Q2 2021 Sally Beauty Holdings Inc Earnings Call
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Thank you good morning, everyone. Thank you for joining us.
With the on the call today, or Chris Brickman, President and Chief Executive Officer end Marla for me, a chief financial Officer.
Before we start.
One of remind everyone that we have made a presentation available for today's call that can be viewed from the lake.
Provided on our Investor site at Sally beauty of holding the Dot com forward Slash Investor Relations.
I would also like to remind you that managements remarks on this call may contain forward looking statements within the meaning of the private Securities Litigation The Reform Act of 1995.
Actual results may differ materially from those indicated by the forward looking statements as a result of various important factors incur.
Including those discussed in the risk factors section of our most recent Andrew annual report on form 10-K, and other filings with the SEC.
Any forward looking statements made of this call represent our views only as of today.
And we undertake no obligation to update them.
The company is provided of detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures and its earnings press release and all of this website.
Now I'd like to turn the call over to Chris to begin the formal remarks.
Thank you, Jeff and good morning, everyone.
I want to start by commending our teams for their commitment to the business. During these remarkable times.
We're all pleased to see store closures and restrictions easing in certain markets, but the global environment remained dynamic and requires that we continue to operate with added disciplined and agility.
Our team's continued to perform at a high level in queue too and most importantly, they remained focused on serving our customers.
Due to their hard work and dedication we achieved net sales growth of 6% despite store closures and many of our international territories and the shutdown of California's salons in January.
Traffic and sales trends started picking up in the latter part of February and accelerated more substantially in the final months of the quarter, resulting in stronger than expected performance across the P&L.
There are a few key factors that drove the top line.
To be an important driver and represented 27% of our total color sales for Sally U S and Canada in the quarter.
In addition, BSG also saw strength in the color category, which was up 17% versus the prior year.
Other categories also performed well with nails up 20% and hair care up 9% at Sally U S and Canada and hair care up 16% at BSG.
Notably as the quarter progressed, we saw a pickup at Sally in going out core categories, such as styling and tools, which really speaks to the improving consumer confidence and vaccine optimism that was building.
Our E Commerce business was also an important growth driver delivering of sales increase of 56% versus a year ago.
Looking at our expanded digital capabilities, we're really starting to see our investments bear fruit this year.
We're currently offering multiple fulfillment options, including buy online pickup in store ship from store.
And curbside pickup at Sally beauty, and the same day delivery and curbside pickup at our BSG stores.
Focus, which accounted for 20% of Sally U S and Canada is total e-commerce sales during Q2 up from 11% in the prior quarter.
Ship from store represented an additional 20% of Sally U S and Canada is totally commerce sales for the quarter.
Next month, we will begin offering highly competitive same day delivery times for both of our Sally and BSG customers.
Or Sally customers will be able to get product to their front door and as little as three hours at.
And our Salon pros will have the ability to receive product within two hours.
We believe that BSG has the unique competitive advantage and its ability to provide this high value options to its pro customers based on it's nationwide store footprint.
And the second half will be adding another convenience option for our BSG customers with the rollout of bogus, which is currently slated to commence in the June timeframe.
A second initiative, we've been focused on is the re platforming of the BSG digital storefront, which I am pleased to tell you as an scheduled to be completed this month.
This new more robust platform will be a game changer in terms of how we recruit and engage with our styles.
Equally important we are now able to offer our stylist new value added features like product Reorders bulk orders and navigation enhancements that ultimately improve efficiency and strengthen the profitability of their businesses.
A third an important area of focus is loyalty in CRM.
As you May recall, we relaunched or Sally beauty rewards loyalty program just over two years ago and BSG just launched its first loyalty program last fall with our private label rewards credit card.
As we of layered on the private label reward card and added CRM capabilities and tools, we're really poised to increase customer interaction along the entire purchasing journey and ultimately drive incremental sales.
And Q2.
Purchase the purchases from our loyalty members of Sally U S and Canada exceeded 72% of so total sales and BSG U S surpassed seven per cent of total sales.
The fourth key initiative for fiscal 2021 is continuing the rollout of J D day, which represents an important step in our multiyear transformation journey.
We continue to expand the operations and functionality of our North, Texas distribution Center and remain on track to bring J D. A to the majority of our remaining deceased by the end of the calendar year.
<unk> is focused on five key areas, where we believe we can have a meaningful impact our.
