Q3 2022 Sally Beauty Holdings Inc Earnings Call
Welcome to the Sally Beauty Holdings conference call to discuss the company's fiscal 2022 third quarter 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 today.
With me on the call are Denise <unk>, President and Chief Executive Officer, and Marlo Cormier Chief Financial Officer.
Before we begin I want to remind everyone that we have made our presentation available for today's call that can be viewed that can be viewed from the link provided in our investor site at Sally Beauty holdings Dot com.
I would also like to remind you that managements remarks today on this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of $19 95.
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 factors 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 obligation 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 would like to turn the call over to David to begin to begin the formal remarks.
Thank you, Jeff and good morning, everyone.
Looking at our fiscal third quarter performance our teams executed the plan.
And focus on delighting and engaging our core salary customers and BSG styler.
Net sales came in at $961 million.
Representing a decline of 6% on 149 fewer stores.
Comparable sales declined three 6%.
Our top line results reflect the continued impact of the challenging macro environment, most notably in the inflationary pressures and supply chain disruptions, we discussed on our Q2 earnings call.
As long as the difficult comparison to last year, when the easing of Covid restrictions drove a net sales increase of 45%.
Against this backdrop, we maintained healthy gross margin and delivered adjusted operating margin of 10, 5%.
Importantly, we further strengthened our balance sheet during the quarter with the full repayment of our $300 million senior secured notes.
And under two years time, we've paid down approximately $1 billion in debt, leaving the business well positioned for.
Our growth and return value to shareholders in the coming quarters and over the long term.
As we navigate current macro complexities, we're leaning into our core strength in color and care.
Leveraging the operational investments, we've been making in recent years.
In the third quarter trends remained relatively consistent in our two largest businesses.
The U S and Canada and BSG.
That's all U S and Canada, while transactions were up sequentially versus last quarter. It remained lower than last year as our core customer stretch the time between coloring and focus their purchasing mainly on the core categories of color and care.
Basket as like higher priced electricals and styling tools remained under pressure, reflecting a combination of cost conscious behavior and supply chain challenges that continue to impact our in stock levels.
Enhanced lead times are beginning to show improvement in these categories and we expect further progress in the upcoming quarters on our in stock.
The bottom line is that our customer does not want to sacrifice quality and remains loyal to Sally but there is a portion of our customer base that is coloring less frequently and modestly lowering the overall spend during this inflationary period.
Importantly, our Sally stores consistently receive positive feedback on service.
Lena and knowledge.
We believe the level of engagement and education, we provide truly sets us apart and is proven to be a key factor in our ability to navigate challenging economic environment.
Yes.
Turning now to our BSG segment.
Overall demand remained stable in the quarter.
From a category perspective bonding and express coloring continued to trend well.
As we anticipated raw material shortages for some of our vendors persisted during the third quarter and continued to impact stock levels of some of our top performing skus.
We're starting it back in stock on certain products and expect to regain further and expect it to regain further ground in fiscal 2023.
We also began servicing over 300, new Regis salons in June and expect to be fully ramped up on all 4500 Salon by fiscal year end under our expanded distribution partnership.
In addition, we recently launched a dedicated web portal to streamline the ordering process, which will be leveraging for other large chain accounts such as forklifts.
As we approach the final months of fiscal 2022, this shift in purchasing behavior, among both our Sally customers and BSG solace is persisting.
At Sally our customers continuing to stretch the time between coloring and reducing some of their basket.
At ESG were continuing to work through supply chain challenges and while salons are so busy our stylists are beginning to purchase closer to need.
Balancing these trends the negative impact of FX rates on sales and the positive momentum we have from our initiatives around innovation marketing and personalization, we're moderating our full year outlook for sales and operating margin.
While we're operating in a difficult macro environment, we have confidence in our operating model and the infrastructure. We've established in recent years.
Underpinning our outlook is the continued loyalty of our core color and care customer as seen in our net promoter scores are strong competitive positioning as the leading provider of professional color and care.
And the depth of our teams who are continuing to execute against our four strategic growth pillars that I'll discuss today.
These pillars include leveraging our digital platform driving loyalty and personalization deliver.
Delivering product innovation and advancing our supply chain.
Let's start with digital.
Our Omnichannel model is serving us well and will continue to lean into and invest in digital going forward.
