Q2 2022 Sally Beauty Holdings Inc Earnings Call
It enables us to measure ROI on our marketing investments and.
In recent years, we brought a new marketing leadership and build a robust team now layering on an important finance tool that will allow us to more effectively balance and optimize spend going forward.
Turning now to our third pillar product innovation.
We are continuing to deliver a rich pipeline of innovation that is expected to fuel long term growth.
At Sally we saw positive response to our launches and color care tools and extension.
Supporting the personalization trend recently, we recently launched urban alchemy, new customizable here Caroline at Sally.
And in Q3, we have more exciting hair care rollouts planned from brands like Wella and our own strawberry leopard.
The innovation pipeline is equally robust at BSG.
We saw positive response to our Q2 launches across colored hair, and nail, including well as new shiny affinity line, our most significant BSG launch of fiscal 2022.
On deck for Q3, we have exciting innovation coming in color care and tools.
Including <unk> number nine.
<unk> <unk> and the new urban <unk> line.
In the <unk> category, we're rolling out a reset of this category in both Sally and BSG during the second half.
Bringing in new fixtures with more visible in store placement.
This will be complemented by the recent launch of <unk> at BSG and forthcoming innovation at Sally and our own fiscal Q4.
Moving to our final and fourth pillar supply chain.
High level, we're leveraging the important investments made in our systems processes and teams over the past several years to build a best in class merchandising and supply chain platform for the future.
Outside of the macro supply chain issues that are affecting US right now we continue to make progress and being in stock in color and care every time.
<unk> our teams are continuing the work of transforming our transportation network to pool distribution.
Which is expected to increase our speed to market <unk>.
Improve reliability and reduce cost.
We're also piloting overnight deliveries in several markets in order to in order to minimize disruptions during operating hours.
Looking ahead, we are leaning into our strong competitive positioning loyal and growing customer base and trusted vendor partners and we remain confident in our key growth pillars.
We believe these attributes will enable us to drive growth and shareholder value in the coming years.
I greatly appreciate the dedication of our teams as they keep our customers at the forefront of everything we do and their ongoing commitment to the journey ahead.
With that I'll turn the call over to Mario to discuss financials, and then we'll open the call to questions.
Thank you Denise and good morning, everyone.
Second quarter net sales decreased one 6% to $911 million and comparable sales were up slightly.
As Denise previously mentioned the net sales decline is primarily attributable to operating a 142 fewer stores versus last year and a combination of macro factors at both Sally and BSG.
Global E Commerce sales increased 12% to $81 million.
Presenting eight 9% of total net sales.
The year over year increase reflects our ability to scale, our digital capabilities and utilized our new tools and resources to drive customer engagement.
Looking at gross profit.
Second quarter adjusted gross margin increased 20 basis points to 51, 4%, reflecting strength in both Sally and BSG segment.
Which both delivered increases in product margin.
These benefits were partially offset by higher distribution and freight costs.
And unfavorable sales mix shifts between our higher margin Sally U S and lower margin Sally International operations.
Moving to operating expense.
Adjusted SG&A totaled $378 million up 4% versus a year ago.
The increase was primarily attributable to higher labor costs and expenses related to reopening international territories that were closed last year.
Which were partially offset by lower variable and accrued bonus expenses.
As a percentage of sales adjusted SG&A increased by 240 basis points compared to the prior year driven primarily by the lower sales volume in combination with the incremental expenses.
We continue to expect that our store optimization program will begin serving as an offset to wage inflation beginning in the latter part of 2022 and into fiscal 2023.
Turning now to earnings while we experienced top line pressure our ability to maintain our strong gross margin profile enabled us to minimize some of the bottom line impact.
Second quarter adjusted operating income totaled $90 million adjusted EBITDA came in at $116 million and adjusted diluted earnings per share was <unk> 47.
Looking at segment results.
Sally beauty net sales declined three 1% with comparable sales down 5%, while operating 126 fewer stores versus a year ago.
The sales decline was highly concentrated in the U S and Canada, which had a decline in comparable sales of 9% and accounted for 79% of our segment net sales in Q2.
