Q3 2025 Sally Beauty Holdings Inc Earnings Call
Good morning everyone and welcome to Sally Beauty Holdings conference call to discuss the company's third quarter. Fiscal, 2025 results, all participants have been placed in a listing mode.
After Management's prepared remarks, there will be a question and answer session additional instructions will be given at that time.
Now, I'd like to turn the call over to Jeff Hawkins, vice president of investor relations and treasurer for Sally Beauty Holdings.
Thank you. Good morning everyone. And thank you for joining us.
With regard to the call, today our Denise Paulonis, President and Chief Executive Officer, and Marlo Cormier, Chief Financial Officer.
Before we begin, I'd like to remind everyone that mandatory marks on this. Call may contain furthering statements within the meaning of the private Securities. Litigation Reform, Act of 1995.
Actual results May differ materially from those indicated by these 4 looking statements as a result of various important factors.
Including those discussed in a risk factor section of our most recent report and report on form 10K and other filings with the SEC.
Any form of statements made in this call represent our views only as of today and we undertake no obligation to update them.
The company has provided a detailed explanation and reconciliations of its adjusting items and non-gaap financial measures and its earnings press release and on its website.
Now, I'd like to turn the call over to Denise to begin the full remarks.
Thank you, Jeff and good morning, everyone.
The resilience executional excellence and customer first mindset of our team was on display in the third quarter.
In turn we delivered 13% earnings per share growth. Admits to complex macro backdrops
comparable sales were approximately flat near the high end of our guidance range and adjusted operating margin of 9.2% exceeded the high end of our expectations.
In fact, our healthy gross margin profile and prudent cost control coupled with benefits from our fuel for growth initiative, drove a fourth consecutive quarter of operating margin expansion.
Additionally, our strong cash flow, generation allowed us to strengthen the balance sheet, through 21 million of debt repayment, and also return value to shareholders via 13 million of share repurchases.
In our Sally segment our caller category delivered continued, standout performance growing 4% with color. Customer count up supported by strength in our Performance, Marketing results, particularly our do-it-yourself value messaging.
Expansion of our personalization Journeys.
And consultation group from our licensed colorist on demand digital experience.
Additionally, momentum continued in our digital marketplace expansion.
Continuing the more cautious spending behavior, we saw last quarter that our Sally customers were more choiceful in hair care and other ancillary categories, with some trade-down in price and a focus on value.
We are digging in deeper into our customers needs. In these areas and are refining. Our tactics from personalization and Performance Marketing, to Promotions, to better serve them.
Looking at BSG sales returned to positive territory, as the external factors that impacted stylist, appointment books, and purchasing behavior in Q2 receded.
Of note, BSG has now delivered sales growth in 6 of The Last 7 quarters.
key drivers of q3's, Topline strengths include expanded distribution, and robust product Innovation, across categories, and brands
while navigating today's Dynamic n landscape where laser focused on profitability and driving operating efficiencies through our fuel for growth program, which is currently in year 2,
This working, compasses, merchandising sourcing supply chain, best cost, locations, and non-trade spend where, we've carried out deep Dives in our extracting value.
We remain on track to generate cumulative, gross margins and sgna benefits of approximately 70 million dollars by the end of this fiscal year and expect to capture cumulative. Run rate, Savings of 120 million dollars by the end of fiscal 2026.
Marlo will provide a more granular? Look at the program in her remarks.
Now, I'll move to an update of some of the key initiatives under our strategic pillars of enhancing our customer centricity.
Growing our high margin own Brands and amplifying innovation.
And increasing the efficiency of our operations.
Starting with our Marketplace strategy. We are pleased to see strong momentum across our portfolio Partners. Which includes door Dash instacart Uber Eats Amazon and Walmart.
Our Marketplace growth continues to be a key driver of e-commerce sales at Sally, US and Canada, which increased 21% over the prior year in fiscal, Q3 and comprised 8% of total sales.
Our presence on high visibility platforms is attracting new customers to the brand and enabling us to meet them where they shop while driving more profitable sales.
