Q1 2023 Sally Beauty Holdings Inc Earnings Call
Good morning, ladies and gentlemen, and welcome to the Sally Beauty Holdings conference call to discuss the company's fiscal 2023 first quarter results. All participants have been placed in a listen only mode.
After managements prepared remarks, there will be a question and answer session. Additional instructions will be given at that time now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.
Thank you good morning, everyone and thank you for joining us.
With me on the call today are Denise Hello, This president and Chief Executive Officer.
Call Me, a chief financial Officer.
Before we begin I would like to remind everyone that management's remarks on this call.
Forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Actual results may differ materially.
As 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 that.
The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website.
Now I'd like to turn the call over to Denise to begin the formal remarks.
Thank you, Jeff and good morning, everyone.
We're pleased that fiscal 2023 is off to a solid start as our teams remained focused on serving our customers and made excellent progress on our new strategic initiatives to drive long term growth and profitability.
First quarter net sales came in at $957 million comparable sales increased 1% versus last year and 7% on a two year stack basis.
Adjusted gross margin remains strong at 51%.
Adjusted EBITDA was $126 million and we generated positive free cash flow of $30 million.
Our business remains resilient as we delivered strong performance in the first quarter against the backdrop of persistent inflationary pressures.
Purchasing behavior, among both our Sally customers N V and she's pilot remained fairly consistent with the trends we've seen in recent quarters.
At both Sally and BSG average ticket increased driven primarily by average unit retail.
While transactions were down slightly compared to the prior year.
Promotional activity was up modestly at both Sally and BSG in the quarter.
Our customers responded to value messaging.
Of note. It's increased promotional activity was funded by support from our vendors, enabling us to maintain our strong gross margin profile.
During the quarter, we successfully implemented our distribution center consolidation and store optimization plan, which strengthens our supply chain network and positions us to maximize the value of our large store portfolio going forward.
Inventory from our Oregon, and Pennsylvania D. C. That's been successfully transferred to a larger facility and the majority of our 350 planned store closures were completed with minimal disruption.
Early reads on sales recapture are trending in line with our expectation and we look forward to sharing a broader update next quarter.
In the first quarter E Commerce sales increased 14% and nine 5% of total bill.
Driven by the strength of our convenient fulfillment options, including two hour delivery and buy online pick up in store.
On our last earnings call in November we shared our vision for the Sally Beauty holdings of the future and outlines the three new strategic initiatives will be advancing in the coming years.
As a reminder, these include.
Enhancing our customer centricity.
Growing high margin owned brands at Sally beauty and amplifying innovation.
And increasing the efficiency of operations and optimizing our capabilities.
Let me update you on our progress across each of these.
First enhancing our customer centricity.
As an organization, we're focused on our loyal customers as well as acquiring new customers through her marketing program differentiated product offerings, and professional color and care and our strategic initiatives.
Our goal is to provide our customers with an unparalleled experience whenever and however, they engage with us.
We have 17 million active loyalty members, Sally U S and Canada, representing 77% of our sales in Q1.
And our rewards credit card at BSG comprised 9% of sales for the quarter.
Additionally, our net promoter scores continue to remain at all time high with valley, but the low 80 M Street in the high Sixty's.
We know who our customers are we understand their need and we're building on this strength to drive increased engagement and lifetime value.
At BSG the launch of our strategic partnership with the launch Cube is meeting with positive response as we begin to onboard style. It help them create their digital storefront and provide them with marketing tools to engage their customers.
This new platform was created for stylus kandi as a means to empower them to build more value added and profitable business and we.
We're pleased with the initial traction we're seeing.
Turning now to Sally or inspiration education and advice are key tenants of the business.
Our associates and certified color consultant take tremendous pride in serving our customers in store and we're expanding upon this core competency by increasing our virtual color expert and piloting our studio by Sally stores.
Our virtual car experts are accessible through live video call conducted onsite in our stores.
For your customers is higher level of touch and professional advice insurers. They are set up for success across every step of their hair colored journey and further elevate salary as the leader in professional hair color and care.