Sales from our operations in Europe, and Latin America were very strong with comparable sales growth of over 50% as a last significant COVID-19 disruptions from the prior year.
For the global Sally segment, the color category increased 3% and healthcare was up 7% compared to the prior year.
For Sally U S and Canada vivid colors continued to outperform the overall color category and represented 27% of color sales.
Additionally, as we stated previously some of our secondary categories like styling tools and appliances to support the customer's basket ads.
We're down in the U S and Canada due to supply chain challenges.
Gross margin at Sally expanded 40 basis points to 58, 8% compared to the prior year as we continued to generate solid product margins driven primarily by pricing leverage in.
In addition to a smaller write down of Covid related personal protective equipment inventory compared to our second quarter last year.
These benefits were partially offset by higher distribution and freight costs and an unfavorable sales mix shifts between the higher margin Sally U S and lower margin Sally International operations.
Segment operating margin came in at 15, 4%.
And the BSG segment net sales increased 5% with comparable sales growth of one 3%. Despite the impact of <unk> in January and lower than expected stock levels of our top performing skus.
We estimate that the sales loss from raw materials shortages was approximately $10 million or just over 250 basis points of impact on net sales growth.
The color category was essentially flat.
While hair care increased 3% compared to the prior year.
Gross margin at BSG strengthened by 140 basis points.
Driven by improved product margins as a result of pricing leverage in combination with a smaller write down of COVID-19 related personal protective equipment inventory compared to the prior year.
These benefits were partially offset by higher distribution and freight costs.
Segment operating margin came in at 11, 9%.
Moving to the balance sheet and cash flow.
We ended the second quarter in strong financial condition with $227 million of cash and cash equivalents and a zero balance outstanding under our asset based revolving line of credit.
At March 31 inventories were approximately flat to last year at $963 million.
For the quarter cash from operations was slightly positive capital expenditures in the quarter totaled $18 million.
We restarted our share repurchase program in fiscal 2022, repurchasing approximately $75 million in the first quarter and $55 million in the second quarter.
This leaves approximately $600 million remaining under our current authorization.
At the end of the second quarter, our net debt leverage ratio was two seven times.
We expect operating cash flow to strengthen in the second half of fiscal 2022 and remain committed to prudently investing for growth, while creating long term value for shareholders.
Subsequent to the end of our second quarter, we filed a redemption notice on April 29, announcing our intention to retire our $300 million eight and three quarter percent senior secured notes.
The repayment data scheduled for May 31, and the payment will be funded by both excess cash and our ABL facility.
After seeing the macro environment intensify in Q2, and given the level of external pressures, including escalating inflation supply chain disruptions and geopolitical unrest.
We are managing the business to a more conservative outlook.
And have revised our full year 2022 guidance accordingly.
For the full year, we now expect the following.
Net sales of approximately flat to down 2%.
Net store count to decrease by approximately 1% to 2% driven primarily by Sally U S stores as we continue to optimize our portfolio.
Gross margin expansion of 40 to 60 basis points.
And GAAP operating margin and adjusted operating margins to be approximately 11%.
Regarding the pacing of sales for the remainder of the fiscal year, we expect Q4 to be stronger than Q3 in both total sales volumes and year over year growth.
We expect the supply chain issues to start improving in Q4, and we will be further along into expanding our distribution partnership with <unk> as well as the personalization and marketing initiatives at Sally as we previously mentioned.
Also keep in mind that last year's Q3 was a record quarter with sales well over $1 billion.
As we had reopening momentum from markets that were previously restricted earlier in the year.
We appreciate.
You get your time this morning, now I'll ask the operator to open the call for Q&A.
Okay.
Ladies and gentlemen, if you wish to ask a question. Please press one the zero on your telephone keypad.
You may withdraw your question at any time by repeating the one zero command.
As a reminder, we ask that you limit yourself to one question and one follow up.
Once again.
If you have a question today you May press one zero at this time.
And our first question will come from the line of refresh <unk> with.
