Q3 2024 Sally Beauty Holdings Inc Earnings Call and Business Update
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Speaker Change: Good morning everyone and welcome to the Sally Beauty Holdings conference call to discuss the company's third quarter fiscal 2024 results.
Speaker Change: 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.
Jeff Harkins: Now, I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.
Speaker Change: thank you good morning everyone and thank you for joining us with me on the call today our deniseis peonus chief executive officer and mara cormeer chief financial officer
Jeff Harkins: With me on the call today are Denise Paulonis, Chief Executive Officer, and Marlo Cormier, Chief Financial Officer. The company has provided a detailed explanation and reconciliation of its adjusting items and non-GAAP financial measures in its earnings press release and on its website.
Jeff Harkins: On the call today are Denise Paulonis, Chief Executive Officer, and Marlo Cormier, Chief Financial Officer. Before we begin, I would like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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.
Jeff Harkins: Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliation 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 her formal remarks.
Speaker Change: before we begin i would like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the private securities litigation reform act onethousand nine hundredand ninetyfive
Speaker Change: 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 ten -k and other filings with the sec
Jeff Harkins: Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligations to update them.
Jeff Harkins: the company's provided a detailed explanation and reconciliations of its adjusting items and non-gaap financial measures in its earnings press release and on its website
Jeff Harkins: Now, I'd like to turn the call over to Denise to begin the formal remarks.
Denise Paulonis: Thank you, Jeff, and good morning, everyone. Our third quarter results point to improving trends across both segments of our business, Sally Beauty and Beauty Systems Group. Our business generated solid cash flows from operations of $48 million, enabling us to continue to return capital to shareholders by way of share repurchases in the quarter. From a category perspective, sales in both color and care grew for the second quarter in a row, up 3% and up 5%, respectively.
Denise Paulonis: Thank you, Jeff, and good morning, everyone. Our third quarter results point to improving trends across both segments of our business, Sally Beauty and Beauty Systems Group. We delivered net sales growth of 1.2% and a comparable sales increase of 1.5% above the high end of our latest guidance range. Our top-line performance reflects continued momentum and fundamental strength in our BSG segment, as well as a notable improvement in performance at Sally, reflecting the traction we're gaining from our strategic initiatives.
Denise: Thank you, Jeff, and good morning, everyone.
Denise: Our third quarter results point to improving trends across both segments of our business, Sally Beauty and Beauty Systems Group. We delivered net sales growth of 1.2% and a comparable sales increase of 1.5% above the high end of our latest guidance range.
Jeff Harkins: Our top-line performance reflects continued momentum and fundamental strength in our BSG segment, as well as a notable improvement in performance at Sally, reflecting the traction we're gaining from our strategic initiative.
Denise Paulonis: Adjusted gross margin was strong at 51 percent, and adjusted operating margin also came in above our guidance range at 8.9 percent. Our business generated solid cash flows from operations of $48 million, enabling us to continue to return capital to shareholders by way of share repurchases in the quarter. Looking at performance by segment, I'll start with BSG.
Jeff Harkins: adjusted gross margin was strong at fifty-one percent and adjusted operating margin also came in above our guidance range at eight point nine percent
Jeff Harkins: our business generated solid cash flows from operation of forty-eight million dollars enabling us to continue to return capital to shareholders by way of share repurchases in the quarter
Jeff Harkins: Looking at performance by segment, I'll start with BSG.
Denise Paulonis: Q3 comparable sales increased 2.6%, representing our 3rd consecutive quarter of positive comps. Comparable transactions in the quarter were up 4%, and average ticket was down 1%. From a category perspective, sales in both color and care grew for the second quarter in a row, up 3% and up 5%, respectively. Additionally, our expanded distribution drove strong performance across key brands, including Amica and ColorWow, as well as Moroccan Oil, which we will launch in California, one of our largest markets, in the fourth quarter.
Speaker Change: q three comparable sales increased two point six percent representing our third conexsecutive quarter of positive compst
Jeff Harkins: comparable transactions in the quarter were up four percent and average ticket was down one percent
Jeff Harkins: from a category perspective sales in both color and care grew for the second quarter in a row up three percent and up five percent perspectively
Jeff Harkins: Additionally, our expanded distribution drove strong performance across key brands, including Amica and ColorWow, as well as Moroccan Oil, which we will launch in California, one of our largest markets, in the fourth quarter.
Denise Paulonis: We're pleased to see consistent underlying strength across our BSG business, reflecting the combination of stable salon demand trends, expanded distribution, and robust product innovation. Stylist purchasing patterns remain healthy, although the trend of stylists buying closer to need may be the new norm post-pandemic, remaining nimble, and adjusting tactics as needed.
Denise Paulonis: We're pleased to see consistent underlying strength across our BSG business, reflecting the combination of stable salon demand trends, expanded distribution, and robust product innovation. Stylists' purchasing patterns remain healthy, although the trend of stylists buying closer to need may be the new norm post-pandemic.
Jeff Harkins: We're pleased to see consistent underlying strength across our BSG business, reflecting the combination of stable salon demand trends, expanded distribution, and robust product innovation.
Speaker Change: styus purchasing pattern to remain healthy although the trend of solllace buying closer to need may be the new norm post pandemic
Denise Paulonis: As we continue to capture ShareVene, we believe the business is poised to build on existing momentum as we enter fiscal 2025. As the leader in the professional stylist community in North America, we're well positioned to leverage our size and scale to fuel continuing growth. Turning now to our Sally segment, we saw a notable positive turn in the business driven by a number of our customer-centric initiatives, including performance marketing, marketplace expansions, and digital enhancements.
Jeff Harkins: as we continue to capture share beam we believe the business is poised to build an existing momentum as we enter a fiscaltwo thousand and twenty-five
Jeff Harkins: As the leader for the professional stylist community in North America, we're well positioned to leverage our size and scale to fuel continuing growth.
Jeff Harkins: Turning now to our Sally segment, we saw a notable positive turn in the business driven by a number of our customer-centric initiatives, including performance marketing, marketplace expansions, and digital enhancements.
Denise Paulonis: Q3 comparable sales increased 0.7% with comparable transactions down 3% and average ticket value up 3%. We continue to see consumers exercising caution around spending, and we are monitoring purchasing behavior closely, remaining nimble, and adjusting tactics as needed.
Jeff Harkins: q three comparable sales increased point seven percent with comparable transactions down three percent an average ticket value up three percent
Jeff Harkins: We continue to see consumers exercising caution around spending, and we are monitoring purchasing behavior closely.
Denise Paulonis: To that end, in Q3, we implemented changes to the design, depth, and duration of our promotion, and customers responded favorably, resulting in a higher AUR. We were also pleased to see that our focus on retaining and growing our loyalty base is bearing fruit. During the quarter, our targeted marketing campaigns drove strong customer reactivation and brought new customers into our loyalty program. For the third quarter, we generated 78% of our sales at Sally Stores in US and Canada from our 16 million loyalty members.
Jeff Harkins: Remaining nimble and adjusting tactics as needed. To that end, in Q3, we implemented changes to the design, depth, and duration of our promotion and customers responded favorably, resulting in a higher AUR.
Jeff Harkins: We are also pleased to see that our focus on retaining and growing our loyalty base is bearing fruit. During the quarter, our targeted marketing campaign drove strong customer reactivation and brought new customers into our loyalty program.
Jeff Harkins: For the third quarter, we generated 78% of our sales at Sally U.S. and Canada from our 16 million loyalty members.
Denise Paulonis: Additionally, our elite loyalty members, who represent our most valuable and frequent shoppers, grew by 6% year over year, increasing the efficiency of our operations. For our third quarter, product innovation, territory expansion, and new services contributed over 250 basis points to our comparable sales results, and we're remaining on track to achieve our expected 200 to 300 basis points of contribution from these initiatives for the full year. At Sally, consumers are responding to innovation in men's grooming and mindful brands, including Inspired by Nature and Plant Theory, our own brand focused on mood-enhancing skincare. In Q3, ombre and self-penetration for the global solid beauty segment was 34%.
Denise Paulonis: Additionally, our elite loyalty members, who represent our most valuable and frequent shoppers, grew by 6% year over year. The Thali brand has never been stronger, with a record net promoter score of 86 for our third quarter, up four points versus a year ago.
Speaker Change: Additionally, our elite loyalty members, who represent our most valuable and frequent shoppers, grew by 6% year-over-year. The Thali brand has never been stronger, with a record net promoter score of 86 for our third quarter, up 4 points versus a year ago.
Denise Paulonis: Across all of our businesses, our teams are delivering strong execution on our core strategic initiatives of enhancing our customer centricity, growing our high-margin owned brands, amplifying innovation, and increasing the efficiency of our operations. For the third quarter, product innovation, territory expansion, and new services contributed over 250 basis points to our comparable sales results, and we're remaining on track to achieve our expected 200 to 300 basis points of contribution from these initiatives for the full year.
Jeff Harkins: Across all of our businesses, our teams are delivering strong execution on our core strategic initiatives of enhancing our customer centricity, growing our high margin owned brands and amplifying innovation, and increasing the efficiency of our operations.
Speaker Change: for our third quarter product innovation territoryor expansion and new services contributed over two hundred and fifty basis points to our comparable sales results and remain on track to achieve or expected two hundred to three hundred basis points of contribution from these initiatives for the full year
Denise Paulonis: Looking at product innovation, a consistent pipeline in both the BHG and Sally segments is helping us drive growth and customer engagement. At BSG, new products like Money Mint from ColorWow and Neuro Hair Dryers from Paul Mitchell are fueling excitement, while other 2024 launches, including Briogeo and A'Prey, are continuing to perform well. From a trend perspective, blonding, express coloring, and bonding remain strong, as well as conscious beauty. At Sally, consumers are responding to innovation in men's grooming and mindful brands, including Inspired by Nature and Plant Theory, our own brand focused on mood-enhancing skincare. In Q3, ombre and self-penetration for the global solid beauty segment was 34%.
Speaker Change: Looking at product innovation, a consistent pipeline in both the BHG and Sallie segments is helping us drive growth and customer engagement.
Jeff Harkins: At BSG, new products like Money Mist from ColorWow and Neuro Hair Dryers from Paul Mitchell are fueling excitement, while other 2024 launches, including Briogeo and Apray, are continuing to perform well.
Speaker Change: From a trend perspective, blonding, express coloring, and bonding remain strong, as well as conscious beauty.