We're pleased with how quickly this initiative is scaling and believe, there is more growth to come.
Turning now to our licensed colors on demand initiatives.
We're continuing to see a broad-based strength across the platform with consistent increases in key metrics including traffic consultations average, transaction value, and purchasing frequency.
In Q3, we had more than 90 licensed colorists averaging over 4,700 consultations per week.
Additionally, our LCD customers had an average transaction value of 35, which is 25% higher than what we see for non LCD, customers and LCD. Customers are averaging 1 more trip on an annual basis compared to non LCD, customers.
Customer feedback has been overwhelmingly positive and retention rates are significantly higher than non LCD, customers.
And we initially launched this platform, it gained traction quickly and has proven to be a powerful tool for broadening our reach.
Attracting new customers to Sally and deepening our strategic mode in professional color for home use.
Moving to Innovation, which remains a Cornerstone of our operating and growth strategies.
in both segments of our business, we are proud to have built a reputation for bringing our customers, a consistent pipeline of on-trend, innovation relevant Brands and exclusive launches,
In the Sally segment, we saw strong performance from many of our own brands in Q3, including ion Bond bar inspired by nature and strawberry leopard.
In June, we doubled down on the nail category, with a significantly expanded, assortment focused on trend-driven Innovation, including Brands like nailboo kits and dashing diva.
We do nails as an important growth category for Sally 1 that has become a leading Discovery Channel. For new Sally customers and furthers our position as a leading destination for Shoppers seeking Trends, value and convenience.
at BSG, recent launches continue to perform well for
this includes the successful and much anticipated. April launch of K18 as well as guidance maintenance a brand rooted in biotech.
Additionally, our Salas embraced newness and expanded distribution from Color. Wow, image Moroccan oil, shorts, cough, and Wella
An 800 CosmoProf stores. Our full service Channel, and e-commerce.
Unite includes hair masks styling and detangler products.
I'm pleased to note that our core strategic pillars are continuing to drive sales and engagement.
The combination of marketplaces licensed collars on demand and Innovation as well as personalization and enhanced Performance Marketing. Contributed approximately 290 basis points of comp sales growth in the third quarter and 250 points year to date.
Now, I'll turn to our longer term initiatives.
Starting with our Sally brand refresh, which is designed to Pivot Sally. Beauty from a beauty supply house to a modernized specialty, Beauty retailer.
As of July 31st, we have completed the refresh and a total of 20 locations.
Which includes 18 stores in Orlando 1 in Ohio and 1 in Minnesota.
We expect to complete another 15 stores across the US. During our fourth quarter results, in approximately 35 stores updated by the end of our fiscal year.
In these refresh locations or prioritizing the customer Journey.
And operational execution to deliver a superior in-store experience.
1 that encourages Discovery, inspires and engages.
we're also testing expanded categories, such as nail and cosmetics along with adjacencies such
As fragrance.
Decorating additional.
SKU count, rationalization.
To date, we see customers spending more time in store and cross shopping categories and then increased rate as evidence. By basket, growth coming from Nails cosmetics and Skin Care.
Additionally, we're seeing key indicators—including units per transaction, average unit retail, and average transaction value—all trending above the rest of the fleet.
In short, the new look feel navigation and Merchandising strategies are driving the desired results.
Importantly in mid July, we kicked off our Orlando marketing initiatives, which includes Billboards, paid social paid search YouTube and CRM.
This is a planned incremental marketing investment spreading the word on our transformed Sally experience to drive traffic and new customer acquisition.
For a look at at how the store refreshes are taking shape. Please visit our IR website where we've posted a short video
Looking ahead to fiscal 2026. We expect to complete another 50, refresh.
All recurring in stores that were previously slated for update or relocation.
Therefore, we don't anticipate a material deviation to our historical capex levels.
We're moving forward, as measured Pace to ensure, we're positioned to generate meaningful returns and continue to have conviction in the opportunity to refresh up to 1500 stores or approximately 2/3 of the salary us Fleet.
we believe the refresh has the potential to be an important contributor to driving consistent Topline growth and look forward to advancing this strategy over the coming quarters
shifting now to our happy Beauty initiative,
We continue to see some nice Trends in our happy beauty stores, especially in our mall stores where there is natural traffic.