Our employees diversity, and inclusion energy and the environment product development, and sourcing and data protection and security.
We encourage you to review our full ESG report, which provides a detailed view of our best practices and was recently posted to our Investor Relations website.
Now I'll ask Marlow to discuss the financials and then we'll look forward to taking your questions.
Thank you, Chris and good morning, everyone. We're pleased to deliver strong results across the P&L during our second quarter the.
The outperformance on the top line, primarily reflects the combination of improving consumer optimism easing of restrictions in the U S, including California Salon reopening during the latter half of the quarter.
And U S government stimulus actions.
Net sales were up six 3% versus prior year end same store sales increased six 5%.
Similar to last quarter, and our open locations traffic decrease versus prior year, while other key measures increased including units per transaction average unit retail and average ticket.
Our global ecommerce business remains strong with consolidated sales up 56% on a year over year basis.
We're pleased to see the investments we've made in our digital capabilities continued to bear fruit, particularly as our teams work to deploy and scale, our new fulfillment options and enhanced tool.
From a gross profit perspective, we continued to deliver margins in line with our 50% plus target levels.
The second quarter gross margin came in at 54% up 110 basis points to last year at.
Adjusted gross margin was 51, 2% and excludes a $7 million write down of PPE inventory for.
For perspective, when the pandemic hit in early 2020, we took immediate steps to build a position of PPE inventory to ensure we could protect our associates at <unk>.
Our salon professionals to help them safely open their businesses and serve our retail customers and communities who came to us for in demand items like masks gloves and sanitizers.
At pandemic headwinds began to abate, we are taking steps to bring our PPE levels in line with anticipated demand and.
In addition to the $7 million write down we also made the decision to donate approximately $31 million of PPE inventory that will be disseminated the organizations in need during the second half of fiscal 2021.
This portion has been expense and SG&A and accrued as a liability on the balance sheet.
Turning to Q2 expenses SG&A expense.
<unk> totaled $391 million.
That includes the PPE donation of $31 2 million, partially offset by $2 $2 million of Canadian wage and rent subsidy credit.
On an adjusted basis SG&A decreased by approximately $6 million, reflecting lower advertising and field labor costs and our focus on expense control, while pandemic headwinds persist.
As a percentage of sales adjusted SG&A improved by 320 basis points coming in at 39, 1%.
In the second half of the year, we expect SG&A dollars to increase versus prior year, reflecting a combination of wage inflation and incremental spend on marketing and it as well as the tough compares to last year's furloughs and rent abatements.
Turning to earnings our strong performance on the top line flowed through to the bottom line in Q2, adjusted operating margin expanded by 510 basis points to 12, 1%.
Adjusted EBITDA increased 55% to $141 million and adjusted diluted.
Diluted EPS more than doubled to 57.
Moving to segment results at Sally Beauty same store sales increased four 9% at.
The consumer optimism strengthened in government stimulus took effect in the U S. We saw a pickup in sales during the latter part of the quarter.
The combination of strong sales and gross margin expansion drove a significant increase in segment operating margin, which expanded 750 basis points to 18, 4%.
We also delivered strong e-commerce sales at Sally of 46% versus a year ago.
In our BSG segment same store sales increased nine 9%, reflecting a strong rebound as restrictions eased coupled with higher operating capacity in salon and the reopening of California's salons in February.
E Commerce remains strong posting growth of 68% on a year over year basis.
Excluding the write down of PPE inventory gross margin was approximately flat to last year and operating margin expanded 80 basis points to 12, 5%.
Looking at the balance sheet and cash flow.
We ended the quarter with $408 million of cash on the balance sheet and of zero balance on our $600 million revolving line of credit.
Inventories at quarter end totaled $950 million essentially flat for last year inclusive of the $31 million and PPE inventory that we expect to donate by fiscal year end.
Looking at the balance of the year, we expect to close this fiscal year with inventory in the low nine hundreds.
As a reminder, we exited fiscal 2020 with inventory at sub optimal levels and successfully rebuilt our position in the first half of this year.
We generated strong cash flow from operations of $93 million in Q2, and capital expenditures totaled $12 million, putting free cash flow at $81 million.
At the end of the quarter, our net debt leverage ratio stood at 234 for comparison purposes. The leverage ratio that we often site as defined in our loan agreements where the impact of cash on hand is capped at $100 million for net debt calculation purposes.