Speaker Change: At Sally, consumers are responding to innovation in men's grooming and mindful brands, including Inspired by Nature and Plant Theory, our own brand focused on mood-enhancing skincare.
Speaker Change: in q three over sal penetration for the global validg segment was thirty-four percent
Denise Paulonis: Building on the momentum from our Rooted in Success marketing campaign, during Q3, we celebrated Pride Month with activations and collaborations across the country. Now turning to customer centricity, our newest concepts and services are performing and building momentum, starting with Licensed Colors On Demand. In Q3, 44% of customers who engaged in this service were new to Sally; that's up from 40% in Q2 and tells us our top of funnel work is paying dividends. Additionally, color consultations averaged over 3,300 per week, and the average ticket value increased to $37, up from $35 in Q2.
Speaker Change: Building on the momentum from our Rooted in Success marketing campaign, during Q3 we celebrated Pride Month with activations and collaborations across the country.
Speaker Change: Turning now to customer centricity, our newest concepts and services are performing and building momentum.
Speaker Change: Starting with Licensed Colors on Demand, in Q3, 44% of customers who engaged in this service were new to Sally. That's up from 40% in Q2 and tells us our top of funnel work is paying dividends.
Speaker Change: Additionally, color consultations averaged over $3,300 per week, and the average ticket value increased to $37, up from $35 in Q2.
Denise Paulonis: Our Marketplace Initiative also continues to gain traction, with strong performance across Amazon and Walmart, as well as DoorDash, which is driving incremental growth since its launch in Q2. Most recently, we added Instacart, and early results tell us this will serve another important platform to meet the consumer where they are and broaden awareness. Wrapping up with Happy Beauty, as a reminder, this new concept further expands our reach, focusing on customers looking for beauty at a value price while not compromising on an engaging experience.
Speaker Change: our marketplace initives also continues sgain traction with strong performance across amazon and walmart as well as doordash which is driving incremental growth has this launched in q two
Denise Paulonis: Most recently, we added Instacart, and early results tell us this will serve another important platform to meet the consumer where they are and broaden awareness. Building on the Learnings, from our initial 10 pilot stores, we're on track to open an additional 10 pilot stores in the Dallas and Phoenix markets prior to the start of the holiday season. This includes six strip center locations as well as four mall locations, which will broaden our exposure to some of the demographic profiles that did well in our initial pilot.
Speaker Change: Most recently, we added Instacart, and early results tell us that this will serve another important platform to meet the consumer where they are and broaden awareness.
Speaker Change: Wrapping up with Happy Beauty, as a reminder, this new concept further expands our reach, focusing on customers looking for beauty at value price points while not compromising on an engaging experience.
Denise Paulonis: Building on the Learnings from our initial 10 pilot stores, we're on track to open an additional 10 pilot stores in the Dallas and Phoenix markets prior to the start of the holiday season. This includes six strip center locations as well as four mall locations, which will broaden our exposure to some of the demographic profiles that did well in our initial pilot. From a category perspective, we're seeing strong demand for cosmetics and fragrances. There's notable strength in units per transaction and average transaction value.
Speaker Change: building on the learning from our initial ten pilot storeswe're on track to open an additional ten pilot stores in the dallas and phoenix markets prior to start to the holiday season
Speaker Change: This includes six strip center locations as well as four mall locations, which will broaden our exposure to some of the demographic profiles that have done well in our initial pilots.
Speaker Change: From a category perspective, we're seeing strong demand in cosmetics and fragrance. There's notable strength in units per transactions and average transaction value. And we continue to experiment with traffic driving initiatives, including an increased focus on social.
Denise Paulonis: And we continue to experiment with traffic driving initiatives, including an increased focus on social. As we continue to advance our core strategic initiatives, we are also focused on driving profitability and progressing towards our long-term growth algorithm. In addition to the efficiency work we had underway internally, we engaged a third-party expert to review our cost rates and help us build our fuel for growth plan, which is an important component of how we deliver on our profitability target.
Denise Paulonis: As we continue to advance our core strategic initiatives, we're also focused on driving profitability and progressing towards our long-term growth algorithm. As we enter the final quarter of our fiscal year and remain focused on driving profitable top-line growth, we're pleased to see improving trends throughout the P&L.
Speaker Change: As we continue to advance our core strategic initiative, we're also focused on driving profitability and progressing towards our long-term growth algorithm.
Speaker Change: In addition to the efficiency work we had underway internally, we engaged a third party expert to review our cost rates and help us build our fuel for growth plan, which is an important component of how we deliver on our profitability target.
Denise Paulonis: We continue to engage third-party support to help us implement this important initiative that will benefit our gross margins, expense structure, and bottom line. We remain on track to generate cumulative run rate benefits approaching $120 million by the end of fiscal 2026. As we enter the final quarter of our fiscal year and remain focused on driving profitable top-line growth, we're pleased to see improving trends throughout the P&L. I'd like to thank our teams across the organization for their ongoing focus, execution, and dedication.
Speaker Change: we continue to engage third-party support to help us implement this important initiative that will benefit our growth gross margin expense structure and bottom line
Speaker Change: we remain on trast to generate cuulusative run rate benefit approaching one one hundred twenty million dollars by the end of fiscal two thousand and twenty six
Speaker Change: as we enterred the final quarter of our fiscal year and remain focused onunder dving profitable top line growth we're pleased to see improving trends throughout the po
Speaker Change: i'd like to thank our teams across the organization for their ongoing focus execution and dedication this collective effort is an essential part of our culture and our ability to deliver an engaging experience for our customers
Denise Paulonis: This collective effort is an essential part of our culture and our ability to deliver an engaging experience for our customers. As always, we remain committed to our growth agenda and long-term value creation for our shareholders. Now, I'll turn the call over to Marlo to discuss the financials.
Speaker Change: As always, we remain committed to our growth agenda and long-term value creation for our shareholders.
Marlo Cormier: Thank you, Denise, and good morning, everyone. Our third quarter results were highlighted by positive top-line performance in both our SALE and BSG segments, solid growth margins, and adjusted operating margin above our latest guidance range. The results reflect underlying strength at BSC, which delivered a third consecutive quarter of positive comparable sales growth, as well as renewed momentum at Sally resulting from our strategic initiatives that Denise just outlined. Third quarter consolidated net sales of $942 million increased 1.2%, while consolidated comparable sales grew 1.5%. Global e-commerce sales were $92 million and represented 10% of total net sales.
Tomorrow: now i'll turn the call over tomorrow to discuss of finnatciche
Tomorrow: Thank you, Denise, and good morning, everyone. Our third quarter results were highlighted by positive top-line performance in both our SALI and VSD segments, solid growth margins, and adjusted operating margin above our latest guidance range.
Speaker Change: The results reflect underlying strength at BSC, which delivered a third consecutive quarter of positive comparable sales growth, as well as renewed momentum at Sally resulting from our strategic initiative that Denise just outlined.
Denise Paulonis: Third quarter consolidated net sales of $942 million increased 1.2%, while consolidated comparable sales grew 1.5%. Global e-commerce sales were $92 million and represented 10% of total net sales.
Speaker Change: Third quarter consolidated net sales of $942 million increased 1.2% while consolidated comparable sales grew 1.5%. Global e-commerce sales were $92 million and represented 10% of total net sales.
Denise Paulonis: Looking at gross profit, we again delivered solid gross margins, which came in at 51 percent, flat to last year. Excluding last year's true-up of the non-cash inventory write-down related to the Distribution Center Consolidation and Store Optimization Plan that we executed last year, adjusted gross margin was 51%. That's up 10 basis points versus a year ago and reflects lower distribution and freight costs resulting from supply chain efficiencies, partially offset by unfavorable fixed cost absorption.
Marlo Cormier: Looking at gross profit, we again delivered solid gross margins, which came in at 51 percent, flat to last year. Excluding last year's true-up of the non-cash inventory write-down related to the Distribution Center Consolidation and Store Optimization Plan that we executed last year, adjusted gross margin was 51 percent. That's up 10 basis points versus a year ago and reflects lower distribution and freight costs resulting from supply chain efficiencies partially offset by unfavorable fixed cost absorption.
Denise: looking at gross profit we again delivered solid gth margins which came in at fifty-one percent flat to last year
Denise: Excluding last year's true-up of the non-cash inventory write-down related to the Distribution Center Consolidation and Store Optimization Plan that we executed last year.
Speaker Change: adjusteda gross marginwith fifty one percent that's up ten ber ten basis points versus a year ago and reflects lower distribution and freight costs resulting from supplychain efficiencyes partially offset by unfavorable fixed cost absorption
Marlo Cormier: Third quarter adjusted SD&A expenses totaled $397 million, roughly flat to Q2 and up $13 million versus a year ago, as we anticipated. The year-over-year increase can primarily be traced to higher labor and other compensation-related expenses as well as planned increases in advertising spend, including upper funnel marketing. This was partially offset by $4.8 million of savings resulting from our Fuel for Growth program. We're pleased with the progress we're making on Fuel for Growth.
Denise: Third quarter adjusted SG&A expenses totaled $397 million, roughly flat to Q2, and up $13 million versus a year ago as we anticipated.
Denise: the yearuover-year increase can primarily be traced to hire labor in other compensation related expenses as well as planned increases in advertising spend including upper funnel marketing this was partially offset by four point eight million dollars of saadvings resulting from our fuel for growth programs
Denise Paulonis: We're pleased with the progress we're making with Fuel for Growth. We remain on track with our plan to achieve approximately $20 million of pre-tax benefits to growth margin and SG&A this year, and up to $120 million in cumulative benefits in fiscal 2026. As is typical with this type of project, the nature and timing of benefit capture evolve as the work matures.
Marlo Cormier: We remain on track with our plan to achieve approximately $20 million of pre-tax benefits to gross margin and SG&A this year and up to $120 million in cumulative benefits in fiscal 2026. As is typical with this type of project, the nature and timing of benefit capture evolve as the work matures.
Speaker Change: We're pleased with the progress we're making with Fuel for Growth. We remain on track with our plan to achieve approximately $20 million of pre-tax benefits to gross margin and STNA this year, and up to $120 million in cumulative benefit in fiscal 2026.
Denise: As is typical with this type of project, the nature and timing of benefit capture evolves as the work matures. To this end, we now expect two-thirds of the $20 million in benefit in fiscal 2024 to come from SG&A and a third to come from gross margins.