With Oppenheimer. Please go ahead.
Good morning, Thanks for taking my question. So I guess I just wanted to start with first the topline guidance is.
Is there any way to frame the reduction that you guys took between the supply chain headwinds and then maybe.
<unk> and weaker consumer dynamics that youre discussing.
Sure.
Denise I'll start and in Marlow can join in here I think Q2 is a good example that will just walk through a bit of what the change in behavior was on the Sally side, and then Marcelo can pick up a bit on how we're pushing that through to the balance of year.
<unk>, we're really pleased with our Sally customer base, we've got strong customer loyalty, we did not see customers declined in the quarter and where we did see them impact a bit with their frequency of their trips and then the degree of expense in their basket ads that they put into the basket and when we really look back and contrast, it how we came out of Q1.
And how we moved into our fiscal Q2, you think about it being with the business ran at two comp in Q1 and random minus nine in Q2 in the Sally U S. Canada side of the business.
When we spoke to all of you guys. In February we really have a line of sight to about half of that gap. We knew that there was a big change in the impact from stimulus last year that had always been built into our plans for the year and then we knew what <unk> was doing in January and I'll actually say omicron in terms of the downside played out about the way that we expected it to play out and as you will.
Remember most of that was driven by availability of keeping stores open because of stores with store associates left so maybe the hunkering down.
Of the customer base.
The rest of the change really came from both supply chain challenges in the secondary categories and the inflation impact for our customers.
And that inflation piece is really the piece that we think we spent a lot of time digging into right. We looked at how our customer trends and we're changing in addition to our transaction and basket trends and what the data really showed us as we were losing frequency not customers led us to do some more digging to do some more direct customer market research and with a subset of our customers.
US was that they were really feeling some cost pressures in where they could they were just taking a little bit more frugal approach to spending the lengthening of little bit of time between color, maybe not leaning into those larger ticket items that last year. They really felt flushed to go buy like styling tools when they had a stimulus check in their pockets.
But with that you do the things we're really focused on are the things in our control so leveraging our strategic initiatives with personalization the nail reset that we're very excited about strengthen our own brands and fundamentally getting some product back in stock as we know it will take a little bit of time, but really working that forward in <unk>.
General we've taken a pretty conservative approach to how we've looked at the second half and what will be happening with that Sally customer.
I think we talked about it as saying we believe inflationary pressures will remain the same not better not worse, but we see that living out.
We do see supply chain product availability getting a little better, particularly towards the end of the year less so maybe as we are right now in this portion of Q3.
And then as I mentioned, the strategic pillars, Theres, some great things going on there with the nail business with marketing personalization efforts that we think will help bend the trend just a bit so that was the Sally side of the business and I think that I would just close and being complete and we're thinking for the balance of the year. We think the BSG business is very high.
Stylus demand remains strong.
What we're really focused on and working with our vendors and they've been great partners is managing through some of the supply chain challenges they've had with raw materials and ingredients coming in.
And we really see line of sight to that starting to improve in the fourth quarter.
And we're excited about that.
We're also really pleased with the opportunity to expand the regional business, even further adding another 2500 storefronts.
And that being a wind versus our largest competitor in the distribution space. So hopefully that's a fair amount of color to help you understand how we're thinking about both Q2 as well as looking forward.
Great and just related to that and I know you may not comment on this but this quarter due in April .
<unk> stable and towards what you saw in March or I don't know if there's any color you can provide in terms of.
There were pressures you're seeing in April .
Yes, I would tell you what we are stable to us the forecast that we see going forward and we think through April pretty much spot on on top of what we expected to see which is what is.
Giving us a lot of reassurance that we really do understand the drivers as they exist today and are managing those the best we can.
Okay, great. Thank you I'll pass it along.
Thank you. Our next question comes from the line of Olivia Tong with Raymond James. Please go ahead.
Great. Thank you.
Wanted to talk about.
The greater impact of higher gas prices on your core customer because.
If I remember correctly last quarter, you talked about how you put in pricing and that generate better gross margin.