It was $2 95.
Given our strong liquidity position subsequent to the end of the quarter, we fully repaid the outstanding balance of $197 million on our five 5% unsecured notes.
We expect to continue utilizing excess cash to deleverage the balance sheet with the goal of bringing our leverage ratio closer to two five times this year.
We expect the business to generate strong cash flow from operations of more than $100 million in the second half of this fiscal year.
Based on the timing of working capital requirements around inventory receipts, we anticipate the Q3 operating cash flow will approximately be approximately flat to prior year.
We are maintaining our focus on liquidity and we'll continue to balance of that with strategic growth investments and debt pay down in the near term.
Importantly, as the macro environment stabilizes, we will evaluate optimal paths for returning value to shareholders.
Looking at the second half of the year.
We expect the environment to remain dynamic with restrictions and closures continuing to be fluid.
In the third quarter, we are up against particularly easy comparisons.
Keep in mind at net sales were down 28% in Q3 of last year, which reflected significant pandemic impact from store closures globally at.
Against that comparison and as Chris previously stated assuming no incremental pandemic disruptions.
We expect next at net sales growth of 35% to 40% in Q3 of this year.
<unk> strengthening consumer demand in the U S, partially offset by ongoing choppiness from pandemic headwinds in international markets.
Looking at the fourth quarter comparisons normalized substantially.
For perspective in Q4 of 2020, net sales were down less than 1% as restrictions lifted and store and salon reopening cycle in.
In Q4 of this year, we anticipate that net sales will be approximately flat compared to the prior year.
For context, we view net sales of the best measure of performance in the pandemic environment.
And anticipate that we will return to providing same store sales guidance when macro conditions stabilize.
We feel good about our positioning and our ability to continue navigating from both an operational and financial perspective.
We appreciate your time this morning, now I'd like to turn the call over to the operator for questions.
Ladies and gentlemen, if you wish to ask a question. Please press one then zero on your telephone keypad you may withdraw your question at any time by repeating the ones you will command if youre using a speakerphone. Please pick up of the handset before pressing the numbers. Once again, if you have a question.
You may perhaps one of them zero at this time.
And the one moment for our first question.
Okay.
And we'll go the line of Oliver Chen with Cowen. Please go ahead.
All right. Thank you Joe now on for Oliver today, Thanks for taking our question.
Just curious you've noted the hair care saw strong demand what are you seeing in terms on the cosmetic side have you seen any improvement there and then as we think about the promotional cadence throughout the year mirrored at obviously lower promotional cash this quarter, how youre thinking about it for the remainder of the year. Thank you so much.
Hey, John Let me remind you the cosmetics is a very small percentage of our business less than 6% of Sally and even less at BSG. So it's not really are the high traffic category for us that being said it continues to be down.
As a category, but obviously, our larger categories like color and care of significantly up and thats carrying our business.
In terms of.
Promotional strategy I think we feel like we're at about the right cadence. So we don't see any significant change at our promotional strategy at this point.
We're much more focused on the recruitment of color customers rather than per.
Promoting shorter term sales.
I don't see any change in that through the back half of the year.
And our next question is from cash per week with Oppenheimer. Please go ahead.
Good morning, Thanks for taking my question. So for I guess first Chris Congrats on obviously, a great quarter as we look at your comp performance during the quarter I mean, clearly there were some stimulus spending thats out there, but at the same time of you guys had some headwinds related to severe restrictions, especially international markets. As you guys look at totality of like do you guys think.
<unk> were more than a tailwind like do the comps.
So you had been stronger than what we saw during the quarter.
We're cash it's obviously hard to disaggregate, but if you just look at Sally in the Sally segment Disaggregated that really helps so Sally U S was up 13, 9%.
It's a huge performance in the quarter some of that is optimism and some of that of course the stimulus. What happened of course is that the results in Europe, where we had significant shutdowns lowered the overall segment results for up four 9%. So you see the headwind of international dragging Sally down by 900 basis points.
Sally U S delivering an incredible performance of $13 nine and again, you're exactly right some of that is.
The optimism some of its demand at some of it is stimulus, it's very hard to disaggregate those but they all played a role.
Okay, Great and then from a from a I guess from a market share perspective, do you believe you Dave share whether in the Sally beauty segment or in BSG during the quarter.
