Sally Beauty Posts Strong Earnings But Holds Guidance Closely

Date of Call: Feb 9, 2026

Financials Results

• Revenue: $943 million, up 0.6% (includes 90 bps favorable FX, 38 fewer stores)
• EPS: $0.48 per diluted share, increased 12% YOY
• Gross Margin: 51.3%, expanded 50 bps YOY
• Operating Margin: Segment margins: Sally 14.7%, BSG 13.1% (up 90 bps YOY)

Guidance:

• Full-year consolidated net sales: $3.71B to $3.77B (includes ~50 bps FX).
• Full-year comparable sales: flat to up 1%.
• Full-year adjusted operating earnings: $328M to $342M.
• Full-year adjusted diluted EPS: $2.02 to $2.10 (raised low end).
• Q2 consolidated net sales: $895M to $905M (includes ~100 bps FX).
• Q2 comparable sales: up 0.5% to 1.5%.
• Q2 adjusted operating earnings: $68M to $71M.
• Q2 adjusted diluted EPS: $0.39 to $0.42.
• Full-year capital expenditures: ~$100M.
• Full-year free cash flow: $200M.
• Store count approximately flat (40 new, 40 closures, ~50 relocations).

Business Commentary:

Strong Financial Performance:

• Sally Beauty Holdings reported total sales of $943 million for Q1 2026, with comparable sales flat year-over-year.
• The company achieved an adjusted diluted earnings per share of $0.48, marking a 12% increase from last year.
• The performance was driven by focused execution, strong gross margins of 51%, and benefits from the Fuel for Growth program.

Sally Segment Resilience:

• In the Sally segment, the U.S. and Canada business delivered positive comparable sales growth of 1.3% for the quarter.
• The core color category was a standout performer with year-over-year growth of 8%.
• This resilience was attributed to performance marketing, personalization initiatives, and a strategic exit from lower-margin operations in Europe.

BSG Segment Stability:

• The BSG segment saw net sales and comp sales down only 20 basis points from last year, with color category growth of 4%.
• The segment's e-commerce sales increased by 4%, representing 15% of segment net sales.
• The stability was maintained despite macroeconomic challenges, supported by innovation and value offerings.

E-commerce Growth:

• Sally's global e-commerce business experienced a 20% growth, while BSG's e-commerce sales increased by 4%.
• These increases reflect robust digital engagement, including strong performance during Black Friday and Cyber Monday.

Strategic Initiatives and Expansion:

• The introduction of fragrance in Sally's top 1,000 stores drove strong demand, with plans to expand to 2,000 stores.
• The expansion into the skin and spa category with brands like Image and Matter of Fact is underway.
• These initiatives are part of broader strategies to drive growth through product innovation and market expansion.

Sentiment Analysis:

Overall Tone: Positive

• Management described Q1 as a 'strong start' with results at the high end of expectations. They noted 'strong gross margins,' 'outperformance on the bottom line,' and 'positive momentum' from strategic initiatives like LCOD and Sally Ignited. Forward guidance was raised, and they expressed optimism for new categories and long-term growth.

Q&A:

• Question from Oliver Chen (TD Cowen): On the BSG customer relative to the Sally customer, it sounds like the BSG customer is somewhat value focused. Would love your take on comparing and contrasting what trends are happening there and the health of your consumer. Also, you have a lot of really exciting initiatives ahead, including fragrance and Sally Ignited. What are your thoughts for fragrance and other categories as a percentage of sales over time?... And on Sally Ignited, the KPIs look really robust. Just what's holding you back from timing of rolling those out?
  Response: Customers are resilient and healthy; Sally saw 1.3% comp growth, while BSG stylists noted more choiceful customers. Initiatives like fragrance (now in 2,000 stores) and Sally Ignited are progressing well. Ignited rollout will be disciplined in FY26 to refine the model before accelerating in FY27.

• Question from Oliver Chen (TD Cowen): And a follow-up on the comp guidance, how do you see that manifesting between traffic and ticket? I mean you had some nonrecurring, hopefully, nonrecurring headwinds this quarter. Just would love your thoughts on risk factors on the comp guidance and why it couldn't even be better than what you're forecasting?
  Response: Q2 comp guidance of 0.5% to 1.5% reflects lapping a soft quarter last year. Momentum from Sally initiatives (LCOD, marketplaces) and BSG strength (color, new brands) supports the outlook, with potential upside from tax refunds and new categories.

• Question from Alec Legg (Canaccord Genuity): I'm just curious, how was the promotional environment over the holiday versus maybe initial expectations? And how should we think about promotions heading into 2Q and for the rest of the year?
  Response: Promotional levels were up slightly YOY, but gross margins remained strong over 51%. Value is important, and campaigns like 'Save While You Skip the Salon' are resonating. Q2 is not expected to be highly promotional.

• Question from Alec Legg (Canaccord Genuity): And then just a quick follow-up on fragrance. I guess what type of customers are shopping fragrance at Sally? Are they existing customers just adding it to their basket while shopping online or in-store? Or maybe is it helping bring in a new customer base?
  Response: Currently, fragrance customers are existing Sally shoppers, as the initial rollout was in-store without heavy new-customer marketing. Communication will expand as the category grows to 2,000 stores.

• Question from Olivia Tong Cheang (Raymond James): ...could you just put that in context to the Q2 outlook that you just provided, which would suggest that at least on top line, a little bit better than on a year-over-year basis against an arguably weak comp and EPS sort of plus or minus flattish. Just trying to understand how much of this is timing, anything that looked to be hitting harder this quarter versus a year ago, just to put some context around the Q2 outlook.
  Response: Q2 top line benefits from lapping last year's softest quarter. The business is performing well with Sally comps up 1.3% and BSG color strength. SG&A timing shifts from prior year (FX reversal, expense timing) create a normalized, flat-quarter comparison.