E Commerce sales penetration was eight 4% of sales in the third quarter.
During the quarter, our Sally U S and Canada stores fulfilled 48% of E Commerce sales.
With two hour delivery represents a 22%.
<unk>, comprising 19% and ship from store accounting for 7%.
Notably we saw strong uptake of two hour delivery in both Sally and BSG segment.
Yes.
At Sally we continue to receive positive customer response and feedback on our new virtual color expert.
Net first motor scores are seven points higher than our virtual color expert stores versus our control stores.
Additionally, our virtual color expert stores are delivering an average ticket that is about 30% higher versus control stores.
This virtual experience is now being piloted in 45 locations with another 25 coming online in early fiscal 2023 with more expansion planned for 23 that will include our website and app customers.
This is a great example of our relentless focus on customer experience.
The importance of education, and our ability to leverage our digital investments to drive engagement and strengthen our competitive positioning.
Yeah.
Moving to our second growth pillar loyalty and personalization.
In the third quarter, approximately 77% of our sales at Sally U S and Canada came from our loyalty program.
An active member count remained steady at $17 million.
On the BSG side, we have data on 100% of our BSG customers and 9% of our sales came from the rewards credit card in the third quarter.
At the end of the third quarter, we have launched five different personalization journeys for email and web for Sally and we expect to launch the first personalization journey for BSG by the end of the year.
The implementation of our new marketing mix modeling tools that we talked about last quarter is progressing well.
We're in the early innings of gathering analyzing data and we're excited about the opportunity to sharpen decision, making and increased efficiency by utilizing this tool that will ultimately help us optimize future spend.
Turning now to our third growth pillar product innovation.
We continue to be enthusiastic about the robust innovation pipeline. We have ahead of us within the Sally and BSG segment.
In Q3, we had successful launches at Sally across hair care flashes in skincare, including our new Strawberry leopard hair care line.
We're particularly pleased by the strong response to the Strawberry Leopard brand and view this as a great launching pad for our strategy to drive owned brand penetration over the long term.
For Q4, we recently launched the so color cult vivid color line in total results here Caroline for matrix.
Additionally, in Q4, we have new product launches planned in nails in the styling tool categories.
On the BSG side, we saw positive response to our Q3 product launches across color care and tools, including old Flex number nine and continued momentum of <unk> New show Infinity line.
In the fourth quarter, we have new products launching in both color and care, including more innovation from old flex with their new foresee clarifying shampoo.
Our initiatives in the nail category are well underway at both Sally and BSG. This includes new fixtures more prominent in store placement and new product launches.
The first phase of the expansion was completed in Q3 early results are positive and additional product Rollouts are planned for the fourth quarter as we focus on continuing to bring excitement to the category.
Yes.
Now onto the fourth and final pillar supply chain.
We recognize the importance of being in stock in our core categories of color and care every time.
We exited Q3 in a better position despite some lingering supply chain disruptions impacting our top vendors.
Our teams are continuing the work of transforming our transportation network to full distributions, which is expected to increase our speed to market improve.
Improved reliability.
And served as a partial offset to the higher cost environment.
Yes.
In closing I want to recognize the hard work and dedication of our team who have demonstrated remarkable resiliency and commitment to serving our customers.
As we move forward, we remain steadfast and building value for all of our shareholders and stakeholders over the long term.
In this uncertain macro environment. This includes staying focused on what we can control, including including utilizing aggressive cost controls and expense planning as we transition into fiscal 2023.
Now I'll turn the call over to Marcelo to discuss the financials before opening the call to questions.
Thank you Denise and good morning, everyone.
Third quarter net sales decreased 6% to $961 million and comparable sales declined three 6%.
As we anticipated macro factors, including inflationary pressures and supply chain disruptions continue to impact both Sally and BSG Division.
Additionally, we are operating 149 fewer stores at the end of the quarter compared to the prior year.
And foreign currency translation had an unfavorable impact of 130 basis points on consolidated net sales for the quarter.
Global E Commerce sales increased 16%.
To $81 million.
Representing eight 4% of total net sales.
The year over year increase reflects our ability to scale, our digital capabilities and utilize our new tools and resources to drive customer engagement.
Looking at gross profit.
Third quarter gross margin expanded by 70 basis points to 51% as pricing leverage drove margin improvement in both Sally and BSG segment.
