Q1 2025 Sally Beauty Holdings Inc Earnings Call
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Speaker Change: After management's prepared remarks, there will be a question and answer session. Additional instructions will be given at that time. Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings. Please go ahead. Thank you. Good morning, everyone, and thank you for joining us.
Speaker Change: With me on the call today are Denise Paulonis, President and Chief Executive Officer, and Marlo Cormier, Chief Financial Officer.
Speaker Change: Before we begin, I'd like to remind everyone that many of the remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Speaker Change: Actual results may differ materially from those indicated by these four looking statements as a result of various important factors, including those discussed in the risk factor section of our most recent annual report on Form 10-K and other filings with the SEC.
Speaker Change: Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligations to update them.
Speaker Change: The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website.
Denise Paulonis: 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. We are pleased with the continued momentum we saw in the first quarter in both our SALI and BSG business segments.
Denise Paulonis: Our ongoing focus on advancing our strategic pillars enabled growth in net and comparable sales, growth margin expansion, and year-over-year improvement in profitability.
Denise Paulonis: Additionally, our free cash flow provided us with the flexibility to invest for growth, further strengthen our balance sheet, and return value to shareholders through share repurchases in the quarter.
Denise Paulonis: Fiscal Q1 was marked by a 5th consecutive quarter of positive comparable sales at BSG as well as a 3rd consecutive quarter of positive comps at SALE.
Denise Paulonis: On a consolidated basis, we grew the top line to fight 60 basis points of unfavorable impact from unexpected FX headwinds.
Denise Paulonis: For our Sally segment, comparable sales growth of 1.7% reflects continuing traction with our initiative and includes notable performance in hair color as well as e-commerce, which benefited from our successful marketplace strategy.
Denise Paulonis: Our targeted marketing campaigns are driving results, including strong customer reactivation and new customer acquisition.
Denise Paulonis: As we anticipated, our Fuel for Growth program and strategic promotional tactics resulted in strong gross margin performance, which expanded by 100 basis points compared to the prior year.
Denise Paulonis: Looking at VSG, comparable sales growth of 1.4% was primarily driven by a robust innovation pipeline and expanded distribution. We saw broad-based category growth across color, care, and styling tools.
Denise Paulonis: As expected, the shortened holiday shopping period meant fewer chair hours for stylists, yet underlying demand remained solid.
Denise Paulonis: We are pleased to see operating margin levels regain ground, coming in above 12% and reflecting 130 basis points of year-over-year expansion as sales leverage and our fuel-for-growth program delivered benefits.
Denise Paulonis: Looking at fiscal Q2, we started the quarter with a choppy January, which had some unique influencing factors that preoccupied consumers, including a particularly harsh flu season, weather, wildfires in Los Angeles, and new administration headlines.
Denise Paulonis: While some of these are clearly transitory, these pressures are reflected in our Q2 COMP guidance of approximately flat.
Denise Paulonis: As we continue to see our strategic initiatives take shape, we remain confident that we're on track to achieve full-year comps in the range of slack to up 2%.
Denise Paulonis: To that end, looking at the remainder of fiscal 2025, our teams are continuing to focus on advancing our strategic pillars.
Denise Paulonis: including enhancing our customer centricity, growing our high margin owned brands and amplifying innovation, and increasing the efficiency of our operations.
Denise Paulonis: The initiatives underpinning our strategy are driving top line strength as well as improvement on the bottom line as we maintain healthy growth margins and capture incremental efficiencies.
Denise Paulonis: Let me share an update on some key initiatives, starting with our Sally Beattie brand refresh.
Denise Paulonis: We introduced our Sally brand refresh on our last earnings call and it is well underway.
Denise Paulonis: We expect to showcase a more modern, sophisticated Valley across all of our brand media touchpoints, in-store marketing, and digital assets beginning this spring.
Denise Paulonis: putting us on track to roll out a fully updated brand expression in the second half of fiscal 2025.
Denise Paulonis: Initial customer response has been positive, with customers spending more time navigating throughout the store and exploring additional categories.
Denise Paulonis: We expect to have another 20 to 25 stores completed before the end of Q2, including in some other markets.
Denise Paulonis: We're excited about the way this is coming together as we strive to evolve Sally into a go-to beauty destination for brand and product discovery.