Following a successful pilot we brought this to 45 locations in fiscal 2022 and added another 30 stores and coupons for a total of 75 at quarter end.
Next we'll be piloting the service on our Sally website offering both scheduled appointments and on demand consultation.
In the second half of fiscal 2023.
Turning to our new studio, but I felt like concept stores.
On track to launch our first pilot location in Dallas during the second quarter and plan to open an additional fixed studio stores this fiscal year.
As a reminder, these stores will include a DIY centric salon cut.
Commercial receive education and training on how to achieve their desired herself.
Studio by Sally will allow us to leverage our competitive advantages and the omnichannel infrastructure to engage educate and empower our customers utilizing a digital first focus.
We believe there's an opportunity to grow this concept to 100 locations throughout the U S. Over the next three to four years and look forward to keeping you updated on our progress in year one.
Moving onto our second strategic initiative.
Growing our high margin owned brand penetration in Sally and ample amplifying product innovation and Sally and BSG.
We're staying at the forefront of innovation and have demonstrated good progress towards our goal to grow our high margin owned brands in Sally.
In the first quarter, we completed the initial rollout of encore, our new line of pro quality bonding products accessible price point.
And expect to be fully launched with all skus by the end of Q2.
Also notable during the quarter was the strong performance of our Wunder bar hair care brand and X P 100 colored brands in Europe .
Own brand sales penetration for the Sally segment reached 34% of sales in the first quarter up from 33 per cent ourselves at year end.
We believe we can grow that to 50% penetration over the next quarter five years, while growing our overseas overall sales low to mid single digits.
We're also bringing newness to key categories through short reset.
For example, we're seeing positive customer response to our Neal reset at both Sally and BSG.
Additionally, we're leaning into textured hair space with the recent introduction of five new brands and our Cosmo craft stores.
Courted by a broad based marketing campaign that will kick off this month.
Turning now to our third strategic initiative increase.
Increasing the efficiency of our operation and optimizing our capabilities.
This encompasses three areas of focus include.
Optimizing our store base.
Solidarity and leveraging our enhanced supply chain.
Capturing efficiencies are rethinking the way we work.
As I outlined earlier in the call. Our teams have largely completed the D. C store optimization plan with minimal disruption and the successful transfer of product to our larger facilities.
I'm also pleased to note that a significant portion of our workforce and they affected stores have accepted positions at other locations.
Additionally, the integration of our expanded egregious partnership is complete and we are.
We're on track to double our sales volume in fiscal 2023.
Lastly, the work under our fuel for growth initiative continues to be underway as we focus on ways to more efficiently steward the business.
To maximize profitability and increase shareholder value over the long term.
We feel good about how we're positioned and the way we are advancing the business through our new strategic initiatives.
We have incredibly talented associates across the organization, who are passionate about and delighting, our customers and inspiring a more colorful confident and welcoming world.
We are confident that our embedded news strategy in concert with our core capabilities and infrastructure provide us with significant runway for growth in the coming years.
Over the long term, we believe the business is positioned to generate low to mid single digit net sales growth.
Gross margins over 50% and low double digit operating margin.
Now I'll turn the call over to Marcelo to cover the financials.
Thank you Denise and good morning, everyone.
We're pleased to begin fiscal 2023 on strong footing delivering first quarter results in line with our expectations and making consistent progress against our strategic initiatives.
First quarter net sales of $957 million declined two 4%, reflecting the combination of 395 fewer stores and 150 basis points of unfavorable foreign currency impact.
Comparable sales were up 1% versus a year ago and up.
11% on a two year stack.
We continue to see strong digital performance with global E Commerce sales, increasing 14% to $91 million on a constant currency basis.
And representing 95% of total net sales.
We maintained strong adjusted gross margin, which came in at 58% down 20 basis points to last year.
Increased product margin that Sally beauty, driven by pricing leveraging higher own brand penetration was offset by lower margin at DST due to a channel mix shift between stores and our expanded retail business.
Turning now to operating expenses.
Adjusted SG&A totaled $391 million, an increase of $7 million versus a year ago and reflects higher labor and personnel costs.