These benefits were partially offset by higher distribution and freight costs.
Moving to operating expenses adjusted.
Adjusted SG&A totaled $390 million.
Essentially flat to last year.
Higher year over year labor costs were mostly offset by lower variable and accrued bonus expenses as well as lower advertising costs.
Additionally, we are continuing to optimize our store base, which will serve to partially offset wage inflation as we move into fiscal 2023.
Turning now to earnings.
Amidst a tough macro environment that is pressuring our topline we maintained our consistent healthy gross margin profile and delivered good cost control.
Third quarter, adjusted operating income totaled $101 million.
Adjusted EBITDA came in at $128 million and adjusted diluted EPS was <unk> 55.
Looking at segment results.
<unk> net sales declined eight 5%.
Primarily reflecting inflationary pressures that impacted our lower income Sally customer and the lapping of last year's strong reopening demand.
In addition, foreign currency translation had an unfavorable impact of 200 basis points on net sales.
And we operated 143 fewer stores versus a year ago.
Comparable sales were down 5% and similar to last quarter.
The sales decline was concentrated in the U S and Canada, which had a negative comps of six 3% and accounted for 79% of segment net sales in Q3.
Performance in Europe was pressured by the macro environment, while Latin America remained quite strong.
For the global Sally segment color was down 4%, while care was down 3%.
As Sally U S and Canada color was slightly positive on a comp store basis.
Additionally, <unk> performed in line with the overall color category and made up 29% of the color category sales.
While total transactions and units per transaction were down at Val U S and Canada average unit retail increased nicely.
Reflecting our pricing actions, which resulted in a slight increase in the average ticket.
As Denise talked about the Sally customer continues to rely on us as their resource for color and care.
But they are stretching visits and minimizing basket ads.
Gross margin at Sally expanded 60 basis points to 58, 5%.
Compared to the prior compared to the prior year.
As we continue to generate solid product margins, driven primarily by pricing leverage partially offset by higher distribution and freight costs.
Segment operating margin came in at 16, 1%.
In the DSD segment net sales declined two 4% while comparable sales declined one 6%, primarily reflecting the impact of supply chain disruptions among key vendors, which led to lower stock levels of some of our top performing skus as well as lapping the last the lapping of last year's strong reopening demand.
We estimate that the sales loss from raw material shortages was approximately $15 million or 350 basis points of impact on net sales growth.
The raw materials shortages got worse in April and May before improving in June and we expect further improvement in Q4, but not fully back to normal until fiscal 2023.
The color category was down 7% in the quarter, driven mainly by the raw material shortages, while hair care increased 5% compared to the prior year.
So on demand has remained consistent with status were more conservative on inventory buying just in time.
Gross margin at BSG strengthened by 150 basis points to 49%, primarily driven by improved product margins as a result of pricing leverage partially offset by higher distribution and freight costs.
Segment operating margin came in at 13, 7%.
Moving to the balance sheet and cash flow.
We ended the third quarter in strong financial condition with $101 million of cash and cash equivalents and $167 million outstanding under our asset based revolving line of credit.
At the end of May when our senior notes due 2025 became callable we made the strategic decision to retire the outstanding 300 million.
To further strengthen the balance sheet and optimize our capital structure.
The repayment was funded through a combination of excess cash and our ABL facility.
At the close of the third quarter, our net debt leverage ratio stood at two two times.
At quarter end inventories were up eight 5% to just over $1 billion a year.
Year over year increase is in line with our expectations income and can primarily be traced to three key factors.
Vendor price increases.
The ramping of the inventory in support of our expanded regional partnerships.
And lastly, the pull forward of inventory in the face of supply chain disruption.
Third quarter cash flow from operations was $52 million.
And capital expenditures in the quarter totaled $23 million.
Moving on to guidance.
We are updating our full year outlook to reflect the customer dynamics Denise discussed as.
As well as intensifying foreign currency headwinds.
With approximately eight weeks remaining in our fiscal year for fiscal year 2022, we now expect the following.
Net sales are expected to decline by approximately 2% compared to the prior year.
This includes an unfavorable impact from foreign currency exchange rates of approximately 70 basis points on full year guidance and reflects the incremental impact in the third quarter and anticipated impact in the fourth quarter compared to the prior net sales guidance.