• Question from Olivia Tong Cheang (Raymond James): And then just wanted to dig a little bit deeper into some of the Ignited stores and understand the trends there relative to the base. And whether you're seeing anything different or what you're seeing different in traffic and ticket in those post-Ignite stores?
  Response: Ignited stores show more new/reactivated customers, higher ATV, UPT, and AUR versus the base fleet, with customers cross-shopping into new categories like fragrance and cosmetics.

• Question from Sydney Wagner (Jefferies): We've had some beauty companies report last week who adjusted down their expectations for category growth. Can you just talk about yours? Maybe have there been any changes since we last chatted?... And then just kind of on a more, I guess, high-level trend piece, in thinking about the salon consumer and kind of the maybe longer frequency, longer time between visits. Is that a trend?...
  Response: Category expectations unchanged: color is strong, care is softer but with subcategory strength. New categories (skin/spa, fragrance) represent new growth opportunities. Salon consumer showed some pullback in add-on services, but demand remains; the 'glassing' and straightening trend is prominent.

• Question from Lauren Ng (Morgan Stanley): ...why shouldn't we assume trends can materially improve into the second half of '26?
  Response: Full-year comp guide is flat to up 1%; Q2 is at the midpoint. The second half is viewed as optimistic, with momentum expected from new categories and initiatives, though guidance remains guarded due to macro uncertainties.

• Question from Lauren Ng (Morgan Stanley): And then just a question on Sally Ignited. That also sounds encouraging with your KPIs positive. Curious if you could help us understand maybe where the comp run rate could get to based on your current remodels?
  Response: No specific comp run rate provided. Rollout pace is being evaluated (100-200 stores per year), with a favorable multiyear tailwind expected as remodels progress.

Contradiction Point 1

Promotional Environment Outlook for Q2

Contradiction on whether promotional intensity is expected to change in Q2.

How did the promotional environment during the holidays compare to expectations, and how should we approach promotions for Q2 and the remainder of the year? - Alec Legg (Canaccord Genuity)

2026Q1: The promotional environment is not expected to change materially in Q2. - [Denise Paulonis](CFO)

What assumptions about category growth and the promotional environment underpin the long-term sales targets? - Sydney Wagner (Jefferies)

20251113-2025 Q4: Sally used more but shorter-duration promotions, while BSG ran heavier promotions, partly due to strong brand partner support for holiday. - [Denise Paulonis](CFO)

Contradiction Point 2

Sally Ignited Initiative's Rollout Pace and Impact

Contradiction on the pace and scale of the Sally Ignited store refresh initiative.

Compare the trends and health of BSG and Sally customers. What is the outlook for growth potential and timing in new categories like fragrance and the Sally Ignited initiative? - Oliver Chen (TD Cowen)

2026Q1: The rollout pace is being disciplined in FY26 to refine the model before accelerating in FY27. - [Denise Paulonis](CFO)

What's the update on the Sally Ignited program's performance? - Susan Anderson (Canaccord Genuity)

20251113-2025 Q4: An additional 50 stores will be refreshed in fiscal 2026, with plans to refresh up to 1,500 stores long-term. - [Denise Paulonis](CFO)

Contradiction Point 3

Trends and Health of the BSG Customer

Contradiction on BSG customer resilience versus softness.

How do the trends and health of BSG and Sally customers compare, and what are your thoughts on the growth potential and timing for new categories like fragrance and the Sally Ignited initiative? - Oliver Chen (TD Cowen)

2026Q1: The BSG customer (stylists) saw a softening due to the government shutdown but rebounded... - [Denise Paulonis](CEO)

How are macroeconomic factors impacting Sally Beauty (SBS) compared to BSG, and what is slowing the pace of store refreshes and renovations? - Oliver Chen (TD Cowen)

2025Q3: In BSG, sales returned to positive territory (6th out of 7 quarters with growth), driven by color and care innovation, with stylists optimistic despite transaction ticket softness. - [Denise Paulonis](CEO)

Contradiction Point 4

Performance and Strategy of the Sally Ignited Initiative

Contradiction on the rollout pace and evaluation status of the store refresh initiative.

How do the performance trends and health of BSG customers compare to those of Sally customers, and what are your thoughts on the growth potential and timelines for new categories like fragrance and the Sally Ignited initiative? - Oliver Chen (TD Cowen)

2026Q1: The rollout pace is being disciplined in FY26 to refine the model before accelerating in FY27. - [Denise Paulonis](CEO)

How are macroeconomic factors impacting Sally Beauty (SBS) compared to BSG, and what is slowing the pace of store refreshes and renovations? - Oliver Chen (TD Cowen)

2025Q3: Moving forward, another 50 refreshes are planned for FY26, which are already factored into the existing CapEx plan. - [Denise Paulonis](CEO)

Contradiction Point 5

Health and Performance Trends of Sally and BSG Divisions

Contrasting assessments of Sally and BSG's recent performance and outlook.

How do the trends and health of BSG and Sally customers differ, and what is the growth potential and timing for new categories like fragrance and the Sally Ignited initiative? - Oliver Chen (TD Cowen)

2026Q1: Both Sally and BSG customers showed resilience... The Sally customer was 'resilient'... color up 8%... The BSG customer... saw a softening due to the government shutdown but rebounded... - [Denise Paulonis](CFO)

Compare Sally division to BSG on lighter comp vs estimates, controllable and non-controllable factors, and provide thoughts on ecommerce momentum forecasting? - Oliver Chen (TD Cowen)

2025Q2: Sally comps declined ~30 bps due to softening transactions/ticket in March... BSG comps declined 2.7% due to flu season impact on stylist appointments. - [Denise Paulonis](CFO)