We are still testing and learning on this concept and our leaning into Happy Beauty as an indie brand headquarters with a focus on key trends, such as Korean beauty and fragrance stories.
Additionally, our marketing message is focused on highlighting on Trend Brands offering tests before you buy, and utilizing influencer Partnerships and social media to drive traffic and conversion.
We're pleased to be entering the final stretch of our fiscal year on a strong note.
We're raising our full year. Adjusted operating margin guidance to reflect the strength of Q3 and our confidence. In the company's strong Market positioning durable, operating model and long-term growth potential as we continue to advance our strategic pillars.
We appreciate the support of our show rollers and remain committed to building long-term value, for all of our stakeholders.
Now, I'll turn the call over to Marlow to discuss the financials.
Thank you, Denise. And good morning everyone.
Our third quarter, Financial results are a testament to the actions. We have undertaken through our fuel for growth program.
While comparable sales came in roughly flat, but improved from our second quarter, our fuel for growth initiative, drove strong growth. Margins and enabled us to hold sgna expenses, relatively flat to the prior year. For both our third quarter and fiscal year today.
In delivering bottom line performance, above our guidance range, which drove continued strong cash, flow generation.
Turning to the numbers third quarter Consolidated, net sales of 933 million represented a decrease of 1% while operating 35 fewer stores compared to the prior year.
Consolidated comparable, sales declined, less than half a point, while, macro, and certainty continue to impact spending among our Sally Beauty customers. This is partially offset by strong growth in hair colors, and digital marketplaces.
We were pleased to see a strengthening Topline Trend, and return to positive comparable sales at DSG, driven by expanded distribution and new brand innovation.
Global e-commerce sales increased 8% to 99 million in represented 11% of total net sales.
We continue to deliver a strong growth margin profile in Q3 with adjusted gross margin. Expanding a 100 basis points to 52%.
The year-over-year Improvement is primarily attributable to our Sally Beauty segment which delivered higher product. Margins driven by our fuel for growth initiatives,
And also benefited from lower distribution and rate costs versus a year ago as well as reduce the shrink expense.
As we communicated last quarter, we expect to maintain our healthy gross margin profile amidst, the changing tariff landscape especially given our limited exposure.
We expect a largely offset potential cost of goods. Impacts through cost sharing with vendors modest price increases on select products.
And sourcing optimization.
Looking at expenses.
Q3 adjusted sgna totaled, 399 million, that's up, just 2 million dollars to last year, reflecting higher labor and it costs partially offset by 6 million dollars in fuel for growth benefits and lower depreciation expense.
In total, we captured an incremental 12 million of pre-tax fuel for growth benefits to both gross margin and sgna and Q3 enabling us to deliver 31 million in pre-tax benefits of your time.
This leaves us on pace to capture $40 to $45 million of savings.
A full year fiscal 2025 after generating, 28 million in savings, and fiscal 2024.
This keeps us on track to deliver cumulative Savings of approximately 70 million since we initiated the program in fiscal 2024.
To summarize the program details, the 70 million dollars in cumulative. Savings over 2024 and 2025 is comprised of 2 buckets.
Gross, margin and sgna.
Gross margin benefits told about thirty million dollars coming from the optimization of our supply chain vendor Partnerships and promotional efficiencies.
Sdna benefits totaled about $0, million coming from Transportation efficiencies, Outsourcing and reductions in non-trade. Spend
of the 70 million in cumulative benefits, over fiscal years 2024 and 2025 approximately 30 million will have been reinvested in the business to support our strategic initiatives, including marketplaces,
Licensed colors on demand our Sally brand, refresh and happy beauty company.
As well as advertising and it capabilities.
The remaining $40 million will flow to the bottom line as profit or to offset inflation.
We anticipate delivering an additional $50 million in run rate savings, and fiscal 2026. With about 2/3, coming from gross, margin and 1/3 from sgna.