Net store count to decrease by approximately 90 stores driven primarily by Sally U S stores as we continue to optimize our portfolio.
GAAP gross margin expansion of approximately 70 basis points.
Adjusted gross margin expansion of approximately 50 basis points.
GAAP operating margin to be approximately 10, 3% and adjusted operating margin to be approximately 10, 5%.
We appreciate your time this morning now.
Now I'll ask the operator to open the call for Q&A.
Yes.
Yes.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press one and then zero you will hear a tone, indicating you been placed into Q you may remove yourself from queue by pressing the same one the old command.
So once again for any questions or comments cross one and then zero.
And our first question will come from the line of Luke.
And your line is open.
Thanks for taking my question so.
So I just wanted to go back to BSG.
Do you guys look at the Salon industry I know, there's been some chatter about a July slowdown in Salon business. So is there any perspective on what Youre seeing right now on this whole mindset alongside on industry trends.
Yeah remember precious Denise let me, let me comment on their first let's talk a little bit about the BSG.
<unk> and the trends that we're seeing and then we'll talk a little bit about our business.
In general what we're seeing on the BSG side salons are still busy but their behavior is a little bit more cautious they are buying a little bit closer to need when we talk with them. What they are talking about is that the customer sitting in their chairs are talking about how they're stretching their dollar and making things a little bit more frugal and some of the choices we're making.
We're seeing it when we come to how people purchase with US our stylists are actually in a really strong response, when we've done our customer appreciation events.
One that we did this past quarter was actually the strongest in our history. So you definitely see the sensitivity to pricing out there with the stylists in the business in which we're operating the good news for US, though is in the quarter Karen <unk> segment, we actually remained quite healthy in our business our care business with our stylists was up about 5% and while color and.
<unk> was down about 7%, if we adjust for the vendor out of stock issues that ran slightly positive. So in the core categories in which we're competing we feel.
Pretty darn good about that we're also really focused as we're thinking about growing our share of the things that we can do to better help our stylists. So we're focused on express products that let them get their chair turned faster and have more business coming through them.
The integration of all of our regions business with 2500 accounts that will come online of 300 already on but many more to go.
And then most importantly, working with our vendors, where we do have out of stocks on key items to get those back in stock.
We saw good progress at the very end of the third quarter saw more pressure and may in the first two months of the quarter and then better in the third month of the quarter. We expect that to continue in Q4, although a little bit will probably persist into 2023. So overall, while there is some pressure out there view of the underlying stability of the business we saw weaker.
Quite good about.
Okay, Great and then maybe just one follow up question just given the supply chain challenges I think you quantified $50 million $15 million headwind. This quarter. So as you get the supply back do you expect to recover these customer presumably these customers are going somewhere else. So just curious if you. If you actually think as we look to next year as you get the product you actually be able to recalls.
Yeah, we generally seen that our customer is very sticky.
They are coming into our store they might need to go somewhere else if they need to fill in something but we're sure. It's mostly our exclusive brands and it's what our customers really believe in what they have in their core assortment and when they talk to us. They are very anxious to know when those brands will be back in stock and how we'll be able to service them come forward, so as an exam.
We have lists of people who are waiting for certain skus to come back in stock when our beauty advisers and our stores call up those customers. They are quicker to come in to buy what has come in and what's available. So I can't predict the future, but I have every reason to believe that our style has remained quite loyal to some of the brands they have come to love.
And they are exhibiting some patients in just making some tradeoffs in the short term, while they're waiting for that start to come back.
Great. Thank you.
Thank you. Our next question will come from the line of Steph Wissink with Jefferies.
Your line is open.
Thank you good morning, everyone I have a follow up question to <unk> question around supply chain have you gotten any feedback from your vendors on what steps, they're taking to ensure that your overall inventory position can improve in some of these areas and maybe just give us a sense of how the vendors are stepping up to support you are they.
Abiding you with alternative supply on anything and to just help bridge that gap.
Hi, Steph, it's Denise and the way that I would think about it is what we've been able to do over the last two quarters with our vendors is get much more specific with them on where we see backlogs, where we see customer demand, where they have shortfalls and so a lot of it is really planning to give them. What we can give them is the most accurate amount of demand and need.
That we see over the coming weeks months quarters of what we see them doing with that and then going back up their supply chain and trying to work hard to say I'm going to have all my raw materials I'm going to be able to build to those numbers.