Looking at the full year, we are on track to achieve the expected expense savings, we announced last quarter under our D C consolidation and store optimization plan.
Total anticipated savings of approximately $50 million is expected to serve as a partial offset to increasing pressure from labor costs as we move through fiscal 2023.
We expect SG&A levels for the second quarter to remain similar to the first quarter.
The timing of our wage investments and benefits from our optimization efforts.
The combination of our healthy gross margins and prudent cost control enabled us to invest in our new strategic initiatives, while also delivering on the bottom line.
First quarter adjusted operating margin was 10%.
Adjusted EBITDA margin was 13, 1% and adjusted diluted earnings per share came in at 52 cents.
Looking at segment results.
First quarter comparable sales increased 3% at Sally beauty and were up 7% on a two year stack.
Net sales declined two 1% driven primarily by 210 basis points of unfavorable foreign currency impact and reflects the fact that we had 383 fewer stores in operation versus a year ago.
Constant currency segment E Commerce sales increased 13% to $35 million or six 4% of segment net sales for the quarter.
For the global Sally segment color was up 3% and care declined 4%, including the impact from store closures.
Our Sally U S and Canada colored increased by 5%, Okay, great coverage was up 10% and comprised 77% of the color category.
Gross margin at Sally expanded 50 basis points to 58, 9%.
The solid project product margins.
Primarily by pricing leverage and higher owned brand penetration.
Segment operating margin increased to 18%.
Moving to the BSG segment comparable sales declined one 5% and DST was lapping last year's strong demand from the Tyler.
We're restocking their salons during the reopening.
On a two year stack basis, BSG comps were up 7%.
Net sales declined two 7%.
Which reflects 60 basis points of unfavorable foreign currency impact and 12 fewer stores versus a year ago.
On a constant currency basis segment E Commerce sales increased 14% to $55 million or 13, 6% of segment net sales for the quarter.
The color category was down 3% and care declined 2% Ibs D is that our stylist continue pursue purchasing closer to me.
During the quarter, we did continue to see strong momentum with express coloring product.
Adjusted gross margin at BSG decreased 130 basis points to 39, 8%, primarily driven by product lower product margin due to the sales channel mix shifts between the segments doors.
And expanded reach with partnerships.
Segment operating margin came in at 12, 2%.
Moving to the balance sheet and cash flow, we ended the quarter with $99 million of cash and cash equivalents.
$5 million outstanding under our asset based revolving line of credit.
Our net debt leverage ratio stood at two two times.
Inventories have continued to normalize as the supply chain disruptions, we experienced in 2022 have mostly subsided notwithstanding some choppiness with inventory receipts in certain skus.
Quarter end inventories were $987 million down in the one 9% from a year ago.
We generated strong free cash flow of $30 million in the first quarter for the full year, we continue to expect.
It returned to free cash flow generation in the range of $175 million to $200 million, providing us with the financial flexibility to invest in our new strategic initiatives to drive long term growth.
Turning now to guidance.
We are reiterating our full year expectations as follows.
Comparable sales notwithstanding a notable change in consumer behavior are expected to increase by low single digits compared to the prior year.
Driven by growth in some categories build transfer from store closures, our expanded distribution and our new strategic initiatives.
Net sales are expected to decline by low single digits compared to the prior year. This reflects approximately 150 to 200 basis points of unfavorable impact of store closures net of expected sales recapture from our optimization efforts.
Well, it's approximately 150 basis points of anticipated impact from FX headwinds.
At the end of fiscal 2023 store count is expected to be down 6% to 7% compared to the end of 2022 due to our store optimization plan and a small number of new store openings.
Gross margin is expected to remain above 50%.
And adjusted operating margin is expected to be in the range of eight five to nine 5%.
This reflects increased investments in store labor, partially offset by unexpected benefit to operating earnings of approximately $10 million related to our distribution center consolidation and store optimization plan.
From a cadence perspective keep in mind that the second quarter is historically, our lightest sales quarter.
And as I outlined earlier, we anticipate that further investment in wages will begin ramping up this quarter.