By the end of fiscal 2026, we expect that our cumulative run rate savings will be approximately 120 million dollars.
Returning to the p&l. We're pleased to report that bottom line results. Exceeded our expectations
Driven by both gross margin expansion and cost reduction.
Additionally, we delivered an increase in both adjusted operating income dollars and adjusted operating margin rate over the prior year.
Adjusted. Operating margins were 9.2% representing, an increase of 30 basis points over the prior year.
Adjusted diluted earning per. Share was 51 cents.
A 13% increase over the prior year.
The debt reduction in Cherry purchases complementing, the positive impact of our offering results.
With these Q3 results year to date, our adjusted operating profit is up 6%.
With 60 basis points of margin.
Expansion and 13% earnings per share growth.
Moving to segment results.
Sally Beauty, net sales decreased 1.8%.
plus 5277,
on 32 fewer stores versus a year ago, with comparable sales down 1.1%.
Comparable, transactions, declined. 1%, while average ticket was approximately flat
For the global Sally segment color increased 4%. While care declined 7% compared to the prior year.
And represented 8% of segments, net sales for the quarter.
In addition, e-commerce sales for Sally US and Canada grew by 21% primarily driven by the strength of our digital Marketplace strategies.
Gross margin in our Sally segment increased 110 basis points to 60.9%.
The year-over-year Improvement, primarily reflects fuel for growth benefits lower distribution, and freight costs and lower shrink expense.
Segment. Operating margins came in at 15.8% now 40 basis points to last year.
Looking at the BSG segment, net sales were approximately flat at $407 million, and comparable sales increased by half a point.
Comparable transactions were up 6%. While average ticket was down 5%.
From a category perspective. Color was up, 3% and Care was approximately flat.
The SG, e-commerce, sales were 56 million, representing 14% of segments, net sales for the quarter.
Gross margin at BSG was 39.4%.
Flat compared to Prior year, primarily reflecting lower distribution, and freight costs, offset by product margins, due to Brand mix.
Segment. Operating margin was strong coming in at 12.5% up, 100 basis points to the prior year.
Turning to the balance sheet and cash flow.
We ended the quarter in strong financial conditions with 113 million of cash, and cash equivalents and no outstanding borrowing under our asset base revolving line of credit.
Inventory levels were approximately a billion dollars down 2% to last year with units down 5%.
Equating to a half week of reduction in weeks of supply.
As we continue to focus on driving efficiency across the business, on top of the great work, our teams have already done. We believe there's additional opportunity for process Improvement, around inventory, turns
This includes a deeper dive at the ski level aimed at enhancing inventory productivity.
Which we believe will create incremental cash flow on top of our existing strong free cash flow profile.
More to come on that as we enter a fiscal 2026.
The business continues to be a strong and steady cash flow generator, providing us with the ability to consistently return value to shareholders.
Third quarter cash flow from operations told 69 million while operating free cash, flows, total of 49 million.
Utilize excess cash to repay $21 million of term loan debt, bringing our net debt leverage ratio down to 1.7 times.
We also deployed, 13 million of cash to repurchase, 1.5 million, shares of stocks.
Under our existing, share repurchase program.
Entering the final quarter of the year. We remain on track to generate 180 to 200 million dollars of free cash flow for the full year.
Additionally, we expect to repurchase approximately 20 million of our stock and repay approximately 20 million dollars of debt during our fourth quarter.
Turning now to guidance, we are pleased with the consistent profit. Growth of our business has generated over the last 4.
And believed there are additional opportunities ahead.
As we continue to focus on our core strategic, fillers of enhancing our customer centricity growing. Our high margin on Brands and amplifying Innovations.
And increasing the efficiency of our operations.
Based on our current business Trends. We are adjusting our full year comparable sales Outlook to the high-end of our previous range and raising our full year adjusted operating margin guidance as follows.
Comparable, sales are expected to be approximately flat compared to our prior range of flat to down 1%.
Consolidated, net sales are expected to be approximately 75 basis points, lower than comparable sales.
This reflects the expected unfavorable impact from foreign exchange rates on full year net sales and approximately 30 fewer stores and operation compared to the prior year.
