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What changed in Sally Beauty Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sally Beauty Holdings, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+256 added−240 removedSource: 10-K (2023-11-16) vs 10-K (2022-11-17)

Top changes in Sally Beauty Holdings, Inc.'s 2023 10-K

256 paragraphs added · 240 removed · 181 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

56 edited+26 added−12 removed34 unchanged
Biggest changeBSG’s store count for the last three fiscal years is summarized in the following table: Fiscal Year 2022 2021 2020 Beginning store count 1,362 1,385 1,366 Opened 54 59 85 Closed (61 ) (80 ) (54 ) Franchises opened 2 1 4 Franchises closed (2 ) (3 ) (16 ) Ending store count 1,355 1,362 1,385 In fiscal 2022, the Board approved t he planned closure of 330 SBS and 35 BSG stores mostly over the next fiscal year, which was the result of a strategic evaluation that included a market analysis of certain locations where we believe we are able to recapture demand and improve profitability.
Biggest changeBSG’s store count for the last three fiscal years is summarized in the following table: Fiscal Year 2023 2022 2021 Beginning store count 1,355 1,362 1,385 Opened 38 54 59 Closed (1) (55 ) (61 ) (80 ) Franchises opened — 2 1 Franchises closed — (2 ) (3 ) Ending store count 1,338 1,355 1,362 (1) In fiscal years 2023 and 2022, we closed 26 stores and 7 stores, respectively, in connection with the Plan.
We believe we are uniquely positioned to continue expanding our digital sales penetration thanks to our omni-channel business model, which enables us meet our customers where they are; in store or online, or through a hybrid approach such as our “buy online, pick up in store” (BOPIS) option.
We believe we are uniquely positioned to continue expanding our digital sales penetration thanks to our omni-channel business model, which enables us to meet our customers where they are; in store or online, or through a hybrid approach such as our “buy online, pick up in store” (BOPIS) option.
Our distribution centers service our stores, orders from our DSCs and ship-to-customer orders through various freight carriers. We procure our owned-branded merchandise through domestic and foreign vendors. We work closely with our overseas vendors to fulfill production orders and schedule ocean and freight carriers to deliver to our distribution centers.
Our distribution centers service our stores, orders from our DSCs and ship-to-customer orders through various freight carriers. We procure our owned-branded merchandise through domestic and foreign vendors and work closely with our overseas vendors to fulfill production orders and schedule ocean and freight carriers to deliver to our distribution centers.
Stores are typically located in strip shopping centers, which are occupied by other high traffic retailers such as grocery - 1 - stores, mass merchants and home improvement centers. Store formats, including average size and product selection, vary by marketplace to meet the needs of the customer. We calibrate store renewals, remodels and expansions between new and existing geographies.
Stores are typically located in strip shopping centers, which are occupied by other high traffic retailers such as grocery stores, mass merchants and home improvement centers. Store formats, including average size and product selection, vary by marketplace to meet the needs of the customer. We calibrate store renewals, remodels and expansions between new and existing geographies.
Beauty Systems Group BSG’s marketing programs are designed to promote its extensive selection of brand name products at competitive prices and to educate, motivate and empower existing and potential customers. We typically work closely with our vendors to provide customers promotional offers for certain products to target existing and potential customers.
Beauty Systems Group BSG’s marketing programs are designed to promote its extensive selection of brand name products at competitive prices and to educate, motivate and empower existing and potential customers. We work closely with our vendors to provide promotional offers for certain products to target existing and potential customers.
Key products included within our sales categories are as follows: • Hair Color – Developer/lightener, semi-permanent/demi-permanent/permanent hair color, toner • Hair Care – Shampoo and conditioner, hair gels and creams, hair spray • Styling Tools – Hair Dryer, irons, curling rods/rollers/pins, brushes/combs, clippers/trimmers/accessories, shears, razors, salon accessories • Nails – Polish/gel/acrylics/dips, nail accessories & supplies • Skin and Cosmetics – Cosmetics, cosmetic accessories, hair removal, skincare, jewelry • Other Beauty Products – Salon chairs/dryers/basics - 2 - Additionally, as a top destination to shop for professional color and care, our goal is to be in stock in these core categories at every opportunity.
Key products included within our sales categories are as follows: • Hair Color – Developer/lightener, semi-permanent/demi-permanent/permanent hair color, toner • Hair Care – Shampoo and conditioner, hair gels and creams, hair spray • Styling Tools – Hair dryers, irons, curling rods/rollers/pins, brushes/combs, clippers/trimmers/accessories, shears, razors, salon accessories • Nails – Polish, gel, acrylics, dips, nail accessories & supplies • Skin and Cosmetics – Cosmetics, cosmetic accessories, hair removal, skincare, jewelry • Other Beauty Products – Salon chairs, dryers, basics Additionally, as a top destination to shop for professional color and care, our goal is to be in-stock in these core categories at every opportunity.
We will continue to develop and evolve how we enhance Diversity, Inclusion & Belonging throughout SBH. We recognize the value these initiatives bring to our Company, our associates, our customers and the communities we serve. More information on our approach to Diversity, Inclusion & Belonging can be found at: https://www.sallybeautyholdings.com/our-company/diversity-inclusion-and-belonging .
We will continue to develop and evolve how we enhance Diversity, Inclusion & Belonging throughout SBH. We recognize the value these initiatives bring to our Company, our associates, our customers and the communities we serve. More information on our approach to Diversity, Inclusion & Belonging can be found at: www.sallybeautyholdings.com/our-company/diversity-inclusion-and-belonging .
Starting fiscal year 2023, we will be providing six weeks of paid parental leave for mothers, fathers or partners upon the birth or placement of a child; • Provide meaningful, engaging learning and development that grows our associates’ knowledge and capability with respect to our business and skills that will help them in business and life; and • Create an environment and culture where everyone can bring their true self to work, because our differences are what make us beautiful.
Starting fiscal year 2023, we began providing six weeks of paid parental leave for mothers, fathers or partners upon the birth or placement of a child; • Provide meaningful, engaging learning and development that grows our associates’ knowledge and capability with respect to our business and skills that will help them in business and life; and • Create an environment and culture where everyone can bring their true self to work, because our differences are what make us beautiful.
At SBH, we believe our focus on Diversity, Inclusion & Belonging are crucial to improving how we interact with and influence our associates, customer environments and broader communities. We are committed to being a force for change.
At SBH, we believe our focus on Diversity, Inclusion & Belonging are crucial - 6 - to improving how we interact with and influence our associates, customer environments and broader communities. We are committed to being a force for change.
Our stores on average offer approximately 8,000 professional beauty products tailored to the territory and are segmented into distinctive areas arranged by product type, with certain areas dedicated to leading third-party brands. Our company-operated stores average approximately 2,800 square feet and are located primarily in secondary strip shopping centers, being a destination exclusively for licensed cosmetologists.
Our stores, on average, offer approximately 8,000 professional beauty products tailored to the territory and are segmented into distinctive areas arranged by product type, with certain areas dedicated to leading third-party brands. Our company-operated stores average approximately 2,700 square feet and are located primarily in secondary strip shopping centers, being a destination exclusively for licensed cosmetologists.
In existing marketplaces, we add stores to provide additional coverage and strategically close or relocate underperforming stores as necessary. In new marketplaces, SBS selects geographic areas and store sites on the basis of demographic information, the quality and nature of neighboring tenants, store visibility and location accessibility. SBS generally seeks to expand in geographically contiguous areas to leverage its experience.
In existing marketplaces, we add stores to provide additional coverage and strategically close or relocate underperforming stores as necessary. In new marketplaces, SBS selects geographic areas and store sites on the basis of demographic information, the quality and nature of neighboring tenants, store visibility and location accessibility. SBS generally seeks to expand in geographically contiguous areas to leverage its expertise.
The information found on our website shall not be considered to be part of this or any other report filed with or furnished to the SEC.
The information found on our website shall not be considered to be part of this or any other report filed with or furnished to the SEC. - 9 -
Intellectual Property In the U.S. and in other countries where we operate, we have registered or legally protected trademarks, copyrights, internet domain names, service marks and tradenames that are used to promote and market our business, stores, digital platforms and products.
Intellectual Property In the U.S. and in other countries where we operate, we have registered or legally protected trademarks, copyrights, internet domain names, service marks and trade names that are used to promote and market our business, stores, digital platforms and products.
For example, in the U.S., most of the products sold and the content and methods of advertising and marketing utilized are subject to both federal and state regulations administered by a host of federal and state agencies, including, in each case, one or more of the following: the Food and Drug Administration, or FDA, the Federal Trade Commission and the Consumer Products Safety Commission.
For example, in the U.S., most of the products we sell and the content and methods of advertising and marketing utilized are subject to both federal and state regulations administered by a host of federal and state agencies, including, in each case, one or more of the following: the Food and Drug Administration, or FDA, the Federal Trade Commission and the Consumer Products Safety Commission.
ITEM 1. BUSINESS Our Company Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty supplies. As experts in hair color and care, we aim to empower our customers to express themselves through their hair and beyond.
ITEM 1. B USINESS Our Company Sally Beauty Holdings is a leading international specialty retailer and distributor of professional beauty supplies. As experts in hair color and care, we aim to empower our customers to express themselves through their hair and beyond.
Our Compensation & Talent Committee provides hands-on oversight and guidance of our Diversity, Inclusion & Belonging initiatives. Our Board believes listening and responding to diverse voices is crucial to the Company’s success and long-term sustainability. In Our Workforce : Our SBH Team in the U.S. & Canada is over 90% women and over 48% people of color.
Our Compensation & Talent Committee provides hands-on oversight and guidance of our Diversity, Inclusion & Belonging initiatives. Our Board believes listening and responding to diverse voices is crucial to the Company’s success and long-term sustainability. In Our Workforce : Our SBH Team in the U.S. & Canada is approximately 90% women and approximately 50% people of color.
We sell beauty products to treat and style every kind of hair; we deliver a tailored assortment of beauty products that serve the local communities where our over 4,000 U.S. and Canada stores are located. Serving the diverse demographics and needs of our customers drives a culture and workforce that embraces and reflects the communities we serve.
We sell beauty products to treat and style every kind of hair; we deliver a tailored assortment of beauty products that serve the local communities where our over 3,500 U.S. and Canada stores are located. Serving the diverse demographics and needs of our customers drives a culture and workforce that embraces and reflects the communities we serve.
During the last three fiscal years, our owned and exclusive-labeled brands accounted for approximately 45% of our U.S. and Canada product sales. Beauty Systems Group BSG carries an extensive selection of leading third-party branded products, many of which are under exclusive distributions rights, at competitive prices across a variety of product categories.
During the last three fiscal years, our SBS U.S. and Canada-owned and exclusive-labeled brand sales accounted for approximately 48%, 45%, and 45%, respectively. Beauty Systems Group BSG carries an extensive selection of leading, third-party branded products, many of which are under exclusive distributions rights, at competitive prices across a variety of product categories.
Create your future. • BE PART OF SOMETHING BIGGER. Take care of each other, our community and our planet. - 5 - More information on our Purpose & Values can be found at: https://www.sallybeautyholdings.com/our-company/purpose-and-values . Human Capital Management As of September 30, 2022, we had approximately 29,000 global associates, including approximately 13,000 full-time associates.
Create your future. • BE PART OF SOMETHING BIGGER. Take care of each other, our community and our planet. More information on our Purpose & Values can be found at: www.sallybeautyholdings.com/our-company/purpose-and-values . Human Capital Management As of September 30, 2023, we had approximately 27,000 global associates, including approximately 13,000 full-time associates.
Fiscal Year 2022 2021 2020 Sally Beauty Reward members 16.3 million 15.9 million 13.5 million % of Sales 75.7% 72.5% 64.9% In the U.S., we also offer our SBS customers the opportunity to apply for the Sally Beauty Rewards Credit Card that provides additional benefits to being a Sally Beauty Rewards member.