As a result, adjusted operating margin is expected to decline sequentially from the first quarter the second quarter.
Looking further ahead, we remain confident that our initiatives to drive topline growth build scale and further optimize our operating model will enable us to return to double digit operating margin in fiscal 'twenty 'twenty four and beyond.
We appreciate your time this morning, now I'll ask the operator to open the call for Q&A.
Yeah.
Thank you, ladies and gentlemen, if you do wish to ask a question. Please press one and then zero on your telephone keypad you can withdraw your question at any time by repeating the one zero command if youre using a speakerphone. Please pick up the handset before pressing those numbers.
Once again, if you have a question you May press. One then zero at this time one moment. Please for our first question.
Yeah.
And well go first to Oliver Chen with Cowen and company. Please go ahead.
Hi, Denise in Marlow.
Hurting what's you're seeing out there in the market would love your thoughts on the color trends relative to restocking and Denise as everybody thinks the bit about inflation is that still impacting traffic and customer behavior.
Question I had is on customer lifetime value and engagement you mentioned opportunities there as well as your loyalty program would love you to elaborate on what you see is lower hanging fruit and then Marcelo on the store progress in terms of store optimization, how have the recapture rates been looking.
Relative to your expectations. Thank you.
Good morning, Oliver I hope, you're well, let me start with the beginning of those questions and then I'll throw it over to Marcelo to help on the store optimization.
So first of all we're seeing color are very healthy in both of our businesses in both BSG and Sally in Sally Yeah, we were up 10% and great coverage in 5% overall in Sally U S and interestingly a similar to some things I think folks are reading in the news great trends around brunet colors.
Oh, great trends.
More copper colors, so people going a little darker right now, but seeing the efficiency of the offering versus what one thing might be which could be more expensive, but thrilled to see our people resonating in coming in and shopping with us.
In particular, we have an always on a by poor and save 20% or on some of our brands and we've seen that nicely have frequency be consistent for our customers where earlier last year. We did not have a promotion and we saw people trimming back the frequency with which they colored.
So we're really thinking that that's helping them keep their pantry loaded and pantry stocked I'm on the BSG side I think it's important to remember color is still very healthy for us, but this time last year. So Q1 last year, our stylists were heavily restocking as Randy and of the Covid restrictions were really coming into.
Bear and we are seeing supply chain disruptions, so customers bought what they could when it was available I think this year. What we're seeing is is they have been working through that inventory. They continue to buy closer to need but color remains healthy in the business.
More broadly on the inflation front end customer behavior, we haven't seen a meaningful change in trend like I said I think the change in trend we've seen all the books a little bit more is people going a little darker color in their hair, but that same level of conservatism about extra items in the basket remains both for our stylists and for a cut.
<unk> coming in.
But that said, we're pleased that our nail category with the reset but when we can bring out some newness we are able to get our customers you know thinking about that category, maybe a little bit more than they were a for a few quarters ago.
On the customer lifetime value, we're very realistic that we don't capture all of the wallet share of our customers and so our focus with our loyalty program, our focus on education and expertise or focus on convenience with two hour delivery and focus on the things, we're really pushing on to drive more of that share.
Wallet with our customers and you'll see us continue to do that as we go forward it inclusive of things around our customer Centricity initiative, so our Sally studio stores and focusing more on education are virtual color expert I'm, making it that much more of a reason to come to Sallie to get your extra.
The chiefs and advice that you need.
And without a marlow, how about you are talking about store optimization.
Yeah. Thanks Denise.
Yeah in terms of our store optimization, you know just as a reminder, we spent a good part of a year really piloting and studying our our closure model.
And so you know and we analyzed customer behavior monitored recapture rates, we were pretty confident as we went into this disclosure print closure plan.
And so we did do a significant.
Closures and the early part of December and so it is early days, but so far it's tracking according to plan, we are recapturing at rates consistent.
Consistent with what we planned it's early days, but we are pleased with with those initial results and very pleased with the smooth execute execution of the program that was really a little limited disruption and.
Good yeah.
Delivering everything that we expected so far.
