Q2 2025 Sally Beauty Holdings Inc Earnings Call
Simeon Gutman, Linda Bolton
Denise Plautus: With me on the call today are Denise Plautus, President and Chief Executive Officer, and Barbara <unk>, Chief Financial Officer.
Denise Plautus: 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.
Denise Plautus: Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors.
Denise Plautus: As discussed in the risk factors section of our most recent annual report on Form 10-K, and other filings with the SEC.
Any forward looking statements made on this call represent our views only as of today and we undertake no obligations to update them.
Denise Plautus: 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 Plautus: Now I'd like to turn the call opportunities to begin our formal remarks.
Speaker Change: Thank you, Jeff and good morning, everyone.
Speaker Change: Our second quarter I'll begin by saying I'm pleased with our team's ability to deliver a 10% increase in adjusted operating earnings and 20% growth in adjusted earnings per share over the prior year, despite uneven topline trends against the challenging external backdrop.
Speaker Change: Adjusted operating margin expansion of 90 basis points was supported by healthy gross margins of 52% and strict expense control.
Speaker Change: Additionally, the business continues to generate strong free cash flow in Q2, which we deployed towards further strengthening our balance sheet and returning value to shareholders through share repurchases.
Speaker Change: Looking at top line trends after a choppy start to the quarter, which we discussed on our February earnings call.
Speaker Change: Water part of our second quarter reflected a more challenging external environment than we anticipated.
Speaker Change: This impacted purchasing behavior, among both our Sally customers and professional stylist at BSG.
Speaker Change: Well at the beginning of the quarter, primarily reflected transitory factors, such as weather wildfires and unusually harsh flu season.
Speaker Change: We believe consumer sentiment and spending in the latter part of fiscal Q2 were impacted more broadly by economic uncertainty.
Speaker Change: In our Sally segment comparable sales dipped into slightly negative territory declining 30 basis points.
Speaker Change: Customer behavior was similar to trends across the consumer landscape, reflecting a slow start to the quarter.
Speaker Change: While sales did pick up in March relative to January and February trends remained below our expectations as the macro environment impacted consumer sentiment.
Speaker Change: Despite solid Q2 public one we delivered 130 basis points of gross margin expansion and increased profitability in the segment.
Speaker Change: Notably we continued to see strong growth in our core category of color and robust performance coming from our newer digital marketplaces strategy.
Speaker Change: Yeah.
Speaker Change: Looking at BSG comparable sales declined two 7%, reflecting the combination of <unk> and historic flu season, and a challenging macro environment, which more than offset two key areas of ongoing momentum in the segment.
Speaker Change: Expanded distribution and product innovation across categories and brands.
Speaker Change: Indeed, this year is unusually harsh full incidents delivered a setback to stylus appointment books, resulting from the combination of their own illness and customer cancellations.
Speaker Change: This in turn naturally limited their product needs and purchasing behavior with the flu season behind us we're seeing a pickup in trends in the BSG segment and while we believe the macro environment. That's having some degree of impact on sales behavior. We anticipate that sales trends will continue to improve in the second half.
Speaker Change: In this uncertain environment, we are taking actions in the areas, we can control protecting margins and free cash flow and continuing to execute on our strategic initiatives.
Speaker Change: From a tariff perspective, our exposure to incremental cost is limited to approximately 20% of our cost of goods sold <unk>.
Speaker Change: Including approximately 10% of cost of goods tied to China, and the rest mainly coming from Western Europe.
Speaker Change: In addition to having limited exposure. We also have levers to pull that will enable us to maintain our healthy gross margin profile.
Speaker Change: So it's a combination of cost sharing with vendors and price increases in the coming quarters and sourcing optimization in the medium to long term.
Speaker Change: The fiscal Q3 guidance and full year outlook, we're providing today assumes that the macroeconomic economic environment and broader consumer demand do not materially change.
Speaker Change: Against this backdrop, we remain focused on advancing our strategic pillars of enhancing our customer centricity.
Speaker Change: Growing our high margin owned brands and amplifying innovation and increasing the efficiency of our operations.
Speaker Change: Noteworthy updates this quarter include our digital marketplaces.
Speaker Change: Licensed <unk> on demand product innovation.
Speaker Change: Sally brand refresh and happy beauty.
Speaker Change: First on the digital front, our marketplace strategy is enabling us to meet our solid customers, where they are bringing new customers to the brand and drive increasing profitability to our ecommerce channel.