Well I think Sally again, Sally is really the only.
Our outlet at sales professional color to the consumer for home use.
So it's hard to gauge market share there I'll talk about the SG in a moment the.
Of the reality is obviously, it's growing significantly and color of 27% clearly we're outgrowing the category. So if you go look at some of the alternatives consumers have whether its box color or others I'm pretty clear at wasn't up 27%.
So we are outgrowing the competitive options for the Sally customers have and that gives us confidence.
On the BSG side.
Comparisons with our next largest competitor who is significantly smaller.
Our hard for two reasons are clouded for two reasons, one is geography, which is that we cover Canada and they don't so Canada. As you know has been through significant disruption and that's absorbed in our numbers.
And they don't cover Ken at the other one is just footprint, which is we really have a national footprint other than a small franchise business in Texas, Louisiana.
They make much more extensive use of franchisees throughout the middle of the country.
And as a result of the footprints don't really match up and that's why we have more than doubled the number of stores the <unk>.
Alrighty, though as we look at the data the metrics, we look at to think about the health and strength of the business competitively would be first color growth. So color is up 17% for BSG in the quarter, which is that if you recruit of stylists to get their color Thats the high frequency category. They buy and then the next adjacency is care.
<unk> was up 16% at BSG. So those numbers are obviously encouraging the other thing we look at is gross on directly competitive brands. So although most of the brands and both businesses are our exclusive there are a couple of brands that are sold within both that are of scale.
And the two largest brands that resell that overlap with our next largest competitor our matrix and all of the plaques and they are at the scale. Obviously these are big brands.
And if you look at the growth of those in the U S where we both compete.
All of Flex was up 106% at BSG in the quarter and matrix was up 20% in the quarter.
So again, when we look at those metrics, although we don't have the external market share data, we look at those metrics and feel both very good about how the business is trending and the customers trending as well as very good about how we're competing for share in that business.
Okay, great. Thank you I'll pass it along.
And next we'll go to Steph Wissink with Jefferies. Please go ahead.
Thanks, Good morning, everyone and just for a couple of housekeeping if we could could you talk a little bit about your CRM and what youre seeing in terms of your mutual file customer.
Yes first of all Scott. Thank you for the question.
And I'll cover a couple of parts on CRM in terms of new to file obviously at this.
For the pandemic hit.
We saw of <unk>, you didn't have a CRM program or loyalty program at that time.
It did have a customer file based upon.
Based upon people registering with the license, but Sally had a large customer file based on the loyalty program and we saw a decline in the in the.
In the file at the beginning of the pandemic is a lot of customers just stopped coming out not surprising we have seen that continue to come back in a significant portion over the last quarter or two.
And it's accelerating it is not all of the way back to where it was at the beginning of the pandemic, but it's well on its way and of course of the BSG CRM file is really just starting to pick up now that we've launched the loyalty program last fall.
The better part of about the CRM program is the new technology, we launched in the capability of the team we've added and our ability to add custom journeys for every customer as an example, adjusted color now for Sally there are two unique custom color journeys that we take the customer on based upon what they buy and their first purchase.
And therefore, how do we follow up with them in terms of advice, we give them content, we provide them as well as follow up ideas on other products they might like.
What I really like is how much better use we're getting out of the data we get.
But I still think there are customers to come back.
Whether it would be an older customer who has been reluctant to get out or other customers who were just intimidated by the pandemic itself. There is still some coming back thats going to happen.
Much of it's already happened, but theres still some of that's left.
Our next question is from the line of Mark <unk> with Baird. Please go ahead.
Hi, everyone. This is Sarah Goldberg on for Mark. Thanks for taking our question I was hoping you could update us on some of the cost pressures you might be seeing such as labor or any inflation on the the Cogs side and then also on the digital front of you continue to scale the digital offerings, such as both banks and leveraging your delivery services, how should we be thinking about the unit economics.
All of that.
So I'll take the at I'll take the first of all of the cost side, yes.
Yes, we are seeing some cost pressure and certainly seeing some wage inflation and inflation on the cost side.
The the cost of product as well.
We do feel very confident in our ability to hold our 50% margin targets I believe we have ability as those start to come our way have the ability to pull pricing levers.
In the near term as for the SG&A side, certainly we're seeing wage inflation.