What are you hearing about all the innovation best regards thank you.
And next we go to the line of Olivia Tong with Raymond James. Please go ahead.
First wanted to ask you on your long term growth as well if you could remind us what gets you from low single digit comp to low to mid single digit sales, you know, particularly in and sort of timing around that particularly after part and parcel with that you know the store closures could you just talk.
A little bit about some of the timing and cadence of store closures for the year, where you think you need to go to longer term. Thank you.
Sure let me start there so when we think about the store closures for this year. They are largely complete Marlow indicated.
350 stores were in the closure plan and the vast majority of those were completed late in December so that is for the most part behind us.
And we're moving forward and excited about the recapture rate that we're seeing with our customers. There when we think about the broader path and what were working on with our newer initiatives.
And as we're going to build to our long term algorithm, Yeah, Let me talk a little bit about it broken out into the years and how we see it evolving so when we're talking about 2023, we've been focused on growing our own brands, which includes ion strawberry leopard and bond bar, our newest watch just to name a few of those rebuilding our nail category.
And our care category driving growth there as well doubling our Regis business. We were very excited to pick up that business last year. It is fully on boarded.
And as we wrap around from last year, but the opportunity we have there to double the business, but as well as take this as a learning to see where we have opportunity with additional chain customers.
Finally, you know with the store conversation in D. C consolidation complete that's going to improve our operating profit performance as we move later into 2023, we've talked about our solid platform with full on each cube.
And our virtual color expert experience in both of those we expect a late in the year to start to ramp in terms of impact.
The South platform right now is in pilot and only one region today. So early on but we're encouraged by our stylists response in and continuing to grow that out when you look into 2024 and.
And we do anticipate acceleration on a number of fronts that includes owned brands and includes the solid platform, which we hope will be in the process of expanding our in the U S. And then tailwind from our E Commerce channel and the virtual color expert.
Our studio by Sally initiatives, we're excited that we're on track to get about six stores are updated this year to that new format, including a store here in the Dallas area later in Q2.
And that but that's really going to impact us longer term. So we expect that to be a pilot. This year into next year and the hope would be if it's looking positive we'd expand that to support a later in 2024 and into 2025. So hopefully that gives you a shape of what we're working on it all comes back to customer.
Centricity driving the business through innovation as well as own brands to really respond to what our customers want and need and were pleased that they continue to reward us with high NPS scores I'm supposed to Sally and BSG side as we are kind of on this journey with them.
That's very helpful. It kind of fits well for my second question around your new one breasts like bond by Bond bar are the ones you mentioned, but.
You know longer term.
Right now where do you what is the contribution from owned brands stand now and where where do you expect it to go longer term and as you think about further penetration of your own brands I'm talking about like where do you think.
It goes from here. Thank you.
Absolutely you know this quarter owned brands represented about 34% of the Sally segment.
It's up about a percent from last quarter, and but a nice steady growth through last year as we continue to rollout Strawberry Leopard and then it just recently introduced bond bar, Yeah, we're targeting that number for the Sally segment, specifically to become about 50% of the business and we think it will take four or five years to get there.
In the past was getting their this quarter will fully roll out the rest of the bond bar line. We only had the first four skus in market through the holidays I bet had good customer reaction a good performance out of those as they were starting to come to market. So we're excited to see that come to fruition with the rest of those.
Skus are coming online in Q2 and will continue to build around that in future years as well as the strength of his own brands in our European businesses.
So that will be a source of growth for us for the time to come and importantly, as we move up that penetration curve with own brand, it's a nice tailwind into our gross margin.
We think that there's a nice complement between continuing to drive our own owned brands and growing our brands with our.
External vendors to have a great call that a product over time for our customer coming into their source.
And while our own brands is really a focus on the Sally side. Mike you know we are also excited about the innovation and continued growth that we can drive in our BSG business with a number of our pro vendor partners and we continue to see more innovation in the pipeline in that space as well.
Thank you so much.
And next thing go to Simeon Gutman with Morgan Stanley . Please go ahead.