Fiscal Year 2023 2022 2021 Sally Beauty Reward members 15.6 million 16.3 million 15.9 million % of Sales 76.3% 75.7% 72.5% In the U.S., we also offer our SBS customers the opportunity to apply for the Sally Beauty Rewards Credit Card that provides additional benefits to being a Sally Beauty Rewards member.
Additionally, we launched the Sally Beauty Associate Affiliate Program to encourage our associates to share their unique expertise with customers on social media to curate a community of inspiring, diverse creators who are using SBS merchandise for their DIY beauty, nails, hair and self-expression.
Additionally, our internal Sally Beauty Associate Affiliate Program encourages our associates to share their unique expertise with customers on social media to curate a community of inspiring, diverse creators who are using SBS merchandise for their DIY beauty, nails, hair and self-expression.
In addition, we believe that our digital platforms enhance other efforts intended to promote awareness of our products by salons and salon professionals. Customer Loyalty In the U.S. and Canada, our Sally Beauty Rewards Program is driven to earn SBS customer loyalty and was recognized as one of “2022 America’s Best Loyalty Programs” by Newsweek & Statista.
In addition, we believe that our digital platforms enhance other efforts intended to promote awareness of our products by salons and salon professionals. Customer Loyalty In the U.S. and Canada, our Sally Beauty Rewards Program is designed to earn SBS customer loyalty and was recognized as one of “America’s Best Loyalty Programs” by Newsweek & Statista in 2022 and 2023.
This commitment is evidenced, in part, by our background check policy for new hires, training and policy implementations related to handling both associate and customer incidents, partnerships to maintain the stores and make necessary repairs, recent actions taken to protect our customers and associates against COVID-19 as well as ongoing support in the field and at the support center.
This commitment is evidenced, in part, by our background check policy for new hires, training and policy implementations related to handling both associate and customer incidents, partnerships to maintain the stores and make necessary repairs, as well as ongoing support in the field and at the support center.
Some of these manufacturers are vertically integrated through the acquisition of distributors and stores. We also face competition from authorized and unauthorized retailers as well as internet sites offering professional salon-only products. Our Suppliers We purchase our merchandise directly from manufacturers through supply contracts and purchase orders. For fiscal year 2022, our five largest suppliers – Henkel AG & Co.
Some of these manufacturers are vertically integrated - 5 - through the acquisition of distributors and stores. We also face competition from authorized and unauthorized retailers as well as internet sites offering professional salon-only products. Our Suppliers We purchase our merchandise directly from manufacturers through supply contracts and purchase orders.
Diversity, Inclusion & Belonging At Sally Beauty we celebrate differences, inclusivity and self-expression. This fundamental aspect of SBH’s culture is rooted in our belief that beauty is for everyone and everyone should find their own path to beauty. Our associates and our customers care about celebrating diversity and self-expression.
This fundamental aspect of SBH’s culture is rooted in our belief that beauty is for everyone, and everyone should find their own path to beauty. Our associates and our customers care about celebrating diversity and self-expression.
As such, we have made significant investments to “meet them where they are.” When ordering through our digital platforms, our customers can select different fulfillment options, including: BOPIS; - 4 - deliver by common carrier (from-store or distribution centers); and 2-hour delivery.
As such, we have made significant investments to “meet them where they are.” When ordering through our digital platforms, our customers can select different fulfillment options, including: BOPIS; deliver by common carrier (from store or distribution centers); and 2-hour delivery. Introduced in fiscal year 2021, our BOPIS and 2-hour delivery methods have continued to see increased traction.
The transportation and disposal of many of our products are also subject to federal and state regulation. State and local agencies regulate many aspects of our business. We also face comprehensive regulation outside the U.S., focused primarily on product labeling and safety issues. As of September 30, 2022, we supplied franchised stores primarily located in the U.S.
The transportation and disposal of many of our products are also subject to federal and state regulation. State and local agencies regulate many aspects of our business. We also face comprehensive regulation outside the U.S., focused primarily on product labeling and safety issues.
The Code reflects the core principles of conducting our business as a good corporate citizen in compliance with all laws, rules and regulations applicable to us and the conduct business with regard for the welfare of our associates and providing equal opportunity to all associates and job applicants.
The Code reflects the core principles of conducting our business as a good corporate citizen in compliance with all laws, rules and regulations applicable to us and the conduct business with regard for the welfare of our associates and providing equal opportunity to all associates and job applicants. You can review this important document at http://investor.sallybeautyholdings.com .
We distribute promotional material through multiple channels, including print mail, e-mail, SMS, mobile app push notifications, social media, trade shows, educational events, store personnel and DSCs. As of September 30, 2022, we had a network of 718 DSCs which personally consults, supports and sells directly to salons and salon - 3 - professionals.
We distribute promotional material through multiple channels, including print mail, e-mail, SMS, mobile app push notifications, social media, trade shows, educational events, store personnel and DSCs. As of September 30, 2023, we had a network of 670 DSCs who personally consult, support and sell directly to salons and salon professionals.
During the fiscal year, we proudly launched our first Employee Resource Groups (ERGs), starting with four groups that represent out Black, Hispanic, Women and LGBTQ+ associates.
During the fiscal year, we further embedded the Company’s Employee Resource Groups (ERGs), with our first four groups that represent our Black, Hispanic, Women and LGBTQ+ associates.
Stores are designed to highlight our extensive product offerings and differentiated position in hair color and care. We apply strong category management processes, including store specific planograms, to maintain consistent merchandise presentation across our store base. In the U.S. and Canada, our average store offers an average of 7,000 beauty products and is approximately 1,700 square feet in size.
We apply strong category management processes, including store specific planograms, to maintain consistent merchandise presentation across our store base. In the U.S. and Canada, our average store offers an average of 7,000 beauty products and is approximately 1,650 square feet in size.
You can review this important document at http://investor.sallybeautyholdings.com . - 6 - Associate Engagement, Development and Culture We live our values, listen to our associates and take action We make significant efforts to ensure our associates are informed, engaged and excited about the work they are doing and contributions they are making to our Company and our customers.
Associate Engagement, Development and Culture We live our values, listen to our associates and take action We make significant efforts to ensure our associates are informed, engaged and excited about the work they are doing and contributions they are making to our Company and our customers.
SBS’s differentiation is to offer a vast array of hair color and care solutions for in home use, and this is supported by the content and education we provide our customers.
Operating and Growth Strategy Our operating and growth strategy is guided by our vision to own professional hair color and care for both the do-it-yourself (“DIY”) enthusiast and professional stylist. SBS’s differentiation is to offer a vast array of hair color and care solutions for in-home use, and this is supported by the content and education we provide our customers.
We review our team’s input and comments, identify common themes and set out action plans to respond. We believe listening is crucial, but taking action and making commitments are even more important. A core focus of our associate engagement and culture are our efforts focused on Diversity, Inclusion & Belonging, discussed below.
We review our team’s input and comments, identify common themes and set out action plans to respond. We believe listening is crucial, but taking action and making commitments are even more important.
Over the past several years, we have made significant investments in our end-to-end supply chain systems and processes to build a best-in-class merchandising and supply chain platform for the future. As we leverage these new systems and processes, we expect to more effectively and efficiently manage and forecast our inventory to ensure appropriate in-stock levels.
Over the past several years, we have made significant investments in our end-to-end supply chain systems and processes to build a best-in-class merchandising and supply chain platform for the future.
As a result of these franchisor-franchisee relationships, we are subject to regulation when offering and selling franchises. The applicable laws and regulations affect our business practices, as franchisor, in a number of ways, including restrictions placed upon the offering, renewal, termination and disapproval of assignment of franchises.
The applicable laws and regulations affect our business practices, as franchisor, in a number of ways, including restrictions placed upon the offering, renewal, termination and disapproval of assignment of franchises. To date, these laws and regulations have not had a material effect upon our operations.
The stylist platform is a BSG initiative with a customizable digital storefront platform that gives our stylists the ability to curate a product selection from thousands of choices and enable clients to purchase directly from their shops without having to hold inventory.
In BSG, Cosmo Prof Direct is a platform that gives our stylists the ability to curate a product selection from thousands of choices and enable clients to purchase directly from their shops without having to hold inventory. During the fiscal year, the platform has continued to expand, ending the fiscal year with more than 4,300 digital storefronts.
Marketing and Advertising Sally Beauty Supply We target existing and potential customers through an integrated marketing approach designed to reach the customer through a variety of media channels, including digital advertising, e-mail, social media, text messaging, mobile app push notifications, direct mail and print advertising.
As the largest North American distributor of professional hair color and care, carrying an extensive selection of branded merchandise is critical to maintaining relationships with our professional customers. - 3 - Marketing and Advertising Sally Beauty Supply We target existing and potential customers through an integrated marketing approach designed to reach the customer through a variety of media channels, including digital advertising, e-mail, social media, text messaging, mobile app push notifications, direct mail, radio and experiential advertising.
We have exclusive and non-exclusive distribution rights with several key vendors for well-known brands in certain geographies and continue to pursue the acquisition of additional distribution rights. As the largest North American distributor of professional hair color and care, carrying an extensive selection of branded merchandise is critical to maintaining relationships with our professional customers.
We have exclusive and non-exclusive distribution rights with several key vendors for well-known brands in certain geographies and continue to pursue the acquisition of additional distribution rights.
During the last three fiscal years, our hair color and care products made up between 60% and 70% of our total consolidated sales.
Merchandise We believe our product offerings, led by our hair color and care categories, provide us a competitive advantage. During the last three fiscal years, our hair color and care products made up approximately 70% of our total consolidated sales.
Our Sally Crew Ambassadors consist of content creators and/or professional stylists who are DIY experts in their areas of focus and aim to inspire, educate and empower beauty enthusiasts. This year, we expanded our DIY University content to provide easy-to-follow tutorials with convenient access to different product assortments discussed.
Our external influencers consist of content creators and/or professional stylists who are DIY experts in their areas of focus and aim to inspire, educate and empower beauty enthusiasts.
We believe focusing in these areas will position our company for future growth and further enhance our ability to meet our customers where they are. Store Design and Locations Sally Beauty Supply SBS has retail stores in the U.S. (including Puerto Rico), Canada, Mexico, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands, Spain and Chile.
Store Design and Locations Sally Beauty Supply SBS has retail stores in the U.S. (including Puerto Rico), Canada, Mexico, the United Kingdom, Ireland, Belgium, France, Germany, the Netherlands, Spain and Chile. Stores are designed to highlight our extensive product offerings and differentiated position in hair color, hair care, styling tools and nails.
In 2019 and 2020, Forbes named our Company one of America’s Best Employers for Diversity. In 2021, Forbes named SBH as one of America’s Best Employers for Women. We recognize and celebrate the bedrock values of workforce diversity, inclusion, belonging and engagement within our teams.
This year, Newsweek recognized SBH among America’s Greatest Workplaces, America’s Greatest Workplaces for Diversity and America’s Greatest Workplaces for Women. We recognize and celebrate the bedrock values of workforce diversity, inclusion, belonging and engagement within our teams.
SBS’s store count for the last three fiscal years is summarized in the following table: Fiscal Year 2022 2021 2020 Beginning store count 3,549 3,653 3,695 Opened 47 71 64 Closed (155 ) (168 ) (102 ) Franchises closed (2 ) (7 ) (4 ) Ending store count 3,439 3,549 3,653 Beauty Systems Group BSG stores, including franchise-based Armstrong McCall stores, are designed to highlight our extensive product offerings to salons and salon professionals.
SBS’s store count for the last three fiscal years is summarized in the following table: Fiscal Year 2023 2022 2021 Beginning store count 3,439 3,549 3,653 Opened (1) 54 47 71 Closed (2) (345 ) (155 ) (168 ) Franchises closed — (2 ) (7 ) Ending store count 3,148 3,439 3,549 (1) Includes ten pilot stores for Happy Beauty Company opened in fiscal year 2023.