Here in the near term as well over the long term and we expect to be able to offset that with some of the good work, we're doing on our E com profitability improvement measures as well as the work we're doing around our store fleet optimization initiatives that we have underway as well, but when we look at the back half of the year we are seeing.
I think they are subsidizing, just maybe 20 per cent of that cost.
And Sally plans to pass all of it onto the customer.
So the reality is is that both both of US and same day delivery should look very similar to store margins overall.
Great. Thank you for that.
You bet.
And that's one of the line of US at me and good luck with Morgan Stanley. Please go ahead.
Hey, guys. This is Michael cast of on our on for for some of them. Thank you for taking the questions.
First one for you could provide maybe a little more detail on at least the magnitude of the acceleration that you saw as the came in the March I'm curious were.
How we're trying to tracking in line with your expectations before that point and then I guess, how much above would you relative to the different factors that the came into play of March that we saw at play on that and that month and I think based on your sales got into it would seem that it seems that may be April trends seem to be continuing on a similar basis.
On the underlying level I guess is that is that what you're seeing and lastly on this any indications you're seeing of restocking of post some of the.
Miniature shutdown that we saw earlier this year.
Yeah, there's a lot of questions in there let me try and take a few of do you want to maybe at the.
Start on the at the sales channel, what we saw him any congestion with the color perfect.
Month to month, I mean, we seen the throughout the entire pandemic.
The very choppy.
And it continued.
Almost on steroids and Q2.
Sally like the.
Chris of mentioned earlier delivered almost 14% of the U S.
Probably not a very strong January that with the month, where we did have around the stimulus and then had a very challenging February and then we started seatings taken out better than we expected as we got at the end of February and an end of March where again, we had another round of stimulus.
On the <unk> side of the face challenges at.
Net improved as we got into the latter part of the quarter and in the international market, a headwind really the entire quarter with closures and heavy restrictions throughout the quarter.
So there's a number of putting takes that were going on throughout the quarter on January we have the closing the lawn restrictions.
Specialty in California, that's significantly.
See from those end.
How it how to even assess that just given.
Level of disruption that we're still seeing the kind of volatility. So I don't know if there is kind of of longer term expectation is for our store count and how youre thinking about that and is there kind of of <unk>.
I don't know of benchmark that share youre going to be measuring against as you.
Proceed on these tests. Thank you guys, yes, no doubt and thank you very much for the question I think the reality is we've always been open that we're trying to balance the need for a broad storefront.
Footprint, so that we can supply e-commerce out of the store, especially in a very efficient way and our store footprint as part of what makes us able to do two hour delivery out of.
BSG the salons in three out of our delivery to consumer.
Consumers' homes out of Sally So the store for it comes in as a strategic advantage and I think other retailers have mentioned that as well that being said as we mentioned on the call. There is significant wage inflation that we think will come in the next few years and we've got a balanced store economics with that need for a large store footprint. So we do have the net number one net.
Eric will look at all of Theres. Many metrics the number one metric we want to look at is the accretion of those sales to either other stores or E. Comm and we can follow that quite closely by customer.
So as we closed store, we have our stores the.
90 stores I mentioned, we have of detailed marketing plan in place to contact customers to notify them of where close by stores are to notify them, obviously of their E com options.
We're going to do that 90 days out 60 days out 30 days out we will then execute the closure, we will track the customers where they buy at do we lose any customers and how many and as we get through all of that that will really inform us about how much of this consolidation can we really do and how profitably.
As well as what is the need and when do you at what point do you lose customers end, how do we need to be cautious there. So we've got a lot of tracking in place we're at.
To learn a lot in the next couple of quarters from it and then we'll then use that the guide our thinking on the overall portfolio of long term.
Thank you good luck the rest of the.
Yeah.
Our next question is from Joe also below with Raymond James. Please go ahead.
Hi, Good morning, everyone. This is Adam on for Joe. Thanks.
Thanks for providing detail on the cadence of results throughout the second quarter that was particularly helpful.
Alluded to a stimulus boost in January and then a number one in March while acknowledging obviously, but it's it's tough to quantify the impact I was just curious have you seen the impact of accumulative wearing off at this point or or maybe I'm overstating the impact just a little more detail there would be helpful.
Let me start and then Marlow can jump in and providing the extra color.
I do think at this point now in May we think most of stimulus is worn out worn off I can't tell you that for sure, but we think of lot of it is past.