Denise Paulonis: Throughout fiscal 2025, we'll continue to evaluate the Orlando Pilot stores with a view towards potentially refreshing up to two-thirds of our Sally fleet in the U.S. in the coming years.
Denise Paulonis: Moving to a second initiative, our Licensed Colors On Demand Service Offering.
Denise Paulonis: This is a highly successful differentiator for the Sally brand that skews to both younger and new customers and continues to scale nicely.
Denise Paulonis: The online platform has grown to more than 75 licensed colorists, providing over 4,000 consultations per week.
Denise Paulonis: We are seeing a direct correlation between our social marketing campaign and increased consultation counts as we continue to leverage key learnings to maximize our content and influencers to reach the potential LCOD audience.
Denise Paulonis: In Q1, we saw the average order was 23% higher than non-LCOD customers, and we continue to see that a high percentage of customers using the service are new to the grant.
Denise Paulonis: Looking at our marketplace initiatives, we're seeing strong results across the board. Our partners are helping bring us new customers to Sally and drive more profitable sales growth as we leverage our in-store fulfillment capabilities.
Denise Paulonis: To that end, DoorDash and Instacart both delivered outstanding results in the quarter with notable contributions to Sallie eCommerce business, which grew 18% year over year and 24% in the U.S.
Denise Paulonis: Turning now to product innovation, which remains a hallmark of both business segments.
Speaker Change: At BSG, we are thrilled to be bringing premium hair care brand K18 to all stores and e-commerce in the U.S. and Canada with an April 1st launch.
Speaker Change: Since its founding in 2020, K-18 quickly became a breakthrough brand, praised by stylists and industry experts, and popular with influencers and celebrities.
Speaker Change: The brand's expanding lineup of biotech-backed hair care products is designed to address hair damage and support healthy, vibrant hair, providing stylists with faster, more effective solutions that eliminate the long processing times traditionally associated with repair treatment.
Speaker Change: At the same time, we're expanding on BSG's presence with key brands such as Amika, Moroccan Oil, and ColorWow, where we've already seen success.
Speaker Change: Later this year, with innovations coming in hair care and skin care, with brands including Image, Goddess Maintenance, Matter of Fact, and Biotherapeutics.
Speaker Change: At Sally Beauty, we have new product launches coming in Q2 across color and care as part of our expanded partnership with Sauce Beauty, as well as innovation in hair fragrances with UV protectants.
Speaker Change: And there's more to come in the way of on-trend launches with exciting brand partners in the second half of the year.
Speaker Change: Looking at our Happy Beauty pilot, we successfully opened our second tranche of ten pilot stores in the Dallas and Phoenix markets prior to Black Friday, primarily in strip centers and mall locations.
Speaker Change: This set of stores performed particularly well during the holiday season, led by gifting purchases in body care, skin care, and fragrance.
Speaker Change: As we anticipated, the mall environment is proving to be a natural traffic driver in the initial months of our pilot.
Speaker Change: As we progress throughout the year, we believe this expanded set of stores will provide us with an important read on location, format, and demographics that will help inform future strategy and planning.
Speaker Change: Lastly, our Fuel for Growth program is in full swing and delivering results. Building on the success of this program in fiscal 2024, we are on track to generate cumulative gross margin and SG&A benefits of approximately $70 million in fiscal 2025.
Speaker Change: All in, over the three-year period from fiscal years 2024 to 2026, we expect to capture up to $120 million of cumulative run rate benefits.
Speaker Change: An important message I'd like to leave you with today is that the success of our strategic initiative is supported by a strong foundation.
Speaker Change: I want to take a few minutes to step back and discuss the foundational assets underpinning our confidence in the company's competitive positioning, current business trajectory, and long-term growth process.
Speaker Change: At the heart of SBH is our operating model focused on owning the hair color and care categories where we have a tremendous advantage in the breadth of our assortment.
Speaker Change: Sally is the number two retailer of hair color for at-home use with over 15 million active known customers in the U.S. and Canada.
Speaker Change: Sally is the only national retailer that sells professional color to the at-home enthusiast who is typically looking for salon quality results at a great price.
Speaker Change: Our Sally portfolio includes over 30 color brands with over 1,200 shades of color.
Speaker Change: Our assortment is far superior to the quality and efficacy that is found in BoxColor.
in drugstores, grocery stores, and other mass retail locations.
Over half of our customers buy color from us.
