Sally Beauty Holdings December 2013 1
Company Highlights Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty products Annual consolidated sales of over $3.6 billion Strong cash flow generation Approximately 4,669 stores located in 11 countries (1) Experienced and motivated leadership team Industry leading position with ~32% channel share Proven resilience in recessionary cycles Well-positioned for long-term growth Two distinct business segments (1) As of September 30, 2013 2
Overview of Our Business Consolidated Fiscal 2013 Results Segments • Retail consumers • Stores – Chair/suite rentals • 75% of sales • 65% of sales Customers • Professional stylists, small • Full Service Sales – small to salons, chair/suite rentals medium sized salons • 25% of sales • 35% of sales • Sales of $2.2b, up 1.4% • Sales of $1.4b, up 5.1% FY2013 • SSS down 0.6% vs.+6.5% in • SSS growth of 4.2% vs. Financials FY12 +6.1% in FY12 • Operating income of $437m • Operating income of $200m 3 • Profit margin of 19.6% • Profit margin of 14.4%
Our Customer Open-Line Retail Exclusive / Full-Service Distribution: 3,424 stores 1,245 stores 982 consultants Professional stylists Salons Customers: $ Value $$$ High-end ` Retail Consumers SBH plays an important role in the supply chain Note: Store count as of September 30, 2013. 4
Stable & Consistent Industry Growth U.S. Salon Industry Product Sales (at wholesale $’s) Growth of 5.8% $5.0 Recession $4.5 $4.5 Resistant $4.2 $4.0 Industry $4.0 $3.8 $3.8 $3.7 $3.5 $3.4 $3.5 $3.3 $3.1 $3.0 ($ in billions) $2.9 $2.9 $3.0 $2.7 $2.6 $2.4 $2.5 $2.3 $2.2 $2.1 $2.0 $2.0 $1.8 $1.7 $1.6 $1.5 $1.0 $0.5 $- 5 Source: Professional Consultants & Resources, 2012 Study. (1) Based on manufacturer sales of professional beauty supplies in the U.S.
Industry Channels of Distribution (U.S.) Sally Beauty Holdings 2012 estimated U.S. channel share is over 32% Mega-Salon Manufacturer direct to large-format salons Exclusive / 13% (2) Direct Full-Service $0.6B Manufacturer direct to Third party distribution manufacturer-owned to salons and beauty salons or “high-end” professionals via sales 13% (2) Professional salons $0.5B force and “professional Beauty 40% (2) only” stores Products $1.8B ~$4.49 billion (1) Distribution Open-Line Channels Distributes professional product to the public 34% (2) Competition: $1.6B via retail stores L’Oreal’s Area of Competition: focus for Local and regional SBH operators Source: Professional Consultants & Resources, 2012 Study. (1) Professional beauty supply channel size based upon a 2012 study of manufacturer-level sales conducted by Professional Consultants & Resources. The study estimates that 2012 manufacturer- level sales for professional beauty supplies were approximately $4.49 billion. The $4.49b includes all categories for professionals including haircare, hair color, nailcare, hard goods, sundries, etc. (2) Represents an estimated breakdown of salon haircare product sales in 2012 by channel of distribution. 6
Business Overview
Sally Beauty Supply: Overview Sally Beauty Supply global footprint 3,424 (1) stores worldwide 2,710 stores in U.S. (including Puerto Rico) 714 stores in Canada, the UK, Ireland, Belgium, Netherlands, France, Germany, Spain, Chile & Mexico Average store size 1,700 sq. ft., 90% selling space Professional open-line business - merchandise assortment not available through mass retailers Destination for Professional hair care and solutions (1) As of September 30, 2013. 8
Strong Financial Track Record Sally Beauty Supply Net Sales Growth ($ in millions) of 1.4% $2,230 $2,199 $2,400 $2,012 $1,835 $2,000 $1,673 $1,696 $1,567 $1,419 $1,600 $1,359 $1,296 $1,208 $1,132 $1,200 $800 $400 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sally Beauty Supply Same Store Sales Growth 8.0% 6.8% 6.5% 6.3% 6.0% 5.7% 6.0% 4.1% 3.8% 4.0% 2.7% 2.7% 2.7% 2.4% 2.4% 2.1% 1.2% 2.0% -0.6% 0.0% 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -2.0% 9