Hey, good morning, everyone. Two parts on Sps I think Denise you mentioned that store closures largely done I wanted to get maybe the U S store count where it is and then where that will eventually land sounds like similar to where it is now and then in terms of the drivers of the comp.
Talking about product initiative versus price and then you said recapture rate was in line, but could you quantify how much of the comp could have been helped by some store closures.
Sure let me work through those in order. So in SPS you know the closures are largely done.
So as I mentioned 350 stores was the plan a vast majority completed in Q4, I'm Sally U S. But leaves our store count at the end of this quarter at about 2000, 432440, <unk> and broadly in SBS.
It's up about 31, 50, and those are down pretty notably from a year ago, and we'll finish the year is more or less out of an entity inclusive of BSG down 6% to 7%.
We think that this is about the right place to be I think the piece I'd reemphasize is all of the stores were four wall EBITDA positive and the strength of the store optimization opportunity really came from such a positive reaction and the ability to capture the sales transfer into stores and E Commerce.
And we were very pleased with that and the tests that we did which enabled us to go after incremental set of stores that we closed so in our plan and you know we're targeting a 40% recapture rate.
Lou mentioned.
You know, we're we're feeling good about where we are now we're trending well and we'll have more updates as we get beyond three to four weeks of those closures to be able to report out.
Number two you guys, but overall you know a good place to be.
We will continue to watch and understand of the store recapture in and see if there would be any incremental opportunity, but right now where we're at.
We think that this is the right spot to be in.
When do you think about contribution to comp in the quarter. We actually it was late in December that we close the stores. So in the first quarter would not have been a meaningful college, but would not have been available.
Full contribution.
Got it okay. One follow up on BSG. It can you talk about the competitive landscape promotion.
Brand changes that could could positively or negatively impact the business and then.
You don't guide by business segment, but I think the comp should flip back to positive for the remainder of the year is that a fair assumption.
Yeah. So in reverse order, yes, we would expect a positive trend in BSG called for remainder of the year give or take you know we lap some certain small events here and there, but the nation of the businesses. This quarter are having a negative comp was really about comping, a really strong number last year as far as.
We're reopening yeah, when we think about the competitive intensity I mean, this business is a competitive business.
Have we seen that strengthen or materially change and not materially we watch everyone. At this point with stylus being a bit more conservative continue to fight for every dollar of sales that we can get you know we did see our vendors are more willing to lean into some spot promote.
<unk> are they fully funded to try to understand what might move their businesses and we appreciated that support from the vendors as we went through the.
For the quarter. So you know overall you were out there all of our brands have new innovation coming in one sector or another as we work our way through the year. So great about the relationships that we have with our with our key vendors and you just look forward to growing that business with them or that through the rest of the year.
Thank you.
And as a reminder, it is one zero to ask a question next we'll go to actually Hellions with Jefferies. Please go ahead.
Hi, Good morning, it's Blake on for Ashley I'd be continued shift to owned brands. It sounds like a lot of impact there from innovation.
You expect any trade down impact as well if inflation were to continue and then you mentioned launching some new products with marketing campaign, starting this month, what type of products or trends are you focusing on right now for innovation.
Yeah. So first of all on the own brands you know interestingly many of our own brands are actually not the value brand in the store. So they could be priced at a midpoint price point compared to what else is available in our store at the differentiator that we have with many of our own brands is the efficacy of the product.
That's true with our own products, it's true with Strawberry leopard on the vivid color space and newly launched bond bar, which is really a bonding offering.
At a great value price point compared to other offerings that are out there. So when we think about our own brands, we call them owned brands for a reason because we do really focus on.
Getting that right level of quality and cost balance to be great value to the consumer but pretty high end product.
In general have we seen consumers looking for sources of value absolutely I mentioned Simeon that our BSG business. Our vendors had supported some additional promotional activity that's true on the Sally side as well now in aggregate promotions are not up meaningfully, but you know a little bit more lean in.
Where we can get values of customers is something that they're certainly looking for and certainly taking advantage of a one that comes to play.
That's super helpful. Thanks for explaining that.