Speaker Change: In fiscal Q2 E Commerce sales at Sally U S and Canada increased 29% to last year.
This reflects strong marketplace growth as well as gains in buy online pickup in store.
In addition to strong performance from board action in CCAR, we're excited to announce the expansion of our store fulfilled marketplace portfolio with the strategic addition of Uber eats in March.
Moving now to our licensed colors on demand initiative. This continues to be a highly value added service that is gaining increasing traction quarter to quarter.
Speaker Change: The online platform has grown to approximately 90 licensed colors.
Speaker Change: Consultations have also growth exceeding 4500 per week during our second quarter.
Speaker Change: All of the leading indicators, we track tell us the potential lifetime value of this customer is much higher than non <unk> customers.
<unk> customer spend is about 25% higher driven by increased purchasing frequency and we continue to see a high percentage of customers using the service that our newest brands.
Speaker Change: We view this elevated level of service is an important differentiator for Sally that is unmatched in the market.
Speaker Change: Turning now to product innovation, which is among our core competencies and a key competitive advantage at both banners.
Speaker Change: At BSG, we're maintaining a robust innovation pipeline across categories and brands.
Speaker Change: Second quarter launches include color and care products from sought after brands like Amiga Schwartzkopf, Moroccan oil and wallet.
Speaker Change: On April 1st BSG launched distribution of the cutting edge airfare brand <unk> in all stores and our ecommerce site and is off to a fantastic start.
Speaker Change: We believe <unk> creates an opportunity to increase the share of wallet with our stylists.
Also in April we debuted it got us maintenance and innovative hair care brand emerging as a significant player in the biotech driven beauty revolution.
Speaker Change: Turning to Sally beauty, we saw strong performance from many of our own brands in the quarter, including inspired by nature.
Speaker Change: Beauty secrets and bond bar.
Speaker Change: In April we launched Madison Reed color in select U S stores and on our solid media Dot Com website.
Speaker Change: In the second half of the year with more innovation coming in color care nails and cosmetics. This includes herd losses skincare from soft BD as well as newness and color from Wella in Euro Euro, which is one of our top exhibit brands that will now be offering great coverage options.
Speaker Change: Lastly, bond bar will be launching color conditioners, which provides great maintenance between coloring sessions.
Speaker Change: These three initiatives marketplaces, <unk> and innovation.
Speaker Change: In addition to personalization and enhanced performance marketing, which are all more mature initiatives underpinning our strategy drove over 225 basis points of comp sales growth in the quarter consistent with the results. We saw from fiscal Q3 2024 through fiscal Q1 2025 before being offset.
Speaker Change: By heightened macro pressures in Q2.
Speaker Change: We believe these initiatives will continue to drive consumer engagement and sales over the coming quarters and years.
Speaker Change: Now turning to two of our longer term initiatives, starting with our Sally brand refresh.
Speaker Change: We're moving full steam ahead with the rollout of a fully updated and modernized Sally brand expression across all brand media touch points in store marketing and our E Commerce site.
Speaker Change: Beginning this month, the consumer will see a more consistent message across all channels and brand marketing with her at the center and a focus on elevating Sally beauty as a modern beauty retailer that inspires core DIY customers and next generation beauty enthusiasts, which we believe will unlock new customer segments.
Speaker Change: And drive stronger loyalty.
Speaker Change: From a retail store perspective, the initial eight locations, we refreshed in the Orlando market in fiscal Q1 continued to meet with positive response.
Speaker Change: We're refreshing an additional five stores in Orlando in fiscal Q3, and expect to have over 30 total stores completed by fiscal year end, including some in other markets.
Speaker Change: We're excited about the insights we are gaining with this initial set of stores and our teams are energized by the opportunity to test learn read and react as we continue to progress towards a potential refresh of up to two thirds of the Sally U S fleet.
Shifting now to happy Media initiative.
Speaker Change: We continue to be excited about the potential of this concept and with 20 stores opened we're taking key learnings and acting upon them to further accelerate traffic and conversion.
Speaker Change: At a high level, we've listened to our customers and we're doubling down on product and in store experience underpinned by great storytelling.
Speaker Change: A few notable callouts.
Speaker Change: We're leaning into happy beauty as an indie brand headquarters and focused on key trends such as Korean beauty and fragrance stories, which is a key differentiator for our core customers.