SBS operates primarily through retail stores (generally operating under the Sally Beauty banner) and digital platforms, including our www.sallybeauty.com website and a mobile commerce-based app. We believe SBS, with its nationwide network of retail stores, is the largest open-line distributor of beauty products in the U.S.
SBS operates primarily through retail stores (generally operating under the Sally Beauty banner) and digital platforms, including our www.sallybeauty.com website and a mobile commerce-based app. Beauty Systems Group (“BSG”) – A leading full-service omni-channel distributor that offers professional beauty supplies exclusively to salons and salon professionals throughout the U.S. and Canada.
BSG operates through company-operated stores (generally operating under the Cosmo Prof banner), franchised stores, distributor sales consultants (“DSCs”) and digital platforms, including our www.cosmoprofbeauty.com website, a mobile commerce-based app and chain portals. The breadth, depth and professional quality of our hair color and care assortment provides us with a differentiated core business in an industry which is otherwise fragmented.
These salon professionals primarily rely on just-in-time inventory due to capital constraints and limited warehouse and shelf space. BSG operates through company-operated stores (generally operating under the Cosmo Prof banner), franchised stores, distributor sales consultants (“DSCs”) and digital platforms, including our www.cosmoprofbeauty.com website, a mobile commerce-based app and chain portals.
During the fiscal year, we expanded our partnership with DoorDash for both SBS and BSG, and we added a 2-hour delivery option to the Sally and BSG mobile apps. Seasonality Our business is generally not seasonal, but typically has higher sales in our first quarter related to the holiday sales period.
For the fiscal years 2023, 2022 and 2021, BOPIS and 2-hour delivery has made up approximately 42%, 33%, and 19%, respectively, of our SBS U.S and Canada sales through our digital platforms. Seasonality Our business is generally not seasonal, but typically has higher sales in our first quarter related to the holiday sales period.
Additionally, our digital strategy of enhancing our customer centricity aims to expand our services ecosystem to support professional stylists as well as increase education and expertise to inspire and support all of our customers.
Additionally, our digital strategy of enhancing our customer centricity aims to expand our services ecosystem to support professional stylists as well as increase education and expertise to inspire and support all of our customers. - 4 - To that end, we are excited to continue our digital expansion through our recent initiatives, such as our stylist platform, Cosmo Prof Direct, powered by Salon HQ and our new Licensed Colorist on Demand ("LCOD") featured on our website, www.sallybeauty.com .
KGaA, Wella Company, the Professional Products Division of L'Oreal USA S/D, Inc., or L’Oreal, John Paul Mitchell Systems, and Olaplex Inc. – accounted for approximately 42% of our consolidated merchandise purchases. We have developed a long-standing, mutually beneficial relationship, some exclusive, with these suppliers and many others, which we believe is core to our competitive advantage.
For fiscal year 2023, our five largest suppliers – Henkel AG & Co. KGaA; Wella Company; the Professional Products Division of L'Oreal USA S/D, Inc., or L’Oreal; John Paul Mitchell Systems; and Kao Corporation – accounted for approximately 43% of our consolidated merchandise purchases.
By operating in a variety of channels, we are able to reach broad, diversified geographies and customer segments using a variety of product assortments and tactics. Operating and Growth Strategy Our operating and growth strategy is guided by our vision to own professional hair color and care for both the do-it-yourself” (“DIY”) enthusiast and professional stylist.
We also have strong positioning with suppliers given our focus and economies of scale of purchasing. By operating in a variety of channels, we are able to reach broad, diversified geographies and customer segments using a variety of product assortments and tactics.
As leaders in the beauty industry, we believe we are uniquely positioned to adapt and innovate within our brands, partnerships and product offerings to provide the looks customers want. We believe this focus helps us attract new customers and keep long-term relationships with existing customers.
Sally Beauty Supply SBS carries an extensive selection of leading third-party, owned and exclusive-labeled brand professional beauty supplies across a variety of product categories. As leaders in the beauty industry, we believe we are uniquely positioned to adapt and innovate within our brands, partnerships and product offerings to provide the looks customers want.
Due to our long presence, brand heritage, product and process-specific knowledge and training of associates, we provide unmatched hair color and care expertise to consumers. We also have strong positioning with suppliers given our focus and economies of scale of purchasing.
The breadth, depth and professional quality of our hair color and care assortment provides us with a differentiated core business in an industry which is otherwise fragmented. Due to our long history, brand heritage, product and process-specific knowledge and training of associates, we provide unmatched hair color and care expertise to consumers.
SBS’s marketing initiatives are designed to drive customer traffic through added education, content and community building.
SBS’s marketing initiatives are designed to drive customer traffic through added education, content and community building. We leverage a combination of internal and external influencers/content experts to educate and make customers feel confident about DIY hair color, hair care, nails and other beauty trends.
Furthermore, we continue to expand our selection of textured hair products, including over 50 Black-founded brands, and offer innovation in the nails category that we believe further differentiates us from our competitors. We believe that our owned and exclusive-labeled brands, available only at SBS, offer equal or better quality than higher-priced leading third-party brands.
These initiatives have helped deliver an increase in our owned brands sales penetration, resulting in higher SBS profit margins. We believe that our owned and exclusive-labeled brands, available only at SBS, offer equal or better quality than leading third-party brands.
Additionally, customers are looking for more convenient options for receiving merchandise and it is helping drive their purchasing decisions.
Based on the positive results from the test, we are expanding this program to the majority of our remaining SBS and BSG store fleet throughout the U.S. and Canada. Additionally, customers are looking for more convenient options for receiving merchandise, which is helping drive their purchasing decisions.
These ERGs are off to a strong start, and we look forward to embedding our ERGs within how we do business, both internally and externally, then expanding to other groups and focus areas in the future. - 7 - In Our Customer Base : Our customers span the entire continuum of gender and ethnic diversity.
These ERGS have made a meaningful impact on our team and business, and we will continue to connect and engage them on how we do business, how we best serve our customers, and how we enhance our team and culture. In Our Customer Base : Our customers span the entire continuum of gender and ethnic diversity.
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Beauty Systems Group (“BSG”) – A leading full-service omni-channel distributor that offers professional beauty supplies exclusively to salons and salon professionals throughout the U.S. and Canada. These salon professionals primarily rely on just-in-time inventory due to capital constraints and limited warehouse and shelf space.
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We remain focused on driving top line growth and profitability by executing on our strategic initiatives: Customer Centricity Our DIY customers and professional stylists value the services, education and innovation we provide.
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For fiscal 2023, we will be leveraging and building upon the modern retail infrastructure we’ve built in recent years and focusing on three key strategic initiatives to drive growth and profitability: • Enhancing our customer centricity; • Growing high margin owned brands at Sally Beauty and amplify innovation; and • Increase the efficiency of operations and optimize our capabilities.
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We continue to build customer centricity through our value-added services and concepts, including Studio by Sally, Cosmo Prof Direct, Licensed Colorist on Demand (“LCOD”), Happy Beauty Co. and Walmart.com digital marketplace.
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For more information on the Distribution Center Consolidation and Store Optimization Plan, see Note 16, Restructuring , in t he Notes to Consolidated Financial Statements in Item 8 contained in this Annual Report . Merchandise We believe our product offerings, led by our hair color and care categories, provides us a competitive advantage.
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As we gain insights and customer feedback from these concepts, we believe there are opportunities for us to expand on these concepts further and to provide growth beyond our core. Owned Brands and Innovation We believe our focus on growing our owned brands at SBS and innovating will help us attract new customers and keep long-term relationships with existing customers.
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To accomplish this, we have made great strides in fiscal 2022 toward increasing speed to market and improving our in-stock levels - notwithstanding macro-related supply chain disruptions. Sally Beauty Supply SBS carries an extensive selection of leading third-party, owned and exclusive-labeled brand professional beauty supplies across a variety of product categories.
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During the fiscal year, we expanded our owned brand portfolio with the launch of bondbar and brought to market many innovative products from new and key vendors. At BSG, we launched brands like Amika, Wella’s Ultimate Repair and Danger Jones, and expanded our distribution with Color Wow.
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During fiscal year 2022, we launched Strawberry Leopard, a new exclusive vivid color line, which resonates to a growing Gen Z customer base. Additionally, in the beginning of fiscal year 2023, we will be launching bondbar, a new owned brand hair repair line, to meet the demand for powerful hair repair solutions at an accessible price .
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Additionally, at the end of the fiscal year, we expanded our distribution rights and significantly strengthened BSG’s position in a strategically important market with the asset acquisition of Goldwell of New York.
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During the fiscal year, a large wholesale competitor, continued to transform their business to a third-party distribution model. In connection with their transformation, we acquired certain inventories and began servicing a large number of their storefronts.
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Going into next fiscal year, we are focused on expanding on our owned brand offerings to drive higher sales penetration, increasing our BSG distribution footprint through expanding high-profile brands, and bringing to market innovation across our key categories of hair care and hair color. - 1 - Efficiency and Optimization During the fiscal year, we were able to substantially complete our distribution center consolidation and store optimization plan (the “Plan”), resulting in strong sales recapture rates and cost savings.
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In recent years, we revealed “Sally Crew” and launched “DIY University by Sally Beauty” to educate customers on a wide range of topics from the latest trends in hair color, textured hair, hair styling and nails and to make customers feel confident about mastering DIY hair color, hair care and nails.
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We also set in motion our Fuel for Growth (“FFG”) initiative. FFG is a mandate to rethink the way we work, generating cost savings and modernizing key parts of our business. For example, our transition to pooled distribution and ongoing changes to our store shipping frequency has lowered our transportation costs.
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To that end, we are excited to continue our digital expansion through new initiatives such as a stylist platform powered by Salon HQ and Studio by Sally.
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We believe these efficiency and optimization initiatives will help us offset inflationary pressures and continued growth investments in the upcoming fiscal year. We believe focusing in these areas will position our company for future growth, further enhance our ability to meet our customers where they are, and attract new customers.
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Whereas Studio by Sally, a pilot store program set to kick off in fiscal 2023, will have a digital-first focus, from virtual check-in and digital education throughout the store, to DIY demos streaming at the store-front and take-home videos from individual salon sessions.
Added
During the fiscal year, we began testing two new store concepts, Happy Beauty Co. and Studio by Sally. Happy Beauty Co. is a unique new retail store concept that brings to market an engaging beauty experience with thousands of quality products priced under $10 in an accessible, fun and expressive environment.
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Studio by Sally will allow for personalized appointments with a licensed stylist who will train and educate the consumer on how to color their own hair and achieve their desired results. Distribution We currently receive our merchandise through nine U.S. distribution centers and several distribution centers in various other countries.
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Stores feature both third-party brands and our owned brands encompassing four key categories: cosmetics & facial care, bath & body, nails and hair. The initial pilot stores were opened in the Dallas/Ft. Worth, Texas and Phoenix, Arizona markets. If our pilot stores are successful, we believe there is an opportunity for 500-1,000 locations across the U.S.
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Regulation We are subject to a wide variety of laws and regulations, which historically have not had a material effect on our business.
Added
Studio by Sally is a new pilot store concept that adds an in-person educational salon experience where licensed stylists will train and educate customers, empowering them to personally achieve their desired results. As of September 30, 2023, we have six Studio by Sally pilot stores opened in various markets and have been encouraged with the results.
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To date, these laws and regulations have not had a material effect upon our operations.
Added
Looking to fiscal year 2024, we anticipate converting up to 30 additional stores. Longer term, we anticipate a mix of conversions and relocations, and we believe there is an opportunity to scale to over 100 Studio by Sally locations throughout the U.S. in the coming years.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeDespite these safeguards and our other security processes and protections, we cannot be assured that all of our systems and processes are free from vulnerability to security breaches (through cyber-attacks, which are evolving and becoming increasingly sophisticated, physical breach or other means) or inadvertent data disclosure by third parties or us.
