Sally Beauty's Q4 2025 Earnings Call: Contradictions Emerge on Color Category Growth, Digital Momentum, and Economic Impact

Date of Call: None provided

Financials Results

• Revenue: $947M in Q4, up 1.3% YOY; FY revenue $3.7B
• EPS: Adjusted diluted EPS $0.55 in Q4, up 10% YOY; FY adjusted diluted EPS $1.90, up 12% YOY
• Gross Margin: 52.2% in Q4, expanded 100 basis points YOY; FY gross margin north of 51%
• Operating Margin: Adjusted operating margin 9.4% in Q4; FY adjusted operating margin 8.9%, up 40 basis points YOY

Guidance:

• FY26 net sales expected $3.71B-$3.77B (includes ~50 bps favorable FX)
• FY26 comparable sales expected flat to +1%
• FY26 adjusted operating earnings $328M-$342M
• FY26 adjusted diluted EPS $2.00-$2.10 (assumes ~50% of FCF to buybacks)
• FY26 capital expenditures ~ $100M; free cash flow ~ $200M
• Store count roughly flat (≈40 new, 40 closures, 50 relocations)
• Q1 FY26 net sales $935M-$945M (≈40 bps FX benefit); comps ~ flat
• Q1 adj. operating earnings $75M-$80M; Q1 adj. diluted EPS $0.43-$0.47

Business Commentary:

• Financial Performance and Growth:
• Sally Beauty Holdings delivered comparable sales growth of 1.3% in Q4, with a 100 basis points increase in gross margin to 52.2%.
• The company reported a 10% increase in adjusted diluted earnings per share to $0.55.

• The growth was driven by strong performance in color, digital marketplace expansion, and customer-centric initiatives.

• **Core Strategic Pillars and Customer Engagement:

• Sally's strategic pillars contributed approximately 260 basis points of comp sales growth for the full year.
• The Licensed Colorist On-Demand (LCOD) service showed significant growth, with over 5,000 consultations per week and positive early response to care consultations.
• The company focused on customer understanding and activation through personalization, performance marketing, and brand marketing strategies.

• **Digital and E-commerce Expansion:

• Global e-commerce sales increased 15% to $105 million, representing 11% of total sales, with Sally US and Canada's e-commerce sales growing 34%.

• The expansion of marketplace strategy and improvements to digital platforms drove these results.

• **Inventory and Cash Flow Management:

• The company generated $275 million in cash flow from operations, enabling a $119 million debt paydown and over $50 million in share repurchases.
• Effective inventory management and process improvement initiatives contributed to positive cash flow and strong balance sheet management.

Sentiment Analysis:

Overall Tone: Positive

• Management: "Fiscal 2025 was a meaningful year...we’re pleased to report both Q4 and full year results that exceeded our expectations." CEO/CFO repeatedly referenced "strong operating and financial performance," "we finished the year strong," and "we have resilient customers," highlighting confidence in execution, margins, cash flow, and a constructive outlook.

Q&A:

• Question from Oliver Chen (TD Cowen): Hi, Denise and Marlo. On the quarter you just had, we’d love to hear about what were some of the key factors that helped drive the upside at both at each division. Then as we think about the comp complexion this quarter, did ticket run similar to what you expected in terms of the negative ticket trends at BSG relative to the positive ticket trends at Sally? We’d just love to hear your thoughts on your guidance, on your comp guidance relative to occupancy leverage. What do you see happening in terms of your ability to leverage some of the fixed costs with the comp outlook?
  Response: Q4 upside driven by strong color (Sally +8%, BSG +5%), marketplace and e-commerce growth, LCOD consultations and innovation; BSG ticket down but transactions up reflecting just-in-time buying; Q1 may see some de-leverage (government shutdown impacts) but full-year occupancy leverage expected roughly in line with prior year.

• Question from Susan Anderson (Canaccord Genuity): I was wondering if maybe you can give us an update on the Sally store remodel program. I guess where are you at with the store remodels? Have you completed any beyond the Orlando market? If you could just talk about where they’re performing versus the core in the Orlando market, and also if you’ve completed ones outside.
  Response: Sally Ignited: ~30 stores completed (including full Orlando market and select other markets), showing higher dwell time, cross-shopping, UPT and ATV above fleet; plan ~50 additional refreshes in FY26 within existing capex.

• Question from Susan Anderson (Canaccord Genuity): I wanted to maybe follow up just on the strong growth in color at Sally. Are you seeing more people do their hair themselves driven by wallets being stretched? Are these new consumers to Sally or returning, and do they pick up other products when they buy color?
  Response: Color growth is coming from new, reactivated and existing customers; LCOD is bringing confidence for DIY customers and drives higher lifetime value and cross-category purchases.

• Question from Simeon Goodman (Morgan Stanley): As your Fuel for Growth initiatives wind down this year, what gives you confidence for achieving that longer-term outlook for the EBIT dollar growth 3-5% range?
  Response: Confidence rests on additional Fuel for Growth opportunities (supply chain, vendor negotiations), continued own-brand penetration and remaining run-rate savings that will drive reinvestment and flow-through to the bottom line.