Speaker Change: We're also making a subtle shift from a pure value message to placing more emphasis on great prices on hot products.
Speaker Change: And at the same time or evolving our marketing messages highlighting on trend brands offering tests before you buy and utilizing influencer partnerships and social to drive traffic and conversion.
Speaker Change: We're pleased to see continued engagement with the brand, which gives us conviction that we're on the right path with our refined strategies and focus on mall locations.
Speaker Change: As Youll hear from Marlow, we're continuing to drive operating efficiencies through our fuel for growth program, which is on track to generate cumulative gross margin and SG&A benefits of approximately $70 million by the end of the year.
Speaker Change: While not immune in the current environment, we are operating from a position of strength given the stickiness of our core categories centered around propeller.
Speaker Change: Our fuel for growth program.
Speaker Change: Our strong balance sheet.
Speaker Change: And the resilience of our cash flow generation model.
Speaker Change: Over the past several years, we've built a substantial competitive mode two or two.
Speaker Change: Through our commitment to customer service education advice and inspiration supported by our modern Omnichannel go to market model.
Speaker Change: These differentiators and structural advantages help us navigate periods of uncertainty and create durability.
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 will turn the call over to <unk> to discuss the financials.
Speaker Change: Thank you Denise and good morning, everyone. We're pleased to deliver a third consecutive quarter of operating margin expansion and generate strong cash flow. Despite a challenging sales backdrop.
Speaker Change: Second quarter consolidated net sales.
Speaker Change: $883 million represented a decrease of two 8% and included 110 basis points of unfavorable foreign currency impact.
Speaker Change: Consolidated comparable sales declined one 3%, reflecting a combination of external factors that impacted purchasing behavior, among our Sally beauty consumers and professional stylist at BSG.
Speaker Change: This included a difficult macro environment as well as an unusually harsh flu season, the California, wildfires and inclement weather.
Speaker Change: This was partially offset by strong growth in hair color and digital marketplaces at Sally as well as continued momentum at ESG, driven by expanded distribution and new brand innovation.
Speaker Change: Constant currency Global E Commerce sales were $94 million, that's up 6% versus last year and represented 11% of total net sales.
Speaker Change: Gross margin expanded 100 basis points to 52% in the second quarter.
Speaker Change: The year over year improvement is attributable to lower distribution and freight costs and reduced shrink shrink expense across both business segments and strong product margins at Sally.
Speaker Change: Looking at the balance of the year, we expect to maintain our strong margin profile. Despite the dynamic tariff situations.
Speaker Change: From a cost of goods perspective, our exposure to incremental tariffs is limited to about 20% of our cost of goods.
Speaker Change: Split between China and Western Europe.
Speaker Change: Given our current inventory levels, we expect limited to no cost of goods impact in fiscal year 2025.
Speaker Change: Notwithstanding changes in consumer demand based on our scenario planning, we anticipate that our mitigation tactics will enable us to largely offset potential cost of good impacts as we look beyond fiscal 2025.
Speaker Change: Primarily areas of focus include the following.
Speaker Change: Cost sharing with vendors, where we have longstanding relationships and constructive ongoing dialogue.
Speaker Change: Passing on modest price increases on select products, where price elasticity is lower.
Speaker Change: And over the longer term evaluating opportunities to diversify our sourcing base to additional countries.
Speaker Change: Turning now to expenses.
Speaker Change: Strict expense control drove year over year improvement in SG&A dollars.
Speaker Change: Adjusted SG&A in the quarter totaled $384 million down $11 million to last year.
The decline can be traced to a favorable impact from foreign currency exchange rates savings from our fuel for growth program.
Speaker Change: Advertising expense and depreciation expense.
Speaker Change: In the second quarter, we captured an incremental $8 million of pre tax benefits to gross margin and SG&A from our fuel for growth program.
Speaker Change: Through the first half of fiscal 2025, we have delivered $20 million in pretax benefits.
Speaker Change: This leaves us on pace to capture 40% to $45 million of savings in the full year accumulative program savings of approximately $70 million.
Speaker Change: Our strong gross margin performance, coupled with careful expense control enabled us to deliver improved profitability versus a year ago adjusted.
Speaker Change: Operating margin of eight 5% increased 90 basis points adjusted EBITDA margin of 11, 9% was up 90 basis points and adjusted diluted EPS of <unk> 42 was up 20% versus a year ago.