Denise Paulonis: To this end, we now expect two-thirds of the $20 million in benefit in fiscal 2024 to come from SG&A and a third to come from gross margins. Adjusted EBITDA margin was 12.4%, and adjusted diluted EPS came in at $0.45. Moving to segment results, we were pleased to see improved performance at Sally Beauty, with comparable sales of 0.7% following a 4% decline in Q2. Segment operating margin came in Comparable sales increased 2.6%, while net sales were up 2.5%.
Marlo Cormier: To this end, we now expect two-thirds of the $20 million in benefit in fiscal 2024 to come from SG&A and a third to come from gross margins. This is a slight shift from our previously anticipated split of 75% SG&A and 25% gross margin. As a reminder, for full year fiscal 2024, we expect to incur up to $30 million in pre-tax cash charges associated with the Fuel for Growth program, including $26 million that has already been realized here today.
Denise: This is a slight shift from our previously anticipated split of 75% SG&A and 25% gross margin.
Denise: As a reminder, for full year fiscal 2024, we expect to incur up to $30 million in pre-tax cash charges associated with the Fuel for Growth program, including $26 million that has been realized here today.
Denise: Strong performance across sales and gross margins, coupled with our Fuel for Growth program, drove third quarter adjusted operating margins of 8.9%.
Marlo Cormier: Strong performance across sales and growth margins, coupled with our Fuel for Growth program, drove third quarter adjusted operating margins of 8.9%. Adjusted EBITDA margin was 12.4%, and adjusted diluted EPS came in at $0.45. Moving to segment results, we were pleased to see improved performance at Sally Beauty, with comparable sales of 0.7% following a 4% decline in Q2. Net sales were also in positive territory slightly versus a year ago. At Constant Currency, Sally eCommerce sales were $37 million and represented 7% of segment net sales for the quarter.
Denise: Adjusted EBITDA margin was 12.4% and adjusted diluted EPS came in at 45 cents.
Speaker Change: moing to segment resul we were pleased to see improved performance at sal with comparable sales of point seven percent following a four percent declin in q two that sales were also in positive territory of slightly versus yearago
Denise: a constant currency salally e-commerce sales were thirty-seven million dollars and represented seven percent of segmentnet silles for the quarter
Marlo Cormier: Customers responded to our strategic initiatives, including performance marketing efforts, market expansion, and digital enhancements. For the global Sally Beauty segment, color was essentially flat compared to the prior year, while care was up 2% and nails were up 5%. At Sally US in Canada, color was up 1%, hair was up 2%, and nails were up 6%.
Denise: Customers responded to our strategic initiatives, including performance marketing efforts, market expansions, and digital enhancements.
Denise: For the global Sally Beauty segment, color was essentially flat to the prior year, while care was up 2% and nails were up 5%.
Denise: as sally u s in canada color was up one percent careir was up two percent and nails were up six percent
Marlo Cormier: As Denise mentioned, we generated 78% of our sales at Sal in the U.S. and Canada from our 16 million loyalty members. Gross margin in our Sally segment was 59.8 percent, up 100 basis points from last year, reflecting supply chain efficiencies and stronger product margin, partially offset by unfavorable fixed cost absorption. Segment operating margin came in at 16.2%. Moving now to the BSD segment, where continued momentum was driven by expanded distribution and product innovation.
Ann: ass an ie mentioned we generated seventy-eight percent of our sales at value-us in canada from our sixteen million loyalty numbers
Speaker Change: Gross margin in our Sally segment was 59.8 percent, up 100 basis points to last year, reflecting supply chain efficiencies and stronger product margin, partially offset by an unfavorable fixed cost absorption.
Denise: segment operating margin came in at ' sixteen point two percent
Denise: Moving now to the BSD segment, where continued momentum was driven by expanded distribution and product innovation.
Marlo Cormier: The parable sales increased 2.6%, while net sales were up 2.5%. On a constant currency basis, BSE e-commerce sales were $54 million, representing 13% of segment net sales for the quarter. From a category perspective, Color was up 3%, and Care was up 5%.
Denise: Comparable sales increased 2.6% while net sales were up 2.5%.
Denise: On a constant currency basis, BSE eCommerce sales were $54 million, representing 13% of segment net sales for the quarter.
Denise: from a category perspective color was up three percent and care was up five percent
Marlo Cormier: Gross margin at BSG was 39.4%. That's down 110 basis points versus a year ago, primarily due to unfavorable fixed cost absorption, as well as lower product margin, which reflects a higher participation rate in our customer appreciation sale, as well as brand mix. This was partially offset by the benefits of our supply chain efficiency; segment operating margins were 11.5%. Turning to the balance sheet and cash flow, we ended the third quarter with $97 million of cash-in-cash equivalents and $45 million outstanding under our asset-based revolving line of credit.
Denise: Gross margin at BSD was 39.4%, down 110 basis points versus a year ago, primarily due to unfavorable fixed cost absorption, as well as lower product margin, which reflects a higher participation rate in our customer appreciation sale, as well as brand mix.
Denise: this was partially offset by the benefit of our supply chain efficiency
Denise: Segment operating margin was 11.5%.
Speaker Change: turning to the balance sheet and cash flow we ended the third quarter with ninety-seven million dollars of cashand cash equivalent and forty-five million dollars outstanding under our asset based revolving line of price our net debt leverage ratio stood at two point two times
Marlo Cormier: Our net debt leverage ratio stood at 2.2 times. During the quarter, we successfully repriced our term loan fee from SOFOR plus $225 to SOFOR plus $175. The 50 basis point reduction in the spread translates to annual interest expense savings of approximately $2 million.
Denise: During the quarter, we successfully repriced our term loan B from SOFOR Plus 225 to SOFOR Plus 175. The 50 basis point reduction in the spread translates to annual interest expense savings of approximately $2 million.
Marlo Cormier: Quarter-end inventory was slightly over a billion dollars, which is in line with our expectations and reflects an overall healthy position. Cash Flow from Operations remains strong, providing us with the flexibility to invest in our strategic initiatives and return value to shareholders through additional share repurchases. During Q3, we generated operating cash flow of $48 million and operating free cash flow of $29 million. And we repurchased approximately 900,000 shares of stock at an aggregate cost of $10 million under our share repurchase plan. Turning now to guidance.
Denise: Quarter-end inventory was slightly over a billion dollars, which is in line with our expectations and reflects an overall healthy position.
Denise Paulonis: Cash flow from operations remains strong, providing us with the flexibility to invest behind our strategic initiatives and return value to shareholders through additional share repurchases. And we've repurchased approximately 900,000 shares of stock at an aggregate cost of $10 million under our share repurchase plan. Now, on to guidance.
Denise: Cash flow from operations remains strong, providing us with the flexibility to invest behind our strategic initiatives and return value to shareholders through additional share repurchases.
Denise: During Q3, we generated operating cash flow of $48 million and operating free cash flow of $29 million.
Denise: And we repurchased approximately 900,000 shares of stock at an aggregate cost of $10 million under our share repurchase plan.
Denise Paulonis: Based on the strength of our year-to-day performance, we are pleased to reiterate our full-year expectations as follows, an adjusted operating margin of approximately 8.5%. Looking at the fourth quarter, we anticipate that top-line momentum will continue at both Sally Beauty and BSC. Additionally, we expect consolidated operating margin dollars and operating margin rates to expand on a year-over-year basis. More specifically, we expect net sales growth to be in the range of 1% to 2%, with comparable sales slightly better. Additionally, we anticipate that our fourth quarter adjusted operating margins will be approximately 9%.
Marlo Cormier: Based on the strength of our year-to-day performance, we are pleased to reiterate our full year expectations as follows: full year net sales and comparable sales approximately flat, gross margin in the range of 50.5 to 51 percent, adjusted operating margins of approximately 8.5%, operating cash flow of approximately $240 million, and capital expenditures totaling approximately $100 million. Looking at the fourth quarter, we anticipate that top-line momentum will continue at both Sally Beauty and BSC.
Denise: Turning now to guidance. Based on the strength of our year-to-day performance, we are pleased to reiterate our full-year expectations as follows.
Denise: Full year net sales and comparable sales approximately flat.
Denise: gross margin in the range of fifty point five to fifty-one percent
Denise: Adjusted operating margin of approximately 8.5%.
Denise: Operating cash flow of approximately $240 million and capital expenditures totaling approximately $100 million.
Denise: Looking at the fourth quarter, we anticipate that top-line momentum will continue at both Sally Beauty and BSC. Additionally, we expect consolidated operating margin dollars and operating margin rates to expand on a year-over-year basis.
Marlo Cormier: Additionally, we expect consolidated operating margin dollars and operating margin rates to expand on a year-over-year basis. More specifically, we expect net sales growth to be in the range of 1% to 2%, with comparable sales slightly better. We expect the growth margin rate in Q4 to be similar to Q3 and S&A dollars to be slightly favorable to Q3. Additionally, we anticipate that fourth-quarter adjusted operating margins will be approximately 9%. Lastly, we expect investments and share repurchases in the fourth quarter to be approximately $10 million.
Denise: More specifically, we expect net sales growth to be in the range of up 1% to 2% with comparable sales slightly better.
Denise: We expect the growth margin rate in Q4 to be similar to Q3 and S&A dollars to be slightly favorable to Q3.
Denise: Additionally, we anticipate that fourth quarter adjusted operating margins will be approximately nine percent.
Denise: Lastly, we expect investments and share repurchases in the fourth quarter to be approximately $10 million.
Marlo Cormier: In summary, we are pleased with our progress and third-quarter results that are reflecting improving trends in both our business segments, as well as results from our growth initiatives. Entering the final quarter of fiscal 2024, we remain focused on driving our strategic pillars, including our fuel for growth initiative. We appreciate your time this morning. Now, I'll ask the operator to open the call for Q&A.
Denise: In summary, we are pleased with our progress and third quarter results that are reflecting improving trends in both our business segments.
Denise: as well as results from our growth initiatives.
Denise: Entering the final quarter of fiscal 2024, we remain focused on driving our strategic pillars, including our Fuel for Growth initiative.
Speaker Change: We appreciate your time this morning, now I'll ask the operator to open the call for Q&A.
Operator: Thank you, and ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your touchtone phone. You will hear an acknowledgment tone that you've been placed in the queue, and you may remove yourself from the queue at any time by repeating the 1-0 command.
Speaker Change: Thank you. And ladies and gentlemen, if you wish to ask a question, please press 1 then 0 on your touchtone phone.
Speaker Change: You will hear an acknowledgement tone.