Speaker Change: Our color customer visits us with a higher frequency and spends more each trip than a non-color customer.
Speaker Change: And we see strong cross-shopping from our color customers, with color representing 60% of their basket.
Speaker Change: Additionally, color is the category that drives the majority of our new customer growth.
Speaker Change: BSG is the largest North American distributor of hair color and care, serving approximately 2 million active professional stylists.
Speaker Change: We offer Professional Stylists' most extensive portfolio of brands with over 20 different color brands, including over 3,000 shades of color.
Speaker Change: As a wholesaler, our customers are required to set up pro accounts with us. This means we know 100% of our customers.
Speaker Change: Over 70% of our salon professionals purchase color from DSG and average over $1000 in annual spend on 11 trips per year.
Speaker Change: Similar to Sally, color drives the majority of our new customer growth.
Speaker Change: This position of strength has and will continue to endure as we build a substantial competitive note through our commitment to customer service, education, advice, and inspiration.
Speaker Change: Delivered through a modern omni-channel go-to-market model, buoyed by an unparalleled store network.
Speaker Change: At Sally, this is supported by our associates that are color and care experts whose primary mission is to support our customers in achieving their desired salon quality look.
Speaker Change: Of note, many of our associates at both SALE and VSG are trained cosmetologists.
Speaker Change: This unparalleled customer reach and commitment to education and service creates a symbiotic relationship between SBH and the most influential brands in the hair category.
Speaker Change: For BSG, approximately 40% of our sales come from brands under exclusive or limited distribution agreements.
Speaker Change: These agreements give us exclusive distribution rights in certain territories and include many of the largest brands in the industry, including Wella, Schwarzkopf, Paul Mitchell, and Goldwell.
Speaker Change: We also remain at the forefront of innovation with distribution partnerships with Amica, Colorwell, Moroccan Oil, Danger Jones, and as we just announced, K-18.
Speaker Change: At Sally, we are proud to partner with innovative brands such as Soft Beauty, Soapbox, and Kiss to bring new product discovery to our customers, complemented by recognized professional products from our long-term partners such as Wella, L'Oreal, and Wahl.
Speaker Change: Further, at Sally, our own brands drive trips and loyalty with high quality, well-priced, on-trend, only available at Sally Brands.
Speaker Change: This includes brands such as ION, which is a $280 million brand for Sally, as well as other notable brands like Bon Bar, Inspired by Nature, and Strawberry Leopard, to name a few.
Speaker Change: Our own brands run about 10 to 15 percentage points higher in gross margins than our third-party brands.
Speaker Change: Lastly, from a financial perspective, our business is a strong balance sheet and consistently generates healthy gross margins over 50% and strong free cash flow.
Speaker Change: We believe all these factors serve as key differentiators and position us to capture an increasing share of the overall beauty market as we advance our strategic pillars to further evolve SPH into a modern beauty leader.
Speaker Change: Given the traction we are seeing thus far, we have conviction that the business is squarely on a path to deliver our long-term algorithm of low single-digit sales growth, mid-to-high single-digit operating profit growth, and our return to a low double-digit operating margin.
Speaker Change: We appreciate the support of our shareholders and remain committed to building long-term value for all of our stakeholders.
Speaker Change: Now I'll turn the call over to Marlo to discuss the financials. Thank you, Denise, and good morning, everyone. We are pleased to be reporting a third consecutive quarter of positive top-line performance in both business segments.
Speaker Change: Despite a $6 million headwind to sales coming from foreign currency translation.
Speaker Change: We also delivered healthy gross margins, operating margin expansion, and strong free cash flows that allowed us to reduce our debt levels and return value to shareholders in the quarter.
Speaker Change: Q1 consolidated net sales of $938 million, represented an increase of 0.7% and included 60 basis points of unfavorable foreign currency impact.
Speaker Change: Consolidated comparable sales grew 1.6%, reflecting continued momentum across both our Sally Beauty and BSG segments.
Speaker Change: Global e-commerce sales were $99 million. That's up 9% to last year and represented 11% of total net sales.
Speaker Change: Our quarter growth margin expanded 60 basis points to 50.8%, primarily reflecting reduced shrink and lower distribution and freight costs from our continued supply chain efficiencies.
Speaker Change: Adjusted SG&A in the quarter totaled $398 million, up $5 million versus a year ago, which is in line with our expectations.