Speaker Change: Moving to segment results.
Speaker Change: Sally beauty net sales decreased two 5% to $501 million.
Speaker Change: Including 150 basis points of unfavorable FX impact on 17 fewer stores versus a year ago.
Speaker Change: Comparable sales were roughly flat at minus <unk>, 3%, reflecting the external factors that impact consumer spending, including weather and unusually harsh flu season and macro uncertainty.
Speaker Change: Comparable transactions were down 1%, while average ticket was up 1%.
Speaker Change: At constant currency Sally E Commerce sales were $41 million and represented 8% of segment net sales for the quarter.
Speaker Change: It's up 21% year over year, primarily driven by the strength of our digital marketplace strategy.
Speaker Change: For the global Sally Beauty segment color increased 4%, while care was down 8% compared to the prior year.
Speaker Change: At Sally U S and Canada, Colin was up 6% and care decreased 8%.
Speaker Change: Gross margin in our Sally segment increased 130 basis points to 61, 2%.
Speaker Change: The year over year improvement reflects three primary factors lower.
Speaker Change: Lower distribution and freight costs higher product margins, resulting from our improved promotional strategies and enhanced vendor relationships and lastly, lower shrink expense.
Speaker Change: Segment operating margin was strong coming in at 15, 4% up 40 basis points to last year.
Speaker Change: Looking at the BSG segment net sales decreased three 2% to $383 million, including 50 basis points of unfavorable FX impact.
Speaker Change: While comparable sales were down two 7%.
Speaker Change: Primarily reflecting the external factors that impacted stylus appointments and related purchases, including weather and unusually harsh flu season and macro uncertainty.
Speaker Change: Comparable transactions were up 3%, while average ticket was down 6%.
Speaker Change: On a constant currency basis, BSG e-commerce sales were $53 million.
Speaker Change: Presenting 14% of segment net sales for the quarter.
Speaker Change: From a category perspective color was flat and care was down 5%.
Speaker Change: Gross margin at BSG increased 40 basis points to 39, 8%, primarily reflecting lower distribution and freight costs and lower shrink expense.
Speaker Change: Partially offset by lower product margins due to brand mix.
Speaker Change: Segment operating margin was also strong coming in at 11, 5% up 60 basis points to the prior year.
Speaker Change: Turning to the balance sheet and cash flow we.
Speaker Change: We ended the quarter in strong financial condition with $92 million of cash and cash equivalents and no outstanding borrowings under our asset based revolving line of credit.
Speaker Change: Inventory levels remain healthy at slightly over $1 billion down about 3% to last year.
Speaker Change: During the quarter, we maintained our balanced capital allocation strategy as we continue to prioritize long term value creation for shareholders.
Speaker Change: The business generated strong cash flow from operations of $51 million, while operating free cash flow totaled $32 million, reflecting capital expenditures of $19 million in the quarter.
Speaker Change: Halfway through the year, we have delivered free cash flow of $90 million and that puts us on track to still achieve approximately $180 million to $200 million in free cash flow for the full year.
Speaker Change: We brought our net debt leverage ratio down to one eight times after utilizing excess cash to repay $36 million of term loan b debt in the quarter.
Speaker Change: We also deployed cash to return value to shareholders in Q2 utilize.
Speaker Change: Utilizing $10 million to repurchase one 1 million shares of stock under our existing share repurchase program.
Speaker Change: One final note before discussing guidance you may have seen that you may have seen that today, we announced a four year extension to our share repurchase program, which.
Speaker Change: Which was set to expire in September of this year, we have them.
Speaker Change: Approximately $500 million remaining under the original $1 billion authorization.
Speaker Change: Turning now to guidance.
Speaker Change: We're introducing third quarter guidance and updating our full year outlook based on current business trends.
Speaker Change: Given the evolving global trade policy, and how that may impact consumer sentiment and spending the outlook. We're providing today assumes no material change in the macroeconomic environment or broader consumer demand trends.
Speaker Change: Our updated fiscal 2025 guidance is as follows.
Speaker Change: Comparable sales are expected to be in the range of flat to down 1% versus prior expectations for flat to up 2%.
Speaker Change: Consolidated net sales are now expected to be approximately 75 basis points lower than comparable sales due to the expected unfavorable impact from foreign exchange rates.
Our prior guidance of approximately 100 basis points.