Speaker Change: that you've been placed in the queue and you may remove yourself from queue at any time by repeating the 1-0 command. And if you're on a speakerphone, please pick up your handset before pressing the number.
Oliver Chen: And if you're on a speakerphone, please pick up your handset before pressing the number. At the request of the company, please limit yourself to one question and one follow-up question. Once again, if you do have a question, please press 1 then 0 at this time. The first question is from Oliver Chen from TD Cohen. Please go ahead.
Denise: At the request of the company, please limit yourself to one question and one follow-up question. Once again, if you do have a question, please press 1 and 0 at this time.
Operator: The first question is from Oliver Chen from TD Cohen. Please go ahead.
Denise: The first question is from Oliver Chen from TD Cohen, please go ahead.
Oliver Chen: Hi, Marlo and Denise. Great being in touch.
Denise Paulonis: Hi Marlo and Denise, great to be in touch. Consumer sentiment has been mixed, as you know; it has been pressured at the middle and low. Has that manifested itself in the banners currently, and or what are you seeing? I would love any thoughts on that difficult question we are getting around potential election impact and or if you saw things in the past that might be related to now. Also, the category callouts were very helpful regarding hair, nail, and colors.
Speaker Change: imaronan deneath graaping in touch on consumer sincem it's been mixed as you know it's been pressured at the middle and low has that manifested and the barnerners currently enddoor
Oliver Chen: Consumer sentiment's been mixed. As you know, it's been pressured at the middle and low. Has that manifested itself in the banners currently, and or what are you seeing? And we'd love any thoughts on that difficult question we're getting around potential election impact, and or if you saw things in the past that might be related to now. Also, the category callouts were very helpful regarding hair, nail, and colors.
Speaker Change: What are you seeing? And we'd love any thoughts on that difficult question we're getting around.
Speaker Change: potential election impact and or if it if you thought things in the past that might be related to to now also the category call out were very helpful regarding hair nail and colors
Denise Paulonis: Do you expect those trends to remain similar, or what are your thoughts on each of those categories as they affect your banners? And then finally, as we're all modeling, monitoring Paris, any thoughts you have in terms of sourcing? You have a lot of different partners as well as a lot of private label. Thank you very much.
Speaker Change: Do you expect those trends to remain similar or what are your thoughts on each of those categories as they affect your banners?
Speaker Change: And then finally, as we're all modeling, monitoring Paris, any thoughts you have in terms of sourcing? You have a lot of different partners as well as a lot of private label. Thank you very much.
Denise Paulonis: Good morning, Oliver. This is Denise.
Denise Paulonis: Good morning, Oliver. This is Denise. I'll start with some questions, and I'm sure Marlo will jump in.
Marawill: good morning all liver this is the case i'll start with some questions and i'm sure marawill jump overall in the market you let me break it out is that we always do between b s g and sally b s g we're seeing the long demand trends quite stabilized don't see any near term catalysts for that to change we're seeing the benefit of expanded distribution and product innovations so really believe that that
Denise Paulonis: Overall, in the market, let me break it out as we always do between VSG and Sally. VSG, we're seeing salon demand trends quite stabilized. I don't see any near-term catalysts for that to change. We're seeing the benefit of expanded distribution and product innovation, so I really believe that the salon client is enjoying their experience of shopping with VSG and looks forward to that to continue. On the Sally side, we've watched two consistent themes all year.
Denise Paulonis: I'll start with some questions, and I'm sure Marlo will jump in. Overall, in the market, let me break it out, as we always do, between BSG and Sally. BSG, we're seeing salon demand trends quite stabilized. Don't see any near-term catalysts for that to change.
Denise Paulonis: We're seeing the benefit of expanded distribution and product innovation, so I really believe that the salon client is enjoying their experience shopping with BSG and look forward to that to continue. On the Sally side, we've watched two consistent themes all year. That customers' remaining frugal and purchasing behavior is primarily driven by need. We also watch customers be very price-sensitive and leaning into promotions as they manage through the inflationary environment. We've seen that it is pretty stable.
Speaker Change: salon client is enjoying their experience in shopping with BSG and look forward for that to continue.
Speaker Change: On the Sally side, we've watched two consistent themes all year. That customer's remaining frugal and purchasing behavior is primarily driven by need.
Denise Paulonis: That customers' remaining frugal and purchasing behavior is primarily driven by need. We also watch customers be very price-sensitive and leaning into promotions as they manage through the inflationary environment. We've seen that be pretty stable.
Mara Cormeer: we also watch customers be very price sensitive and leading into promotion as they managed through the inflationary environment we've seen that be pretty stable we're really pleased with what we were able to do in q three and adjusting some of our promotional strategies and to meet the consumer where they are but improving our a in the process
Denise Paulonis: We're really pleased with what we were able to do in Q3 in adjusting some of our promotional strategies to meet the consumer where they are, but improving our AUR in the process, and also seeing the increased impact of our strategic initiatives coming through on the Sally side, so marketplaces, and licensed colorist on demand. We step back from all of that as we're looking forward into our Q4 environment in the months ahead. We feel good about the trajectory of both of those businesses to deliver positive comps into the fourth quarter. We're watching very closely.
Denise Paulonis: We're really pleased with what we were able to do in Q3 in adjusting some of our promotional strategies to meet the consumer where they are, but improving our AUR in the process, and also seeing the increased impact of our strategic initiatives coming through on the Sally side, so marketplaces, and licensed colorist on demand. When we step back from all of that, as we're looking forward into our Q4 environment and the months ahead, we feel good about the trajectory of both of those businesses to deliver positive comps in the fourth quarter. We're watching them very closely.
Operator: Good morning everyone and welcome to the Sally Beauty Holdings conference call to discuss the company's third quarter fiscal 2024 result. 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.
Mara Cormeer: and also seeing the increased impact of our strategic initiatives coming through on the salally side so marketplaces license colors on demand
Mara Cormeer: So we step back from all of that as we're looking forward into our Q4 environment.
Jeff Harkins: 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.
Mara Cormeer: youknowthe months ahead we feel good about the trajectory of both of those businesses to the lit positive comps into the fourth quarter and we're watching very closely what we always watch is we will see inflationary trends perhaps influence the customer or or other macro and when it comes to the election you know the thing i think we're always the most sensitive to is what will happen to you know marketing rates and things like that to allow us to keep investing to to gain that
Denise Paulonis: What we always watch is inflationary trends perhaps affecting the customer or other macro trends. When it comes to the election, you know, the thing I think we're always most sensitive to is what will happen to, you know, marketing rates and things like that to allow us to keep investing to gain that top-of-funnel customer. We're navigating it and feel that it's, you know, within our control to do that, and we're pleased with what we've seen of the results there in terms of performance marketing being able to drive new and reactivated customers into the fold.
Denise Paulonis: What we always watch is whether inflationary trends perhaps influence the customer or other macro trends. When it comes to the election, the thing I think we're always most sensitive to is what will happen to marketing rates and things like that to allow us to keep investing to gain that top-of-funnel customer. We're navigating it and feel that it's within our control to do that, and we're pleased with what we've seen of the results there in terms of performance marketing being able to drive new and reactivated customers into the fold.
Jeff Harkins: With me on the call today, our Denise Paulonis, Chief Executive Officer and Marlo Cormier, Chief Financial Officer. Before we begin, I would like to remind everyone that management's remarks on this call may contain forward-looking statements within the meeting of the Private Security's Education Reform Act of 1995. Act's 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 factor section of our most recent and report on Form 10K and other filings with the SEC.
Mara Cormeer: We're navigating it and feel that it's within our control to do that, and we're pleased with what we've seen of the results there in terms of performance marketing being able to drive new and reactivated customers into the fold.
Denise Paulonis: And category call-outs, you know? I think color and care will continue on a positive trajectory. Nails and Sally is really fueled by some new innovation coming in, and we're feeling good about that as well. So all in all, from a category perspective, don't expect there to be any substantial change from what we're seeing right now. And then, on your last question on sourcing, and, you know, at the end of the day, about 10% of what we source comes in from Asia, so it's a pretty small percentage of exposure for us.
Denise Paulonis: Category call-outs, I think color and care, we expect those to continue on a positive trajectory. Nails and Sally is really fueled by some new innovation coming in, and we're feeling good about that as well. All in all, from a category perspective, don't expect there to be any substantial change from what we're seeing right now. And then, I think your last question on sourcing. At the end of the day, about 10% of what we source comes in from Asia, so it's a pretty small percentage of exposure to us.
Mara Cormeer: and
Mara Cormeer: Category call-outs, I think Color and Care, we expect those to continue on a positive trajectory. Nails and Sally is really fueled by some new innovation coming in, and we're feeling good about that as well. So, all in all, from a category perspective, don't expect there to be substantial change from what we're seeing right now.
Jeff Harkins: Any forward-looking statements made on this call represent our views only as of today and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliation of its adjusting items and non-gat financial measures in its earnings press release and on its website.
Speaker Change: and then i think your last question on sourcing and at the end of the day about ten percent of what we source comes in from as so it's a pretty small percentage of exposure to us
Denise Paulonis: Now I would like to turn the call over to Denise to begin the formal remarks. Thank you Jeff and good morning everyone. Our third quarter results point to improving trends across both segments of our business, Sally Beauty and Beauty Systems Group. We delivered net sales growth of 1.2 percent and a comparable sales increase of 1.5 percent above the high end of our latest guidance range. Our top one performance reflects continued momentum and fundamental strength in our BSD segment, as well as a notable improvement in performance at Sally, reflecting the traction regaining from our strategic initiative.
Denise Paulonis: We watch that pretty closely. We work with our manufacturing providers to be sure that we're well-distributed in how we think about it. And for us, free cost, while it's part of our equation, it's not nearly as material as it might be for some others who have more exposure.
Denise Paulonis: We watch that pretty closely. We work with our manufacturing providers to be sure that we're well distributed in how we think about it. And for us, free cost, while it's part of our equation, it's not nearly as material as it might be for some others who have more exposure.
Mara Cormeer: We watch that pretty closely and we work with our manufacturing providers to be sure that we're well distributed in how we think about it. And for us, free cost, while it's part of our equation, it's not nearly as material as it might be for some others who have more exposure.
Oliver Chen: Thanks so much, Denise; best regards.
Oliver Chen: Thanks so much, Denise; best regards.
Mara Cormeer: Thanks so much, Denise. Best regards.
Korinne Wolfmeyer: The next question is from Korinne Wolfmeyer from Piper Sandbar. Please go ahead.