Biggest changeDespite these safeguards and our other security processes and protections, our systems and processes may be vulnerable to security breaches and cyber-attacks, which are evolving and increasingly sophisticated (such as denial-of-service, ransomware, phishing, supply chain and social engineering attacks), as well as to physical breach, vandalism, sabotage, user malfeasance, viruses, misplaced or lost data and inadvertent data disclosure by third parties or us.
For example, it could: • make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness; - 19 - • limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes; • require us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of such cash flows to fund working capital, capital expenditures, share repurchases and other general corporate purposes; • restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us, which could limit our ability to conduct repurchases of our own equity securities or pay dividends to our stockholders, thereby limiting our ability to enhance stockholder value through such transactions; • increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations (because a portion of our borrowings are at variable rates of interest), including borrowings under our $500 million asset-based senior secured loan facility, which we refer to as the “ABL facility” and our term loan B; • place us at a competitive disadvantage compared to our competitors with proportionately less debt or comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns; • require us to comply with restrictive covenants that may restrict our ability to, among other things, pay dividends, conduct share repurchases, make acquisitions, dispose of assets or prepay debt; • limit our ability to refinance indebtedness or cause the associated costs of such refinancing to increase; and • limit our flexibility to adjust to changing market conditions and ability to withstand competitive pressures, or prevent us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins or our business.
For example, it could: • make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness; • limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes; • require us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of such cash flows to fund working capital, capital expenditures, share repurchases and other general corporate purposes; • restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us, which could limit our ability to conduct repurchases of our own equity securities or pay dividends to our stockholders, thereby limiting our ability to enhance stockholder value through such transactions; - 20 - • increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations (because a portion of our borrowings are at variable rates of interest), including borrowings under our $500 million asset-based senior secured loan facility, which we refer to as the “ABL facility” and our term loan B; • place us at a competitive disadvantage compared to our competitors with proportionately less debt or comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns; • require us to comply with restrictive covenants that may restrict our ability to, among other things, pay dividends, conduct share repurchases, make acquisitions, dispose of assets or prepay debt; • limit our ability to refinance indebtedness or cause the associated costs of such refinancing to increase; and • limit our flexibility to adjust to changing market conditions and ability to withstand competitive pressures, or prevent us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins or our business.
Competitive conditions may limit our ability to maintain prices or may require us to reduce prices in efforts to retain business or channel share, particularly because customers are able to quickly and conveniently comparison shop and determine - 8 - real-time product availability using digital tools, which can lead to decisions driven solely by price, the functionality of the digital tools, or a combination of these and other factors.
Competitive conditions may limit our ability to maintain prices or may require us to reduce prices in efforts to retain business or channel share, particularly because customers are able to quickly and conveniently comparison shop and determine real-time product availability using digital tools, which can lead to decisions driven solely by price, the functionality of the digital tools, or a combination of these and other factors.
There can be no assurance that any new owned and exclusive-label brand will meet consumer preferences, gain acceptance among our customer base or generate sales to become profitable or to cover the costs of its development and promotion. We expect continuously changing fashion-related trends and consumer tastes to influence future demand for beauty products.
There can be no assurance that any new owned and exclusive-label brand will meet consumer preferences, gain acceptance among our customer base or generate sales to become profitable or to cover the costs of its development and promotion. - 10 - We expect continuously changing fashion-related trends and consumer tastes to influence future demand for beauty products.
There can be no assurance the time and resources our management will need to devote to operations and upgrades, any delays due to the installation of any upgrade (and customer issues therewith), any resulting service outages, or the impact on the reliability of our data from any upgrade or any legacy system, will not have a material adverse effect on our business, financial condition, control environment or results of operations.
There can be no assurance the time and resources our management will need to devote to operations and upgrades, any delays due to the installation of any upgrade (and customer issues therewith), any resulting service outages, or the impact on the reliability of our data from any upgrade - 18 - or any legacy system, will not have a material adverse effect on our business, financial condition, control environment or results of operations.
Despite these relatively low opening costs, we may not be able to open all the new stores we plan to open and we may be unable to optimize our store base by closing stores that are underperforming or open stores that are profitable, any of which could have a material adverse impact on our business, financial condition and results of operations.
Despite these relatively low opening costs, we may not be able to open all the new stores we plan to open and we may be unable to optimize our store base by closing stores that are underperforming or open stores that are profitable, any of which could have a material - 13 - adverse impact on our business, financial condition and results of operations.
In addition, the resolution of infringement claims may require us to redesign our products, to obtain licenses to use intellectual property belonging to third parties, which may not be attainable on reasonable terms, or to cease using the intellectual property altogether. - 17 - We may be adversely affected by any disruption in our information technology systems.
In addition, the resolution of infringement claims may require us to redesign our products, to obtain licenses to use intellectual property belonging to third parties, which may not be attainable on reasonable terms, or to cease using the intellectual property altogether. We may be adversely affected by any disruption in our information technology systems.
Climatologists predict the long-term effects of climate change and global warming will result in the increased frequency, intensity and duration of weather events, which could significantly disrupt supply chains, potentially - 16 - impacting our vendors’ raw material costs and the production of products we sell.
Climatologists predict the long-term effects of climate change and global warming will result in the increased frequency, intensity and duration of weather events, which could significantly disrupt supply chains, potentially impacting our vendors’ raw material costs and the production of products we sell.
Since we purchase products from many manufacturers and fillers under at-will contracts and contracts which can be terminated without cause upon 90 days’ notice or less, or which expire without express rights of renewal, manufacturers and fillers could discontinue sales to us immediately or upon short notice.
Additionally, since we purchase products from many manufacturers and fillers under at-will contracts and contracts which can be terminated without cause upon 90 days’ notice or less, or which expire without express rights of renewal, manufacturers and fillers could discontinue sales to us immediately or upon short notice.
In addition, offering products through our e-commerce channels (particularly directly to consumers through our professional business) could cause some of our current or potential vendors to consider competing internet offerings of their products either directly or through competing distributors.
In addition, offering products through our - 12 - e-commerce channels (particularly directly to consumers through our professional business) could cause some of our current or potential vendors to consider competing internet offerings of their products either directly or through competing distributors.
We are currently party to, and in the future, we may enter into additional, derivative instruments, such as interest rate caps, to reduce our exposure to changes in interest rates on our term loan B.
We are currently party to, and in the future, we may enter into additional, derivative instruments, such as interest rate caps and swaps, to reduce our exposure to changes in interest rates on our term loan B.
Our sale of certain products exposes us to potential product liability claims, recalls or other regulatory or enforcement actions initiated by federal, state or foreign regulatory authorities or through private causes of action.
Our sale of certain products exposes us to potential product liability claims, recalls or other regulatory or enforcement actions initiated by federal, state or foreign regulatory authorities or through private - 16 - causes of action.
In furtherance of this strategy, we have engaged and continue to engage in activities to reduce or control - 9 - costs, some of which are complicated and require us to expend significant resources to implement.
In furtherance of this strategy, we have engaged and continue to engage in activities to reduce or control costs, some of which are complicated and require us to expend significant resources to implement.
ITEM 1A. RISK FACTORS Important risk factors that could materially affect our business, financial condition or results of operations in future periods are described below. These factors are not intended to be an all-encompassing list of risks and uncertainties and are not the only risks and uncertainties we face.
ITEM 1A. RI SK FACTORS Important risk factors that could materially affect our business, financial condition or results of operations in future periods are described below. These factors are not intended to be an all-encompassing list of risks and uncertainties and are not the only risks and uncertainties we face.
Expectations from investors, customers, team members and other third parties concerning ESG reporting have increased, and our ability to meet those expectations is dependent on a variety of factors, including cooperation from sourcing vendors and other third parties and having access to consistent and reliable data.
Expectations from investors, customers, team members, government agencies and other third parties concerning ESG reporting have increased, and our ability to meet those expectations is dependent on a variety of factors, including cooperation from sourcing vendors and other third parties and having access to consistent and reliable data.
If interest rates were to increase, our debt service obligations on the variable rate indebtedness referred to above would increase even if the principal amount borrowed remained the same, and our net income and cash flows will correspondingly decrease.
If interest rates were to increase, our debt service obligations on the variable rate indebtedness referred to above would increase even if the principal amount borrowed remained the same, and our net earnings and cash flows will correspondingly decrease.
In addition, sudden disruptions in business conditions as a consequence of events such as terrorist attacks, war or other military action or the threat of further attacks, including the war in Ukraine, pandemics or other crises or vulnerabilities or as a result of adverse weather conditions or climate changes, may have an impact on consumer spending, which could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows as well as the trading price of our securities.
In addition, sudden disruptions in business conditions as a consequence of events such as terrorist attacks, war or other military action or the threat of further attacks, including the wars in Ukraine and in the Middle East, pandemics or other crises or vulnerabilities or as a result of adverse weather conditions or climate changes, may have an impact on consumer spending, which could have a material adverse effect on our business, prospects, financial condition, results of operations, cash flows as well as the trading price of our securities.
Concerns over inflation, rising interest rates, labor shortages, energy costs, geopolitical issues, including the war in Ukraine, uncertainty with respect to elections, terrorism, civil unrest, the availability and cost of credit, the mortgage market, and the real estate and other financial markets in the U.S. and Europe have contributed to increased volatility and diminished expectations for the - 13 - U.S. and certain foreign economies.
Concerns over inflation, rising interest rates, labor shortages, energy costs, geopolitical issues, uncertainty with respect to elections, terrorism, civil unrest, the availability and cost of credit, the mortgage market, and the real estate and other financial markets in the U.S. and Europe have contributed to increased volatility and diminished expectations for the U.S. and certain foreign economies.
Outstanding borrowings under our ABL facility and our term loan B are at variable rates of interest and expose us to interest rate risk.
Outstanding borrowings under our ABL facility, if any, and our term loan B are at variable rates of interest and expose us to interest rate risk.
As of September 30, 2022, certain of our subsidiaries, including Sally Holdings LLC, which we refer to as Sally Holdings, had an aggregate principal amount of approximately $1.2 billion of outstanding debt. Our substantial debt could have significant consequences.
As of September 30, 2023, certain of our subsidiaries, including Sally Holdings LLC, which we refer to as Sally Holdings, had an aggregate principal amount of approximately $1.1 billion of outstanding debt. Our substantial debt could have significant consequences.
Our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to our impact on the environment. Failure to meet evolving expectations for reporting on ESG matters could adversely affect our sales and results of operations.
Our reputation could be damaged if we or others in our industry do not act, or are perceived not to act, responsibly with respect to our impact on the environment. - 17 - Failure to meet evolving expectations for reporting on environmental, social, and governance ("ESG") matters could adversely affect our sales and results of operations.
In addition, a number of U.S. states have enacted consumer privacy laws that are expected to take effect in 2023, or have revived existing state laws with new meaning, potentially subjecting retailers to privacy-based class action lawsuits.
In addition, a number of U.S. states have enacted consumer privacy laws that are expected to take effect in 2024 and beyond, or have revived existing state laws with new meaning, potentially subjecting retailers to privacy-based class action lawsuits.
In addition, we and our subsidiaries may incur substantial additional indebtedness in the future. As of September 30, 2022, our ABL facility provided us commitments for additional borrowings of up to approximately $412.9 million, subject to borrowing base limitations, outstanding letters of credit and limitations on cash hoarding above certain balances, once utilized.
In addition, we and our subsidiaries may incur substantial additional indebtedness in the future. As of September 30, 2023, our ABL facility provided us commitments for additional borrowings of up to approximately $482.6 million, subject to borrowing base limitations, outstanding letters of credit and limitations on cash hoarding above certain balances, once utilized.
