Good morning everyone and welcome to the Sally Beauty Holdings Conference Call to discuss the Company's Third Quarter Fiscal 2024 Results. All participants have been placed in a listen-only mode. After management's prepared remarks there will be a question-and-answer session. Additional instructions will be given at that time. Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Thank you. Good morning everyone and thank you for joining us. With me on the call today are Denise Paulonis, Chief Executive Officer and Marlo Cormier, Chief Financial Officer. 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. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors including those discussed in the risk factor section of our most recent annual report on Form 10-K and other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today and we undertake no obligations to update them. 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. Now I'd like to turn the call over to Denise to begin the formal remarks.

Thank you Jeff and good morning everyone. Our third quarter results point to improving trends across both segments of our business, Sally Beauty and Beauty Systems Group. We delivered net sales growth of 1.2% and a comparable sales increase of 1.5% above the high end of our latest guidance range. Our top-line performance reflects continued momentum and fundamental strength in our BSG segment as well as a notable improvement in performance at Sally reflecting the traction or gaining from our strategic initiative. Adjusted gross margin was strong at 51% and adjusted operating margin also came in above our guidance range at 8.9%. Our business generated solid cash flows from operations of $48 million enabling us to continue to return capital to shareholders by way of share repurchases in the quarter. Looking at performance by segment I'll start with BSG. These three comparable sales increased 2.6% representing our third consecutive quarter of positive comp. Comparable transactions in the quarter were up 4% and average ticket was down 1%. From a category perspective sales in both color and care grew for the second quarter in a row up 3% and up 5% respectively. Additionally our expanded distribution drove strong performance across key brands including Amika and Color Wow as well as Moroccanoil which we will launch in California one of our largest markets in the fourth quarter. We're pleased to see consistent underlying strength across our BSG business, reflecting the combination of stable salon demand trends, expanded distribution, and robust product innovation. Sally's purchasing patterns remain healthy, although the trend of stylists buyingcloser to need may be the new norm post pandemic. As we continue to capture share lien we believe the business is poised to build on existing momentum as we enter fiscal 2025. As the leader for the Professional stylists…

Thank you Denise and good morning everyone. Our third quarter results were highlighted by positive top-line performance in both our Sally and BSG segments. Solid gross margins and adjusted operating margin above our latest guidance range. The results reflect underlying strengths at BSG which delivered a third consecutive quarter of positive comparable sales growth as well as renewed momentum at Sally resulting from our strategic initiatives that Denise just outlined. Third quarter consolidated net sales of $942 million increased 1.2% while consolidated comparable sales grew 1.5%. Global e-commerce sales were $92 million and represented 10% of total net sales. Looking at gross profit, we again delivered solid growth margins which came in at 51% flat to last year. Excluding last year's true-up of the non-cash inventory write-down related to the distribution center consolidation and store optimization plan that we executed last year, adjusted gross margin was 51%. That's up 10 basis points versus a year ago and reflects lower distribution and freight costs resulting from supply chain efficiency partially offset by unfavorable fixed cost absorption. Third quarter adjusted SG&A expenses totaled $397 million, roughly flat to Q2 and up $13 million versus a year ago as we anticipated. The year-over-year increase can primarily be traced to higher labor and other compensation related expenses, as well as planned increases in advertising spend including upper funnel marketing. This was partially offset by $4.8 million of savings resulting from our fuel for growth program. We're pleased with the progress we're making with fuel for growth. We remain on track with our plan to achieve approximately $20 million of pre-tax benefits to gross margin and SG&A this year and up to a $120 million in cumulative benefit in fiscal 2026. As is typical with this type of project, the nature and timing of benefit…

Thank you and ladies and gentlemen. [Operator Instructions] The first question is from Oliver Chen from TD Cowen. Please go ahead.

Hi, Marlo, Denise, great being in touch. Consumer sentiment's been mixed as it's been pressured at the middle and low. Has that manifested in the banners currently and/or what are you seeing and would love any thoughts on that? Difficult question we're getting around potential election impact and/or if it -- if you saw things in the past that might be related to now. Also the category call-outs were very helpful regarding hair, nail, and colors. Do you expect those trends to remain similar or what are your thoughts on each of those categories as they affect your banners? And then finally as we're all modeling monitoring tariffs, any thoughts you have in terms of sourcing? You have a lot of different partners as well as a lot of private label. Thank you very much.