Mara Cormeer: The next question is from Korinne Wolfmeyer from Piper Sandler, please go ahead.
Unnamed Analyst: Hey, good morning. Thanks for taking the time to answer the question. Congratulations on the quarter. I'd like to touch a little bit on the guidance and the expectations you laid out for fiscal Q4. You delivered at pretty good margins here in fiscal Q3. I note they came in ahead of your guidance and your expectations. So what is the reasoning behind leaving your full-year expectations unchanged? Is it just a little bit of conservatism? Are you seeing any shifts in demand trends or shifts in the cost structure that would cause you to leave it unchanged or any additional color that would be helpful? Thank you.
Korinne Wolfmeyer: Hey, good morning. Thanks for taking the time to answer the question. Congratulations on the quarter. I'd like to touch a little bit on the guidance and the expectations you laid out for fiscal Q4. You delivered at pretty good margins here in fiscal Q3. I note they came in ahead of your guidance and your expectations. So what is the reasoning behind leaving your full-year expectations unchanged? Is it just a little bit of conservatism? Are you seeing any shifts in demand trends or shifts in the cost structure that would cause you to leave it unchanged or any additional color that would be helpful? Thank you.
Korinne Wolfmeyer: Hey, good morning. Thanks for taking the question. Congrats on the quarter. I'd like to touch a little bit on the guidance and the expectations you laid out for fiscal Q4. You delivered at pretty good margins here in fiscal Q3. Noted they came in ahead of your guidance and your expectations. So, what is the reasoning behind leaving your full year expectations unchanged? Is it just a little bit of conservatism? Are you seeing any shifts in demand trends or shifts in the cost structure that would cause you to leave it unchanged or any color that would be helpful? Thank you.
Denise Paulonis: Adjusted growth margin was strong at 51 percent and adjusted operating margin also came in above our guidance range at 8.9 percent. Our business generated solid cash flows from operations of $48 million in enabling us to continue to return capital to shareholders by way of share repurchases in the quarter.
Denise Paulonis: Looking at performance by segment, I'll start with BSG. Q3 comparable sales increased 2.6 percent, representing our third to second quarter of positive comp, comparable transactions in the quarter or up 4 percent, and average ticket was down 1 percent. From a category perspective, sales in both color and care grew for the second quarter in a row, up 3 percent and up 5 percent, respectively. Additionally, our expanded distribution drove strong performance across key brands, including Amika and Colorwell, as well as Moroccan oil, which we will launch in California, one of our largest markets in the fourth quarter.
Marlo Cormier: Yeah, happy to answer that. You know, our guidance really reflects the strength of Q3, as well as year-over-year improvement in top and bottom lines that we expect in Q4. You know, given the macro we're in, we just feel like the guidance is good that we're providing. If you think about a little bit of the color, you know, in Q3, we were modestly ahead in what we reported. We were pleased that a lot of that ahead was on the path with our strategic initiatives in the right direction with the Sally brand.
Speaker Change: happy to answerred you know our guidance really reflects the strength of q three as well as theyear overyear improvement in top and bottom line that we expect in q fouryou've given the mac we just feel like the guidance is good that we're providing if you think about a little bit of the color you know in q three we were modestly ahead in what we reported we were pleased that a lot of that being ahead was on the path of our strategic initiatives in the right direction with the valleallyy rand
Marlo Cormier: You know, and when we look to Q4, the most important thing for us is that we're really looking to build upon the positive top line and also deliver positive improvement around adjusted operating profit and adjusted profit margin. So, I think we're just reading what's out there in the market. We don't see any material change in trend, but we believe the right place for us is to hold guidance right now.
Speaker Change: and we look to q four i mean most important to us is we're really looking to build upon the positive top line and also deliver a positive improvement around adjusted operating profit and adjustustrated profit margin
Denise Paulonis: We're pleased to see consistent underlying strength across our BSG business. We're selecting the combination of stable, salon, demand trend, expanded distribution, and robust product innovation. Stylus purchasing patterns remain healthy, although the trend of stylus buying closer to need may be the new norm post-pandemic. As we continue to capture share themes, we believe the business is poised to build an existing momentum as we enter fiscal 2025. As the leader for the professional stylus community in North America, we're well positioned to leverage our size and scale to fuel continuing growth.
Speaker Change: So, I think we're just reading what's out there in the market. We don't see any material change in trend, but we believe the right place for us is to hold guidance right now.
Unnamed Analyst: And then, if you could just touch a little bit more on the promo situation called out in VSG. It sounded like there was a higher take rate for promos, kind of like what you pointed out last quarter. Can you give any color?
Korinne Wolfmeyer: And then, if you could just touch a little bit more on the promo situation called out in VSG. It sounded like there was a higher take rate for promos, kind of like what you pointed out last quarter. Can you give any color?
Speaker Change: Got it. Very helpful. And then if you could just touch a little bit more on the promo situation called out in VSG. It sounded like there was a higher take rate in promos, kind of like what you pointed out last quarter. Can you give any color? Was this...
Unnamed Analyst: Was this... Incrementally more than what you saw last quarter? Is it unchanged? Is it improving? And then how are you thinking about the promotion environment heading into fiscal Q4? Thank you.
Marlo Cormier: Was this.., incrementally more than what you've seen last quarter? Is it unchanged? Is it improving? And then how are you thinking about the promo environment heading into fiscal Q4? Thank you, on the BSG front, as I mentioned.
Speaker Change: incrementally more than what you've seen last quarter is it unchanged as improvingand then how are you thinking about the promo environment heading into fiscal q four thank you
Marlo Cormier: On the BSG front, as I mentioned, we're really pleased with the strong sales trend that we've had. As part of that in the promotional piece of it, the customer appreciation sale has been a higher take rate than what we've seen historically, and that's one of our promotions that is only partially funded by our vendors, and we fund that as well. The impact on us in Q3 was very similar to Q2, so we aren't seeing any heightened activity there, but we are seeing people want to buy in and take advantage of that promotion.
Speaker Change: on the fron mentioned ' reallypleasedwith the strong sales trend that we've had as we see part of that in the promotional piece of the customer appreciation sale has been higher take great than what we've seen historically and that's one of our promotions that is only partially funded byy vendors and we fund that as well and the impact to us in q three was very similar to q two sowe aren't seeing any any heightened activity there but we are seeing people want to to buy in and take advantage of that promotion so we're going to keep managing that but at the moment we feel good about how customers are reacting as are coming into as environment whatwe're seeing in sales in un trends and and believe that we'resitting in a pretty healthy spotand then
Denise Paulonis: Turning now to our Sally segment, we saw an unnotable positive turn in the business driven by a number of our customer centric initiatives, including performance marketing, marketplace expansions, and digital enhancements. Q3 comparable sales increased 0.7 percent, with comparable transactions down 3 percent, and average ticket value up 3 percent. We continue to see consumers exercising caution around spending, and we are monitoring purchasing behavior closely.
Korinne Wolfmeyer: We're going to keep managing that, but at the moment, we feel good about how customers are reacting as they're coming into the BSG environment, what we're seeing in sales and unit trends, and believe that we're sitting in a pretty healthy spot. Then, on the Sally side, we talked a little bit about the fact that we still see customers being frugal. Our core customer is coming in and buying what they need. We were pleased to see new and reactivated customers head in the right direction this quarter with a lot of our performance marketing and LCOD activity, but we're very aware of them also being promotionally sensitive.
Denise Paulonis: Remaining nimble and adjusting tactics is needed. To that end, in Q3, we implemented changes to the design, depth, and duration of our promotion, and customers responded favorably, resulting in a higher AUR. We are also pleased to see that our focus on retaining and growing our loyalty base is bearing fruit. During the quarter, our targeted marketing campaigns drove strong customer reactivations and brought new customers into our loyalty program. For the third quarter, we generated 78 percent of our sales at Sally, US, and Canada from our 16 million loyalty numbers.
Speaker Change: On the Sally side, we talked a little bit about the fact that we still see customers being frugal. Our core customer coming in is buying what they need. We were pleased to see new and reactivated customers head to our website.
Speaker Change: head in the right direction this quarter with a lot of our performance marketing and LCOD activity. But we're very aware of their also being promotionally sensitive. What we've tried to do in our promotional strategy is still give them great value but drive value in ways that we can still improve AUR and drive frequency. So we're doing less quantity type discounts and more traffic driving discounts to be getting people into the stores. We think both sets of trends on both sides are feeling consistent as we're entering Q4. And so that's what we're planning for and working with right now.
Korinne Wolfmeyer: What we've tried to do in our promotional strategy is still give them great value but drive value in ways that we can still improve AUR and drive frequency, so we're doing less quantity-type discounts and more traffic-driving discounts to get people into the stores. We think both sets of trends on both sides are feeling consistent as we're entering Q4, and so that's what we're planning for and working with right now.
Denise Paulonis: Additionally, our elite loyalty numbers, who represent our most valuable and frequent shoppers, grew by 6 percent year over year. The Sally brand has never been stronger, with a record net promoter scored 86 for our third quarter, up 4 points versus a year ago.
Denise Paulonis: Across all of our businesses, our teams are delivering strong execution on our core strategic initiatives of enhancing our customer centricity, growing our high margin-owned brands and amplifying innovation, and increasing the efficiency of our operations. For our third quarter, product innovation, territory expansion, and new services contributed over 250 basis points to our comparable sales results, and remain on track to achieve our expected 200 to 300 basis points of contribution from these initiatives for the full year.
Olivia Tong: And the next question is from Olivia Tong from Raymond James. Please go ahead.
Speaker Change: Great, thanks so much.
Speaker Change: And the next question is from Olivia Tong from Raymond James. Please go ahead.
Denise Paulonis: Great, thanks. Can you talk about any differences as the quarter progressed, particularly in SPS? And, you know, was there any change, you know, at the start of the quarter versus the exit rate? And then, just generally, as we think about Fiscal 25, your plans in light of perhaps, you know, even more wallet tightness as we go forward? And then following on that, some of the manufacturers in hair appliances, notwithstanding today, have talked about the general sentiment in the industry being, you know, a little bit more challenging, particularly in the sub-$100 appliance market.
Olivia Tong: Great, thanks. Can you talk about any difference as the quarter progressed, particularly in SPS?
Olivia Tong: and was there any change start of a quarter versus the exit rate and then just generally you know as we think about fiscal twenty five year plans in light of
Denise Paulonis: Would love to hear your commentary there. Thank you. Absolutely.