Speaker Change: The modest increase from the prior year primarily reflects higher labor costs as well as planned increases in advertising spend, partially offset by $6 million in savings from our Fuel for Growth program.
Speaker Change: In Q1, we captured approximately $11 million of pre-tax benefits to gross margin and SG&A, putting us on track to capture $40 to $45 million of savings in full year fiscal 2025.
Speaker Change: and cumulative savings of approximately $70 million after achieving $28 million of benefit in fiscal 2024.
Speaker Change: The strength of our sales and margin performance in the quarter, coupled with savings from our Fuel for Growth program, enabled us to deliver improved profitability versus a year ago.
Adjusted operating margin of 8.4%, increased 50 basis points.
Speaker Change: Adjusted EBITDA margin of 11.7% was up 20 basis points, and adjusted diluted EPS of 43 cents was up 10% versus a year ago.
Moving to segment results.
Speaker Change: Sally Beauty delivered another quarter of top-line growth in the quarter. Despite a 90 basis point foreign currency headwind, Q1 net sales increased 0.4% to $525 million.
Speaker Change: Comparable sales were up 1.7%, driven by strong growth in hair color in our digital marketplaces.
Speaker Change: Comparable transactions were flat and average ticket was up 1% driven by average unit retail.
Speaker Change: At Constant Currency, Sallie eCommerce sales were $41 million and represented 8% of segment net sales for the quarter. That's up 18% to last year, primarily driven by the strength of our digital marketplace strategy.
Speaker Change: For the Global Sally Beauty segment, Color Group 4% while Care was down 3% compared to the prior year.
Speaker Change: At Sal U.S. and Canada, color grew 5%, and nails increased 2%, while care was down 1%.
Speaker Change: Importantly, we are pleased with the continued strength of our active known customers at Sallie U.S. and Canada. In fiscal Q1, we generated 79% of our sales at Sallie U.S. and Canada from this group, which is up 200 basis points from a year ago, driven partly by a modest increase in purchasing frequency.
Speaker Change: Both Marjan and our Sally segment increased 100 basis points to 59.6%.
Speaker Change: The year-over-year improvement reflects higher product margins resulting from the combination of our enhanced promotional strategies and benefits from the Fuel for Growth initiative and lower shrink expense.
Speaker Change: Segment operating margin was strong, coming in at 15.2%, up 40 basis points to last year.
Speaker Change: Looking at the BSD segment, we delivered a fifth consecutive quarter of sales growth driven by expanded distribution and product innovation.
Speaker Change: Comparable sales increased 1.4 percent, while net sales were $412 million, an increase of 1.1 percent, including 20 basis points of unfavorable foreign exchange impact.
Comparable transactions increased 3%. An average ticket was flat.
Speaker Change: On a cost-concurrency basis, BSC e-commerce sales were $58 million, representing 14% of segment net sales for the quarter.
Speaker Change: From a category perspective, color grew 3% and care increased 1%.
Speaker Change: Growth margin at BFG increased 30 basis points to 39.7%, primarily reflecting lower distribution and freight costs from supply chain efficiencies and lower shrink expense, partially offset by lower product margin related to brand mix.
Speaker Change: The segment operating margin was strong for BFG at 12.2%, up 130 basis points to the prior year.
Turning to the ballot sheet and cash flow.
We ended the quarter in strong financial condition.
Speaker Change: with $106 million of cash and cash equivalents and no outstanding borrowings under our asset-based revolving line of credit.
Speaker Change: The business continued to generate solid cash flow, enabling us to invest for growth, pay down debt, and return value to shareholders during the quarter.
Speaker Change: Q1 cash flow from operations was $34 million, while operating free cash flow totaled $57 million.
Speaker Change: As a reminder, that includes $44 million of proceeds from the planned sale of our corporate office, which we discuss on our year-end earnings call.
Speaker Change: which is now inside of our target range of one and a half to two times.
Speaker Change: We also deployed cash to repurchase $10 million of stock under our existing share repurchase program.
Speaker Change: These actions are aligned with the capital allocation priorities we previously outlined for fiscal 2025.
Speaker Change: Investing for Growth, Strengthening Our Balance Sheet, and Returning Value to Shareholders.
Speaker Change: and demonstrate our ongoing commitment to create long-term value for all of our stakeholders.
