1 HOLDINGS, INC. SALLYBEAUTY As of March, 2011
Cautionary Notice Regarding Forward-Looking Statements Cautionary Notice Regarding Forward-Looking Statements Statements in this presentation and the schedules hereto which are not purely historical facts or which depend upon future events may be forward- looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would,” or similar expressions may also identify such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, but not limited to, risks and uncertainties related to: the highly competitive nature of, and the increasing consolidation of, the beauty products distribution industry; anticipating changes in consumer preferences and buying trends or and managing our product lines and inventory; potential fluctuation in our same store sales and quarterly financial performance; our dependence upon manufacturers who may be unwilling or unable to continue to supply products to us; the possibility of material interruptions in the supply of beauty supply products by our manufacturers; products sold by us being found to be defective in labeling or content; compliance with laws and regulations or becoming subject to additional or more stringent laws and regulations; product diversion; the operational and financial performance of our Armstrong McCall, L.P. business; the success of our Internet-based business; successfully identifying acquisition candidates or successfully completing desirable acquisitions; integrating businesses acquired in the future; opening and operating new stores profitably; the impact of a continued downturn in the economy upon our business; the success of our cost control plans; protecting our intellectual property rights, specifically our trademarks; conducting business outside the United States; disruption in our information technology systems; natural disasters or acts of terrorism; the preparedness of our accounting and other management systems to meet financial reporting and other requirements; being a holding company, with no operations of our own, and depending on our subsidiaries for cash; our substantial indebtedness; the possibility that we may incur substantial additional debt; restrictions and limitations in the agreements and instruments governing our debt; generating the significant amount of cash needed to service all of our debt and refinancing all or a portion of our indebtedness or obtaining additional financing; changes in interest rates increasing the cost of servicing our debt ; the potential impact on us if the financial institutions we deal with become impaired; the representativeness of our historical consolidated financial information with respect to our future financial position, results of operations or cash flows; our reliance upon Alberto-Culver for the accuracy of certain historical services and information; the share distribution of Alberto-Culver common stock in our separation from Alberto-Culver not constituting a tax-free distribution; actions taken by certain large shareholders adversely affecting the tax-free nature of the share distribution of Alberto-Culver common stock; the voting power of our largest stockholder discouraging third party acquisitions of us at a premium; and the interests of our largest stockholder differing from the interests of other holders of our common stock. Additional factors that could cause actual events or results to differ materially from the events or results described in the forward-looking statements can be found in our most recent Annual Report on Form 10-K for the year ended September 30, 2010, as filed with the Securities and Exchange Commission. Consequently, all forward-looking statements in this presentation are qualified by the factors, risks and uncertainties contained therein. We assume no obligation to publicly update or revise any forward-looking statements. SALLYBEAUTY 2 HOLDINGS, INC.
Company Highlights Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty products � Sally Beauty Supply in business for 50 years � Annual revenue of $2.9 billion � Strong cash flow generation � 4,178 stores located in 10 countries (1) � Experienced and motivated leadership team � Industry leading position with ~31% channel share � Proven resilience in recessionary cycles � Well-positioned for long-term growth (1) As of December 31, 2010 SALLYBEAUTY 3 HOLDINGS, INC.
Overview – Who We Are Fiscal Year 2010 SALES: $2,916.1 ($ in millions) EBITDA: $404.9 Operating Income: $340.9 (2) Profit Margin: 11.7% Cash Flow from Ops: $217.1 Segments Distribution 1,117 stores (1) 3,061 stores (1) Channel 1,141 sales consultants (1) • Stores - “booth” renting stylists (65% • Retail consumers (73% of sales) Customers of sales) • • Professional stylists (27% of sales) Full Service sales – small to medium sized salons (35% of sales) Sales $1,834.6 Sales $1,081.4 2010 SSS growth SSS growth 6.2% 4.1% Financial Operating income Operating income $112.5 $320.5 Highlights Profit margin Profit margin 10.4% 17.5% SALLYBEAUTY Note: 4 HOLDINGS, INC. Financial results from Fiscal Year End 2010, September 30, 2010 .(1) As of December 31, 2010 (fiscal 2011 first quarter) (2) Operating income is net Unallocated Expenses and Share Based Compensation
Industry Channels of Distribution (U.S.) Mega ‐ Salon 33% 33% Manufacturer direct to large–format 13% 13% salons. Exclusive/Full Service (2) $0.5B Third party distribution Direct to salons and beauty professionals via sales force Manufacturer direct 12% 12% Professional Professional (2) and “professional only” stores to manufacturer owned 41% Beauty Products Beauty Products (2) $0.5B salons or “high ‐ end” salons. ~$4.0 billion (1) $1.6B Distribution Distribution Open Line Channels Channels Competition: Distributes professional L’Oreal’s 34% product to the public via (2) retail stores $1.4B Competition: Local and regional operators Source: Professional Consultants & Resources, 2010 Study. (1) Professional beauty supply channel size based upon a 2010 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2010 manufacturer-level sales for professional beauty supplies were approximately $4.0 billion. (2) Represents an estimated breakdown of salon haircare product sales in 2010 by channel of distribution.
Stable & Consistent Industry Growth 2009 - 2010 growth of 4.4% ($ bn) Recession $4.0 $4.0 $3.8 $3.8 Resistant $3.3 $3.4 $3.5 $3.7 Industry $2.9 $2.9 $3.0 $3.1 3.0 $2.6 $2.7 2008-2009 growth of $2.0 $2.1 $2.2 $2.3 $2.4 1.5% 2.0 $1.6 $1.7 $1.8 At manufacturer dollars 1.0 0.0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 U.S. Beauty Supply Industry has experienced steady growth with a CAGR of ~5% (1) SALLYBEAUTY Source: Professional Consultants & Resources, 2010 Study. 6 HOLDINGS, INC. (1) Based on manufacturer sales of professional beauty supplies in the U.S.
Our Leading U.S. Industry Position U.S. professional beauty supply marketplace, in retail dollars, was roughly $7.8 billion in 2010 (1) Sally Beauty Holdings estimated channel share 31% • Estimated 12% channel share (2) • Estimated 19% channel share (2) • Leading full service/exclusive • Largest open-line retailer/distributor in distributor in North America U.S. based on store count • 1.2x sales of next largest competitor • Competition is limited (1) Professional beauty supply channel size is a management estimate, based upon a 2010 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2010 manufacturer-level sales for professional beauty supplies SALLYBEAUTY were over $4.0 billion. Retail sales of $7.7 billion is calculated using gross margin of 48.9% (from SBH’s actual gross margin in the U.S. for FY2010) as the spread between manufacturer cost and retail sales. 7 HOLDINGS, INC. (2) Estimated U.S. channel share calculated as follows: (i) Sally Beauty Supply’s U.S. net sales for the fiscal year ended September 30, 2010 divided by estimated marketplace size of $7.8 billion and (ii) BSG’s U.S. net sales for the fiscal year ended September 30, 2010 divided by estimated marketplace size of $7.8 billion.
Drivers of Stable, Positive Comp Trends for SBH Sally’s “control” brands are higher margin and increasing as a percent of sales Increasing sales of DIY products as customers delay trips to salons and increase more “at-home” maintenance care purchases Higher traffic levels and higher average ticket driven by roll-out of CRM marketing efforts Improving international markets providing growth opportunities SALLYBEAUTY 8 HOLDINGS, INC.
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