Speaker Change: Perhaps, you know, even more wallet tightness as we go forward. And then following on that, some of the manufacturers in hair appliances, notwithstanding today, have talked about general sentiment in the industry being, you know, a little bit more challenging particularly in the sub-hundred-dollar appliance market. We'd love to hear your commentary there. Thank you.
Denise Paulonis: Looking at product innovation, a consistent pipeline in those the BSG and Sally segments is helping us drive growth and customer engagement. At BSG, new products like money missed from color well, and neuro hair dryers for fall Mitchell are fueling excitement, while other 2024 launches, including briogeo and a prey, are continuing to perform well. From a trend perspective, bonding, express coloring, and bonding remain strong, as well as conscious beauty. At Sally, consumers are responding to innovation in men's grooming and mindfulness. Williams, including Inspired by Nature and Plant Theory, our own brand focused on mood-enhancing skincare. In Q3, own brand self-centritiation for the global valid beauty segment was 34%.
Denise Paulonis: Absolutely. So I'll start with SBS and what we saw throughout the quarter. We saw nice momentum and impact on our strategic initiatives to build as we went through the quarter. So marketplaces, with our newly launched DoorDash program, Instacart coming online as well, TractWell, performance marketing, we continue to hone in and be able to drive impact there. So the positives that we saw throughout the quarter, we continue to believe those will be positives going into Q4, so feel good about that.
Speaker Change: Absolutely, so I'll start on SBS and what we saw throughout the quarter. We saw a nice momentum and impact of our strategic initiatives to build as we went through the quarter. So marketplaces with our newly launched DoorDash program, Instacart coming online as well, TractWell, performance marketing, we continue to hone in and be able to drive impact there. So positives that we saw throughout the quarter, we continue to believe those will be positives going into Q4, so feel good about that.
Denise Paulonis: When we look to 2025, clearly, we're not providing guidance on this call today until our November earnings call, but we're confident that the initiatives have us on the right path to get to our low single-digit algorithm. It is a dynamic macro environment, but we're really finding a way to balance our way through and have those strategic initiatives start to contribute more. So for the full year in 2024, the strategic initiatives, 200 to 300 basis points of benefit, which we feel good about, and assuming that the macro... Continues at the pace that we're seeing today, you know, expect that 2025 will be headed down a good path. So more to come as we get to our November earnings call on that one.
Speaker Change: When we look to 2025, clearly we're not providing guidance on this call today until our November earnings call, but we're confident that the initiatives have us on the right path to get to our low single-digit algorithm.
Denise Paulonis: Building on the momentum from our rooted in success marketing campaign, during Q3, we celebrated Pride Month with activations and collaborations across the country.
Speaker Change: It is a dynamic macro environment, but we're really finding a way to balance our way through and have those strategic initiatives start to be contributing more. So for the full year in 2024, those strategic initiatives, 200 to 300 basis points of benefit.
Denise Paulonis: Turning now to customer centricity, our newest concepts and services are performing and building on the momentum. Starting with licensed colorist on demand, in Q3, 44% of customers who engage in this service were new to valley. That's up from 40% in Q2 until the top of the whole work is paying dividends. Additionally, color consultations averaged over 3,300 per week. And the average ticket value increased to $37, up from $35 in Q2. Our marketplace initiative also continues to gain traction, with strong performance across Amazon and Walmart, as well as DoorDash, which is driving incremental growth since its launch in Q2.
Speaker Change: which we feel good about, and assuming that the macro...
Speaker Change: continues at the pace that we're seeing today, you know, expect that 2025 will be headed down a good path. So more to come as we get to our November earnings call on that one.
Denise Paulonis: And then finally, the hair appliance category. You know, I think it's really, it's a dynamic category, and that it's one of those places that, for most people, it becomes more of a discretionary spend if they lean into it a bit more versus the necessary spend when something they have might break. What we've seen is when innovation comes out, and we talked about it on our VSG side; John Paul Mitchell came out with a Neuro hair dryer and hair dryer line.
Speaker Change: And then finally, the hair appliance category. I think it's a dynamic category in that it's one of those places that for most people it becomes more discretionary spend if they lean into it a bit more versus the necessary spend when something they have might break. What we've seen is when innovation comes out, and we talked about it on our VSG side, John Paul Mitchell came out with a Neuro hair dryer and hair dryer line. We saw a great response to that in Q3 on the VSG side because it really had new innovation that was benefiting a stylist, and they were willing to lean in and take advantage and buy that.
Denise Paulonis: We saw a great response to that in Q3 on the VSG side because it really had new innovation that was benefiting a stylist, and they were willing to lean in and take advantage of it and buy that. So we're excited by those types of innovations that we think keep the category moving. But clearly, in an environment where people might have a little bit more inflationary pressure, the performance right now is people primarily buying what they need without that catalyst.
Denise Paulonis: Most recently, we added Instacart and early results tell us this will serve another important platform to meet the consumer where they are and broaden awareness. Racking up with happy beauty, as a reminder, this new concept further expands our reach, focusing on customers looking for beauty as value price points while not compromising on an engaging experience. Building on the learning from our initial 10 pilot stores or on track to open an additional 10 pilot stores in the Dallas and Phoenix markets prior to the start of the holiday season.
Speaker Change: So we're excited by those types of innovations that we think keep the category moving, but clearly in an environment where people might have a little bit more inflationary pressure. The performance right now is people primarily buying to need without that catalyst.
Olivia Tong: understood. Thanks.
Speaker Change: And then just following up on new products, you know, that's obviously been a solid contributor this year. You mentioned the new hair dryer and a lot of new activity on the consumable side.
Denise Paulonis: This includes six strip center locations as well as four mall locations, which will broaden our exposure to some of the demographic profiles that have done well in our initial pilots. From a category perspective, we're seeing strong demand in cosmetics and fragrance. There's notable strengths in units per transactions and average transactions value. And we continue to experiment with traffic driving initiatives, including an increased focus on social.
Olivia Tong: And then just following up on new products, you know, that's obviously been a solid contributor this year. You mentioned the new hairdryer and a lot of new activity on the consumable side. To the extent that you have some insight into, you know, the next 12 months, what does the new product pipeline look like for you guys relative to the last 12 months?
Speaker Change: to the extent that you have some insight into the next twelve months what is the new products pipeline look like to you guys relative to the last twelve months
Marlo Cormier: We're feeling good about it. And there continue to be, as we just talked about in our prepared remarks, we just expanded Moroccan oil into California. So we believe we continue to have distribution gains with some of the brands that we already have, and we have a nice pipeline of new products that we do see coming in. Clearly, there is nothing to share specifically on this call, but I feel good that the trajectory is there and that underlying health of the combination of territory expansion, distribution gains, and new product on that BSG side really sets us up well to leverage our scale in that business.
Denise Paulonis: We're feeling good about it. And there will continue to be, as we just talked about in our prepared remarks; we just expanded Moroccan Oil into California. So we believe we continue to have distribution gains with some of the brands that we already have, and we have a nice pipeline of new products that we do see coming in. Clearly, there is nothing to share specifically on this call, but I feel good that the trajectory is there and that underlying health of the combination of territory expansion, distribution gains, and new product on that BSG side really sets us up well to leverage our scale in that business.
Speaker Change: We're feeling good about it, and there continue to be, as we just talked about on our prepared remarks, we just expanded Moroccan Oil into California, so we believe we continue to have distribution gains with some of the brands that we already have. And we have a nice pipeline of new product that we do see coming in, clearly nothing to share specifically on this call, but feel good that the trajectory is there and that underlying health of the combination of territory expansion.
Denise Paulonis: As we continue to advance our core strategic initiatives, we're also focused on driving profitability and progressing towards our long-term growth algorithms. In addition to the efficiency work we had underway internally, we engaged a third-party expert to review our prosperous and help us build our fuel for growth plans, which is an important component of how we deliver on our profitability target. We continue to engage third-party support to help us implement this important initiative that will benefit our growth margins, expense structure, and bottom line.
Speaker Change: distribution gain, new product on that BSG side really sets us up well to leverage our scale in that business.
Olivia Tong: Great, thank you. Best of luck.
Ashley Helgans: Thank you. And Ashley Helgans from Jefferies is up next with a question.
Speaker Change: Great. Thank you. Best of luck.
Speaker Change: thank you way ashley held in firm jeffrey ises up next for question
Ashley Helgans: Hi, thanks for taking our questions and congrats on the quarter. Maybe we can just dive a little deeper into gross margins. I know that you saw some improvement in the Sally Beauty supply segment due to supply chain efficiencies. I'm just curious if any of these efficiencies you can leverage with the BSG segment. And then you also called out some stabilization in, you know, the salons. Just curious about where we are versus historical levels in terms of appointment frequency and spend. Thanks.
Denise Paulonis: We remain on track to generate cumulative run rate benefits, approaching $120 million by the end of fiscal 2026. As we enter the final quarter of our fiscal year and remain focused on driving profitable top line growth, we're pleased to see improving trends throughout the P&L. I'd like to thank our teams across the organization for their ongoing focus, execution, and dedication. This collective effort is an essential part of our culture and our ability to deliver an engaging experience for our company. As always, we remain committed to our growth agenda and long-term value creation for our shareholders.
Jeffrey Ives: Hi, thanks for taking our questions and congrats on the quarter. Maybe we can just dive a little deeper in gross margins. I know that you saw some improvement in the Sally Beauty supply segment due to supply chain efficiencies. I'm just curious if any of these efficiencies you can leverage with the BSG segment. And then you also called out some stabilization in the salons. I'm just curious where we are versus historical levels in terms of appointment frequency and spend. Thanks.
Marlo Cormier: I'll start with the gross margin question. We are seeing some nice gains across both our businesses in our supply chain efforts. That is part of our fuel for growth program and part of our $20 million that we're seeing come through for our target that we had for 2024. So that is across both segments. The difference between Sally and BSD is that we're getting an offset to that on the BSD side, mainly from the unfavorable fixed cost absorption that we see, but also from product margin, where we see some brand mix putting some pressure on the product.
Marlo Cormier: Yeah, I'll start with the, and thank you for the question. I'll start with the gross margin question. We are seeing some nice gains across both our businesses in our supply chain efforts. That is part of our fuel for growth program and part of our $20 million that we're seeing come through for our target that we had for 2024. So that is across both segments. The difference between Sally and BSD is that we're getting an offset to that on the BSD side, mainly from the unfavorable fixed cost absorption that we see, but also from product margin, where we see some brand mix putting some pressure on the product margin.