Sally Beauty Supply: Merchandise Offering Other Beauty Items Ethnic 8% Products Hair Care 22% 8% 45% of Brushes, Sales from Hair Cutlery and Care & Color 14% Accessories We offer a diversified mix of beauty products 23% Hair Color 10% Electrical Appliances 16% Skin and Nail Care Note: Percentage of sales by merchandise category for fiscal year 2013. 10
Sally Beauty Supply Growth Initiatives Growth Initiatives Worldwide Sally Beauty Supply Stores 4,000 3,424 3,309 3,158 3,032 2,923 2,844 Expand store base organically and 2,694 3,000 2,511 through acquisitions; domestic and 2,000 international 1,000 Plan to grow store base 3 to 4 percent in 0 FY2013 and beyond 2006 2007 2008 2009 2010 2011 2012 2013 Openings Potential for store base to grow to over 4,500 110 83 stores globally 92 60 108 126 129 113 Organic 40 100 19 1 0 22 2 0 Acquisition Increase customer traffic through loyalty programs and customer relationship Sally Beauty Supply Store Economics (USD) management (CRM) Capital Required $70k Further expand Internet channel Average Inventory $85k Drive gross margin expansion Positive Contribution Margin 4 Months Customer mix shift to retail Shift to exclusive brands Cash Payback on Investment 2 Years Low-cost sourcing 11
CRM and Beauty Club Card Driving Sales • Retail customer is most attractive growth opportunity In 2008, launched U.S. customer acquisition program (CRM) to attract new, retail customers Increased efforts to convert retail customers to Beauty Club Card (BCC) members CRM program targeting new retail customers; driving store traffic 3 rd party profiled best BCC customers Identified non-customers that have the same attributes as our best BCC customers Send direct mailers to potential customers • BCC membership doubled in four years Over 7 million members today $5.00 fee for card; annual renewal BCC members represent over 50% of retail sales Members shop more often and spend more per visit • BCC database tracks customer shopping behavior Provides rewards for purchases Provides insight into customers hair care regime Provides ability to target communication based on customers shopping behavior 12
Grow Sally Beauty Supply Internationally Existing International Platform Long-Term Store Growth Potential (1) 714 Sally Beauty stores located in 10 countries Current Potentia l Stores located in Canada, the UK, Ireland, ~250 Belgium, France, the Netherlands, 88 (Canada) Germany, Spain, Chile & Mexico ~250 166 (Mexico) Opening first store in Lima, Peru by December 2013 ~300 256 (UK / Ireland) 23% of Sally Beauty Supply sales from international 600-800 166 Sales mix differs from U.S. (Belgium, France, Germany, Spain, Netherlands) ~80-85% professional ~45 38 (Chile) ~15-20% retail Other South green field American Countries 0 Total 714 ~1,500+ (1) Store count as of September 30, 2013. 13
Beauty Systems Group: Overview Beauty Systems Group – 1,245 professional stores & 982 professional distributor sales consultants 1,084 company-operated / 161 franchised stores (Armstrong McCall) 982 professional distributor sales consultants Average store size 2,700 sq. ft. Sells to salons and salon professionals Professional exclusive / full-service business – includes merchandise assortment of premium (1) BSG operates stores under the CosmoProf service mark. brands sold through salons and not available in mass or at Sally stores As of September 30, 2013 14
BSG: Strong, Consistent Financial Track Record BSG Net Sales ($ in millions) Growth of 5.1% $1,600 $1,392 $1,325 $1,257 $1,400 $1,081 $1,200 $954 $975 $945 $941 $895 $1,000 $802 $800 $616 $535 $600 $400 $200 $0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 BSG Same Store Sales Growth 20.0% 15.5% 14.4% 16.0% 10.1% 12.0% 8.5% 8.3% 6.9% 6.2% 6.1% 5.8% 8.0% 5.5% 4.6% 4.4% 4.2% 4.1% 4.0% 1.0% 0.0% (0.6%) (4.0%) 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 15
BSG: Merchandise Offering Other Beauty Items Electrical Appliances 7% 5% Skin and Nail Care 10% 36% Hair Care We offer a diversified mix of beauty products not carried in Sally stores or mass retail Promotional 12% Items 30% Almost 70% of Hair Color Sales from Hair Care & Color Note: Percentage of sales by merchandise category for fiscal year 2013. 16
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