of distribution rights in new geographies
Sally Beauty Supply Beauty Systems Group
-
Capital Deployment
24
In fiscal 2012, stock repurchase authorizations total $500 million: • In May 2012, the Company repurchased approximately $200 million, or
7,551,444 shares
• In August 2012, the Board of Directors approved a new stock repurchase program authorizing the Company to repurchase up to $300 million of its common stock over an 18-month period beginning October 1, 2012 • As of November 14, 2012, the Company had purchased approximately
$40 million under this program
Excess cash expected to be returned to shareholders in the form of a dividend and/or stock repurchase program
-
25
Solid Balance Sheet
No near-term maturities
In November 2011, refinanced Sr. and Sr. Sub Notes for $750mm of 6.875% Senior Notes due 2019
In May 2012, refinanced the Term Loan B with $700mm of 5.75% Senior Notes due 2021
Targeted consolidated pro forma leverage ratio of 2.0x – 2.5x
Lowered by over 3 turns in five years
Ample liquidity
Strong cash flow
ABL Revolver of $400 million (refinanced in November 2010)
On Sept. 5, 2012, issued $150 million aggregate principal amount of 5.75% Senior Notes due 2022.
Funds to be used for general corporate purposes Source: Company filings. (1) Represents pre-acquisition debt of Pro-Duo NV and Sinelco Group BVBA (“Sinelco”) and capital leases. (2) Excludes “Other” debt which matures between 2012 and 2014.
Long-term debt (as of 9/30/12)
Maturity Profile (as of 9/30/12) (2)
Amount ($mm)
% of Total Debt
5.750% Senior Notes (FY2022) $859.3 53.3% 6.875% Senior Notes (FY2020) $750.0 46.5% Other (1) $2.4 0.2%
Total Debt $1,611.7 100.0%
Total Capitalization $1,282 100.0%
$750 $859
$- $100 $200 $300 $400 $500 $600 $700 $800 $900
$1,000
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
-
26
Investment Highlights
Leader in Stable, Growing Professional Beauty Supply Channel
Multi-channel Platform with Differentiated Value Proposition
Strong, Consistent Financial Track Record
Significant Cash Flow Generation
Experienced and Motivated Management Team
Solid Growth Potential
-
27
Addendum: Adjusted EBITDA Reconciliation
Quarterly Adjusted EBITDA Reconciliation
($ in millions) Adjusted EBITDA FY06 FY07 FY08 FY09 FY10 FY11 FY12Net Earnings (GAAP) 110.2$ 44.5$ 77.7$ 99.1$ 143.8$ 213.7$ 233.1$
Interest expense, net of interest income 0.1 146.0 159.1 132.0 113.0 112.5 138.4$ Provision for income taxes 69.9 38.0 46.2 65.7 84.1 122.2 127.9$ Depreciation and amortization 38.0 42.6 48.5 47.1 51.1 59.7 64.7$ Share-based compensation 5.2 13.1 10.2 8.6 12.8 15.6 16.9$ Transaction expenses (1a, 1b) 41.5 21.5 - - - - -Sales-based service fee charged by Alberto-Culver 28.9 3.8 - - - - -Non-recurring items - - - - - 5.7 -Litigation settlement and non-recurring charges - - - - - (27.0) 10.2
Adjusted EBITDA 293.8$ 309.5$ 341.7$ 352.5$ 404.8$ 502.5$ 591.1$
Adjusted net earnings and adjusted diluted earnings per shareNet Earnings (GAAP) 143.8$ 213.7$ 233.1$
Marked-tomarket adjustment for certain interest rate swaps (2.4)$ - -Loss on extinguishment of debt - - 37.8Interest expense on redeemed debt - - 5.1Amortization of deferred financing costs - - 0.2Litigation settlement and non-recurring items, net (2) (21.3) 10.2Tax provision for the adjustments to net earnings 0.9 7.9 (19.2)
Adjusted net earnings 142.3$ 200.3$ 267.2$ Diluted adjusted net earnings per share (non-GAAP): 0.77$ 1.07$ 1.42$ Diluted GAAP net earnings per share: 0.78$ 1.14$ 1.24$
(1a) Transaction expenses of $41.5 for termination of the Regis transaction.(1b) Transaction expenses of $21.5 for separation of the Company from Alberto-Culver in November 2006.(2) Results for the nine months ended June 30, 2011, reflect a $27.0 mill ion benefit of a l itigation settlement and non-recurring charges of $5.7 mill ion.
Slide Number 1Company HighlightsOverview of Our ConceptsOur Customer Industry Channels of Distribution (U.S.)Slide Number 6Our Leading U.S. Industry PositionBusiness OverviewSally Beauty Supply: OverviewSally Beauty Supply: Strong, Consistent Financial Track RecordSally Beauty’s Customer ProfileSally Beauty Supply: Merchandise OfferingSally Beauty Supply Growth InitiativesGrow Sally Beauty Supply InternationallyBeauty Systems Group: OverviewBSG: Strong, Consistent Financial Track RecordBSG: Merchandise OfferingBeauty Supply Group Growth InitiativesConsolidated Financial ResultsStrong Performance in Fiscal Year 2012Sales and EPS Growth for total CompanyNumerous Opportunities for GrowthIncrease Sales Productivity of Our StoresCapital DeploymentSolid Balance SheetInvestment Highlights Addendum: Adjusted EBITDA Reconciliation