The occurrence of natural disasters or acts of violence, terrorism or civil unrest could result in physical damage to our properties, the temporary closure of stores or distribution centers, the temporary lack of an adequate work force, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products) from domestic or foreign suppliers, the temporary disruption in the delivery of goods to our distribution centers (or a substantial increase in the cost of those deliveries), the temporary reduction in the availability of products in our stores and/or the temporary reduction in visits to stores by customers.
The occurrence of natural disasters (the severity and frequency of which may be exacerbated by climate change) or acts of violence, terrorism or civil unrest could result in physical damage to our properties, the temporary closure of stores or distribution centers, the temporary lack of an adequate work force, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products) from domestic or foreign suppliers, the temporary disruption in the delivery of goods to our distribution centers (or a substantial increase in the cost of those deliveries), the temporary reduction in the availability of products in our stores and/or the temporary reduction in visits to stores by customers.
If new debt is added to our current debt levels, the related risks we face would increase, and we may not be able to meet all our debt obligations. ITEM 1B. UNRESOLVED STAFF COMMENTS Not applicable. - 20 -
If new debt is added to our current debt levels, the related risks we face would increase, and we may not be able to meet all our debt obligations. ITEM 1B. UNRESOLV ED STAFF COMMENTS Not applicable. - 21 -
These increases in production costs result in higher merchandise costs to us. We may not always be able to pass on those cost increases to our customers, which could have a material adverse effect on our business, financial condition and results of operations. Our e-commerce businesses may be unsuccessful or, if successful, may redirect sales from our stores.
We may not always be able to pass on those cost increases to our customers, which could have a material adverse effect on our business, financial condition and results of operations. Our e-commerce businesses may be unsuccessful or, if successful, may redirect sales from our stores.
We offer many of our beauty products for sale through our e-commerce businesses in the U.S. (such as www.sallybeauty.com , www.cosmoprofbeauty.com , www.cosmoprofequipment.com and mobile commerce-based apps) and abroad. We have recently undertaken a number of initiatives, including in response to changing shopping patterns accelerated by COVID-19, to significantly advance our digital commerce capabilities and grow our e-commerce businesses.
We offer many of our beauty products for sale through our e-commerce businesses in the U.S. (such as www.sallybeauty.com , www.cosmoprofbeauty.com , www.cosmoprofequipment.com and mobile commerce-based apps) and abroad. We have recently undertaken a number of initiatives to significantly advance our digital commerce capabilities and grow our e-commerce businesses.
Any potential inability to comply with such laws, rules, regulations, guidelines and principles or to quickly adapt our practices to reflect them as they develop, could potentially subject us to significant fines, damages, liabilities and reputational harm, which could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows.
Any potential inability to comply with such laws, rules, regulations, guidelines and principles or to quickly adapt our practices to reflect them as they develop, could potentially subject us to significant fines, damages, liabilities and reputational harm, which could have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows. - 19 - Financial Risks Our comparable sales and quarterly financial performance may fluctuate for a variety of reasons.
Such claims, recalls or actions could be based on allegations that, among other things, the products sold by us are misbranded, contain contaminants or impermissible ingredients, provide inadequate instructions regarding their use or misuse, or include inadequate warnings concerning flammability or interactions with other substances.
Such claims, recalls or actions could be based on allegations that, among other things, the products sold by us are misbranded, contain contaminants or impermissible ingredients, provide inadequate instructions regarding their use or misuse, include inadequate warnings concerning flammability or interactions with other substances or that we knew or should have known of an alleged defect.
As a result, we may not realize the anticipated benefits of our acquisitions. If we are unable to optimize our store base by profitably opening and operating new stores and closing less profitable stores, our business, financial condition and results of operations may be adversely affected.
If we are unable to optimize our store base by profitably opening and operating new stores and closing less profitable stores, our business, financial condition and results of operations may be adversely affected.
Changes in consumer tastes and fashion trends can have an impact on our financial performance. If we are unable to anticipate and respond to trends in the marketplace for beauty products and changing consumer demands, our business could suffer.
Changes in consumer tastes, fashion trends and brand reputation can have an impact on our financial performance. If we or third-party brands we distribute are unable to anticipate and respond to trends in the marketplace for beauty products and changing consumer demands and/or maintain a strong brand reputation, our business could suffer.
Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that produce our products by making their purchases of raw materials as well as transportation and freight, more expensive and more difficult to finance.
Currency exchange rate fluctuations could also disrupt the business of the independent manufacturers that produce our products by making their purchases of raw materials as well as transportation and freight, more expensive and more difficult to finance. Foreign currency fluctuations could have an adverse effect on our results of operations and financial condition.
In 2023, changes to the California Consumer Privacy Act are coming in the form of the California Privacy Rights Act (“CPRA”), which will expand consumer privacy rights and extend - 18 - application to our California employees.
In 2023, changes to the California Consumer Privacy Act occurred in the form of the California Privacy Rights Act (“CPRA”), which expanded consumer privacy rights and extend application to our California employees.
If one or more natural disasters or acts of violence or terrorism were to impact our business, we could, among other things, incur significantly higher costs and longer lead times associated with distributing products. Furthermore, insurance costs associated with our business may rise significantly in the event of a large scale natural disaster or act of violence or terrorism.
If one or more natural disasters or acts of violence or terrorism were to impact our business, we could, among other things, incur significantly higher costs and longer lead times associated with distributing products.
Financial Risks Our comparable sales and quarterly financial performance may fluctuate for a variety of reasons. Our comparable sales and quarterly results of operations have fluctuated in the past and we expect them to continue to fluctuate in the future.
Our comparable sales and quarterly results of operations have fluctuated in the past and we expect them to continue to fluctuate in the future.
Unauthorized access to confidential information and data on our information technology systems, security and data breaches and/or failure to comply with rapidly evolving data privacy laws could materially adversely affect our business, financial condition and operating results. As part of our operations, we receive and maintain information about our customers, employees and other third parties.
Unauthorized access to confidential information and data on our information technology systems, security and data breaches and/or failure to comply with rapidly evolving data privacy laws could materially adversely affect our business, financial condition and operating results.
We have physical, technical and procedural safeguards in place that are designed to protect information and protect against security and data breaches as well as fraudulent transactions and other activities.
We have physical, technical and procedural safeguards in place that are designed to protect information and protect against security and data breaches as well as fraudulent transactions and other activities. We believe that our security safeguards follow appropriate practices in the prevention of security and data breaches and the mitigation of cybersecurity risks.
Therefore, there can be no assurance that the impact of these developments, if they were to occur, will not adversely impact revenue or margins or that our efforts to mitigate the impact of these developments will be successful.
Therefore, there can be no assurance that the impact of these developments, if they were to occur, will not adversely impact revenue or margins or that our efforts to mitigate the impact of these developments will be successful. Furthermore, from time to time, we receive shipments of product from our suppliers that fail to conform to our quality control standards.
Our suppliers frequently attempt to pass on higher production costs, which may impact our ability to maintain or grow our margins. The price and availability of raw materials may be impacted by demand, regulation, weather and other factors. Additionally, manufacturers have and may continue to have increases in other manufacturing costs, such as transportation, labor and benefit costs.
Our suppliers frequently attempt to pass on higher production costs, which have generally increased as a result of inflation over the past few years, which may impact our ability to maintain or grow our margins. The price and availability of raw materials may be impacted by inflation, demand, regulation, weather and other factors.
There has been a substantial increase in the use of social media platforms – including blogs, social media websites and other forms of digital communications – and the influence of social medial influencers in the beauty products industry. Furthermore, social media advertising and marketing continues to increase in importance as consumers are paying less attention to more traditional media.
In particular, there has been a substantial increase in the use of social media platforms – including blogs, social media websites and other forms of digital communications – and the influence of social medial influencers in the beauty products industry.
Actions taken by these individuals could harm our brand image, net revenues and profitability. Our marketing efforts through social media platforms and influencers may not be successful and the availability of these platforms may make it easier for smaller competitors to compete with us. We also use social media platforms as marketing tools.
Our marketing efforts through social media platforms and influencers may not be successful and the availability of these platforms may make it easier for smaller competitors to compete with us.
We may not be able to continue to pass through inflationary cost increases and, if inflationary pressures are sustained, we may only be able to recoup a portion of our increased costs in future periods. Our ability to raise prices to reflect increased costs may also be limited by competitive conditions in the market for our products.
While inflation is stabilizing, we may not be able to continue to pass through inflationary cost increases and, if inflationary pressures are sustained, we may only be able to recoup a portion of our increased costs in future periods.
Such a reduction in customer traffic could reduce our sales and leave us with excess inventory, which could have a material adverse effect on our business, financial condition, profitability and cash flows. - 15 - Regulatory, Legal and Cybersecurity Risks If products sold by us are found to be defective in labeling or content, our credibility and that of the brands we sell may be harmed, marketplace acceptance of our products may decrease and we may be exposed to liability in excess of our products liability insurance coverage and manufacturer indemnities.
Regulatory, Legal and Cybersecurity Risks If products sold by us are found to be defective in labeling or content, our credibility and that of the brands we sell may be harmed, marketplace acceptance of our products may decrease, and we may be exposed to liability in excess of our products liability insurance coverage and manufacturer indemnities.
Our success depends in part on our ability to anticipate, gauge and react in a timely manner to changes in consumer spending patterns and preferences for specific beauty products. If we do not timely identify and properly respond to evolving trends and changing consumer demands for beauty products in the geographies in which we compete, our sales may decline significantly.
If we or the brands we distribute do not timely identify and properly respond to evolving trends and changing consumer demands for beauty products in the geographies in which we compete, our sales may decline significantly.
Foreign currency fluctuations could have an adverse effect on our results of operations and financial condition. - 14 - We are subject to risks related to our international operations. We operate on a global basis, and approximately 9.7% of our net revenues from continuing operations in fiscal 2022, were generated outside North America.
We are subject to risks related to our international operations. We operate on a global basis, and approximately 10% of our net revenues from continuing operations in fiscal year 2023, were generated outside North America.
Furthermore, in many instances, BSG is subject to certain anti-diversion obligations under these manufacturers’ contracts, that if violated may result in the termination of such contracts.
Furthermore, in many instances, BSG is subject to certain anti-diversion obligations under these manufacturers’ contracts, that if violated may result in the termination of such contracts. In addition, our investigation and enforcement of these anti-diversion obligations may require us to cease selling to customers suspected of diversion which could impact BSG’s net sales.
If our personnel and systems are unable to successfully manage this increased burden, our business, financial condition and results of operations may be materially affected. - 12 - We may not be successful in utilizing social media platforms as part of our advertising campaign and social media could adversely impact our reputation.
If our personnel and systems are unable to successfully manage this increased burden, our business, financial condition and results of operations may be materially affected. If our marketing, advertising and promotional programs are unsuccessful, our results of operations and financial condition could be adversely affected.
Price inflation for labor, materials and services, further exacerbated by volatility in energy and commodity markets by the COVID-19 pandemic and war in Ukraine, could adversely affect our business, results of operations and financial condition. We experienced considerable price inflation in costs for labor, materials and services during fiscal 2022.
Price inflation for labor, materials and services, could adversely affect our business, results of operations and financial condition. We experienced considerable price inflation in costs for labor, materials and services during the past two years.
Our operating results depend to some extent on the orderly operation of our receiving and distribution processes, which depend on manufacturers’ adherence to shipping schedules and our effective management of our distribution facilities and capacity. - 10 - Fluctuations in the price, availability and quality of inventory may result in higher cost of goods, which we may not be able to pass on to the customers.
Our operating results depend to some extent on the orderly operation of our receiving and distribution processes, which depend on manufacturers’ adherence to shipping schedules and our effective management of our distribution facilities and capacity.