Speaker Change: Adjusted operating margin is expected to be in the range of eight to eight 5% compared to our prior expectation of eight 5% to 9%.
Speaker Change: Our guidance for the for the third quarter of fiscal 2025 is as follows.
Speaker Change: Comparable sales are expected to be approximately flat to down 2% versus prior year.
Speaker Change: Consolidated net sales are expected to be approximately 50 basis points lower than comparable sales due to the expected unfavorable impact from foreign exchange rates.
Speaker Change: And adjusted operating margin is expected to be in the range of eight to eight 5%.
Speaker Change: In terms of deployment of cash we expect to repurchase approximately $20 million of stock and repay approximately $20 million of debt during our third quarter.
Speaker Change: We appreciate your time this morning, now I'll ask the operator to open the call for Q&A.
Speaker Change: Thank you to ask a question. Please press star one one of your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Oliver Chen of TD Cowen. Your line is now open.
Oliver Chen: Alright, Thanks, a lot for all the details I would love for you to try to compare and contrast, the Sally division relative to BSG.
Speaker Change: The lighter comp.
Oliver Chen: Versus estimates and what's in your control and what's not there.
Speaker Change: And then would also just love your thoughts as we forecast the ecommerce going forward you had a really nice number there what should we know in terms of that momentum.
Oliver Chen: What will happen going forward. Thank you.
Oliver Chen: Good morning, all happy to take those questions, while we saw a little bit lighter sales in both segments in the quarter and we're pleased with the things that are under our control, which are all of our strategic initiatives and I meant as I mentioned, they delivered about 225 basis points a comp on the total business, which is very consistent to what we've been doing the three prior.
Oliver Chen: Quarters before we hit a little bit of that.
Oliver Chen: Of macro headwinds as we came into the second quarter. When you think about the difference between the two businesses. So solid comps declined just about 30 basis points after growing for three quarters.
Not really but 30 basis point decline was really about our growth in color as well as marketplaces offset by a bit of decline in hair care. We really just saw was a bit of a softening in transaction and ticket compared to the prior quarter at customers, who are being more choice fall at particularly at that end of the.
Oliver Chen: The quarter I was little bit of economic uncertainty and volatility, but really pleased with the way that we navigated with 130 basis points improvement in gross margin 40 basis points improvement in operating margin and clearly the things under our control there are all of our strategic initiatives as well as being nimble around promotional cadence.
Oliver Chen: If you turn to BSG BSG comp decline was bigger it did fall of five quarters of solid sales growth and when we looked at what really happens there.
Oliver Chen: <unk> Scott hit early in the quarter in particular with the flu season.
Oliver Chen: It came in and told US they were sick their families were sick their customers were impacted.
Oliver Chen: It impacted their stylists appointment book quite a bit and in turn we saw a pullback in the need for supplies from us once again really pleased with our color performed amidst all of that and very pleased with.
Oliver Chen: The launch of <unk>, which we're excited as we turn to the new quarter to see that be able to build in the business as well and on the BSG side. We saw strengthening as we went from Jamie February into March we have seen continued strengthening in April and we expect that that will continue as well clearly the biggest thing.
Oliver Chen: Under our control there are territory expansions and our innovation, which we will continue to drive.
Oliver Chen: On the E Commerce front, absolutely really pleased with the results. We're seeing we're really intersecting now is the strength of the marketplace strategy expansion beyond door Dash is Descartes Amazon Walmart and now. The addition of Uber eats we are seeing customers enjoy the convenience of being able to shop with us through all of those.
Oliver Chen: Platforms are also say our core ecommerce platform is starting to benefit from our personalization initiatives that are ramping up and our sophistication and being able to deliver the right message to the customer at the right time. So we are right about 11% penetration today, we think that's going to continue to grow naturally as our probe.
Oliver Chen: <unk> evolve and as consumers understand our awareness out there so looking forward to continued growth.
Oliver Chen: Okay.
Oliver Chen: Follow up how is the store refresh done in terms of traffic and expectations in terms of that store refresh driving some change and then we're pretty excited are happy about happy beauty, what's keeping you in terms of growing that and as you assess a refinement of that model for <unk>.
Oliver Chen: Profitability it seems like a big addressable market. Thank you.
Oliver Chen: And we're pleased with the start of the store refresh activity. We won't we have eight stores open for a pretty short period of time here. So it's a little early to read full results, but we are seeing customers come in and cross shop, a bit more of a store them come in and talk about it being as a solid and just the experience that you get the pipeline.