I think we have had a little concern that is equal responsible on our part and the vendor part to be sure that that clarity of the pent up demand was getting through into the demand signal and so we're focused on that all of our vendors want these sales as much as our customers want the product. So they are clearly trying to work hard.
Hard whether its a bottle or a lit or a raw material ingredients itself and to be pushing those things back through.
And I think we're seeing those results. We did talk about at the end of the third quarter at things are getting better we're expecting that to continue as we're going through the fourth quarter as we're starting to see our receipts come in.
So I think the piece, that's going to hang around and ramp to 2023 as expected is going to be smaller. So I think they are stepping up to the plate. We're certainly doing our best to share with them all the information we've got.
And they are wanting that business as much as as much as our customers want the product.
Alright, that's helpful. And then my follow up question is on pricing can you just share with us a little bit about how much price you have seen come through how much you've passed along.
Any sense on what more to come there could be and I think you mentioned in your prepared remarks, both on the professional side and on your core consumer side.
Some resistance for some slowing in the pace of consumption going to understand a little bit how youre thinking about price elasticity in the amount of price you are having to pass through thank you.
Sure I'll jump in there and then if <unk> wants to add any color as well we can certainly do so yeah. When we think about pricing the pricing that we've taken this past year has really come in two forms.
Early in the year, we were very focused on strategic pricing, leveraging our new pricing tools and capabilities, we talked about that being one of the investments through our transformation period of some new technologies and had gotten a lot smarter about what those elasticities were and went ahead and took some pricing there.
And then as the year has progressed, we have done pass through pricing in response to vendor price increases.
Have you seen some elasticity.
As expected and generally the elasticity has been within a range that we feel good about it we do the same math that everyone would do there and feel feel like they are the right balance of units versus the sales and margin that we're seeing come through.
When we think about how the customer is adjusting while we're not seeing them do is choose to not buy a tube of power or a bottle of shampoo or thinking what they're really doing is saying I've got this overall amount of money that I'm going to spend and I'm, just being a little bit more frugal with that total amount of money I have so it's where we see people more outside the core category.
Are you, saying compared to last year, which was the year of the Covid reopening and people are saying I don't know that I need another styling tools and less lines actually broken.
Or maybe that add on purchase if it is going to take my basket size over the amount I feel good about.
Maybe I'll hold off maybe I won't do that quite as frequently and.
So that's really what we're seeing on that front.
Overall in pricing will continue to watch the market move as we can move over time and what we're seeing in the modeling that we do.
But if we step back one theater adjustments that we've really made for our customers is to put ourselves in their shoes and be able to think about what it means is they're seeing price increases come through as theyre doing decision, making and specifically by that we've really turned a lot of our customer communications to be focused on value.
And when we think about value that comes in a lot of different forms first it's reinforcing the core message of who we are and at Sally we're using a new tagline pro quality for less and reminding the customer that that's out there and that's real.
And we're also stepping up communication on great coverage, it's been very interesting to see that in the last four weeks, we've seen a notable uptick of customers looking for advice on great coverage that became the number one trending question with our virtual color experts that had not been the number one question up until about four weeks ago. We're also seeing our beauty advisor.
In store getting a lot more frequent questions on that great coverage. So when we can provide you.
Pro product at a value make sure the customer knows we have it make sure we have the expertise in place and are delivering that expertise to our customers about how to use the product.
That starts to really fuel the value equation more so than just the focus on what we're doing on a list price of the product.
Always helpful color. Thank you very much.
Thank you. Our next question comes from the line of Oliver Chen with Cowen and your line is open.
Hi, Denise Hi, Marlow regarding the frugal consumer and all the crosscurrents, we are seeing in the consumer.
Are you more concerned about traffic or <unk>.
Will this get worse before it gets better I was curious on your sense of volatility on the trends you see in <unk>.
How that and replace with guidance and as we think about next year, it's a very dynamic situation with inflation.
And accelerating in the minds of the consumer.
Yeah I'll start off.
The way that we can see it right now is that we're seeing a little bit bigger pressure point on traffic than we are on UPC. So when our customer comes into the store, they're getting what they want they are selling their basket, they're doing things within that Peru will mindset, that's coming in and spending as we would expect them to spend.