Speaker Change: Yeah, I'll start with the, and thanks for the question, I'll start with the gross margin question.
Speaker Change: We are seeing some nice gains across both our businesses on our supply chain efforts.
Speaker Change: That is part of our Fuel for Growth program, and part of our $20 million that we're seeing come through for our target that we had for 2024, so that is across both segments. The difference between Sally and BSG is we're getting an offset to that on the BSG side, mainly from the unfavorable fixed cost absorption that we see, but also from product margin, where we see some brand mix.
Marlo Cormier: Now I'll turn the panel over to Marlo to discuss the financials. Thank you, Denise.
Marlo Cormier: Good morning, everyone. Our third quarter results were highlighted by positive top-line performance in both our Sally and BSD segments. Sally Gross margins and adjusted operating margins above our latest guidance range. The results reflect underlying strengths at BSD, which delivered a third consecutive quarter of positive comparable sales growth, as well as renewed momentum at Sally resulting from our strategic initiatives that Denise outlined. Third quarter consolidated net sales of $942 million increased 1.2 percent while consolidated comparable sales grew 1.5 percent.
Speaker Change: putting some pressure on the product market.
Marlo Cormier: And if we think about salons and salon stabilization, I'll go back to the point where we're really pleased with the trajectory of the BSG business and what we have there. We think underlying trends, it's hard to go back and compare to anything, but what I would say is our stylists are talking about people coming in for regular services, a pace that is generally healthy. Where there's a little less health in the industry, there would be more in the chain salon groups, but most of our exposure is to those independent stylists or in smaller salons, and so we feel good about where we are.
Speaker Change: to
Speaker Change: And if we think about salons and salon stabilization, you know, I'll go back to the point of we're really pleased with the trajectory of the BSG business and what we have there. We think underlying trends, it's hard to go back and compare to something, but what I would say is...
Marlo Cormier: Global e-commerce sales were $92 million in represented 10 percent of total net sales. Looking at Gross profit, we again delivered solid gross margins, which came in at 51 percent, flat to last year. Excluding last year's true up of the non-cash inventory right down related to the distribution center consolidation and store optimization plan that we executed last year, adjusted Gross margin was 51 percent. That's up 10 basis points versus a year ago and reflects lower distribution and freight costs resulting from supply chain efficiency partially offset by unfavorable fixed cost absorption.
Speaker Change: isour silence they're talking about you know people coming in intofor regular services the pace that is generally healthy where there's a little less health in the industry would be more in the chain so ign groups but most of our exposure is to those independent silence or in smaller salon
Marlo Cormier: If I related it back, it's probably approaching pre-COVID territory in terms of what people see, but we're always conscious of the fact that people will trade up or down as they see fit, but stylists are feeling pretty good that this is a core course of business. So that's what we're building on our assumptions going forward as well and aren't hearing different news.
Speaker Change: and so feel good about where we are there if i related it back it's probably approaching prehoed types of territory in terms of what people see but we're always conscious of the fact that people will trade up or down as is they see fit but silylists are feeling pretty good that this is a core force of business so that's what we're building on assumptions go forward as well and and aren't hearing different new
Operator: Thank you. And at this time, there are no further questions in queue. Please continue with any closing remarks.
Marlo Cormier: Third quarter adjusted SDA expenses total $397 million, roughly flat to Q2 and up $13 million versus a year ago as we anticipated. The Eurovere increase can primarily be traced to higher labor and other compensation related expenses as well as planned increases in advertising spend including upper funnel marketing. This was partially offset by $4.8 million of savings resulting from our fuel for Gross program. We're pleased with the progress we're making with fuel for Gross.
Speaker Change: great thank you
Speaker Change: Thank you. And at this time, there are no further questions in queue. Please continue with any closing remarks.
Denise Paulonis: I want to thank everyone.
Denise Paulonis: I want to thank everyone for joining us today, and, most importantly, I want to step back and thank our team.
Speaker Change: I want to thank everyone for joining today and most importantly I want to step back and thank our team. Really strong execution from the quarter, great cross-functional collaboration internally is letting us progress.
Speaker Change: dramatically on our strategic initiatives, and I couldn't be more pleased with where we're headed. As always, we appreciate all of our shareholders. We remain committed to long-term profitable growth and getting on our longer-term algorithm as well. And we look forward to updating everyone as we finish our fourth quarter in just a few months.
Marlo Cormier: We remain on track with our plan to achieve approximately $20 million a pre-tax benefits to Gross margin and SDA this year and up to $120 million in cumulative benefit in fiscal 2026. As is typical with this hyper project the nature and timing of benefit capture evolves as the work matures. To this end we now expect two-thirds of the $20 million in benefits in fiscal 2024 to come from SDA and a third to come from Gross margin.
Speaker Change: Thanks.
Speaker Change: Thank you. And that does conclude our conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.
Marlo Cormier: This is a slight shift from our previously anticipated split of 75 percent SDA and 25 percent Gross margin. As a reminder for full of year fiscal 2024 we expect to incur up to $30 million in pre-tax cash charges associated with the fuel for Gross program including $26 million that has been realized here today. Strong performance across sales and gross margin coupled with our fuel for Gross program drove third quarter adjusted operating margin of 8.9 percent.
Marlo Cormier: Adjusted EBITDA margin was 12.4 percent and adjusted diluted EPS came in at 45 cents. Moving to segment results we were pleased to see improved performance at Sally Beauty with comparable sales of 0.7 percent following a 4 percent decline in Q2. That sales were also in positive territories of slightly versus year At constant currency, Sally e-commerce sales were $37 million and represented seven percent of segment net sales for the quarter. Customers responded to our strategic initiative, including performance marketing efforts, market expansion, and digital enhancements.
Marlo Cormier: For the global Sally Beauty segment, color was essentially flat to the prior year, while there was up 2 percent and nails were up 5 percent. At Sally U.S, and Canada, color was up 1 percent, care was up 2 percent and nails were up 6 percent. As Denise mentioned, we generated 78 percent of our sales at Sally U.S, and Canada from our 16 million loyalty numbers. It goes margin in our Sally segment with 59.8 percent of 100 basis points last year, reflecting supply chain efficiencies and stronger product margins, partially upset by an unfavorable fixed cost absorption. Segment operating margin came in at 16.2 percent.
Marlo Cormier: Moving now to the BSD segment, where continued momentum was driven by expanded distribution and product innovation. The parable sales increased 2.6 percent while net sales were up 2.5 percent. On a constant currency basis, BSE e-commerce sales were $54 million, representing 13 percent of segment net sales for the quarter. From a category perspective, color was up 3 percent and care was up 5 percent. It goes margin at BSD was 39.4 percent, at down 110 basis points versus a year ago, primarily due to unfavorable fixed cost absorption, as well as lower product margins, which reflects a higher participation rate in our customer appreciation sale, as well as brand mix. This was partially upset by the benefits of our supply chain efficiencies. Like the operating margin was 11.5 percent.
Marlo Cormier: Turning to the balance sheet and cash flow, we ended the third quarter with $97 million of cash and cash equivalent, and $45 million outstanding under our asset-based revolving line of credit. Our net debt leverage ratio stood at 2.2 times. During the quarter, we successfully reprised our term loan B from so far plus 2.25 to so 4.75. The 50 basis point reduction in the spread translates to annual interest expense savings of approximately $2 million.
Marlo Cormier: Quarter in inventory was slightly over a billion dollars, which is in line with our expectations and reflects an overall healthy position. Cash flow from operations remains strong, providing us with a flexibility to invest behind our strategic initiatives and return value shareholders through additional share repurchases. During Q3, we generated operating cash flow of $48 million, and operating free cash flow of $29 million. We repurchased approximately 900,000 shares of stock and aggregate costs of $10 million under our share repurchased plan.
Marlo Cormier: Turning now to guidance, based on the strengths of our year-to-day performance, we are pleased to reiterate our full-year expectations as follows. Full-year net sales and comparable sales are approximately flat. With margin in a range of 50.5 to 51%, adjusted operating margin of approximately 8.5%. Operating cash flow of approximately $240 million, and capital expenditures totaling approximately $100 million. Looking at the fourth quarter, we anticipate that top-line momentum will continue at both Sally Beauty and VSC.
Marlo Cormier: Additionally, we expect consolidated operating margin dollars and operating margin rate to expand on a year-over-year basis. More specifically, we expect net sales growth to be in the range of up 1% to 2% with comparable sales slightly better. We expect the gross margin rate in Q4 to be similar to Q3, and S-U-N-A dollars to be slightly favorable to Q3. Additionally, we anticipate that fourth quarter-adjusted operating margin will be approximately 9%. Lastly, we expect investments in shared purchases in the fourth quarter to be approximately 10 million dollars. In summary, we are pleased with our progress and third quarter results that are reflecting improving trends in both our business segments, as well as results from our growth initiatives.
Marlo Cormier: In the final quarter of fiscal 2024, we remain focused on driving our strategic pillars, including our fuel for growth initiatives.
Operator: We appreciate your time this morning, now I'll ask the operator to open the call for Q&A. Thank you and ladies and gentlemen, if you wish to ask a question, please press one and zero on your touch-tone phone. You will hear an acknowledgement phone that you've been placed in the queue and you may remove yourself from Q at any time by repeating the one-zero command. And if you want to speak your phone, please pick up your handset before pressing the number.
Operator: At the request of the company, please limit yourself to one question and one follow-up question. Once again, if you do have a question, please press one and zero at this time.
Oliver Chen: The first question is from Oliver Chen from TD and it's been mixed, as you know, it's been pressured at the middle and low. Has that manifested in the banners currently in door? What are you seeing?
Denise Paulonis: And would love any thoughts on not a difficult question we're getting around potential election impact in door, if it if you saw things in the past that might be related to now. Also, the category callouts are very helpful regarding hair nail and colors. Do you expect those trends to remain similar or what are your thoughts on on each of those categories as they affect your banners? And then finally, as we're all modeling, monitoring, tariffs. Any thoughts you have in terms of sourcing? You have a lot of different partners as well as a lot of private label. Thank you very much.
Denise Paulonis: Good morning, Oliver. This is Denise. I'll start with some questions and I'm sure Marla will jump in. Overall in the market, let me break it out as we always do between BSG and Sally. BSG, we're seeing salon demand trends quite stabilized. Don't see any near-term catalyst for that to change. We're seeing the benefit of expanded distribution and product innovation, so really believe that that salon client is enjoying their experience in shopping with BSG and look forward for that to continue.
