Sally Beauty Holdings, Inc. Q2 FY2026 earnings call

Overall Quarterly Performance

• Total consolidated net sales came in at $903 million, up 2.3% year-over-year, with 1.3% consolidated comparable sales growth at the high end of management expectations. Adjusted operating income was $73 million and adjusted diluted EPS was 44 cents, both above the prior guidance range. Operating cash flow from operations hit $73 million, which was used for $20 million in debt paydown and $25 million in share repurchases.
• Global e-commerce sales increased 13% to $108 million, representing 12% of total consolidated net sales. Adjusted consolidated gross margin expanded 80 basis points to 52.8% driven by Fuel for Growth program cost savings.

Customer Acquisition & Engagement Initiatives

• The "Save and Skip the Salon" marketing campaign continues to resonate with Sally segment customers. High-profile experiential events like the March ColorFest pop-up at The Grove Los Angeles drove over 300 million PR impressions and strong new customer acquisition. The ongoing "Rooted in Success" campaign is holding events across 13 historically Black colleges and universities, with student brand ambassadors and a partnership with Essence Magazine to drive community engagement.
• The Licensed Colorist on Demand (LCOD) platform had average weekly consultations exceed 5,200 in Q2, with new customers up 35% year-over-year. LCOD customers have 80% higher annual spend than non-LCOD customers, driven by increased visit frequency. BSG is increasing integrated marketing partnerships with key brands to boost stylist engagement, and plans to roll out AI-powered personalization for highly engaged stylists later in the year.

Digital Transformation

• The updated Sally app launched two months prior has delivered improved engagement, higher conversion, larger average order value, reduced cart abandonment, and higher rates of the high-margin buy online, pick up in store (BOPIS) fulfillment option. BSG rolled out its updated stylist app in April with faster checkout, simplified reordering, and room for future functionality including education, geo-targeting, and personalization. Two-hour delivery for BSG saw strong growth in the quarter.
• Sally Beauty expanded into social commerce with the March launch of Sally Beauty on TikTok Shop, offering the full owned-brand portfolio plus an initial set of national brands that will be expanded over time as the channel grows.

Product Assortment & Innovation

• Sally segment launched the new high-margin Ion Lux infrared hair tool collection, targeting the fast-growing trend of heat-damage-minimizing styling at affordable price points. The fragrance category expansion is ahead of expectations, with rollout completed to 2,000 US stores in Q2 after launching in 1,000 locations in Q4 2025. The nail category grew 3% after assortment and merchandising refreshes. Hair care trends remain soft but are improving sequentially, with a full category reset planned for Q4.
• BSG added new brands including Epilog permanent hair color from Danger Jones, and will launch Moroccan Oil in two additional states in the second half of fiscal 2026. Newer brands like Milkshake and Keratin Complex are driving strong growth, while legacy brands have softer performance. BSG's nail category trend improved in Q2 after assortment refreshes.

New Growth Initiatives

• The Sally Ignited store remodel initiative completed 2 additional refreshes in Q2, bringing the total to 40 completed locations. Another 40 refreshes are planned for the back half of fiscal 2026, putting the company on track to hit 80 total Ignited stores by year end. Ignited stores have delivered higher cross-category penetration, units per transaction, average transaction value, and dwell time, and outperform the base fleet on overall performance. A full accelerated rollout is planned to begin in fiscal 2027 after testing and refinement.
• BSG's entry into the skin and spa category is progressing well, with initial strong performance from the launch of Image and Matter of Fact brands in 250 locations. Another 250 locations will add the category in Q4, and Amika Skin Care will launch across all US and Canadian BSG locations starting in June.

Cost Efficiency Program

• Halfway through fiscal 2026, the multi-year Fuel for Growth cost efficiency program is on track to capture approximately $45 million in gross margin and SG&A benefits for the full year. This will bring cumulative run rate savings to $120 million over three years, hitting the original program target.

1. Sally Beauty Segment: Net sales increased 4.1% year-over-year to $521 million, contributing 57.7% of total consolidated net sales. The segment delivered 2.5% comparable sales growth, with 1% growth in transactions and 1% growth in average ticket. By category, color grew 11% while hair care decreased 6% year-over-year. E-commerce sales grew 21% to $50 million, representing 10% of segment net sales, with 28% e-commerce growth for Sally US and Canada. Gross margin increased 10 basis points to 61.3%, and segment operating margin declined 40 basis points to 15%.

2. BSG Segment: Net sales were roughly flat year-over-year at $382 million, contributing 42.3% of total consolidated net sales. Comparable sales declined 30 basis points, with transactions and average ticket flat year-over-year. By category, color grew 3% while hair care was flat. E-commerce sales increased 7% to $57 million, representing 15% of segment net sales. Gross margin expanded 110 basis points to 40.9%, and segment operating margin increased 90 basis points to 12.4%.