Good morning, Oliver. This is Denise. I'll start with some questions that I'm sure Marlo will jump in. Overall in the market, let me break it out as we always do between BSG and Sally. BSG we're seeing salon demand trends quite stabilized. Don't see any near-term catalysts for that to change. We're seeing the benefit of expanded distribution and product innovation, so really believe that that salon client is enjoying their experience in shopping with BSG and look forward for that to continue. On the Sally side, we've watched two consistent themes all year, right, that customers remaining frugal and purchasing behavior is primarily driven by need. We also watch customers be very price-sensitive and leaning into promotions as they manage through the inflationary environment. We've seen that be pretty stable. We're really pleased with what we were able to do in Q3 in adjusting some of our promotional strategies to kind of meet the consumer where they are, but improving our AUR in the process and also seeing the increased impact of our strategic initiatives coming through on the Sally side. So marketplaces, Licensed Colorist OnDemand, so we step back from all of that as we're looking forward into our Q4 environment. And the months ahead we feel good about the trajectory of both of those businesses to deliver positive comps into the fourth quarter. And we're watching very closely what we always watch as we will see inflationary trends perhaps influence the customer or other macro. When it comes to the election you know the thing I think we're always most sensitive to is what will happen to marketing rates and things like that to allow us to keep investing to gain that top of funnel customer come through. We're navigating it and feel that it's within our control to do that and we're pleased with what we've seen of the results there in terms of performance marketing being able to drive new and reactivated customers into the fold. And category call-outs, I think color and hair we expect both to continue on positive trajectory. Nails and Sally is really fueled by some new innovation coming in and we're feeling good about that as well. So all-in-all from a category perspective don't expect there to be substantial change from what we're seeing right now. And then I think your last question on sourcing. And at the end of the day about 10% of what source comes in from Asia, so it's a pretty small percentage of exposure to us. We watch that pretty closely. We work with our manufacturing providers to be sure that we're well distributed and how we think about it. And for us free cost while it's part of our equation, it's nearly -- it's not nearly as material as it might be for some others who have more exposure.

Thanks so much Denise. Best regards.

The next question is from Korinne Wolfmeyer from Piper Sandler. Please go ahead.

Hey good morning and thanks for taking the question. Congrats on the quarter. I'd like to touch a little bit on the guidance and the expectations you laid out for fiscal Q4. You delivered at pretty good margins here in fiscal Q3 noted they came in ahead of your guidance and your expectations. So, what is the reasoning behind leaving your full year expectations unchanged? Is it just a little bit of conservatism? Are you seeing any shifts in demand trends or shifts in the cost structure that would cause you to leave it unchanged or any color that would be helpful? Thank you.

Happy to answer that. Our guidance really reflects the strength of Q3 as well as year-over-year improvement in top and bottom line that we expect in Q4. You've given the macro and we're in we just feel like the guidance is good that we're providing. If you think about a little bit of the color, in Q3 we were modestly ahead in what we reported. We were pleased that a lot of that being ahead was on the path with our strategic initiatives in the right direction with the Sally brand. And when we look to Q4, I mean, most important to us is we're really looking to build upon the positive top line, and also deliver positive improvement around adjusted operating profit and adjusted profit margin. So I think we're just reading what's out there in the market. We don't see any material change in trend but believe the right place for us is to hold guidance right now.

Got it. Very helpful. And then if you could just touch a little bit more on the promo situation called out in BSG, sounded like there is a higher take rate in promos kind of like what you pointed out last quarter. Can you give any color? Was this incrementally more than what you've seen last quarter? Is it unchanged? Is it improving? And then how are you thinking about the promo environment heading into fiscal Q4? Thank you.

On the BSG front as I mentioned, we're really pleased with the strong sales trend that we've had. As we see part of that and the promotional piece of it, customer appreciation sale has been a higher take rate than what we've seen historically. And that's one of our promotions that is only partially funded by our vendors and we fund that as well. The impact to us in Q3 was very similar to Q2. So we aren't seeing any heightened activity there, but we are seeing people want to buy in and take advantage of that promotion. So we're going to keep managing that but at the moment we feel good about how customers are reacting as they're coming into the BSG environment, what we're seeing in sales and unit trends and believe that we're sitting in a pretty healthy spot. And then on the Sally side, we talked a little bit about the fact. We still see customers being frugal. Our core customer coming in is buying what they need. We were pleased to see new and reactivated customers head in the right direction this quarter with a lot of our performance marketing and LCOD activity. But we were very aware of their also being promotionally sensitive. What we've tried to do in our promotional strategy is still give them great value, but drive value in ways that we can still improve AUR and drive frequency. So we're doing less quantity type discounts and more traffic driving discounts to be getting people into the stores. We think both sets of trends on both sides are feeling consistent as we're entering Q4 and so that's what we're planning for and working with right now.

Great, thanks so much.

And the next question is from Olivia Tong from Raymond James. Please go ahead.