Oliver Chen: Through the store and the appreciation, where we're going to continue to be watching all of the underlying metrics of the sales trend kind of come in and stabilize a bit as we have those stores open and get to more open in the market, but pleased with what we're seeing so far on that front.
Oliver Chen: And then when terms are happy beauty.
Oliver Chen: Really really nice seeing that in particular the mall stores that we had opened ahead of the holidays are performing and are quite strong in the mix with 20 total stores open.
Oliver Chen: We have a lot of learnings as I mentioned in the prepared remarks, and we're we're pivoting on some things are feeling good about the path on both traffic conversion as well as GPT, what we want to see as those continue to trend in that direction that we've been seeing as we assess the expansion plans so more to come in future quarters as.
Oliver Chen: We watch those metrics and.
Oliver Chen: Prepare prepare next steps as appropriate.
Oliver Chen: Okay final on the tariff changes, which are happening so dynamically.
Speaker Change: What do you think your consumer how do you think youre, a consumer may respond and what have they thought about in the past relative to all the headlines.
Oliver Chen: Just would love your take rates.
Speaker Change: Rates move lower.
Speaker Change: Hopefully foreseeable future. Thanks.
Speaker Change: As you mentioned it is certainly dynamic nothing like waking up this morning with some new news.
Speaker Change: We're hopeful that with the news that came out this morning with some news from the U K last week as well.
Speaker Change: We will start to get a little bit more clarity and consumers will feel less uncertainty in terms of what their behaviors and their habits will be able to be and that's what we'll be watching for the hope will be those things settle down a bit on consumer trends will.
Speaker Change: You have less choppy settlement out of all the news cycles come through but given that was just putting news last night I think we're all are waiting to see how customers respond in the coming weeks as we look ahead.
Speaker Change: Thanks Best regards.
Speaker Change: Our next question comes from the line of Karen Wolf Mirror with Piper Sandler Your line is now open.
Speaker Change: Hey, good morning team. Thanks for taking the question I'd like to touch a little bit more on the guidance change in how you're thinking about each segment.
Speaker Change: The back half it seems like Youre, a little bit more optimistic on BSG. So is it fair to assume that the Sally beauty side is the main driver of the guidance reduction or just how are you thinking about the trends for each segment into the back half. Thanks.
Speaker Change: Hi, Brian Good morning, what I'd say overall the guidance is really just reflecting the current environment that we've seen if we came through the first half of the year. Our comps were slightly positive operating earnings up 7% operating earnings up 8% operating earnings right at eight 4%. So the guidance really just says a steady eddy.
Speaker Change: As you kind of look to the second half, perhaps a little bit of softness given what we don't know about the consumer.
Speaker Change: Portions of the business I think when you think about the business and BSG had a bit tougher quarter this past quarter.
Speaker Change: Then with the Sally business did as we've talked about that are Siloed told us that was flu related behavior. So we do expect there to be a recovery there as we go through the second half of the year, including Q3.
Speaker Change: A bigger recovery that we anticipate and on the Sally side I think we're just we're expecting that color remains quite robust and care business is likely to remain a bit softer just as our customers are being a bit more frugal. We saw that in the fact that we run a four for $30 hair care promotion.
Speaker Change: Buying four bottles at $30 ended up feeling a little rich to our customers in March we pivoted and made that by two for 15, and we saw really nice uptake, but that's our indicator of that Sally customer and where that threshold for spending might be.
Speaker Change: But overall, we think it's just prudent as we look to the back half of the year or two.
Speaker Change: Take into account what current business trends are and the uncertainty our hopeful at the news from last night and into this morning will provide us.
Speaker Change: A little bit more upside than what we might have thoughts as of last night in fact.
Speaker Change: Great. Thanks, John that's really helpful and then on the margin front.
Speaker Change: Pretty pretty good margin performance, both on the gross margin and the operating margin line. This quarter, but there was a bit of a guidance suggests Smith. So I guess first what would you say were the biggest drivers of the margin strength. This quarter and then what's changing in the back half to drive some of that reduction I know theres going to be.
Speaker Change: Maybe some deleverage with the top line adjustments, but anything else to call out would be great. Thank you.
Speaker Change: Yes. Thank you, yes, so the.