So it seems like a pretty big contracts and realizing of course, how much gas prices have come up.
The more value tier of your consumer can you just talk a little bit about.
Your view on pricing going forward.
Is there is there does there continue to be opportunity or or other ways that you are planning to.
Improving momentum on sales despite lower frequency of trips by your consumer Thank you.
Yes, let me start with the pricing concept and then we can work in some of the other kind of customer behaviors that we're seeing but.
In terms of pricing itself, we're consistently.
Looking at price.
You know not only where we can take it but also just the competitive actions that are inside the market. We constantly have tests in market to understand how the customer will react and is reacting price increases.
If revenues to cover costs from suppliers, but we have also been able to drive some increases the margin rate and mostly in our core categories the color and care.
Do you believe there is still some more pricing leverage in color and care, we have been building out our strategic pricing and promotion capabilities and tools for somehow for some time now our ability to leverage those new capabilities with expanding datasets and inside there is more robust and really it's ever been before so we're constantly evaluating pricing opportunities for <unk>.
Closely monitoring the impact on consumer behavior. So far we haven't seen that that's what's driving the change in behavior. We are seeing some of on the Sally side.
The frequency change, but we haven't seen that they are going away from the product due to price.
And I think the one thing I would add to the second part of your question, which is what else do we have to think about if the consumer is feeling pressure from gas pressure from gas prices what else can we do it.
Something that we've spent quite a bit of time on and we've been testing some different items and seeing some good success that youll see us continue.
We go through the balance of the year and what that really is is offering some promotional activity that really lets the customers see value in the core categories that they're in and hopefully build their basket a little bit more I'll. Note. These are not margin declining promo activities. These are pretty pretty smart planned promos that are out there but.
Things that really resonate with the customer.
Two really good examples on the Sally side would be.
We'll create bundles for her colored purchase so.
<unk> color a bowl of brush put those together in a bit of a value equation, but we tie it to our own brands business, where the margin is a really robust profile.
Gives her extra value when she shows up in the store and she has really come to appreciate that and we're also leaning in to having full fledged supply and in stocks when we run.
One of our one of our key regular sales is a.
Care line, where we offer four items for $2000.
We really have opportunity is to continue to do that always as we've always done but ensure that we're in stock for that promotion for the entire month and capture the full value of that so those are the places where we're just wanting to get a little bit sharper to be sure that she understands that that extra basket add doesn't add that much to her overall.
Spend that she has with us so very conscious of how she might be feeling and really trying to.
Nibble around the edges with some reconstructive offers for her that still fit within the margin profile, we're working to deliver.
Got it thanks, and then just following up on gross margin can you just talk about.
The puts and takes that are embedded in your expectation for second half to drive.
Continued gross margin expansion because what we've seen across many companies is quite frankly lower gross margin.
Expectations, while you're maintaining it so.
Last quarter, you had said more equitable for remainder of the year, obviously decelerated quite a bit in Q2. So can you talk about some of the offsetting move to drive expansion in second half could you talk about promo.
Having a net net net flattish impact on.
On your targets. So did you make any other modifications to how youre thinking about investments.
Given your views on consumer spending anything else that creates an offsetting impact despite the incremental cost pressures.
Yeah.
Yes.
<unk> been very pleased with our margin profile strong margins over 51% and we see that holding we continue to believe our gross margins on a full year basis will be 40 to 60 basis points higher than last year.
Certainly should be able to hold that in the back half.
Again, our pricing actions.
<unk> have resonated, we'd like you said.
We're getting good results out of that and we've been able to offset the increases that we've seen through the supply chain as well as increases in freight.
And so and then we've also contemplated the mixed shift.
It's happening with Sally in the international markets coming back from their reopening.
Versus where they were last year, so feel pretty good about that margin profile and the ability to be able to hold in the back half.
Great. Thank you best of luck.
Thank you and next we go to the line of Oliver Chen with Cowen. Please go ahead.
Alright. Thank you all on the topic of inflation you detailed the frequency.
What do you see ahead in terms of that being stable and or why.
