Beauty Product Boom Lifts Sally to Highest Since 2023

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2:43Denise Paulonis:All right, we're going to go back to some original reporting that we mentioned, certainly by our Amanda Mull. We just talked about Ulta Beauty. That is the cover story of Bloomberg Businessweek. The beauty industry, though, overall has several players. We talk about the growth. We talk about the profitability. We just talk about, you know, consumers. They're out there spending. Yeah. Let's talk a little bit about one of those companies. Sally Beauty Holding shares finished the day lower by about 1.6 percent. Initially, they rose to reach a February 2023 intraday record, 19 percent to the upside.

3:15Following the company's most recent earnings report, fourth quarter comp sales up 1.3 percent. That beat Wall Street estimates. The company also beat estimates when it came to fourth quarter adjusted EPS and Q4 net sales. Delise Polonis is president and CEO of the$1.4 billion market cap, Sally Beauty Holdings. She joins us from Texas. Shares up more than 38 % so far this year. Denise, we want to talk about the company, but I want to start with just your view on the consumer right now. How is the consumer? First, thanks for having me. Great to be on. You know, overall, the consumer that we're seeing is resilient, but it's choiceful.

3:50So resilient in total dollar spending, but very picky about what they're going to put their money into right now, just knowing that they might have a limited budget to spend.

4:00Denise Paulonis:What are they spending it on then if they have a limited budget? Is it smaller items, things that cost less? I'm curious. I think what we see is we see people both splurging and then being frugal. So they'll splurge on experiences. They'll splurge on special products that are important to them. I expect that they'll splurge a bit on things like Thanksgiving dinner, but they'll pull back and say, you know, if I have enough of something in my pantry, maybe I won't buy three more bottles of shampoo or three more lipsticks. I'm going to lean in for what really matters to me. Well, that's what I mean, though.

4:35Denise Paulonis:So then I didn't mean, you know, I get it that they might not spend, you know, they look at their whole wallet and what they can spend on. But so what are they really spending money on at Sally Beauty? I will tell you at Sally Beauty, the big thing is hair color. So our hair color business was up high single digits at Sally this quarter. And what we're really seeing is customers who have always done DIY for their hair continuing to do so. But more and more, we're seeing customers who are splitting their time that they might regularly get done in a salon, but they'll come in and do a fill-in or an update to kind of stretch their wallet a little bit between those salon visits by coloring their hair, touching up their roots.

5:14And we also see a reinvigoration of vivid colors as people, I think, want some fun in their lives and want that experience of pink or purple hair. Just remind us where you play and where you meet the consumer. You call yourself the world's largest distributor and retailer of professional beauty products. Brands that might be and are probably known to most of our audience include Clairol, Conair, Hotshot Tools, Wella, and more. Where do you meet the consumer? Because it happens at retail stores, but it also happens via salons? It does. We meet them in two spots. So overall, we're about a$4 billion sales player that split half and half between serving a traditional consumer with Sally, which is a public consumer, retail stores that are out there.

5:58And then we service all of the beauty salon professionals. So, you know, all those folks who work as independent contractors or work in a salon taking care of folks. We're actually that largest distributor to that salon professional. And primarily what we do on both sides of our business is everything hair, hair color, hair care, accessories, tools, you name it. That's what we do.

6:19Denise Paulonis:Hey, I am curious with tariffs and so on and so forth, the global supply chain when it comes to beauty products. I think it's around the world, France, South Korea, the US, China, Italy, Japan. How has that impacted the cost of things or your business? Yeah, I think we're quite fortunate that 80 % of our product comes from North America And the 20 % that doesn't is kind of split equally between China and Western Europe. So we're a little bit more insulated than some other beauty players out there, which is great news for us. When we think about what's most affected for us, it's things like blow dryers or flat irons that might be coming in from China and have a little bit more of that tariff on it.

6:59But we've got some great relationships and we're navigating it quite nicely. I don't expect the consumer will see any notable increase to them as we're going through the holiday selling season on those products with the cooperation we have with our vendors and how we're trying to navigate sourcing. The disconnect between Wall Street's expectations and what you delivered. I know a big part of any executive's job is managing expectations. It was a beat pretty much across the board for you today. Where did that come from? Well, I will tell you, the team just did a fantastic job executing. We've got a few key initiatives that are working really well for us today, namely starting with innovation, particularly on the pro side of our business.

7:4235 % of our sales in hair care this last year came from product that's new to us in the last 18 months or so. And that's three times higher than it was a couple years ago, where that was only 10 % from newness. So that newness is resonating with our salon customers quite a bit. But on the retail side, marketplaces. We now participate with Uber Eats, DoorDash, and Instacart in terms of kind of the non-traditional marketplaces delivered to your door in two hours. It's been a great business growth opportunity for us. We laugh internally that the fact is there's a lot of people who have an eyelash emergency at 6 o 'clock on a Saturday night before a big party.

8:24Or maybe at 1.30 p.m. Monday through Friday. I'm looking at me. I know.

8:28Denise Paulonis:Yeah, he's got his issues. I'm just going to say. You know, I think we've got something for you, too. No doubt. Denise, this was interesting and fun. Really enjoyed it. Denise Polonis, she is president and chief executive officer of Sally Beauty Holdings, joining us from Texas. This is Bloomberg.

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