Denise Paulonis: On the Sally side, we've watched two consistent themes all year, right? That customer's remaining frugal and purchasing behaviors primarily driven by needs. We also watched customers be very priceless and leaning into promotions as they managed through the inflationary environment. We've seen that be pretty stable. We're really pleased with what we were able to do in Q3 and adjusting some of our promotional strategies to kind of meet the consumer where they are, but improving our AUR in the process, and also seeing the increased impact of our strategic initiatives coming through on the Sally side, so marketplaces, license, color, storm, demand.
Denise Paulonis: We step back from all of that as we're looking forward into our Q4 environment the months ahead. We feel good about the trajectory of both of those businesses to the little positive comps into the fourth quarter, and we're watching very closely what we always watch as we will see inflationary trends perhaps influence the customer or other macro.
Denise Paulonis: When it comes to the election, you know, the thing I think we're always most sensitive to is what will happen to marketing rates and things like that to allow us to keep investing to gain that top of funnel customer come through. We're navigating it and feel that it's within our control to do that, and we're pleased with what we've seen of the results there in terms of performance marketing being able to drive new and reactivated customers into the fold.
Denise Paulonis: And category call outs, you know, I think color and care, we expect both to continue on positive trajectory. Nails in Sally is really fueled by some new innovation coming in, and we're feeling good about that as well. So all in all, from a category perspective, don't expect there to be substantial change from what we're seeing right now. And then I think your last question on sourcing, and you know, at the end of the day, about 10% of what we source comes in from Asia.
Denise Paulonis: So it's a pretty small percentage of exposure to us. We watch that pretty closely, we work with our manufacturing providers to be sure that we're well distributed and how we think about it. And for us, free costs, while it's part of our equation, it's nearly, it's not nearly as material as it might be for some others who have more exposure. Thank you so much, Denise, best regards.
Korinne Wolfmeyer: The next question is from Korinne Wolfmeyer, from Piper Sainland, please go ahead. Hey, good morning. Thanks for taking the questions and grats from the quarter. I'd like to touch a little bit on the guidance and the expectations you laid out for fiscal Q4. You delivered it pretty good margins here in fiscal Q3. Notice they came in ahead of your guidance and your expectations. So what is the reason behind leading your full your expectations unchanged?
Korinne Wolfmeyer: Is it just a little bit of conservatism? Are you seeing any shifts in demand trends or shifts in the cost structure that would cause you to leave it unchanged or any color there would be helpful. Thank you. Yeah, happy to answer that. Our guidance really reflects the strength of Q3 as well as year-to-year improvement in top and bottom line that we expect in Q4. Given the macro we're in, we just feel like the guidance is good that we're providing.
Korinne Wolfmeyer: If you think about a little bit of the color in Q3, we were modestly ahead in what we reported. We were pleased that a lot of that being ahead was on the path with our strategic initiatives and the right direction with the Sally brand. When we looked at Q4, I mean most important to us is we're really looking to build upon the positive top line and also deliver positive improvement around adjusted operating profit and adjusted profit margin.
Korinne Wolfmeyer: So I think we're just reading what's out there in the market. We don't see any material change in trend both believes the right place for us as to hold guidance right now. Alright, very helpful. And then if you could just touch a little bit more on the promo situation called out in BSG sounded like there is a higher cake rate in promo. It's kind of like what you pointed out last quarter.
Korinne Wolfmeyer: If you give any color was this incrementally more than what you see in last quarter? Is it unchanged? Is it improving? And then how are you thinking about the promo environment heading into fiscal Q4? Thank you. On the BSG front, as I mentioned, we're really pleased with the strong sales trend that we've had as we see part of that in the promotional piece of it. You know customer appreciation sale has been a higher take rate than what we've seen historically.
Korinne Wolfmeyer: And that's one of our promotions that is only partially funded by our vendors and we fund that as well. And the impact to us in Q3 was very similar to Q2. So we aren't seeing any heightened activity there, but we are seeing people want to buy in and take advantage of that promotion. So we're going to keep managing that, but at the moment we feel good about how customers are reacting as they're coming into the BSG environment, what we're seeing in sales and unit trends and believe that we're sitting in a pretty healthy spot.
Korinne Wolfmeyer: And then on the Sally side, you know, we talked a little bit about the fact we still see customers being approval. You know, our core customer coming in is buying what they need. We were pleased to see new and reactivated customers head in the right direction. This quarter was a lot of our performance marketing and LCOG activity, but we were very aware of their also being promotionally sensitive. You know, what we've tried to do in our promotional strategy is still give them great value, but drive value in ways that we can still improve a UR and drive frequency.
Korinne Wolfmeyer: So we're doing less quantity type discounts and more traffic driving discounts to be getting people into the stores. We think both sets of trends on both sides are feeling consistent as we're entering Q4. And so that's what we're planning for and working with right. Great. Thanks so much.
Korinne Wolfmeyer: And the next question is from Olivia Tongue from Raymond James. Please go ahead. Great. Thanks.
Denise Paulonis: Can you talk about any difference as the quarter progressed, particularly in SBS, and, you know, was there any change, you know, start of a quarter versus the exit rate, and then just generally, you know, as we think about fiscal 25, your plans in light of perhaps, you know, even more wallet tightness as we go forward. And then following on that, some of the manufacturers in hair appliances, notwithstanding today, have talked about general sentiment in the industry, being, you know, a little bit more challenging, particularly in the sub-hunter dollar appliance market.
Denise Paulonis: Would love to hear your commentary there. Thank you. Absolutely. So I'll start on SBS, and what we saw throughout the quarter, we saw a nice momentum and an impact of our strategic initiative to build as we went through the quarter. So marketplaces with our newly launched DoorDash program, Instacart coming online as well, tracked well performance marketing. We continue to hone in and be able to drive impact there. So positives that we saw throughout the quarter, you know, we continue to believe this will be positive going into Q4. So feel good about that.
Denise Paulonis: When we look to 2025, you know, clearly we're not providing guidance on this call today until our November earnings call. But we're confident that the initiatives have a some of the right path to get to our low single-digit algorithm. It is a dynamic macro environment, but we're really finding a way to balance our way through and have those strategic initiatives start to be contributing more. So for the full year in 2024, those strategic initiatives, 200 to 300 basis points of benefit, which we feel good about and assuming that the macro continues at the pace we're seeing today, you know, expect that 2025 will be headed down a good path.
Denise Paulonis: So more to come as we get to our November earnings call on that one.
Denise Paulonis: And then finally, the hair appliance category. You know, I think it's really, it's a dynamic category in that it's one of those places that for most people, it becomes more discretionary spend if they lean into it a bit more versus the necessary spend when something they have might break. What we've seen is when innovation comes out, and we talked about it on our VFG side, John Paul Mitchell came out with a narrow hair dryer and hair dryer line.
Denise Paulonis: We saw great response to that in Q3 on the VFG side, because it really had new innovation that was benefiting a stylist, and they were willing to lean in and take advantage and buy that. So we're excited by those types of innovations that we think keep the category moving, but clearly in an environment where people might have a little bit more inflationary pressure. The performance right now is people primarily buying to need without that catalyst. Understand, thanks.
Denise Paulonis: And then just following up on new products, you know, that's obviously been a solid contributor this year. You mentioned the new hair dryer and a lot of new activity on the consumable side. To the extent that you have some insight into, you know, the next 12 months, what is the new product pipeline look like to you guys relative to the last 12 months? We're feeling good about it, and there continue to be as we just talked about on our prepared remarks.
Denise Paulonis: We just expanded Moroccan oil into California, so we believe we continue to have distribution gains with some of the brands that we already have. And we have a nice pipeline of new products that we do see coming in, and Coley nothing to share specifically on this call, but feel good that the trajectory is there and that underlying health of the combination of territory expansion, distribution gains, new product on that BSG side really sets us up well to leverage our scale in that business. Great. Thank you.
Denise Paulonis: Best of luck.
Ashley Helgans: Thank you, and Ashley Helgans from Jeffery. Is this up next for a question? Hi, thanks for taking our questions.
Marlo Cormier: I can grab them a quarter. Maybe we can just dive a little deeper in Gross Marjans. I know that you saw some improvement in the Solid Beauty Supply segment due to supply efficiencies. You can leverage with the BSG segment. And then you also call out some stabilization and the felons. Just curious where we are versus historical levels in terms of appointment frequency and spend. Thanks.
Marlo Cormier: Yeah, I'll start with the question. I'll start with the Gross Marjans question. We are seeing some nice gains across both our businesses on our supply chain efforts. That is part of our sales growth program and part of our $20 million that we're seeing come through for our target that we have for 2024. So that is across both segments. The difference between Sally and BSD is we're getting an offset to that on the BSD side, mainly from the unbearable fixed cost absorption that we see but also from product margins where we see some brand mix putting some pressure on the product margins.
Marlo Cormier: And then if we think about felons and felons stabilization you know I'll go back to the point of we're really pleased with the trajectory of the BSD business and what we have there. We think underlying trends is hard to go back and compare to something but what I would say is our stylists are talking about people coming in for regular services, a pace that is generally healthy. Where there's a little less health in the industry would be more in the chain salon groups.
Marlo Cormier: But most of our exposure is to those independent stylists or in smaller salons. And so feel good about where we are there. If I related it back it's probably approaching pre-COVID types of territory in terms of what people see. But we're always conscious of the fact that people will trade up or down as they see fit. But stylists are feeling pretty good that this is a core course of business. So that's what we're building on our assumptions go forward as well and aren't hearing different news.
Marlo Cormier: Great. Thank you.
Operator: Thank you and at this time there are no further questions. Thank you.
Denise Paulonis: Please continue with any closing remarks. I want to thank everyone for joining today and most importantly if I want to step back and thank our team really strong execution from the quarter rate cross-functional collaboration internally is letting us progress dramatically on our strategic initiatives. And I couldn't be more pleased with where we're headed. As always we appreciate all of our shareholders. We remain committed to long-term possible growth in getting on our longer-term algorithm as well. And we look forward to updating everyone as we finish our fourth quarter in just a few months.
Denise Paulonis: Thanks.
Operator: Thank you, and that does conclude our conference for today. Thank you for your participation and for using the AT&T teleconference. You may now disconnect. We're sorry.
Operator: Your conference is ending now.
Operator: Please hang up.