How much of that really relates to the marketing mix and the marketing engine as we look back many years.
The marketing has been an opportunity clear.
Clearly, though the digital world.
Opportunities to think about performance marketing in the return of ads, but algorithms.
And then related to inflation, just what's happening with your own average unit retails and your view there is you have fewer deeper.
More simple strategy in place previously.
Lastly, just on the topic you gave a lot of great detail.
Which parts of the portfolio are you most concerned about it I feel like supply chain is an ongoing topic, where theres still a high degree of uncertainty.
What's the true many aspects flagship thank you so much.
Okay. Oliver you certainly are packed a lot into that one line question, let me piece it apart and if we don't hit all the points. Please please let us know that there is something that we miss.
I think the first part of your question was really around the nature of what are we seeing inflation and has it stabilized in terms of how we believe it's impacting frequency and then what marketing things might be in play that could help.
Move that around.
Very simply I think we have seen it stabilize we can't predict the future and what else might happen as we all watch.
Macro events economic activity et cetera, but I think as I mentioned earlier.
April is performing as we anticipated it performing and that customer seems to be pretty consistent in her behaviors now that they had made the shift to give or take six weeks ago.
Weeks at the end of the second quarter and in terms of marketing you're spot on and we talked a little bit in the script about marketing mix modeling, we're doing a lot more and getting smarter about how we're leveraging our performance marketing dollars to be reaching the right customer in the right way and combining that with person.
Utilization and to really work to get the relevant references for add on products.
Re engaging her when it they care options that go along with her color treatment. She might have just done and we are as I've said before at the relatively early stages on the personalization front you will finish this year with really.
The first waves of personalization and the foundational tools to be able to take us further next year and be able to move faster that's part of what we're standing up now in.
In the performance marketing has been a really exciting thing to evaluate with the marketing mix model, we've gotten notably smarter and smarter about where to lean in a little more and lean out a little less and that's what we're really going on deleveraging as we go through the second half.
Bit of what we've included some benefit of and the way, we think about our second half performance.
And overall from AUR perspective, which I think was the second part of your question.
<unk> as you would expect are up modestly.
There is inflation coming through it is dependent upon the specific category.
So theres no one generic answer as to how much of that is moving or not.
But in general AUR as Youre heading up as I mentioned and how that's impacting our customer's basket.
Basket was actually up from.
From Q1 to Q2 in the Sally side of the business and that was down versus last year, where last year had the stimulus effect that really did have people spending in those higher cost categories.
And then in terms of the portfolio.
Overall across both businesses I think we feel great about hair color and hair care on the BSG side, our biggest opportunity is with some of our core vendors and really partnering with them to.
To help them on their journey to get back fully in stock Theres, just some great brands in particular and color our customers rely on quite a bit on the professional side that have just been a bit in short supply.
The categories I think that we're all working on a little bit more and I think more so on the.
Sally side or some of the secondary categories. We're just getting those things fully back in stock the way, we'd like to see them, whether that styling tools and some of the cosmetics businesses or skin care businesses, we see that opportunity being part of the second half of the year I think a real point of strength is that we're going to come out with our.
Neil category reset in both BSG and Sally as we progress out of Q3 and into Q4.
A much sharper presentation for the customer much easier to shop, and importantly is going to bring new brands at good price points into both businesses. In addition to capitalizing on gels and dips more so than pure lockers. So.
Reinvention for their a bit for us that we're also very.
I'm excited about is part of the overall portfolio.
Thank you very looking forward to all that innovation very helpful. Thanks, a lot.
Thank you next we go to the line of Seth <unk> with Jefferies. Please go ahead.
Thank you good morning, everyone I wanted to just ask another question on your feedback that youre getting from your customer, but maybe talk more about the stylist community versus the individual customer any sense of how that community is feeling about their book of business or bookings trends.
Any change in consumer attitude around our approach around booking frequency.
Yeah happy to answer that overall, our stylists are feeling reasonably confident there.
We're seeing good book of business come through.