And what we're seeing now is just increasing optimism and confidence from the consumer as they get vaccinated as case counts drop end.
It was very interesting in April you could actually see end markets, where there was a resurgent versus markets, where there was not you could see a difference in demand patterns. So as we see the whole country. If it continues to move in this direction of reduced cases, and greater confidence, we think thats a positive for the business and that that'll be the primary driver going forward.
Great.
That's very helpful and I wanted to briefly ask of you guys saw any impact from the types of storms from a couple of months ago.
Yes, I mean, it was a significant weather event.
And it was blended into of months, where as you know we were just coming off peak cases in peak hospitalizations in the U S. It's hard to forget pads now that where we're at now.
So I think it added to some of the challenge of February no doubt.
It was I think roughly of 1000 stores of ours were closed and many others were impacted by the weather, even if they werent closed and they weren't close for just one day. They were closed for multiple days. So it was a significant impact I don't know, if it's better or worse than most other winters, but it was it was concentrated in February.
Thanks Christian I can just squeeze in one last one I was curious and I know you guys arent providing guidance. So maybe Paul on your share, but I was just curious of Paul and EPS.
The spectra typically Q3s.
For the year would you expect that to the at case again, this year or youre not looking at make that statement.
Yes, I mean, I think we did.
Is that at we clearly are trying to give you a range of 35% to 40% versus last year.
You know there's a lot of puts and takes we felt a lot of puts and takes the continue and we expect.
I meant to be.
Dynamic as we continue into Q3 and into Q4. So no Christian has mentioned a lot of the positives with the end consumer optimism I think getting better in the U S. We sell of a lot of closures of internationally and so.
Again, I think that's probably the best the best guess, we can give you at this point.
No that's very helpful.
Thank you congrats on the strong quarter.
Thank you very much.
And next we'll go to from a cash per week with Oppenheimer. Please go ahead.
Thanks for taking me on again.
I guess I just wanted volatile on the operating margin you guys had nearly 12% operating margin. This quarter just any thoughts in terms of whether that's the sustainable level, I guess, maybe longer term or or whichever period, you can comment on yes, yes longer term.
Would you say that's conservatism at this point just given the environment and you know given the kind of sell a volatile environment out there is at the right way to think about the key for commentary.
It's balanced.
The reality is is that we don't know how this will all play out will there be any second waves will there be any other additional closures internationally will there be of new variants spread.
You just don't want to get out over our ski tips tips, yet given how dynamic this is Ben I mean.
Let's be clear, even if you think about last.
September October when we were having a great quarter.
Quarter end it looked like the virus was over after a great summer and all of a sudden we have the worst wave yet. So I think you just see some reluctance on our part to get over our ski tips at this point in time.
It's better just to play at down the middle.
The last few cook from very strong people. It was yeah give any of them.
Okay, great. Thank you.
And Thats about two of Steph Wissink with Jefferies. Please go ahead.
Thank you for the follow up I just wanted to connect Chris Your response to my prior question on CRM and kind of the rebuild of the new to file customers with your comments on vivid color earlier in the call. I think you mentioned at almost a third of the business now for and I'm curious, if you're seeing new customers coming to you for <unk>.
Bid for.
For the.
The the new range of color that you're offering and at that feels like a stickier customer is the kind of move back into a period of normalcy or if youre seeing old types of customers come back and then find you and discover you for new thing just trying to think through your customer sequencing of me kind of move back towards a normal cadence. Thank you.
No. Thanks for the question of staff and Youre right color of vivid colors are now at 27% of Sally's color business.
Not quite as much in BSG.
And the reality is it does skew younger although it's surprisingly across the larger age group.
It was a a growing category even before the pandemic hit so I don't want to suggest that it went from five to 20. It was already in the high teens before the pandemic and it had been growing for multiple years I think there's a general trend towards self expression.
And freedom of self expression.
And that trend was accelerated obviously as we went into the pandemic and Theyre now coming out I think the reality is is that the work models will continue to be hybrid I think companies are in general are going to be more <unk>.
<unk> of of.
Of People's differences in their desire to express themselves in different ways. So I think there's going to be more openness of society to two of vivid colored hair or tattoos or piercings or any other form of self expression. So I don't think this natural necessarily goes away. The other side is we have an incredible lead in terms of our assortment.