Currency exchange rate fluctuations could result in higher costs and decreased margins and earnings. Many of our products are sold outside of the United States.
Furthermore, insurance costs associated with our business may rise significantly in the event of a large scale natural disaster or act of violence or terrorism. - 15 - Currency exchange rate fluctuations could result in higher costs and decreased margins and earnings. Many of our products are sold outside of the United States.
We have exclusive and non-exclusive distribution rights with several key vendors for well-known brands in certain geographies.
The loss of exclusive distribution rights with key vendors could have a material adverse effect on our business, financial condition and results of operations. We have exclusive and non-exclusive distribution rights with several key vendors for well-known brands in certain geographies.
We are continuing the implementation of a significant number of strategic initiatives designed to ‘play to win’ by focusing on our key product categories, improving our retail fundamentals, enhancing our digital capabilities, balancing our cost structure, including closure of underperforming stores and consolidation of distribution centers. There can be no assurance that these or future strategic initiatives will be successful.
We are continuing the implementation of a significant number of strategic initiatives designed to enhance our customer centricity, increase our owned brand sales penetration, improve operational efficiency and optimize our capabilities, including through closure of underperforming stores and consolidation of distribution centers. There can be no assurance that these or future strategic initiatives will be successful.
Our inability to control our labor costs could affect our results of operations and result in lower margins in our two segments.
Our inability to control our labor costs could affect our results of operations and result in lower margins in our two segments. - 14 - We may not be successful in introducing additional store concepts. We may, from time to time, seek to develop and introduce new store concepts.
The occurrence of natural disasters or acts of violence or terrorism could adversely affect our operations and financial performance.
Our ability to raise prices to reflect increased costs may also be limited by competitive conditions in the market for our products. The occurrence of natural disasters or acts of violence or terrorism could adversely affect our operations and financial performance.
The beauty products distribution industry is highly fragmented and competitive, with few significant barriers to entry into the marketplaces for most of the types of products we sell. We face significant competition from other beauty stores and outlets, salons, mass merchandisers, online retailers, drug stores and supermarkets.
We face significant competition from other beauty stores and outlets, salons, mass merchandisers, online retailers, drug stores and supermarkets.
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In addition, our investigation and enforcement of these anti-diversion obligations may require us to cease selling to customers suspected of diversion which could impact BSG’s net sales. - 11 - The loss of exclusive distribution rights with key vendors could have a material adverse effect on our business, financial condition and results of operations.
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Furthermore, there are few significant barriers to entry into the marketplace for most of the products we sell making it easy for new market entrants to compete with us.
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We may not be able to successfully identify acquisition candidates or successfully complete desirable acquisitions, and any acquisition could prove difficult to integrate, disrupt our business or have an adverse effect on our results of operations. In the past several years, we have completed multiple acquisitions and we intend to pursue additional acquisitions in the future.
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Our success depends in part on our ability, and our distributed third-party brands' ability, to anticipate, gauge and react in a timely manner to changes in consumer spending patterns and preferences for specific beauty products.
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We actively review acquisition prospects we believe would complement our existing lines of business, increase the size and geographic scope of our operations or otherwise offer profitable growth and operating efficiency opportunities. There can be no assurance we will continue to identify suitable acquisition candidates.
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A failure in our quality control program may result in diminished inventory levels and product - 11 - quality, which in turn may result in increased order cancellations and product returns, decreased consumer demand for our products, or product recalls, any of which may have a material adverse effect on our results of operations and financial condition.
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Furthermore, due to, among other things, increasing competition for suitable acquisition candidates, our ability to reach agreement with acquisition candidates or finance such acquisitions on favorable terms, we may not be able to consummate such acquisitions on favorable terms or at all. Any acquisitions we do make may be difficult to integrate profitably into our business and entail numerous risks.
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Fluctuations in the price, availability and quality of inventory may result in higher cost of goods, which we may not be able to pass on to the customers.
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As a result, we have agreements with a variety of industry influencers, and we feature industry influencers in our advertising and marketing efforts and may include them in some of our branding. Further, many industry influencers use our products and feature our products through their own platforms.
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Additionally, manufacturers have and may continue to have increases in other manufacturing costs, such as transportation, labor and benefit costs. These increases in production costs result in higher merchandise costs to us.
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For example, we maintain Facebook, Twitter, Instagram and Pinterest accounts.
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If our marketing, advertising and promotional programs are unsuccessful, our results of operations and financial condition could be adversely affected. Customer traffic and demand for our merchandise are influenced by our advertising, marketing and promotional activities. We use marketing, advertising and promotional programs to attract customers through various media, including social media, websites, mobile applications, e-mail, and print.
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As laws and regulations rapidly evolve to govern the use of these platforms and devices, the failure by us, our employees, or third parties acting at our direction to abide by applicable laws and regulations in the use of these platforms and devices could adversely impact our business, financial condition, profitability and cash flows.
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Our future growth and profitability will depend in part upon the effectiveness and efficiency of our advertising and marketing programs. Further, disruption to certain media channels could have a material adverse effect on our results of operations and financial condition.
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The contributory effects of the COVID-19 pandemic, the war in Ukraine and prolonged geopolitical conflict globally may continue to result in increased inflation – including in labor costs – escalating energy and commodity prices and increasing costs of materials and services (together with shortages or inconsistent availability of materials and services), which may also have the effect of heightening many of our other risks, such as those relating to cyber security, supply chain disruption, store optimization, volatility in prices and market conditions, our ability to forecast demand and our ability to successfully implement our global business strategies, any of which could negatively affect our business, results of operations and financial condition.
Added
Furthermore, social media advertising and marketing continues to increase in importance as consumers are paying less attention to more traditional media. As a result, the success of our marketing and advertising programs are increasingly dependent on the effectiveness of industry influencers that we engage to promote our products. Furthermore, actions taken by these individuals could harm our brand image.
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The COVID-19 pandemic has had and may continue to have an adverse effect on our business and results of operations. The COVID-19 pandemic has had a material impact on our business and results of operations.
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Our ability to succeed in the early stages of new concepts could require significant capital expenditures and management attention. Additionally, any new concept is subject to certain risks, including customer acceptance, competition, product differentiation, challenges relating to economies of scale in merchandise sourcing and the ability to attract and retain qualified personnel, including management and designers.
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For part of fiscal year 2020 we temporarily closed all U.S. and Canadian retail and wholesale store fronts to customers and temporarily idled a number of our distribution centers. In addition, COVID-19 significantly changed consumer shopping patterns with consumers increasing on-line purchases and decreasing consumer traffic in our stores.
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There can be no assurance that we will be able to develop and grow these or any other new concepts to a point where they will become profitable, or generate positive cash flow. If we cannot successfully develop and grow these new concepts, our financial condition and results of operations may be adversely impacted.
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We also took and continue to take actions to help protect employees, customers and others in the communities we serve in response to the impact of COVID-19. Furthermore, we also experienced worker shortages from time to time throughout the pandemic due to COVID-19 illnesses among our team members.
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Such a reduction in customer traffic could reduce our sales and leave us with excess inventory, which could have a material adverse effect on our business, financial condition, profitability and cash flows.
Removed
While the COVID-19 pandemic did not have a material impact on our supply chain, future pandemics or a material worsening of COVID-19 could impact our supply chain if the factories that manufacture our products, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers are disrupted, temporarily closed or experience worker shortages.
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For example, recently numerous cases have been filed against beauty product manufacturers and distributors alleging harm from chemical hair straighteners and hair relaxer products, which could have a material adverse effect on the Company’s business, financial condition, and results of operations.
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We may also see disruptions or delays in shipments and negative impacts to pricing of certain products as a result of such disruptions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table provides the number of stores per state in the U.S. and certain international locations, as of September 30, 2022: SBS BSG Location Company- Operated Franchise Company- Operated Franchise United States (including Puerto Rico) Alabama 43 — 12 2 Alaska 4 — 3 — Arizona 81 — 33 4 Arkansas 26 — 11 — California 269 — 158 — Colorado 52 — 19 — Connecticut 26 — 21 — Delaware 6 — 2 — Florida 197 — 76 2 Georgia 84 — 29 — Hawaii 7 — 5 — Idaho 14 — 11 — Illinois 86 — 50 — Indiana 56 — 32 — Iowa 24 — 12 — Kansas 22 — 10 — Kentucky 41 — 21 — Louisiana 46 — — 16 Maine 7 — 4 — Maryland 35 — 22 — Massachusetts 44 — 26 — Michigan 69 — 35 — Minnesota 39 — 21 — Mississippi 29 — 2 6 Missouri 49 — 19 — Montana 8 — 7 — Nebraska 18 — 8 — Nevada 34 — 14 — New Hampshire 16 — 8 — New Jersey 44 — 15 — New Mexico 26 — 4 3 New York 81 — 44 — North Carolina 97 — 38 — North Dakota 4 — 5 — Ohio 118 — 59 — Oklahoma 43 — 2 5 Oregon 32 — 13 — Pennsylvania 82 — 59 — Puerto Rico 38 — 5 — Rhode Island 8 — 4 — South Carolina 42 — 14 — South Dakota 5 — 4 — Tennessee 67 — 30 — - 21 - Texas 290 — 7 94 Utah 34 — 23 — Vermont 2 — 1 — Virginia 59 — 33 — Washington 50 — 30 — West Virginia 12 — 7 — Wisconsin 34 — 27 — Wyoming 4 — 1 — Total United States (including Puerto Rico) 2,604 — 1,096 132 International: United Kingdom 240 — — — Mexico 235 — — — Canada 125 — 127 — France 74 — — — Belgium 52 — — — Chile 38 — — — Netherlands 27 — — — Spain 20 — — — Other 24 — — — Total International 835 — 127 — Total Store Count 3,439 — 1,223 132 The following table provides locations for our significant offices and warehouses and our corporate headquarters, as of September 30, 2022: Location Type of Facility Approximate Sq.
Biggest changeThe following table provides the number of stores per state in the U.S. and certain international locations, as of September 30, 2023: SBS BSG Location Company- Operated Company- Operated Franchise United States (including Puerto Rico) Alabama 39 12 2 Alaska 4 3 — Arizona 74 32 4 Arkansas 25 11 — California 244 154 — Colorado 46 19 — Connecticut 24 20 — Delaware 6 2 — Florida 167 76 2 Georgia 76 29 — Hawaii 6 5 — Idaho 14 11 — Illinois 73 49 — Indiana 49 32 — Iowa 23 11 — Kansas 19 9 — Kentucky 41 21 — Louisiana 37 — 16 Maine 7 4 — Maryland 24 22 — Massachusetts 39 27 — Michigan 64 35 — Minnesota 33 20 — Mississippi 24 2 6 Missouri 41 17 — Montana 8 7 — Nebraska 17 8 — Nevada 31 15 — New Hampshire 14 8 — New Jersey 37 14 — New Mexico 22 4 3 New York 69 47 — North Carolina 86 38 — North Dakota 4 5 — Ohio 107 57 — Oklahoma 39 2 5 Oregon 32 14 — Pennsylvania 75 58 — Puerto Rico 37 6 — Rhode Island 6 4 — South Carolina 38 14 — South Dakota 5 4 — - 22 - SBS BSG Location Company- Operated Company- Operated Franchise United States (including Puerto Rico) Tennessee 59 30 — Texas 268 6 94 Utah 31 23 — Vermont 2 1 — Virginia 47 33 — Washington 47 29 — West Virginia 11 7 — Wisconsin 32 27 — Wyoming 4 1 — Total United States (including Puerto Rico) 2,327 1,085 132 International: United Kingdom 236 — — Mexico 243 — — Canada 109 121 — France 75 — — Belgium 53 — — Chile 35 — — Netherlands 27 — — Spain 20 — — Other 23 — — Total International 821 121 — Total Store Count 3,148 1,206 132 The following table provides locations for our significant offices and warehouses and our corporate headquarters, as of September 30, 2023: Location Type of Facility Approximate Sq.