Adjusted operating margin is expected to be in the range of 8.6% to 8.7% compared to our prior expectation of 8, to 8 and a half percent.
This implies that, our Q4 adjusted operating margin will be down modestly versus prior year, which reflects a planned Step Up in marketing Investments to support our Sally, brand, refresh in Orlando.
We appreciate your time this morning now, I'll ask the operator to open the call for Q&A.
Thank you as a reminder, to ask a question. Please press star, 1, 1 of your telephone, and wait for your name to be announced.
To withdraw your question. Please press star 1 1 1 again.
Please stand by while we compile the Q&A roster.
Our first question comes from the line of Oliver Chen. With TD Cowen, your line is now open.
Those are a little softer at Sally, so would love thoughts there. The store refreshes and renovation sound quite compelling. Um, what's stopping you from going faster in that discipline as well? Thank you.
Good morning, Oliver you. We were really pleased with our results in the quarter and and as you mentioned, you know, macro is certainly a factor. Um, but we think it wasn't as big of a factor as it could have been as we were thinking about the business, uh, as we exited Q2. Um, so the strength in Sally really came in the color side of the business, which was up 4% in the quarter. Um, where we saw a bit more softness in that business, was in the care space. So, consistent, with Q2 where we have the macro weighing in, is this is an area where a customer can, uh, do a modest trade down, look a bit more for Value. Um, then they might do in the distinctiveness of our of our procolor for home use side of the business. So that's where we saw a bit of the softness. We're very focused on the Sally side of the house. Uh, in terms of understanding what the consumer is looking for in that space and navigating, you know, what we can do to improve that business. Whether that be through our marketing messaging, our promotional activity, uh, things that can compel our our customer to shop back in that space.
On the BSG front, we were very pleased to see the rebound to positive comps.
Um, driven by color, but with nice business in uh care as well. The transactions were up, we continue to see our stylists um, shopping closer to me. So while transactions were up ticket was down a bit as they kept getting what they needed when they needed it. But we were pleased to hear from our stylists in the quarter that they're feeling overall. Optimistic about their businesses, we're the only point of softness to them is the actual Trend right now is to a bit more natural, lower maintenance hair color, uh, which perhaps strength, uh, stretches the time between Services a bit more than something that might be a high maintenance color, but seeing the stylist rebound after the flu and weather impact in Q2 was great for us to see. So, overall pleased with the
Performance of both businesses in the core.
and, and looking forward to that momentum continuing
Your second question was on brand. Refresh, why aren't we moving faster? You know what I would say is we are still in the early days, right?
We need with Orlando and 18 stores. Now working, we need more time to really understand the list because all those stores went through some form of transformation. So, uh, the traffic patterns, uh, and overall transactions is a piece. That is a bit disrupted, but we really like what we're seeing behind that with the initial tranche of the stores, being upt, a UR, ATV, all in the direction that we want with a mix in the basket. That includes more things like,
Male fragrance Cosmetics skin care. Uh, the things that we're really trying to test into
As we mature, uh, the work that we're doing. So, what we are pleased about is moving forward with a plan for another 50 stores in FY, 26. Great news, is that would've already been built into our capex, to be touching about that many stores. So that's not an incremental cost, but will let us keep an understanding, the performance Trends and being able to watch traffic and transactions. I feel great that by the end of physical 26, we'll have close to 100 stores out there that will be working in our new model. Uh, and then be able to adjust from there.
And the final piece that we're working on in this quarter, as I spoke about, in my prepared, remarks is, we are, uh, really amping up the marketing efforts in Orlando, to be sure that for a market that has been fully redone. The customer knows we're out there. Those are existing customer and our new customer about the new Sally and what you can expect to experience and why you should come back into visit us. So all in all pleased with the progress looking forward, to doing more in 26. And we'll continue at a at a good measured Pace. As we understand the return on the investment.