Great, thanks. Can you talk about any difference that the quarter progressed particularly in SBS and was there any change start of a quarter versus the exit rate? And then just generally as we think about fiscal '25 your plans in light of perhaps even more wallet tightness as we go forward? And then following on that, some of the manufacturers in hair appliances not withstanding today have talked about general sentiment in the industry being a little bit more challenging particularly in the sub $100 appliance market. We'd love to hear your commentary there. Thank you.

Absolutely. So I'll start on SBS and what we saw throughout the quarter. We saw a nice momentum and an impact of our strategic initiatives to build as we went through the quarter. So marketplaces with our newly launched DoorDash program, Instacart coming online as well, tracked well. Performance marketing, we continue to hone in and be able to drive impact there. So positives that we saw throughout the quarter, we continue to believe those will be positives going into Q4, so feel good about that. When we look to 2025, clearly we're not providing guidance on this call today until our November earnings call, but we're confident that the initiatives have us on the right path to get to our low single digit algorithm. It is a dynamic macro environment, but we're really finding a way to balance our way through and have those strategic initiatives start to be contributing more. So for the full year in 2024 the strategic initiatives 200 to 300 basis points of benefit, which we feel good about and assuming that the macro continues at the pace that we're seeing today, expect that 2025 will be headed down a good path, so, more to come as we get to our November earnings call on that one. And then finally, the hair appliance category, I think it's really it's a dynamic category and that it's one of those places that for most people it becomes more discretionary spend if they lean into it a bit more versus the necessary spend when something they have might break. What we've seen is when innovation comes out and we talked about it on our BSG side, John Paul Mitchell came out with a neuro hairdryer and hairdryer line. We saw a great response to that in Q3 on the BSG side because it really had new innovation that was benefiting a stylist and they were willing to lean in and take advantage and buy that. So we're excited by those types of innovations that we think keep the category moving. But clearly in an environment where people might have a little bit more inflationary pressure, the performance right now is people primarily buying to need without that catalyst.

Understood. Thanks. And then just following up on new products, that's obviously been a solid contributor this year. You mentioned the new hairdryer and a lot of new activity on the consumable side. To the extent that you have some insight into the next 12 months, what is the new product pipeline look like to you guys relative to the last 12 months?

We're feeling good about it and there continue to be as we just talked about on our prepared remarks we just expanded Moroccanoil into California, so we believe we continue to have distribution gains with some of the brands that we already have. And we have a nice pipeline of new products that we do see coming in and clearly nothing to share specifically on this call, but feel good that the trajectory is there and that underlying health of the combination of territory expansion, distribution gains, new product on that BSG side really sets us up well to leverage our scale in that business.

Great. Thank you. Best of luck.

Thank you. And Ashley Helgans from Jefferies is up next for a question.

Hi, thanks for taking our questions and congrats on the quarter. Maybe we can just dive a little deeper in gross margins. I know that you saw some improvement in the Sally Beauty Supply segment due to supply chain efficiencies. I'm just curious if any of these efficiencies you can leverage with the BSG segment? And then you also called out some stabilization in the salons. Just curious like where we are versus historical levels in terms of like appointment frequency and spend? Thanks.

I'll start with the -- and thanks for the question, I'll start with the gross margin question. We are seeing some nice gains across both our businesses on our supply chain efforts and that is part of our Fuel for Growth program and part of our $20 million that we're seeing come through for our target that we had for 2024. So that is across those segments. The difference between Sally and BSG is we're getting an offset to that on the BSG side mainly from the unfavorable fixed cost absorption that we see, but also from product margin where we see some brand mix putting some pressure on the product margin. And then, if we think about salons and salons stabilization. I'll go back to the point of we're really pleased with the trajectory of the BSG business and what we have there. We think underlying trends it's hard to go back and compare to something, but what I would say is, our stylists are talking about people coming in for regular services, a pace that is generally healthy. Where there's a little less health in the industry would be more in the chain salon groups, but most of our exposure is to those independent stylists or in smaller salons. And so, feel good about where we are there. If I related it back it's probably approaching pre-COVID types of territory in terms of what people see. But we're always conscious of the fact that people will trade up or down as they see fit, but stylists are feeling pretty good that this is a core course of business. So that's what we're building on our assumptions go forward as well and aren't hearing different news.

Great. Thank you.

Thank you and at this time there are no further questions in queue. Please continue with any closing remarks.

I want to thank everyone for joining today and most importantly if I want to step back and thank our team really strong execution from the quarter great cross-functional collaboration internally is letting us progress dramatically on our strategic initiatives and I couldn't be more pleased with where we're headed. As always we appreciate all of our shareholders. We remain committed to long-term profitable growth and getting on our longer-term algorithm as well. And we look forward to you updating everyone as we finish our fourth quarter in just a few months. Thanks.

Thank you. That does conclude our conference for today. Thank you for your participation and for using the AT&T teleconference. You may now disconnect.