Speaker Change: Turning now to guidance, we are reiterating our full year outlet for both comparable sales and adjusted operating margins for fiscal 2025. We are also updating our consolidated net sales guidance for the full year due to the unfavorable impact on foreign currency exchange rates.
Our fiscal 2025 guidance is as follows.
Speaker Change: Comparable sales are expected to be in the range of flat to up 2%.
Speaker Change: We're also introducing guidance for the second quarter of fiscal 2025 as follows.
Denise Paulonis: Comparable sales are expected to be approximately flat to the prior year, reflecting the factors Denise outlined.
Denise Paulonis: Consolidated net sales are expected to be approximately 100 basis points lower than comparable sales due to the expected unfavorable impact from foreign currency exchange rates.
Denise Paulonis: An adjusted operating margin of 8 to 8.3 percent, reflecting an improvement of 40 to 70 basis points versus the second quarter of fiscal 2024.
Denise Paulonis: In closing, we are pleased with our first quarter results and the progress we are making on our strategic initiatives, which gives us confidence in the remainder of the year and our long-term trajectory.
Denise Paulonis: We appreciate your time this morning. Now I'll ask the operator to open the call for Q&A.
Speaker Change: Thank you. Ladies and gentlemen, if you'd like to ask a question, please press 1 and 0 on your telephone keypad.
Speaker Change: Your first question comes from the line of Oliver Chen from TD Cohen. Please go ahead.
Sally relative to BSG, then as we look
Speaker Change: Towards the back half, what should we think about in terms of the comp trajectory implied by your guidance? I would also love your take about what the forecast embeds for traffic relative to ticket. Thank you very much.
Speaker Change: and our first quarter was squarely in line with delivering on that. As we look to Q2 and the guidance that there is for Q2, coming into the quarter, what we knew is that there are embedded in Q2 are two known headwinds for BSG from last year. One is lapping the load in of both Amica and Briogeo for our Armstrong Call franchise businesses, as well as an unfavorable calendar in terms of shift days and numbers of Mondays of operation, which are big days for BSG.
Speaker Change: Those were kind of known pullbacks from what we would have seen in Q1. And then the guidance also reflects that the macro environment in January and what's emerged in the quarter has been a little bit choppier and noisier than we had hoped for, but in all honesty anticipated some in how we thought about our full year.
Speaker Change: And so within that, you know, what are we really seeing, right? The noisiness that started in the new year, whether that was the flu, weather, new administration, wildfires, it distracted our consumer a bit and maybe created a little uncertainty. It's kind of manifested in two different ways.
Speaker Change: At BSG, our stylists have actually just seen disruption in their appointment books from illnesses, whether that be the customers or themselves, kind of taking time away from their chairs. And so they are buying closer to need, and that's more focused on color that they need for their services, and color has remained quite strong.
Speaker Change: And on the Sally side, once again, color remaining strong, but a little bit more uneven traffic trends where we have a choiceful consumer for some of our other categories.
Speaker Change: Underlying it all, still feel good about the trajectory of the business, but just realistic about the weathering of what's come through in January, and being prudent as we think about the rest of the quarter.
Speaker Change: When we think to the back half of the year, you're very excited about the trends in the business and what we have to deliver. You know, after three straight positive comp quarters in both businesses, you know, the things that we're doing against our strategy are delivering. We think they'll continue that way.
Speaker Change: A couple of highlights, BSG, the launch of K-18 across all stores and e-commerce comes online April 1st, which is the beginning of our third quarter.
Speaker Change: We'll continue with expanded territory distribution with Moroccan oil, and we're seeing great innovation in the tools segment, whether that's with the universal NeuroDryer and other brand innovation. So a lot to look forward to on the BSG side, and similarly on Sally.
Speaker Change: And then we're working our CRM customer file quite hard, the personalization efforts that we have ramping in terms of driving trips and frequency really are helping our growth and we can expect that to continue as well as the performance within our app.
Speaker Change: So, all of those real signs of strength, you know, when we think about the mix overall and you talked about kind of traffic versus ticket, you know, we think traffic will continue to be.
Corinne Wolfmeyer: Your next question comes from the line of Corinne Wolfmeyer from Piper Sandler. Please go ahead.