The traffic pieces pieces, a little bit trickier, and when somebody doesn't have something and they are waiting and waiting and waiting and getting that choice to come to the store and know that you're going to be spending when things are a bit more in a cost constrained in your mind is the harder piece of things and we're really working around ways around that so as I mentioned.
A lot of what we're doing and talking about just the value equation of the product we offer and how that that can resonate with someone about why it's worth coming into to spend when we spend we're also trying some different promotional tactics. So we're not increasing our promotion overall, but we're tweaking to what the current environment.
Be able to address so we.
We just recently launched by four get 20% off color promotion that just started here in August we had tested it earlier in the year and I think we're.
There could be a concern that you might be pull forward sales, what we actually saw the customer do.
This sale was out there is they came in they shopped.
And we think about it this way that we're hoping they're going to increase their unit, but not have the wood.
It would really mitigate a frequency decline that they could see the customers who came in they took advantage of the promotion they didn't change their purchases over the subsequent months, which was fascinating because what they really said is I may have actually been net positive with you over this three to four months period versus pantry loading and when you get under it we really think there is a C.
I apology to it that if it's in your medicine cabinet youre going to use it if you need to go out this store and spend again to buy it maybe youre going to hesitate and wait a little bit longer. So these nuances of where we spend our promotional dollars to be getting units up if frequency is going to be down and then the value messaging to remind people why.
We are a great place to come and make that extra stop an extra trip to get the pro quality product or two things, we're really focused on.
Okay. Thank you and on the supply chain front and you've given us a lot of great details, what's the magnitude of the percentage of assortment of inventory. That's impacted then what should we know about timing as we think about our models and how this may evolve.
So I think the way we characterize it more as it is about $15 million worth of sales in the third quarter that were missed the absolute SKU count changes.
Vendors come in or out of supply in a given SKU, but was about $15 million. We think that there is still pressure in Q4 and pressure should be going down and then as we ramp into 2023. It will go down even further I would certainly hope as we push on <unk>.
<unk> fully into our fiscal 2023 that we won't be talking about this anymore.
That's a bit dependent upon.
The macro world around us.
Last question, we've seen some.
<unk> marketing efficiency on the digital sides of businesses across the retail industry.
Have you been seeing how do you feel about your traffic and conversion online relative to your physical stores.
Yes, interestingly, we feel great about our conversion online.
It has been ticking up throughout the year as we've continued to sharpen.
Both the way the customer gets to the site and what they land on in the site and then the ease of shopping on the site itself. We've seen nice traffic that we've seen nice conversion increases our traffic numbers haven't changed materially in terms of what we've seen in terms of click through rates and certainly very sensitive to one reason why this might be true for us.
As we spent a good amount of effort this year on developing and marketing mix model where.
Where we are able to read kind of quarter over quarter, what vehicles, and where we're spending our money are going to get us our biggest bang for our Buck and we do regularly pivot. So we step back every month every quarter and be sure. The way we are deploying those dollar seems to be what's relevant to the customer as real time as we can get it that's a new tool a new capability.
For us and I think we're starting to see the benefit of that come through.
Thank you best regards.
Thank you. Our next question comes from the line of Olivia Tong with Raymond James and your line is open.
Great. Thank you good morning.
I wanted to get a little bit under.
The sales outlook for the full year, we've obviously discussed the weaker consumer but then you also talked about AUR going up.
So just in Q3.
Little bit better than we had anticipated so let's talk a little bit about your view on the consumer.
If things are weakening why is AUR.
Going the opposite way and then what's sort of embedded within your expectation for sales did come in a little bit lighter on a full year perspective outside of.
Outside of currency. Thank you.
Maybe maybe I'll start with the second question and then he can.
You talked more about the consumer trends.
In terms of guidance and kind of how we're thinking about that relative to where we left off last quarter. We're seeing a lot of the same trends continue with a little bit more intensity on the inflation side, but really probably the biggest move that I see from a mathematical exercise of the move in currency we.
We had 130 basis point impact on Q4 <unk>.
In Q3, we see a similar impact to Q4, when you look at that pretty significant impacted full year. So so that's a good a good magnitude of what we moved the guidance down spillover into the range and a little bit more pressure on the inflationary front.
And really seeing that in Europe as well so those two things combined.
This towards the lower end of the range.