Thank you, just a follow-up on color. What do you think? Key, Catalyst are for color going forward? Do you expect that momentum to continue and it's impressive that the the marketplace has been kicking in as well, and then finally on the Sally division, uh, you had nice gross, margins on um, fuel for growth as well as Freight and other. How are you balancing? That gross margin profile relative to trying to drive consistent positive traffic at Sally division. Thanks a lot.
Over the last couple months uh is a bit of a Resurgence into that bright uh side of the world, but we're also seeing great support from our brand Partners. Uh, so if it's in the Vivid World, um,
On the Sally side which is supporting color as well. Um, licensed colors on demand combined with marketplaces are bringing new customers in and our color customer count is up and so that
marketing Works combined with multiple channels for the customer to be able to shop. We feel we feel good about, you know, and on the BSG side, we think we just have a great portfolio of brands that are that are customers really responding well, to in the World of Color, and we expect that, that, uh, Trend will continue. So we feel really strong and great about that as well. Um, all at Marlow comment a bit on the Sally, gross margin and, and how we're feeling about that side of the house.
Yeah, on the uh the gross margin front in terms of of Sally. Very pleased with the performance there. I'm getting the uh, the planned and attractive benefits from our feel for growth effort, in terms of how we're, we're redeploying that, um, and to drive that consistent traffic. Um, it's really our marketing efforts, our CRM our personalization and then bringing Innovation. So, um, feel very good about, uh, continuing to maintain that profile, as well as the traffic driving activities, that we have that we're deploying going forward.
Thank you. Best regards.
Thank you. Our next question comes from the line of Susan Anderson with canaccord genuity. Your line is now open.
Susan Anderson. Your line is open, please check your mute button.
Hi, good morning. Thanks for taking my question. Um I was curious just on the Sally Beauty Store that looks like there's an acceleration of store closures in the quarter I guess how should we think about the store plans going forward and um how our recently renovated storage performing as well versus the rest of the fleet. Thanks.
Yeah, good morning. This is Susan on the Sally storefront. The Sally Beauty segment includes our businesses.
Zip code in Europe, in addition to our US and Canada businesses. Um, the slight uptick in store closures in the quarter was actually tied to our European business, where we actually exited, uh, our store base in Spain. So there were 19 closures tied to that exit. Um, we actually sold that business to a competitor. As we look to focus, where we think we can drive the most growth in our European operations. So, you know, pretty immaterial to the total set of Sally, uh, financials. Whether that be, uh, sales and operating profit but an important strategic move as we, as we look to strengthen, uh, Europe and, and drive growth. So that's what really drove the store closures there. Um, no outside Trends in the US and when we think about how stores are performing overall, um, as we are doing refreshes and relocations, you know, they really are about targeting the customers where we want to be. So we've seen, um, nice performance. And, as I mentioned earlier, for the stores that we're doing as part of the brand refresh program, we're still in the early.
Early days. So, love what we're seeing in the in, in store metrics and more to come as as those things mature and we can read the sales longer term.
Okay, great. Thanks. And then maybe, if you could just talk about, I guess the, uh, consumer Behavior. You've seen between, I guess a 2 formats. Are you seeing, you know, any pullback, or does it feel like, consumers or maybe you know, doing their hair, a little bit more at home which is helping Sally Beauty? Um, just given, you know, some fears, I guess around higher prices and terrorists. I guess just curious if you've seen any pullback there, thanks.
Economy could have gone in Q2 I think we ended up in a better position than where that evolved. But where we think about consumers are on the Sally front end in particular, we are seeing our consumers, continue to be Choice. Um you know, not a further step down in consumer confidence and spending but continued for gallaty. And so with that we have customer research that does show more uh more customers thinking about how DIY can serve as an in-between and going to the salon or more uh curiosity and Google searches and things about how do you color your hair? So we know that's on folks Minds right now what we see that weighing is that's a nice positive to our business with a bit of an offset in where our customer can pull back, which is a bit more in the care and the ancillary businesses. Um, but in terms of what we have as a business overall,
All right, we think there's a lot of our business model that performs, well, in this type of economy. So value offering lets us navigate macro better than a lot and what we bring around Innovation, education engagement, uh really allows our DIY customers to succeed on on the Sally, side of the front. So that combined with our strategic initiatives, we think we're well positioned for, uh, the quarters ahead.