Feet Business Segment Company-Owned Properties: Denton, Texas Corporate Headquarters 200,000 N/A Reno, Nevada Warehouse 253,000 SBS Columbus, Ohio Warehouse 246,000 SBS Jacksonville, Florida Warehouse 237,000 SBS Leased Properties: Fort Worth, Texas Warehouse 494,000 BSG Greenville, Ohio Warehouse 245,000 BSG Fresno, California Warehouse 200,000 BSG Blackburn, Lancashire, England Warehouse 195,000 SBS Spartanburg, South Carolina Warehouse 190,000 BSG Pottsville, Pennsylvania Warehouse 140,000 BSG Clackamas, Oregon Warehouse 104,000 BSG Ghent, Belgium Office, Warehouse 94,000 SBS Ronse, Belgium Office, Warehouse 91,000 SBS Guadalupe, Nuevo Leon, Mexico Warehouse 78,000 SBS Ghent, Belgium Warehouse 67,000 SBS Calgary, Alberta, Canada Warehouse 60,000 BSG Mississauga, Ontario, Canada Warehouse 60,000 BSG Saint-Jerome, Quebec, Canada Warehouse 50,000 BSG - 22 -
Feet Business Segment Company-Owned Properties: Denton, Texas Corporate Headquarters 200,000 N/A Reno, Nevada Warehouse 253,000 SBS Columbus, Ohio Warehouse 246,000 SBS Jacksonville, Florida Warehouse 237,000 SBS Leased Properties: Fort Worth, Texas Warehouse 494,000 BSG Greenville, Ohio Warehouse 245,000 BSG Fresno, California Warehouse 200,000 BSG Blackburn, Lancashire, England Warehouse 195,000 SBS Spartanburg, South Carolina Warehouse 190,000 BSG Ghent, Belgium Office, Warehouse 94,000 SBS Ronse, Belgium Office, Warehouse 91,000 SBS Guadalupe, Nuevo Leon, Mexico Warehouse 78,000 SBS Ghent, Belgium Warehouse 67,000 SBS Calgary, Alberta, Canada Warehouse 60,000 BSG Mississauga, Ontario, Canada Warehouse 60,000 BSG Saint-Jerome, Quebec, Canada Warehouse 50,000 BSG - 23 -

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe do not believe the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
Biggest changeAlthough the ultimate disposition of these claims and proceedings cannot be predicted with certainty, we do not currently believe the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
ITEM 3. LEGAL PROCEEDINGS We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course.
ITEM 3. LEGAL PROCEEDINGS We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business.
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We are subject to a number of U.S., federal, state and local laws and regulations as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business.
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However, there can be no assurances that future adverse judgments and costs would not be material to our financial position, cash flows or results of operations for a particular period. ITEM 4. MINE SAF ETY DISCLOSURES Not applicable - 24 - PART II
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These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products.
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We believe we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward. ITEM 4. MINE SAFETY DISCLOSURES Not applicable - 23 - PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFiscal year ended September 30, 2017 September 30, 2018 September 30, 2019 September 30, 2020 September 30, 2021 September 30, 2022 Sally Beauty Holdings, Inc. $ 100.00 $ 93.92 $ 76.05 $ 44.38 $ 86.06 $ 64.35 S&P 500 100.00 117.91 122.93 141.55 184.02 155.55 DJ US Specialty Retailers 100.00 149.54 141.64 203.28 259.09 169.86 ITEM 6. [RESERVED] - 25 -
Biggest changeFiscal year ended September 30, 2018 September 30, 2019 September 30, 2020 September 30, 2021 September 30, 2022 September 30, 2023 Sally Beauty Holdings, Inc. $ 100.00 $ 80.97 $ 47.25 $ 91.63 $ 68.52 $ 45.57 S&P 500 100.00 104.25 120.05 156.07 131.92 160.44 DJ US Specialty Retailers 100.00 94.71 135.93 173.25 113.59 129.08 ITEM 6 . [RESERVED] - 26 -
The following graph illustrates the five-year comparative total return among Sally Beauty Holdings, Inc., the S&P 500 Index (“S&P 500”) and the Dow Jones U.S. Specialty Retailers Index (“DJ US Specialty Retailers”) assuming $100 was invested on September 30, 2017, and dividends, if any, were reinvested.
The following graph illustrates the five-year comparative total return among Sally Beauty Holdings, Inc., the S&P 500 Index (“S&P 500”) and the Dow Jones U.S. Specialty Retailers Index (“DJ US Specialty Retailers”) assuming $100 was invested on September 30, 2018, and dividends, if any, were reinvested.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for the Registrant’s Common Equity Market Information Our common stock is listed on the New York Stock Exchange under the symbol “SBH.” Holders As of November 11, 2022, there were 530 stockholders of record of our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market for the Registrant’s Common Equity Market Information Our common stock is listed on the New York Stock Exchange under the symbol “SBH.” Holders As of November 10, 2023, there were 432 stockholders of record of our common stock.
Any determination to pay dividends will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, contractual restrictions, cash requirements and other factors our Board of Directors deem relevant. Furthermore, as a holding company we rely on cash from our subsidiaries to pay dividends.
Any determination to pay dividends will be made at the discretion of our Board of Directors and will depend on our financial condition, results of operations, contractual restrictions, including under our debt agreements and instruments, cash requirements and other factors our Board of Directors deem relevant.
Removed
The terms of our debt agreements and instruments significantly restrict the ability of our subsidiaries to make certain restricted payments to us and our ability to pay dividends.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers The following table provides information about the Company’s repurchases of shares of its common stock during the three months ended September 30, 2023: Fiscal Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs July 1 through July 31, 2023 — $ — — $ 595,792,425 August 1 through August 31, 2023 1,511,427 9.92 1,511,427 580,792,429 September 1 through September 30, 2023 — — — 580,792,429 Total this quarter 1,511,427 $ 9.92 1,511,427 $ 580,792,429 (1) The Board approved a share repurchase program authorizing us to repurchase up to $1.0 billion of our common stock through September 30, 2025. - 25 - Performance Graph The following performance graph and related information shall not be deemed “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
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Additionally, we and our subsidiaries may incur substantial additional indebtedness in the future that may severely restrict or prohibit our subsidiaries from making distributions, paying dividends or making loans to us. - 24 - Performance Graph The following performance graph and related information shall not be deemed “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

52 edited+31 added−27 removed25 unchanged
Biggest changeOur calculation of comparable sales might not be the same as other retailers as the calculation varies across the retail industry. - 27 - Results of Operations Key Operating Metrics The following table sets forth, for the periods indicated, information concerning key measures we rely on to assess our operating performance (dollars in thousands): 2022 vs. 2021 Fiscal Year Ended September 30, Amount % 2022 2021 Change Change Net sales: SBS $ 2,193,044 $ 2,278,382 $ (85,338 ) (3.7 )% BSG 1,622,521 1,596,615 25,906 1.6 % Consolidated $ 3,815,565 $ 3,874,997 $ (59,432 ) (1.5 )% Gross profit: SBS $ 1,273,882 $ 1,318,473 $ (44,591 ) (3.4 )% BSG 645,283 634,861 10,422 1.6 % Consolidated $ 1,919,165 $ 1,953,334 $ (34,169 ) (1.7 )% Segment gross margin: SBS 58.1 % 57.9 % 20 bps BSG 39.8 % 39.8 % - bps Consolidated 50.3 % 50.4 % (10 ) bps Net earnings: Segment operating earnings: SBS $ 350,884 $ 417,658 $ (66,774 ) (16.0 )% BSG 193,407 205,078 (11,671 ) (5.7 )% Segment operating earnings 544,291 622,736 (78,445 ) (12.6 )% Unallocated expenses and restructuring (a) (b) 206,651 204,293 2,358 1.2 % Consolidated operating earnings 337,640 418,443 (80,803 ) (19.3 )% Interest expense 93,543 93,509 34 0.0 % Earnings before provision for income taxes 244,097 324,934 (80,837 ) (24.9 )% Provision for income taxes 60,544 85,076 (24,532 ) (28.8 )% Net earnings $ 183,553 $ 239,858 $ (56,305 ) (23.5 )% Number of stores at end-of-period (including franchises): SBS 3,439 3,653 (214 ) (5.9 )% BSG 1,355 1,385 (30 ) (2.2 )% Consolidated 4,794 5,038 (244 ) (4.8 )% Comparable sales growth (decline) SBS (0.6 )% 9.1 % (970 ) bps BSG 2.3 % 10.3 % (800 ) bps Consolidated 0.6 % 9.6 % (900 ) bps (a) Unallocated expenses represent certain corporate costs (such as payroll, share-based compensation, employee benefits and travel expense for corporate staff, certain professional fees and corporate governance expenses) that have not been charged to our segments and are included in SG&A expenses in our consolidated statements of earnings.
Biggest changeOur calculation of comparable sales might not be the same as other retailers as the calculation varies across the retail industry. - 28 - Results of Operations Key Operating Metrics The following table sets forth, for the periods indicated, information concerning key measures we rely on to assess our operating performance (dollars in thousands): 2023 vs. 2022 Fiscal Year Ended September 30, Amount % 2023 2022 Change Change Net sales: SBS $ 2,139,206 $ 2,193,044 $ (53,838 ) (2.5 )% BSG 1,588,925 1,622,521 (33,596 ) (2.1 )% Consolidated $ 3,728,131 $ 3,815,565 $ (87,434 ) (2.3 )% Gross profit: SBS $ 1,265,683 $ 1,273,882 $ (8,199 ) (0.6 )% BSG 632,497 645,283 (12,786 ) (2.0 )% Consolidated $ 1,898,180 $ 1,919,165 $ (20,985 ) (1.1 )% Segment gross margin: SBS 59.2 % 58.1 % 110 bps BSG 39.8 % 39.8 % — bps Consolidated 50.9 % 50.3 % 60 bps Net earnings: Segment operating earnings: SBS $ 358,474 $ 350,884 $ 7,590 2.2 % BSG 181,275 193,407 (12,132 ) (6.3 )% Segment operating earnings 539,749 544,291 (4,542 ) (0.8 )% Unallocated expenses and restructuring (a) (b) 214,720 206,651 8,069 3.9 % Consolidated operating earnings 325,029 337,640 (12,611 ) (3.7 )% Interest expense 72,979 93,543 (20,564 ) (22.0 )% Earnings before provision for income taxes 252,050 244,097 7,953 3.3 % Provision for income taxes 67,450 60,544 6,906 11.4 % Net earnings $ 184,600 $ 183,553 $ 1,047 0.6 % Number of stores at end-of-period (including franchises): SBS 3,148 3,439 (291 ) (8.5 )% BSG 1,338 1,355 (17 ) (1.3 )% Consolidated 4,486 4,794 (308 ) (6.4 )% Comparable sales growth (decline) SBS 3.4 % (0.6 )% 400 bps BSG (1.3 )% 2.3 % (360 ) bps Consolidated 1.4 % 0.6 % 80 bps (a) Unallocated expenses represent certain corporate costs (such as payroll, share-based compensation, employee benefits and travel expense for corporate staff, certain professional fees and corporate governance expenses) that have not been charged to our segments and are included in SG&A expenses in our consolidated statements of earnings.
In the event we refinance some or all of debt either on or before their maturity, actual payments for some of the periods shown may differ materially from the amounts reported herein. In addition, other future events, including potential increases in interest rates, could cause actual payments to differ materially from these amounts.
In the event we refinance some or all of the debt either on or before maturity, actual payments for some of the periods shown may differ materially from the amounts reported herein. In addition, other future events, including potential increases in interest rates, could cause actual payments to differ materially from these amounts.
We base our health insurance liability estimate on trends in claim payment history, historical trends in claims - 33 - incurred but not yet reported and other components such as expected increases in medical costs, projected premium costs and the number of plan participants.