• Full year 2026 consolidated net sales guidance was tightened to a range of $3.725 billion to $3.750 billion (up from the prior wider range), including approximately 50 basis points of favorable foreign currency impact. Comparable sales are expected to be flat to up 1%.
• Full year adjusted operating income is maintained at a range of $328 million to $342 million, and adjusted diluted EPS is maintained at $2.02 to $2.10 per share. Approximately 50% of full year free cash flow will be allocated to share repurchases.
• Full year capital expenditures are expected to be approximately $100 million, and full year free cash flow is expected to be approximately $200 million.
• Q3 fiscal 2026 guidance calls for consolidated net sales of $932 million to $942 million (including 40 basis points of favorable foreign currency impact), flat comparable sales, adjusted operating income of $83 million to $89 million, and adjusted diluted EPS of $0.52 to $0.56 per share.
• Management expects the Sally segment will outperform the BSG segment in both the third and fourth quarters of fiscal 2026, with BSG expected to take a few more quarters to return to positive growth.

• Ongoing geopolitical instability and rising crude/fuel prices create downside risk for consumer discretionary spending, particularly for lower-income consumer segments that make up a material portion of Sally's customer base.
• Inflationary pressures continue to push up core operating expenses including labor, rent, and compensation, creating ongoing cost pressure that requires disciplined cost management to offset.
• Hair care (particularly core shampoo and conditioner) has remained soft for multiple consecutive quarters, requiring merchandising resets and strategic adjustments to return to growth.
• The company is in the early stages of new initiatives including TikTok Shop and Sally Ignited store remodels, with unproven long-term profitability and scalability that requires ongoing testing and measurement.

Q: Can you discuss the health of BSG stylists and salon customers, the performance of the Sally Ignited remodeled stores versus the base fleet, and your plans for the pressured hair care category? / A: BSG stylists have busy appointment books and are generally healthy, though they prioritize promotions to navigate inflation. Salon customers are opting for lower-maintenance looks that reduce visit frequency slightly, but overall performance remains solid. The Sally customer is resilient, with strong demand for the value-focused "Save While You Skip the Salon" offering. Sally Ignited stores outperform the base fleet on key metrics including units per transaction, average transaction value, and cross-category shopping, with particularly strong fragrance performance that matches the early results from fragrance rollout in non-remodeled stores. A full hair care category reset (POG reset) is scheduled for August, which will remove underperforming SKUs and add 110 new SKUs including a doubling of the men's hair care assortment, which is already growing 7% year-to-date. LCOD personalization will also be expanded to cover hair health to support the category. Management is leveraging learnings from existing Ignited stores to refine the hair care offering ahead of the reset.

Q: How is BSG working to return the flat hair care category to sustainable positive growth, what are your near-term vs long-term traffic driving priorities, and what have early TikTok Shop results shown? / A: BSG hair care has stabilized at flat growth for three consecutive quarters, with strong performance from new innovative brands like Milkshake and Keratin Complex and softer results from legacy brands. Management is focusing on assortment refinement, new brand additions, distribution expansion, and better communication of BSG's differentiated value to stylists. Near-term top priorities are performance marketing and personalization, which have driven 2% growth in both traffic and average ticket for Sally US and Canada. Digital initiatives including the updated app, expanded marketplaces, and the new TikTok Shop are also core near-term priorities, alongside product innovation in high-growth areas like hair tools and nails. Early TikTok Shop engagement is strong, just two months after launch, and the platform is an authentic fit for beauty discovery. Management is monitoring channel profitability closely as it scales. The Sally Ignited rollout will remain measured through the end of 2026, with a scaled rollout plan for 2027 expected to be shared by the end of calendar 2026 once the store model is fully refined.

Q: What impact could rising crude oil/fuel prices have on top line performance, and how is the company positioned to capture growth in the fast-growing premium hair care treatment category? / A: The broader consumer backdrop remains resilient today, though low-income store locations see more pressure, and management is monitoring the risk of persistent pain from higher fuel prices tied to geopolitical conflict. For Sally US and Canada, both traffic and average ticket were up 2% in the quarter, with no disproportionate impact on either metric to date. BSG traffic and ticket remain flat overall. Stylists are consistently focused on promotional value to offset their own cost pressures, but overall sentiment remains steady with ongoing strong appointment volumes. Consumers and pros alike prioritize proven efficacy and value in hair care treatments, a need the company meets with competitively priced premium offerings like the Ion 24K treatment line for Sally and unique, professional-only brands like Keratin Complex for BSG that deliver the targeted bonding and moisturizing benefits consumers currently demand.

Q: What key factors have driven the stabilization of the Sally Beauty Supply business over the past two years, and how is category performance balanced across the segment? / A: Three core strategic initiatives have driven stabilization: customer-centric activation via performance marketing, CRM, and experiential marketing that resonates across all demographics; a robust digital strategy that improved the core website and app experience and expanded into incremental channels like marketplaces that bring 3 out of 4 new customers to the Sally ecosystem; and ongoing assortment refinement that expanded high-growth new categories like fragrance and nails to drive cross-selling and higher basket sizes. Outperformance is concentrated in the color category (up 11-12% year-over-year) and nails, while hair care remains the primary soft category, with styling tools also seeing softer demand due to ongoing consumer frugality. Management expects the August hair care reset and new Ion Lux tool innovation will improve performance in these categories for the back half of the year.