And I think that they believe that that's going to persist you. The change from Q1 into Q2 as I think in Q1. They were very worried about product availability as we were still all rebounding from from Covid last year and they likely stocked up in some of their shops a bit what we are.
Hearing from them now as they are back to buying a bit more just in time for what they think they need now that falls a little short when occasionally we might be shorter product, we fully acknowledge that but they are using that as a way to manage their own cash flow as they have their own.
Impacts of inflation hitting them personally and things like that.
And for the most part we're sealing seeing our stylists take price increases along with price increases that are being passed along to them. It's a little harder choice for them, they do feel and nervousness and asking their customers to pay more.
But in the Grand scheme of the nature of a price increase they are taking versus the price of an overall service, which is hair color service could run close to $200 and they are making a few of those shifts as well. So overall stylus is feeling pretty good I think they are appropriately cautious as they are watching things around.
Them as well.
They have not seen their book of business decline.
Okay. That's helpful and my follow up question is just on the competitive environment have there been any changes either from your direct competitors.
But maybe it looked like you in style or are there some.
How did the threats from some of your brands going direct to the stylist community or the consumer changing the competitive dynamic.
<unk>.
Sure we haven't seen anything material in wave of movement that we would talk about I think the one that we would say on our side that we've really had a win on is.
Really celebrating the success of another 2500, regus storefronts converting over to being serviced by our BSG.
Our BSG division, which is clearly a win for us versus competitors and bringing that business in house and we certainly continue to see that there are some brands who go direct to stylists, but we haven't seen that increase.
And in particular, what we generally see is when brands are tied with both color and care and that continues to be very much of a distributor cosmic <unk> type shops, because they really are focused on their color in the care comes after that for the stylist community. So on the professional side, we haven't seen any increase.
<unk> movement or change in behavior from that dynamic.
And I don't think I think we would say on the retail side no no material shifts.
Thank you very helpful.
Thank you next we go to the line of William Reuter with Bank of America. Please go ahead.
Good morning.
When you were discussing a little bit of the weakness in higher ticket item.
This was just that there were a lot of these appliances that were sold during the pandemic and now they don't need another one of these.
Or do you think it's more trading down within categories to lower priced items generally.
I think the simple answer to that question is likely a number of factors are driving it. We clearly do know that last year in the second quarter and into the third quarter as higher ticket items through Covid, where people were a little flushed with extra cash with the stimulus as well as we are.
Spending a little bit more time at home doing different things like that those tools really were.
<unk> in a little higher rate than we would have seen even in prior year. So last year was a big year to lap and you could also say that even for shopping now if you're a blow dryer works great. You are probably not as focused on looking for the new blow dryer, if you fit into a category where folks might be feeling more frugal and so we think that it is more.
Have a sense of people are looking for if they need it they're going to come by it but they are unlikely to be more spontaneously deciding to buy a new styling tool or that type of thing the category is healthy overall.
The piece that we can't say of how healthy. It really is is that we knew we had some of our own supply chain issues that likely dampens that demand a little more than we would've liked to see new components for some of those pieces of equipment were harder to get and so our manufacturing.
It was really backed up to be able to supply us there.
I think we see the trend shift we at this point believe it has more a little bit more to do with last year than this year, but certainly still believe that frugality as a real trend.
Okay, and then just a quick follow up.
You announced.
Redemption of your bonds.
You don't have a leverage target at this point.
Previously there was going to be a refinancing.
Is this a change in strategy, where you expect to run the business with less in general or.
The market.
We will reserve the right essentially issue debt in the future when credit markets are a little more stable.
Yes, I would say, it's definitely not a change in strategy all along our capital allocation plan.
Has contemplated potential debt pay down.
I'll just kind of go back to our strategy, we are a very strong cash flow model.
Made a ton of progress on our balance sheet over the last couple of years.
We're just in a great position to be able to deploy cash we ended Q2 with $227 million of cash on the balance sheet that's more than.
$150 million more than our historical cash levels that we would typically carry on the balance sheet. So our net debt leverage ratio at near to us in a great place as well.