We carry almost over 300 options of vivid colors in our stores out of of 200 option color assortment.
And if you go to the next largest color of seller in the United States, They might have 25% to 30.
So we have this incredible breadth of assortment that is really appealing to the customer as well and so yes, I do think it's bringing some new customers for the fold I do think there is a general trend towards self expression and feeding of expression and we're going to pick up on that in some of our marketing that youre going to see coming in June of round you by Sally.
US, enabling the customer to express themselves.
I think I don't think 53% growth will sustain itself I think that will slowdown, but I still think it'll be a growing category.
That's great. Thank you and Michael Clarke, one follow up on wages can you just remind us where you are on the minimum wage curve I know some of your peers have done proactive pipe for the $15 level just wanted to square off where you are on that.
The wages, yeah, we haven't released that amount of detail what I will say is you know when you think of Bard associates.
They're well informed.
Beauty enthusiasts and complications of <unk>.
Experts on the color and care side of the house so.
You know they tend to be higher paid.
When you think about that relative to what I would say as of the fast food worker or other general retailers.
Yes, so I think that the reality is is at an even more so on the BSG side.
But we still believe there is wage inflation coming in we're prepared for it.
Thank you everybody.
Thank you.
Our next question is from Carla Casella with JP Morgan. Please go ahead.
Hi, just two questions here one.
I missed you gave guidance on store openings for.
For the remainder of the year and at your thoughts on that going forward.
And then of one follow up yes.
Although we do have a few stores opening we also mentioned that we're actually going to be closing 90.
The 70, Sally in 'twenty of ESG as a test to understand how can we accrete those sales to other stores. So I don't actually have the net openings.
But I'm thinking it's probably down.
Slightly.
Handfuls.
So the net openings of down slightly.
Okay, Great and then.
E Commerce could you talk about how how much percentage of sales at is right now at Sally and BSG EBITDA more also curious on where you think that settles in.
And if youre seeing any kind of normalcy, where it could settle in post pandemic.
It's in the high single digits right now across our hope the I think at seven across the entire enterprise excuse me 87878 across the entire enterprise.
And there's markets that are above that like the UK BSG is quite strong salaries, a little below that but the reality is is that we think it's going to grow.
I don't know exactly how big it will be but I think in two to three years to think of it being at 15% to 20% of our business is completely reasonable.
And again, we think of lot of that it will be fulfilled from stores either through focus or for two and three hour delivery from store.
Okay. That's great. Thank you so much.
Yeah.
The next will go to William Reuter with Bank of America. Please go ahead.
Good morning.
I know you mentioned that you don't expect at the stimulus payments have been making are we'll make substantial I guess impact in terms of your future sales, but were you able to track at all when those payments went out this year and whether you saw spikes in sales during the second quarter.
Yes no.
We definitely did as Martin mentioned in her comments, we saw them, especially in our Sally business in early January and in late March.
And so we did see them.
The drive purchases in our stores during those kind of for weeks of the quarter.
I think from March and at March enthusiasm had some consumer optimism in there too so it's a bit of of hungry.
We did see the acceleration in margin.
Okay.
It's helpful and then your cash.
Currently at net leverage of two three times.
Which I think your leverage target of net leverage targets of two five times.
I guess, how should we think about capital allocation at this point will you think about returning cash to shareholders in terms of share repurchase.
What are your thoughts there and that's all for me. Thanks.
Yeah. Thank you for the question and as you pointed out we've had a really strong cash generation through the first half of this year and we expect the again you know another $100 million of cash generation in the back half of the year. So are.
Our focus has been on maintaining really strong liquidity position going forward, we expect to do that.
And we will continue to prioritize in the.
We have been throughout this entire pandemic, which is balancing investing in our strategic growth as well as.
Working to pay down debt to reduce leverage so.
We are continuing to make great progress we did again subsequent to this quarter with the April pay down at the five 5% notes and then as things stabilize in the macro environment.
It gets more predictable and we come out of the pandemic, we will evaluate optimal path to return value to shareholders.
Great sounds like that.
And two of the presenters on the call. We have no further questions I will turn it back to you.
Just like to thank everybody for joining us today, we continue to be excited about both the health of our business as well as the speed with which we're executing on our core strategic initiatives.
And the value of those will create for customers going forward. Thanks again for your time today, and we look forward to talking to you soon.
Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.
Okay.
Okay.