Corinne Wolfmeyer: Hey, good morning. Thanks for taking the question. Maybe to build off of that prior question, just any color on kind of where you feel like you're sitting within your full year guidance range.
Corinne Wolfmeyer: after the Q1 and then the expectations for us after Q2. You did reiterate that full year range, just trying to figure out where we might.
Corinne Wolfmeyer: in how much upside downside there is there. And then, any color on kind of the operating margin cadence for the remainder of the year. You gave some Q2 color. But, as we think about Q3 and Q4, any puts and takes that could alter that expansion cadence for the back half. Thank you.
Corinne Wolfmeyer: and you know but i think it's better to die for the full year we were off the prudent that we haven't had a year yet that has not had uh... and uh... of uh... munis or uncertainty around the consumer behavior so
Speaker Change: feel good about where we are, feel like we're squarely in that guidance range. Marlo, do you wanna talk about operating margin? Yeah, the operating margin cadence in terms of how we're looking at the back half.
Marlo Cormier: It's really a continuation of what we've seen in Q1 and you'll see in Q2 as well with our Fuel for Growth program.
Marlo Cormier: the gross margin line, as well as SG&A will contain those costs.
Marlo Cormier: You saw us leverage our relatively flat in terms of dollars. That will continue as we go through the rest of the year as well. So the combination of the growth in the sales line as well as the fuel for growth benefits flowing through, we'll see some operating margin expansion continue as we go through the back half of the year.
Speaker Change: Your next question comes from the line of Susan Anderson from Canaccord Genuity. Please go ahead.
Speaker Change: Hi. Good morning. Alec Legge. I'm for Susan. Can you just talk about the promotional environment? What are you seeing year-over-year and maybe even comparing it to pre-pandemic levels? And then just to follow up on that, are you able to talk a little more in detail about the puts and takes on gross margins in the quarter? And you mentioned lower shrink. Are you expecting that to lap through the rest of the year? Thank you.
Good morning, Alex. Thank you.
and Marlon Cormier.
Speaker Change: both creating that excitement for the customer but achieving good unit volume when we do it.
Speaker Change: On the cadence for the growth margin, again, we're very pleased with the expansion that we had in Q1, a 60 basis point expansion.
Speaker Change: Again, we expect that expansion to continue, but moderate somewhat in the back half of the year. There are puts and takes in terms of our inventory levels and purchases.
Speaker Change: that will cause some fluctuation as you go. But in terms of the shrink improvement, that started in the middle part of last year with some actions that we put in place. So, very pleased with that. That will continue, but it will start to moderate as we get to the back half of the year. Underlying, too, is our promotional change. We made that about Q3 of last year as well. In terms of changing our strategic...
Speaker Change: promo there that was adding to our gross margin and has continued, that will too moderate as we lap. But for the most part, our field for growth initiatives will continue, like I said, to pace at consistent paces throughout the quarter and continue to add to that gross margin expansion.
Speaker Change: Your next question comes from the line of Aslee Helgens from Jeffries. Please go ahead.
Aslee Helgens: Hey, thanks for taking our question and congrats on the nice quarter. So maybe to start, if you could just kind of share what innovation you're seeing in the market right now and maybe how that compares to last year. And then if you could talk maybe about how traffic was pacing throughout the quarter and maybe how demand evolved. Thanks.
Aslee Helgens: Sure. So on the innovation front, you know, I think that the great news is within the hair space and nail space overall, innovation has stayed very robust, coming out of COVID, where there had been a bit of a pocket or a lull in some of that innovation. You know, on the pro side, you know, we continue to see in the care world things such as K-18 that have a lot of efficacy and really help our stylists become more efficient in the services they provide. I think that's only going to continue.
Aslee Helgens: tools and simplifying the way a stylist can use a dryer or an iron and once again make their lives a little bit easier and we're seeing nice uptake from stylists as they're trading up to just easier to use tools in the space as well.
Aslee Helgens: And on the retail side, those same trends persist and carry over. And I would also add that in the nail world, we continue to see strength around press-ons and once again, people doing manicures at home with a lot better tools and capabilities that you would normally find in a salon now becoming an at-home trend. So we're excited on all fronts about the innovation profile that we have coming through right now.
Aslee Helgens: and they really compressed purchases a bit. So we saw transactions flat up in both of our businesses, which was great to see. And as we come into the start of the second quarter, as I mentioned in some remarks earlier in my prepared remarks,
Aslee Helgens: is where we see a little bit more hesitancy, or a little less traffic coming into the stores. But overall, pleased with the direction of the business.