So it gives us the opportunity to continue to prioritize our investments to grow the business. We have restarted our share repurchase program and now we have the opportunity to pay off some expensive debt that we put on during the onset of Covid, we put that on as an insurance policy.
Three quarters timing.
Team callable in April so so we're taking that opportunity to remove that debt off the balance sheet from a leverage ratio point of view, we're basically swapping cash for debt.
It will stay in that kind of range.
Okay. So it sounds like there shouldn't be.
Additionally, the question Tim Okay, Great. That's all for me. Thank you.
Thank you. Our next question comes from the line of Carla Casella with Jpmorgan. Please go ahead.
Couple of follow ups, so on the on the Regus.
Give us a sense for the magnitude of that the opportunity there and that will that make readjust your largest.
Kind of partner.
And that and is it is that margin accretive or dilutive for BSG.
And so I guess it will step back and say we're excited to again the business overall and it's a long list of salons big big component of that large customer profile.
Haven't talked exactly about how much the 2500 additional stores are going to contribute I think we'll give you guys that information a little bit more as we go into next quarter, but it's a meaningful growth of the business.
For next year that we're excited about it will start in Q4 and ramp its way through <unk>.
<unk> is certainly one of our biggest ciena counts.
Which has been really nice to see them grow with us and see the benefits of what they understand is how cumbersome the distribution process can be alright, and how hard it is to manage that yourself or to manage it through.
Through smaller companies and our ability to effectively step in and disintermediation that for them to make it a much easier business is something that we should think of it as a positive trend that these larger salon genes are really looking to take advantage of to take one more complication out of their business.
Have you disclosed how much of that CST is large chain versus the smaller customers.
That team that we have I don't believe that we have.
Yes, it's a healthy mix of the business, but if you remember one of the largest portions of our business, which comes primarily from our stores is the independent stylist in the booth renter, which would still be the more predominant portion of our business.
Okay.
Are there larger changes that is it.
Typically margin dilutive them or no because you don't have the store overhead.
Yes.
Always going to be slightly margin dilutive, but I think what it adds up foreign dollars, it's not a substantial margin impact because as you said, we don't have the overhead that goes along with servicing those but it is a distributor or a little bit different distributor relationship, but the dollars will make up for what would be a small margin impact.
And maybe just to follow back on the top line, we talked about the first chunk of <unk>.
Business that we received some time ago and it was about a 1% lift onto the BSG segment.
So think about this is taking the remaining part of that distribution.
We will certainly double and slightly more than that.
As we go forward.
Okay, Great and then I had another follow up margin question more for the Sally side.
Okay, Sally gross margins Theyre, running 300 basis points or thereabouts above pre pandemic levels and I'm wondering is that.
What are the biggest drivers of that and is it sustainable is it changing.
Distribution and E com or or is some of that inflated due to kind of full price selling over the recent past.
I would say, it's twofold, you're kind of going to go back about a year and a half probably maybe more than that as we started into the pandemic. We took a different approach on our promo strategy.
That fewer deeper.
That really is what catapulted us over.
<unk> solid 50, plus margins, we've held onto that ever since those promotions and approaching promotions in a different way you've heard Denise just talk about several that we're approaching that we've been using over time and really driving great purchasing behavior and keeping that that margin profile strong on top of that.
Have pricing that has been going on over the last.
Several quarters as well so the combination of those two is really what's driving the margin profile for Sally.
Okay, great. Thanks, a lot.
Thank you there are no remaining questions in the queue. Please continue.
Great well I'd just like to thank everyone for taking the time to join US on the call. This morning, and hopefully it was a good illustration of what we're doing to really move the business forward for the longer term, but while we're working through some shorter term dynamics and I also wanted to take a moment to thank all of our team members across the globe and they are what make it possible for us to serve our customers.
And we appreciate what they do every day and.
So with that I'll. Thank you guys for joining and we'll talk to you soon.
Okay.
Ladies and gentlemen that does conclude our conference for today, we thank you for your participation and for using AT&T conferencing service.
You may now disconnect.