I guess if that's driving sales or not. Thanks. Yeah, absolutely. So, licensed colors on demand is our online, um, real PL, real time platform to get education and support from a licensed stylist. Um, to be able to go on to that platform, you register yourself as your coming on so we can we can track absolutely. Whether you purchase immediately online or you later, come to a store because we've identified you we can kind of track you through that. Prague that process, we actually see a great purchase rate. Um, what is fascinating to us, is fewer customers will immediately press the buy button to the, you know, the the list that they've gotten online but most of them printed out or bring it on their phone into a store and come and Shop. Those products in stores,
um, we've we've got
great Redemption.
With 4,700 consultations on average every week, um, on an annual basis, that adds up to quite a bit of sales. And when we look at those customers, um, they're actually coming in one time more often a year um, than our non-LCD customers, and their transaction value is about 25% higher than a customer not, uh, engaged with LCD.
Absolutely part of the sales driving uh improvements that we're seeing is is our 1 of our strategic initiatives.
Okay, great. That sounds amazing. Thanks for all the details here. Thank you.
Our next question comes from the line of Olivia Tong with Raymond James, your line is now open.
And see if you could compare and contrast the performance in SPS versus BSG. Clearly a very nice rebound and, and BSG, after a tough winter, how much of that do you think was the pent-up demand? Perhaps. If you could talk about, uh, performance, you know, start a quarter versus end of quarter, um, to start and then I have a follow-up
Yeah, absolutely. We are pleased to see
Rebound in,
Participated. Uh, the challenges in the second quarter were really transitory in nature with the flu and whether um throughout the third quarter, the business was quite consistent. So once we got past those 1 timers, as we got past March, um, business really evened out, as you saw really nice performance on the color side of the house continued growth there with the right assortment of Brands and car. Rebounding, to about flat is what we anticipated that it would do. We still think that's great response from our stylists, and engagement behind um, new innovation like K18 as well as expansions and areas like Color. Wow.
Um, but what we also know is we still have a bit of 2 down to trending, uh, brands in our business portfolio on that side of the house. And so, uh, we'll continue to, uh, work through that. But seeing care flat and the response to Innovation. We were really pleased with. Um, so overall that stylist seems to be in a healthy space. As I mentioned earlier, just continuing to buy close to need out of the concern, that something might change. So they will watch the macro just like we do, but their current books of business are are nice, um and it wouldn't have been necessarily from a rebound of services. As I said Q3 was pretty consistent across the business.
Great, that's super helpful. Um, and then I I, you know, a number of your, um,
Of your competitors have started to expand into wellness and you've done great things with respect to some of the newer Concepts. Um, you know, in terms of a pilot store or what have you, you know, is there potential for new categories within the Sally Beauty Store? Um, you know, you you've got a fantastic loyal customer realized of course that there are some near-term pressures. But pressures but just thinking bigger picture about the opportunity to expand into new categories and, and SPS while still, you know, keeping the core and obviously not um, potentially confusing the consumer as well. Thank you.
So, uh, we'll be, we'll be understanding how that is progressing over the course of the next few quarters. And and with the eye to the potential to be able to continue to expand that brand refresh, which would include uh category mix updates as well.
Understood best of luck.
Thank you.
Our next question comes from the line of Simeon Goodman with Morgan Stanley. Your line is now open
Hi, this is Lauren on for Simeon. Thanks for taking our question. Our first one is on the character category; you know, it continues to trend softer versus color. Just curious how you're maybe thinking about driving more engagement in this category despite the softer macro. Could this be for more like promotions, awareness? Just how you're thinking about raising that character category?
Yeah. Absolutely. You know, we realize that 2 quarters in at Sally, we're seeing that care be softer than we would like to see and, and really related to consumer spending and a place where, you know, they'll pull back a little bit more on care and not pull, back on on color, uh, just given the opportunity, uh, for a broader product assortment or an Aur change. You know, when we've been working through the past quarter, uh, we've been working hard to look at the tactics that we have. Whether that be in personalization Performance, Marketing promotions, where customers are eyeing more single item promotion rather than quantity discounts, um, to be sure that we can refine our offering and serve those customers the best way uh, that we can in this macro environment. A couple.