And I think the only piece that I would build on that is besides the FX, which I think was a dominant piece of the change to the guidance. When we just look at the consumer and what's happening we do see real positives against some of the initiatives that we're working on so we will bring in.
More <unk> business as we stand up more customers as we go through Q4, we just reset our nail business in both our BSG and Sally stores and we're working a lot of personalization journeys and we see those as really offsets to what we're seeing of just the customer being a bit more frugal you specifically asked about AUR going up.
The core of our business is color and care, we have taken pricing and so that's the more natural movement of AUR and that makes a bigger difference to us than where we might have lost to just truly high AUR items, such as a blow dryer or straightening iron out of the basket compared to where we were last year. So.
I'm, just seeing that more in some pricing coming through as we would have anticipated.
Got it thanks, and then wanted to get your your view in terms of.
Consumer interest in color and I don't mean from the covering Gray's perspective, but visit with obviously.
Huge for some time, particularly in the last two.
Two years just general.
Are you in term Rob.
All color trends outside of outside of a great coverage that would be great. Thank you so much.
Overall her hair expression personalization, we are not seeing any meaningful change in behavior and customers from what we've seen over the last two.
<unk> months to 18 months visit is still quite strong it represents 29% of our business and I think thats pretty flat in Sally it's pretty flat to what we've seen over the last few quarters in terms of penetration.
So really no drop off in interest.
<unk> experiments, there and I think a really fund business because you do a lot more with.
Semi permanent or short term types of color, where people can get a pop of color and then step away from it if they choose to do that and then core core color remains also generally on trend.
As we talked about the overall statistics, we were a little lighter in Sally this year than we were last year I think thats more about the fuel of the reopening that actually happened last year with the consumer as Covid really a vaccines, where there are people reemerged business really and it took a different turn and on the BSG side color trend color dimming.
<unk> remained quite strong the only thing that we feel will held us back or some of the vendor out of stock issues. As we talked about we think we would have posted a slightly positive comps in our in our color business in BSG, excluding the vendor out of stocks. So still feel good the hair color hair trend is real overall.
And I think we are personally for our business are optimistic that as people thinking more about that great coverage in and may be different ways to achieve that could.
Could be it could be an interesting trend as we watch further into Q4 in the new year.
Thanks, so much basketball.
Thank you we will next go to the line of Simeon Gutman with Morgan Stanley .
And your line is open.
Hey, guys. This is actually Justin.
Thanks, guys for taking my question.
Earlier, you guys mentioned.
For the DSD segment, you mentioned Youre seeing good progress towards the end.
And you expect that to improve going into Q4.
I was wondering if you could talk maybe just a little bit color on volte.
Volume and price that you saw.
A little more detail on towards the end of a quarter and then if you want to think Youre taking share from your key competitors.
Yes, I think overall, if we just talked about the BSG business, specifically of our improvement towards the end of the quarter that was with regards to the in stocks. So thats, where we saw ourselves get back better in stock in some of the key skus that were out with some of our vendors and saw that in a positive trend.
Convert over into customers in terms of basket and traffic and it also coincided with what we do every quarter of our customer appreciation sale and at a value that got provided there we see more and more with folks looking for that value. Just a good time to shop. So we were happy to have that inventory back in stock and what.
We are seeing and then I think your other question, which I'm forgive me I'm forgetting right now.
It was.
Thank you for taking share.
I think in our general and our view of everything we can see the numbers and we are currently holding share and cuts in care and color in BSG. The one gap to color that we know we have is a little bit of slowdown because of the vendor out of stocks, but working hard to get those back in the stock, but with care growing about 5% of that.
Feels like a good healthy growth rate in the business and I think the thing that gives us a.
Great conviction that our customers are still actively coming in customer accounts remained stable. So we feel really good about that and as I mentioned earlier.
So working hard to be looking at how we're going to grow share rather than just maintain share with our customers. The ability that we have that we're now adding on a lot of new <unk> business was 2500 accounts coming online and it's going to be a great build to our business as we look to Q4, but even more importantly 2023.
We will get our product back in stock with our vendors and we just reset our nail walls within BSG I think gives us access to a whole bit of a different customer base. So clearly our stylists and participate in that for their independent businesses, but we also believe there is more leverage there to get people back into our stores as they understand the Newark, new assortment for there.