Great, thanks.
Speaker Change: Your next question comes from the line of Simeon Gutman from Morgan Stanley. Please go ahead.
Simeon Gutman: Hey, good morning everyone and a nice job in the quarter. So, my question is, the margins of the business have been great. You've gotten good gross margin expansion and you've really kept SG&A growth at a minimum as you reinvigorate the top line.
Speaker Change: It looks like some of these things could be peaking. You mentioned gross margin could taper a little bit in the back half. I don't know, you know, does fuel for growth allow you to keep SG&A within a very low single-digit band? I guess the question is...
Speaker Change: that you see the top line inflecting further, you know, by the back half of the year as some of these margin levers taper.
Speaker Change: to be able to keep this kind of mid-single-digit rate of EBIT growth, which is impressive. That's the big, big question. How does this all play out? Do you have more initiatives that can help gross margin keep going so you don't have to be as reliant on the sales accelerating? Just trying to get a sense of how you're thinking about it.
Marlo Cormier, Denise Paulonis
Denise Paulonis: Yeah, I would just reiterate our Field for Growth program. We've already delivered over $20 million, $28 million in 2024. We've got another 40 to 45 on target for this year in 2025, and we're well on the path to $120 million by 2026. I'd say the good thing about that program is not only do we have a path to the dollars, we actually are building a muscle within our own organization in terms of new ways of working, new ways of thinking, continually to add to the pipeline of opportunity with our Field for Growth.
Denise Paulonis: So, while we've defined this program as a three-year program, this is an ongoing program for us. So, we're looking to see results for this, for the long term. But clearly...
Speaker Change: And your final question today comes from the line of Olivia Tong from Raymond James. Please go ahead.
Great, thank you.
Speaker Change: Have you started to see any improvement now that we're further away from some of the shocks in January? And then, of course, there's customer skews a bit more towards value. So, given the increased macro pressures...
Speaker Change: I'd love to hear a little bit more about what's going to offset that.
Speaker Change: that allows for that second half improvement or if it's just moving further away from some of those shocks in January. And then switching topics on the topic of tariffs, which I don't think we talked about so far today.
Speaker Change: I don't think you directly sourced from any of the main regions of China, Canada and Mexico, but if you could talk about your conversations with some of your vendors and their exposure and how you think that could potentially play out. Thank you.
Speaker Change: Good morning, and you know, let me just start a little bit with the quarter You know, I think everything that we've seen around the macro items is reflected in the guidance that we have. I will tell you
Speaker Change: January showed a brunt of the weather, and flu season is peaking now, so we'll just watch those trends as we work our way through the rest of the quarter, but feel good about where we are, and as I said, feel good about our ability to pivot and navigate as we need to with the tactics that we can exercise throughout the back half of the year.
Speaker Change: Continuing to push kind of our new brand image as we're going to roll out some of our marketing campaigns. All our fuel underneath what is the strength of the strategic pillars coming through.
Marlo Cormier: that we're excited about. So we'll continue to navigate the year, but feel it's all within our control to deliver as we work through. Marlo, do you wanna talk a bit about tariffs?
Marlo Cormier: From a tariff point of view, we've been through this before, so similar to the last round of tariffs.
Marlo Cormier: You know, I think it is important, as you called out, to understand that our exposure...
is not overly significant relative to some of our peers.
Marlo Cormier: We do receive about 10% of our product, or less than 10% of our product, from Asia and China. Really nothing material from Mexico or Canada. We would employ similar playbooks that we did in the previous go-around.
Marlo Cormier: which included a combination of switching vendors, increasing volumes at other sites, and of course, some price increases. But we're monitoring it. It's a very uncertain environment at this point, but keeping a very close eye on it.
Thank you.
I'll now turn the call back over to Jeff Harkins.
Marlo Cormier: Hello, everyone. It's Denise. I just want to close today by saying thank you so much to our associates around the world. I know how hard all of you are working to serve our customers, bring them the innovation and coaching and advice that they need to deliver on their beauty aspirations. So thank you again for all the work that you do. And to our shareholders, thank you again for your support, and we look forward to updating you again next quarter.
Speaker Change: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Teleconference. You may now disconnect.