Then on the supply chain optimization sounds like youre going to be saving 50 million, there and you've talked about a $10 million benefit to operating income. This year I was wondering if you should we think about you are reinvesting the savings, but there the rest of about 40 million or is that just a timing benefit without.
10 million should grow over time.
Yeah, Martin would you want to kind of explain the economics around that.
Yeah, a little bit so so that's our optimization program, which includes both the D C consolidation as well as our store closures.
And so the bulk of that work was done towards the end of Q1, so from a year over year perspective, you do get a little bit of a wrap around so we describe it was a $50 million savings in SG&A that.
<unk> to $10 million of improvement on the operating earnings line, so they'll get a little bit of lift that when you look at it on an annualized basis and I was a little bit of wrap around next year in terms of looking at it from them. What is offsetting that we that that program is designed to help us offset much of the.
The cost pressures that we've seen in most of those have been coming in terms of labor and so what also is happening. This year is our increased investment in our wages, which also goes into effect at the beginning of the calendar year. So there are times are fairly close to each other so that you can see that all set of weeks after that.
Here, we have made a conscious decision to invest in our labor that's important to our associates are a very important part of our differentiator.
A differentiator they they are an important element of driving our growth initiatives. So we believe that play a very important investment to make them and that will step up as well.
This current quarter in Q2.
And I would just add that the important part of getting from the 50 million to $10 million. This year that we've talked about on our call is what the difference between that is really the sales loss. So while we'd love to recapture every dollar of sales on the difference between there reflects the fact that we believe will be captured 40% of it.
<unk>.
From the closed stores, so that that's really the differential of getting from the 50 dividend.
That's very helpful. Thanks, so much.
And next we'll go to Carla Casella with JP Morgan. Please go ahead.
Hi, Good morning. This is Mike on for Carla. We're just wanted to ask if you guys thought about how you think about addressing the 'twenty 'twenty four term loan maturity.
Yeah, Marla you want to talk about that.
Oh sure Yeah. So yeah, we reported in the past, we're continuing to monitor the markets mm for opportunistic refinancing opportunities. We are a strong cash flow generator and that gives us the flexibility to continue to watch those markets and we're continuing to do that.
Great. Thank you and then the second one from US any difference in terms of kind of trade down activity, you're seeing on the Sally side of the BSG side.
Yeah, Yeah, no not materially different in terms of trade down you know I think when you think about the BSG side people are stickier to their brands. So they're just much more focused on getting value when value opportunities present themselves, but for the most part.
Silence are pretty loyal, particularly in color to what they know and what they use.
That's been that's been pretty steady and on the Sally side, it becomes a little bit more on the frugality side I'm, just not adding the extra item to the basket. So color sales have have definitely remains strong as people are continuing to take care of themselves and in that.
Natural part of their hair that they want to maintain its the incremental adds in inclusive of higher ticket items like styling tools, but you know over the last few years had actually been quite strong and then it was inflation started to tick up mid last year. It was higher ticket items became.
You know more people became more conservative in their choices around around purchasing those so I'd say, it's a much more of the basket adds have gone down rather than necessarily seeing people trade down in terms of price point to this.
Right.
Great. Thank you that's all from us.
And currently no further questions in queue.
Great well. Thank you all for joining us. This morning, we're very pleased with the start of our new fiscal year and excited about the strategy that we have in front of us to deliver this year and in future years to come in and drive long term shareholder value.
A final point as I always do I would like to thank all of our associates around the globe for serving our customers taking care of each other and really helping us drive a successful business and happy business. So hopefully everybody has a great day and we'll look forward to talking to you again soon.
Thank you and ladies and gentlemen, this conference will be available for replay. After 930. This morning and running through February 16th at Midnight, you can access the AT&T replay system at anytime by dialing 18662071041 and entering the access code seven.
232209.
Our national parties May dial four zero to 90 700847.
Those numbers again 18662071041.
Or international parties for zero to 90 700847 with the access code 7232209 that does conclude our call for today. Thanks for your participation and for using AT&T teleconference. You may now disconnect.
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Yeah.
Yeah.
We're sorry your conferences ending now please hang up.