Neil Tech businesses, and then we're really focused on the products that make a difference to our stylist right now a big one of that being express so the more efficiency can be and running her chair turning over her client base in a difficult time being able to do color and a 10 15 minute process instead of a much longer process.
It's pretty important so we're working with all of our vendors for that express piece to come through as well.
So that we can convert is.
Our vendors are back in stock to growing share in color as well.
Got it thank you and just a quick follow up on that.
Before you mentioned another.
Our business being up 5% color I think you mentioned about seven.
Seven due to out of stock would you say that's kind of the biggest that version. So you guys are seeing in the category.
All right.
So you can broaden to other categories or maybe how wells.
Malls are performing thus far.
So Karen are by far the largest businesses within BSG. So that really represents a huge base of the store and the nail wall for a reset in the third quarter and there'll be more fully kind of full quarter as we go into Q4 and more products coming in behind them early on we've seen very positive response and so with.
Three or four weeks of the sets kind of under our belt people are figuring out that its there its new we're getting messaging out about it so.
I would call it so far are positive.
Got it thank you best of luck.
Thank you.
Next question will come from the line of Carla Casella with JP Morgan and your line is open.
Hi.
Tom side is that business accretive or dilutive to margins.
Sorry <unk>.
Margin was that the question, Yeah e-commerce better worse than in store.
Yes so.
We've been on quite a journey with us with E com versus standing it up throughout the journey, we're on with Covid and bringing on all of our digital capabilities. We now have a full suite in our platform in both banners.
So it's still building a bit more into that in terms of bringing CRM personalization into that mix as well to further enhance that I would say early on it was all about speed and getting getting via the capabilities stood up since that time, we have made tremendous amount of improvements in our profitability. We're now at a point where we.
Have a good part of the business being fulfilled out of the store which is more.
Profitable than doing that from a DC in.
And through that too as well as our operational improvements cancellations split just improving the overall customer experience you've talked you've heard us talk about better conversion. So we just have a much more efficient operation as well.
So since since that time I would say we are now starting to approach <unk> has always been the stronger.
Banner in terms of profitability Sally has now caught up to.
The BSG and we're now starting to approach.
Store profitability at this point.
We don't expect to ever be perfect clarity, but we are we are getting closer.
That's great and then on the just given the consumer environment and kind of supply chain.
Change to how youre looking our sorting for holiday or just even given the.
The business shift because you.
Spent so much time lately, putting growing that color and.
Hair and nail category.
If in the stores.
A holiday timeframe.
When I think about that we arent of a seasonal business.
I think for one we don't we don't typically have a much different buy in for.
For the holiday time period, we do see more customers coming into our stores a bit more on the gifting fronts than maybe you see through the rest of the year.
Our preparation for holiday, we're thinking more about how you how you think about stocking stuffers and things that become affordable luxuries that you can get in the store.
Complementing what we always do which is have styling tools and other things that make good gifts under the tree. So I'm clearly taking in mind, where the customers' head is but I think most important part for US is as our assortment that we buy at holiday isn't isn't any different than our day to day in day out assortment right. So when we say we're going to stock up on something because it'll be stocking stuffers.
Its core go forward product that we're just bringing in knowing that seasonality might be there a little differently for those products. So we certainly hope that we see we see a nice gifting season, I think we all quickly forget that last December was a bit hampered by.
The joys of Omicron and all the things that it did impacting store labor and just general <unk>.
Activity. So we're hopeful that that customer doesn't want to get back out and think about their holidays and a more positive light, but also I think just for us realizing that we're not a huge seasonal business.
Okay, Great and then any thoughts in terms of the timing of the debt pay down or kind of a target there given the revolver borrowing.
Yes, we don't have a specific target date, but I would say our overall capital structure being in a strong position, we're going to continue to assess the best uses of our cash generation across the business investments returning value to shareholders and optimizing our debt.
Okay, great. Thank you.
Thank you and with that we have no further questions. So please go ahead with any closing remarks.
I'll just take a minute to say thank you for all the interest in Sally Beauty holdings.
We're excited about the business, we're excited about where we're headed go forward and how that we can serve our customers. So we do appreciate that interest and as always a big Thank you to our associates across the globe. They work hard every day to bring color and care and happiness to our customers and we appreciate all they do.
Thanks for that and we will talk to you again next quarter.
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