Couple of examples. You know, we we use a lot more taglines uh on our Sally side of the business about skip the salon or why drop a hundred dollars every 2 weeks, you know create Salon quality nail looks at home, you know. So the whole portfolio, not just care. But in nail and other categories, uh, really leaning into what that DIY equation can be from a value perspective. And and how to, um,
Continue to advance that. So um more to come but performance marketing and promotion uh and promotion design, more than promotion, depth are really the areas that we're focused on uh to work on a rebound.
Okay. Great. That's helpful. And our follow-up is just on the implied Q4 comp, which should be maybe flat. It's just slightly positive, given your guide. Can you break this out between SPS and BSG? Maybe what are your expectations for both heading into the quarter and any early reads um, for quarter to date? Thank you.
Yeah, so I would say everything is built into our expectations because we have about 8 weeks left in our quarter and a few weeks left in our fiscal year. So all that's included in the guidance. Um, underneath that, you know, we expect a sequential improvement in the top line in both businesses, assuming a consistent macro environment to what we've been living in to date. Um, so with that, it's Sally, the momentum we have in here color is fueled by innovation, performance, and marketing. All the things we've been discussing. We think that will continue, you know, and we're also working, as I just mentioned, to deliver stronger performance in the other categories, specifically.
Uh care where we're adjusting, some of the tactics to uh, to drive that Improvement. And then at BSG we think Innovation will be the continued, uh, fuel behind the growth in that business, uh, with K18 continuing the recent launch of unite. Uh, being another good example of of how we're winning in that space. Uh, so overall sequential Improvement in both businesses. Uh, as we finish out the year,
Great. Thank you.
Thank you as a reminder to ask a question at this time. Please press star 1 1 on your touchtone telephone. Our next question comes from the line of Ashley hoggins with Jeffries. Your line is now open.
Hi. This is Sydney on for Ashley, thanks for taking our question. Um, can you discuss seeing some trade down and, you know, price and value sensitivity from the consumer? How are you kind of balancing that with some of these planned price increases?
Um and then can you just talk about traffic pacing throughout the quarter and then what you're seeing quarter to date? Maybe a new changes of Trends from exit rate. Lot. Quartering to into now. Thank you.
Yeah. So overall in terms of traffic and transactions, uh, we're seeing a business uh, directionally in line with what we saw in Q2. So, uh, we or excuse me with Q3 as we're entering, uh, Q4. So we saw a nice rebound from Q2 as we recovered from some of the um, whether macro related trends that were persisting there, you know. And then I think, when we think about the business overall in
Um, our exposure is somewhat less than most or or others we would say, we're limited to 20% of our cogs is coming out of either, China or Western Europe and that split pretty evenly between both of those. So, um, as we look forward, you know, we'll we'll look Beyond The Cisco year. We talk about this year, it's not too impactful. Given our inventory position only 8 weeks ago. Um, we really haven't seen a lot of vendors, um, pass through cost increases to us. But as we look, uh, towards next year, um, we are carefully watching our vendors, and we would work to, uh, to cost share with our vendors. Um, we may have modest pricing actions, um, and then we also look for sourcing optimization. Um, but we believe there is there is incremental incremental opportunity, um, from the work that we're doing on our ski rationally, rationalization as well. Um, so we feel confident that we can maintain, uh, both our healthy gross margins and that, uh, we'll be able to pass through any of those pricing adjustments. We may need to make
great. Thank you.
Thank you. And I'm currently shown no further questions at this time. I'd like to hand the call back over to Denise pelonis for closing remarks.
Thank you for joining us today. I appreciate all the interest in Sally Beauty. And as always a big, thank you to our Associates around the world who work hard to serve our customers every day. And uh we look forward to providing an update to the end of our fiscal year and uh just a few months
This concludes today's conference call. Thank you for your participation. You may now disconnect