• Question from Simeon Goodman (Morgan Stanley): On the Sally side, transactions are still a little soft. Can you help us understand how you’re thinking about maybe traffic versus ticket for 2026 and how your initiatives are positioned to reignite growth for both in 2026?
  Response: Sally Q4 transactions flat with AUR/ticket improving; expect transactions and basket growth to recover via refined performance marketing, personalization and cross-category merchandising (Sally Ignited and digital enhancements).

• Question from Sydney Wagner (Jefferies): Can you share more about your expectations for category growth underpinning the long-term net sales range, and an update on the promotional environment—what you saw during the quarter and expectations into 2026?
  Response: Color remains the core growth driver; Sally targeting care and nails (and fragrance expansion), BSG focused on innovation and testing skin/spa; promotional levels were broadly stable YOY—Sally ran shorter, time-bound promos while BSG was slightly heavier ahead of holiday.

• Question from Olivia Tong (Raymond James): Can you talk about the underlying category growth assumptions embedded in those long-term targets, market share assumptions, and how you think about contribution of existing doors versus new categories/doors? Specific to Q1, the guide is lighter—what headwinds are you seeing in Q1 and how will you build over the year to hit guidance?
  Response: Long-term 1-3% sales assumes resilient, choiceful consumer with color core plus growth from personalization, digital, own-brand and category expansion (nails, care, fragrance, BSG skin/spa) and Sally Ignited; Q1 conservatism reflects temporary pressure on lower-income customers from the government shutdown and is offset by easier comps in Q2 and ongoing strategic initiatives through the year.

• Question from Olivia Tong (Raymond James): Follow-up: Stylists are buying closer to demand; what are you doing to support that given your footprint and capabilities?
  Response: Support via omnichannel options—1,300 stores, two-hour delivery, BOPIS and full-service for bulk buys—and a planned BSG app/e-commerce relaunch (target spring 2026) to streamline ordering and speed-to-market for stylists.

Contradiction Point 1

Color Category Growth and Market Share

It involves differing perspectives on the growth trajectory and market share of the color category, which is a core driver of sales for the company.

What were the key drivers of your outperformance this quarter? How did comp sales trends differ between Sally and BSG, particularly in ticket vs. transaction trends? What are your expectations for leveraging fixed costs with the comp sales outlook? - Oliver Chen (TD Cowen)

2025Q4: Color was up 7% overall, with 8% growth in Sally and 5% in BSG. BSG's transaction growth was up 6% despite a 4% decline in ticket. - [Denise Paulonis](CEO)

How are macros impacting Sally Beauty differently from BSG, and why is progress on store renovations slower? - Oliver Chen (TD Cowen)

2025Q3: Sally Beauty's color segment grew 4% due to strength in coverage and vivid colors. - [Denise Paulonis](CEO)

Contradiction Point 2

Digital and E-Commerce Strategy

It relates to the company's focus on digital and e-commerce growth, which plays a crucial role in their omnichannel strategy and long-term growth objectives.

What key factors drove the outperformance in Q1? How did comp sales trends differ between Sally and BSG, particularly in ticket vs. transaction growth? How do you plan to leverage fixed costs given the comp sales outlook? - Oliver Chen (TD Cowen)

2025Q4: The strength in color was driven by marketplace and digital sales growth of over 30%. - [Denise Paulonis](CEO)

Compare SBS and BSG performance. What portion was driven by pent-up demand? How did the quarter start versus end? - Olivia Tong Cheang (Raymond James)

2025Q3: E-commerce sales trends are improving, now at 90% of 2019 levels. - [Denise Paulonis](CEO)

Contradiction Point 3

Consumer Behavior and Marketplace Growth

It involves differing perspectives on consumer behavior and the growth of marketplaces, which are critical for understanding customer demand and strategic direction.

What key factors drove the outperformance this quarter? How did comp sales trends differ between Sally and BSG, especially ticket vs. transaction trends? What are your expectations for leveraging fixed costs with the comp sales outlook? - Oliver Chen(TD Cowen)

2025Q4: Color was up 7% overall, with 8% growth in Sally and 5% in BSG. BSG's transaction growth was up 6% despite a 4% decline in ticket due to stylists buying closer to demand. - [Denise Paulonis](CEO)

How does Sally division compare to BSG on lighter comp vs estimates, and which factors are within your control vs not? What are your thoughts on e-commerce going forward? - Oliver Chen(TD Cowen)

2025Q2: Sally comps declined by 30 basis points, mainly due to a slow start in transactions and ticket choice amidst consumer uncertainty. The decline was offset by growth in color and marketplaces. BSG's comp decline was more significant, mainly due to the flu season impacting stylists. - [Denise Paulonis](CEO)

Contradiction Point 4

Impact of Economic Uncertainty

It highlights differing expectations regarding the impact of economic uncertainty on consumer spending, which can impact the company's financial performance.

What were the key drivers of the upside in Q3 performance? How did Sally and BSG's comp sales trends differ, particularly in ticket versus transaction growth? How do you plan to leverage fixed costs given the comp sales outlook? - Oliver Chen(TD Cowen)

2025Q4: We expect leverage to be similar to last year, with some pressure due to government shutdowns in Q1. As the year progresses, leverage should improve. - [Marlo Cormier](CFO)

Update on quarter-to-date performance and are there any markets experiencing normal trends? - Simeon Gutman(Morgan Stanley)

2025Q2: We remain cautious about Q3 and Q4 due to economic uncertainty, but some markets may have less severe weather impacts. - [Denise Paulonis](CEO)