Speaker Change: Our fuel for growth program that is driving our margin expansion both through gross margins as well as the benefits that we're seeing through SG&A and so right now we've got about $20 million of benefits that we've already delivered them through the first half of this year.
Speaker Change: We are on track to deliver another $40 million to $45 million on a full year.
Speaker Change: So.
Speaker Change: That flow through happening now as we look to the back half of the year.
Speaker Change: A few things happening.
Speaker Change: The stronger margins to continue on the SG&A side, we will see a bit of a step up in expenses, but if thats due to the timing of advertising.
Speaker Change: Well as our investments in that that's tied to our investment in brand refresh and we do have some general cost inflation that happens with merits that come in for our store associates.
Speaker Change: In Q3.
Speaker Change: We are looking to fuel for growth offsets a lot of that mitigate.
Speaker Change: So we do expect to see some continued strong influence on the earnings side.
Speaker Change: But we will see it could have a step up on yesterday.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Susan Anderson of Canaccord Genuity. Your line is now open.
Susan Anderson: Hi, good morning, Thanks for taking my question.
Speaker Change: Maybe if you could talk a little bit about just kind of what you've seen I guess heading into the back half.
Speaker Change: It sounds like Youre expecting maybe consumers who tend to pull back on spending, but just curious if you've seen any of that.
Speaker Change: And Dave and the decline in consumer sentiment and then also Im curious if youre seeing any trade down to consumer kind of doing their own coloring. It sounds like coloring withdrawn that really apples segments, though.
Speaker Change: Just curious if you've seen any of that yet.
Speaker Change: Hey, Good morning, let me start with saying when we thought about the first quarter as we talked about January and February has been transitory factors.
Speaker Change: Weather and flu that weighed on kind of retail overall and then as we came into March that those trends really subsided, but we did see a little bit more anxiety amongst the consumer is news was starting about tariffs and potential impacts of the macro economic environment.
Speaker Change: As we started into April those trends remain consistent and I think in our guidance. That's what you see reflected in our guidance when.
Speaker Change: When I say underpinning that is BSG certainly had more transitory factors and we've seen those mitigate and expect that as we are growing.
Speaker Change: Through our third quarter into our fourth that you will continue to see good performance at ESG, even in the current environment that we're in and then on the salary side. Similarly, as I mentioned, we've seen transactions be a little bit lighter than we anticipated and.
Speaker Change: That price point and units of people, putting it into their basket theres. Some conservatism. There. So you know these are minor pressure points in the Grand scheme of things, we're coming off of three quarters of top line growth at Sally five quarters at BSG.
Speaker Change: Hope that what we're seeing right now is transitory, but we have reflected that what we saw in March would continue up further into the year at this point.
And in terms of trade down it's a really interesting question. The world that we see right now is more pressure on our lower middle income consumer and then maybe on the middle to higher income consumer that's more likely to be using stylus services coloring and highlighting and all of those items, we would expect.
Speaker Change: It would really not be that trade down from pro to DIY. It unless you did have a full recession. So it's something that would be a much more notable in terms of a weak although each challenge employment challenge come through and how we historically kind of the trigger that you would see there, but we certainly.
Speaker Change: We have seen our customers looking for ways to extend their services so ways that they can do touch up.
Speaker Change: In between just to be able to get a few extra weeks between our color.
Speaker Change: And then in general we have not seen folks trade down in terms of brand to mix.
Speaker Change: In either of our businesses, although people are always looking for value.
Speaker Change: As I mentioned we.
Speaker Change: We've seen customers looking for that promotion are looking for that deal on both businesses.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.
Speaker Change: Hey, good morning, just to start can you talk about quarter to date again I know you said there was some pick up in one of the businesses I missed that are you seeing a similar pickup in quarter to date for both of your businesses.
Speaker Change: Good morning, Simeon we are we are seeing improved performance as we're into Q3 as we talked about and in particular on the BSG side of the business that recovery post the flu situation has been.
Speaker Change: We're definitely seeing that come through so.
Speaker Change: Nice to see that we picked up from some of those baselines, but remain cautious as we are just looking at the consumer.
Speaker Change: Further into the third quarter and fourth quarter, depending upon the way the economy is.
Speaker Change: Okay, and then as a follow up to the prior question because I got most of the answer there was no tariff built into weaker margin for the back half of the year is that correct, meaning you didn't have any assumption that tariffs were going to were going to weaken the margins are the gross margins in the back half yes.
Speaker Change: Yes, that's correct just given the timing of our fiscal year that ends in September the timing the tariff repositioning walking back some purchase orders on hold for China.
Speaker Change: We don't see any flow through.
Speaker Change: Going through <unk>.
Speaker Change: Material impact to this year.
Speaker Change: Okay, and then just one more I know you said, there was like flu and weather and things hurt.
Speaker Change: Some of the stylist and the business in early part of the quarter was there any do you have any markets, where you can control for that meeting incidents wasn't as high end or whether it was more favorable where you had more normal trends that you can point to from the corner.
Speaker Change: Yeah, what I would say the flu was pretty broad based but when you look at other things like the incidence of the early wildfires.
Speaker Change: Or some of the weather situations, we can very clearly see where those pockets got hit harder.
Speaker Change: We think about both sides of the business in terms of absolute store closure days from things like weather buyers employee sickness and it was up notably versus last year, which is the basis of the analysis.
Speaker Change: Okay. Thank you and good luck.
Speaker Change: Our next question comes from the line of Olivia Tong with Raymond James Your line is now open.
Speaker Change: Good morning, Mr. William on for Olivia and I was wondering if you could just talk about the current promotional environment in the past you've talked a bit about shifting your strategy. So just wondering if you anticipate having to change as consumer sentiment is weaker.
Speaker Change: Thank you.
Speaker Change: I think we feel good about our strategy overall, when we talk about the key initiatives that we're leaning into behind customer centricity with things like license colors on demand, our CRM activity and personalization. The marketplaces performance that we've seen combine that with innovation. We believe that we're on the right track with our initiatives.
Speaker Change: Is when we think about anything that could.
Speaker Change: Pivot or we think differently about about the consumer environment, we're watching that pretty closely but we think that's more about the tactics rather than fundamental changes to the strategy. So I think that we feel like we're on a good track to stay on our commitment to the initiatives that we have out there and speaking to that when you think about the quarters leading up.
Speaker Change: Q2, we were at three consecutive quarters for both businesses of topline and bottom line growth.
Speaker Change: It is not just our sales initiatives starting to perform but fuel for growth really helping the bottom line as well. So in terms of the core of the business and we're feeling we're feeling quite positive about it.
Speaker Change: Thank you as a reminder to ask a question at this time. Please press star one wondering you touched on telephone. Our next question comes from the line of Symphony Wagner with Jefferies. Your line is now open.
Speaker Change: Hi.
Symphony Wagner: I was wondering if you could kind of share what innovation, you're seeing drive the most traffic our conversion in stores. Thank you.
Symphony Wagner: Sure on the pro side of the business I think that there is definitely a trend around the last thing on our glass here. It looks so very that very much smoother look and that you see out there.
Symphony Wagner: Certainly gaining a lot of a lot of.
Symphony Wagner: Traction across across all services, whether that be color or care.
Symphony Wagner: On the consumer side that trend is there as well, but I'll also say a trend and <unk> is a very interesting one different way to get that at home DIY Manicured you can do that we see notable strength. Then we've also seen pick up in our inspired by nature brand, which would be our free from hair color brand that we have out there.
Symphony Wagner: We're seeing that come through a bit as well.
Symphony Wagner: But we're pleased on both sides of the business to have brands that really support this so the pro side.
Symphony Wagner: Our new launch of <unk>, Moroccan oil Amit color Wow.
Symphony Wagner: Maintenance that's brand new to US are all places, where we're able to lean in and support those trends and on the Sally side, the strength of our own brands and many of those places combined with our brand partners, including soft beauty Wella and others and we're really we're pleased that we're able to support those trends.
Denise Plautus: Thank you and this concludes the question and answer session I would now like to turn the call back over to Denise <unk> for closing remarks.
Denise Plautus: Well. Thank you I appreciate everyone tuning in to hear our update on the second quarter and as we're looking forward to the back half of our year I. Appreciate all the interest of shareholders and all of that we are doing to drive long term shareholder value and I'd just like to take a final moment to thank our team for all they do to help our customers around the globe.
Denise Plautus: That will be back with an update next quarter.
Denise Plautus: This concludes today's conference call. Thank you for your participation you may now disconnect.
Denise Plautus: Okay.
Denise Plautus: [music].
Denise Plautus: Okay.
Denise Plautus: [music].
Denise Plautus: Sure.