We base our health insurance liability estimate on trends in claim payment history, historical trends in claims incurred but not yet reported and other components such as expected increases in medical costs, projected premium costs and the number of plan participants.
Additionally, we base our estimates for workers’ compensation, general and product liability on an actuarial analysis performed by an independent third-party actuary. We review our insurance liability on a regular basis and adjust our accruals accordingly.
Additionally, we base our estimates for workers’ compensation, general and product - 34 - liability on an actuarial analysis performed by an independent third-party actuary. We review our insurance liability on a regular basis and adjust our accruals accordingly.
See Note 14 for more information on our effective tax rate. Our effective tax rate may fluctuate on a quarterly and/or annual basis due to various factors including, but not limited to, total earnings and the mix of earnings by jurisdiction, new tax laws, as well as changes in valuation allowances and uncertain tax positions.
See Note 14, Income Taxes , for more information on our effective tax rate. Our effective tax rate may fluctuate on a quarterly and/or annual basis due to various factors including, but not limited to, total earnings and the mix of earnings by jurisdiction, new tax laws, as well as changes in valuation allowances and uncertain tax positions.
The amounts shown above do not include deferred debt issuance costs reflected in our consolidated balance sheets, nor do they include the impact of any interest received from the impact of our interest rate caps. (b) The amounts reported for operating leases do not include common area maintenance (CAM), property taxes or other executory costs.
The amounts shown above do not include deferred debt issuance costs reflected in our consolidated balance sheets, nor do they include the impact of any interest received from the impact of our interest rate swap. (b) The amounts reported for operating leases do not include common area maintenance (CAM), property taxes or other executory costs.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, for a discussion of the financial condition and results of operations for fiscal year 2021 compared to fiscal year 2020.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2022, for a discussion of the financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021.
Based upon the current level of operations and anticipated growth, we anticipate existing cash balances (excluding certain amounts permanently invested in connection with foreign operations) as well as cash expected to be generated by operations and funds available under the ABL facility will be sufficient to fund working capital requirements, potential acquisitions, anticipated capital expenditures (including information technology investments and store projects) and debt repayments over the next 12 months.
Based upon the current level of operations and anticipated growth, we anticipate existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), as well as cash expected to be generated by operations and funds available under the ABL facility, will be sufficient to fund working capital requirements, potential acquisitions, anticipated capital expenditures (including information technology investments and store projects) and service our debt obligations over the next 12 months.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following section discusses management’s view of Sally Beauty’s financial condition and results of operations for fiscal year 2022 compared to fiscal year 2021. See Item 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following section discusses management’s view of Sally Beauty’s financial condition and results of operations for fiscal year 2023 compared to fiscal year 2022. See Item 7.
Off-Balance Sheet Financing Arrangements At September 30, 2022, we did not have any off-balance sheet financing arrangements other than obligations under letters of credit, as discussed above.
Off-Balance Sheet Financing Arrangements At September 30, 2023, we did not have any off-balance sheet financing arrangements other than obligations under letters of credit, as discussed above.
See Note 11 of the Notes to Consolidated Financial Statements in Item 8 contained in this Annual Report for additional information about our debt. We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants. - 32 - See Note 10 of the Notes to Consolidated Financial Statements in Item 8 contained in this Annual Report for additional information about our debt.
These obligations are included in accrued liabilities and other liabilities, as appropriate, in our consolidated balance sheets. (e) The table above does not include above does not include an estimated $9.2 million of unrecognized tax benefits due to uncertainty regarding the realization and timing of the related future cash flows, if any.
These obligations are included in accrued liabilities and other liabilities, as appropriate, in our consolidated balance sheets. (e) The table above does not include an estimated $8.3 million of unrecognized tax benefits due to uncertainty regarding the realization and timing of the related future cash flows, if any.
Our comparable sales excludes the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquisitions are excluded from our comparable sales calculation until 14 months after the acquisition.
Our comparable sales metric excludes the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquired stores are excluded from our comparable sales calculation until 14 months after the acquisition.
Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors. The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these combined entities has been eliminated.
The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors. The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these combined entities has been eliminated.
In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, interest payments due on our indebtedness, paying down other debt and opportunistic share repurchases. The amounts drawn are generally paid down with cash provided by our operating activities.
In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes, including funding of capital expenditures, acquisitions, debt servicing and, occasionally, share repurchases. Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities.
A 10% adjustment in our insurance liabilities at September 30, 2022, would impact net earnings by approximately $1.5 million.
A 10% adjustment in our insurance liabilities at September 30, 2023, would impact net earnings by approximately $1.6 million.
The changes in our insurance liabilities were as follows (in thousands): Fiscal Year Ended September 30, 2022 2021 Balance at beginning of period $ 20,596 $ 21,436 Self-insurance expense 68,695 61,388 Payments, net of employee contributions (68,736 ) (62,228 ) Balance at end of period $ 20,555 $ 20,596 Income Taxes We record income tax provisions in our consolidated financial statements based on an estimate of current income tax liabilities.
The changes in our insurance liabilities were as follows (in thousands): Fiscal Year Ended September 30, 2023 2022 Balance at beginning of period $ 20,555 $ 20,596 Self-insurance expense 74,788 68,695 Payments, net of employee contributions (73,331 ) (68,736 ) Balance at end of period $ 22,012 $ 20,555 Income Taxes We record income tax provisions in our consolidated financial statements based on an estimate of current income tax liabilities.
Financial Results Summary of the Fiscal Year Ended September 30, 2022: • Consolidated net sales for the fiscal year decreased $59.4 million, or 1.5%, to $3,815.6 million and included a negative impact from changes in foreign currency exchange rates of $34.3 million, or 3.5% of consolidated net sales; • Consolidated comparable sales for the fiscal year increased 0.6%, compared to the prior fiscal year; • Consolidated gross profit decreased by $34.2 million, or 1.7%, to $1,919.2 million.
Financial Results Summary of the Fiscal Year Ended September 30, 2023: • Consolidated net sales for the fiscal year decreased $87.4 million, or 2.3%, to $3,728.1 million and included a negative impact from changes in foreign currency exchange rates of $9.2 million, or 0.2% of consolidated net sales; • Consolidated comparable sales for the fiscal year increased 1.4%, compared to the prior fiscal year; • Consolidated gross profit decreased by $21.0 million, or 1.1%, to $1,898.2 million.
Amounts shown do not reflect open purchase orders, mainly for merchandise, to be fulfilled within one year, which are generally cancellable or contracts that tend to be reoccurring in nature and similar in amount year over year. - 32 - (d) Other long-term obligations, including current portion, principally represent obligations under insurance and self-insurance programs and deferral of social security taxes in connection with the Coronavirus Aid, Relief, and Economic Security Act.
Amounts shown do not reflect open purchase orders, mainly for merchandise, to be fulfilled within one year, which are generally cancellable or contracts that tend to be reoccurring in nature and similar in amount year over year. - 33 - (d) Other long-term obligations, including current portion, principally represent obligations under our insurance and self-insurance programs.
“Risk Factors,” for further discussion on the risks and uncertainties created by COVID-19. Comparable Sales The Company’s initiative to invest in our digital platforms support our omni-channel strategy to provide customers an enhanced shopping experience. As such, we believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period.
Comparable Sales The Company’s initiative to invest in our digital platforms support our omni-channel strategy to provide customers an enhanced shopping experience. As such, we believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period.
As of September 30, 2022, our indefinite-lived assets were comprised of only trade names. To determine the fair value of each trade name, we use the relief-from-royalty method, which estimates what a third-party would be willing to pay in royalties to receive a benefit from the use of the asset.
To determine the fair value of each trade name, we use the relief-from-royalty method, which estimates what a third-party would be willing to pay in royalties to receive a benefit from the use of the asset.
Net Cash Used by Financing Activities Net cash used by financing activities decreased as a result of fewer debt repayments during the fiscal year, compared to prior fiscal year, partially offset by share repurchases .
Financing Activities Net cash used by financing activities decreased as a result of fewer debt repayments during the fiscal year, compared to prior fiscal year, and fewer shares repurchased under our share repurchase program.
Liquidity and Capital Resources At September 30, 2022, we had $483.5 million in our liquidity pool, which includes amounts available for borrowings under our ABL facility and cash and cash equivalents of $70.6 million.
At September 30, 2023, we had $605.6 million in our liquidity pool, which includes amounts available for borrowings under our ABL facility of $482.6 million and cash and cash equivalents of $123.0 million.
No material impairment losses were recognized in fiscal year 2021. Assessment of Goodwill and Intangible Assets for Impairment We review goodwill and intangible assets for impairment annually, or when events or circumstances indicate it is more-likely-than-not that the value of the asset may be impaired.
For fiscal year 2022, we recognized an impairment loss of $24.8 million in connection with the Plan within restructuring. - 35 - Assessment of Goodwill and Intangible Assets for Impairment We review goodwill and intangible assets for impairment annually, or when events or circumstances indicate it is more-likely-than-not that the value of the asset may be impaired.
SBS’s SG&A expenses increased $22.1 million, or 2.5%, to $923.0 million for fiscal year 2022, which includes the unfavorable impact from foreign exchange rates of $13.2 million due to the strengthening of the U.S. Dollar compared to currencies in our foreign operations .
SBS’s SG&A expenses decreased $15.8 million, or 1.7%, to $907.2 million for fiscal year 2023, which includes the favorable impact from foreign exchange rates of $0.6 million due to the weakening of the U.S. Dollar compared to currencies in our foreign operations.
During the fiscal year, these headwinds resulted in lower traffic and conversion in our business and increases in certain operating costs, including inbound freight and delivery expenses. Additionally, due to general labor shortages in the U.S. during the year, especially among retail and hourly employees, we experienced an increase in our compensation costs in order to attract and retain associates.
These inflationary pressures have also impacted wages, especially among retail and hourly employees, as we have experienced an increase in our labor costs in order to attract and retain associates. During the fiscal year, these headwinds have resulted in lower traffic and conversion in our business and increases in certain operating costs.
Gross margin decreased 10 basis points to 50.3% compared to the prior fiscal year; • Consolidated operating earnings for the fiscal year decreased $80.8 million, or 19.3%, to $337.6 million.
Gross margin increased 60 basis points to 50.9% compared to the prior fiscal year; • Consolidated operating earnings for the fiscal year decreased $12.6 million, or 3.7%, to $325.0 million.
If it is determined that the fair value of a reporting unit is less than its carrying value, an impairment charge will be recorded to bring the carrying value down to its fair value. As of the date of our last quantitative impairment test, a 10% decrease in either reporting unit’s fair value would not have resulted in an impairment.
If it is determined that the fair value of a reporting unit is less than its carrying value, an impairment charge will be recorded to bring the carrying value down to its fair value.
The decrease in net sales for SBS was primarily driven by the following (in thousands): Comparable sales $ (14,013 ) Sales outside comparable sales (a) (38,334 ) Foreign currency exchange (32,991 ) Total $ (85,338 ) (a) Includes stores opened for less than 14 months, net of stores closures.
The decrease in net sales for SBS was primarily driven by the following (in thousands): Comparable sales $ 69,253 Sales outside comparable sales (a) (121,284 ) Foreign currency exchange (1,807 ) Total $ (53,838 ) (a) Includes closed stores, including stores closed under the Plan, net of stores opened for less than 14 months.
During fiscal year 2021, we did not repurchase any of our common stock. We funded these share repurchases with cash from operations and borrowings under the ABL facility. As of September 30, 2022, we had approximately $595.8 million of additional share repurchase authorization remaining under our Share Repurchase Program .
Share repurchases are funded primarily with cash from operations and, occasionally, with borrowings under the ABL facility. As of September 30, 2023, we had approximately $580.8 million of additional share repurchase authorization remaining under our Share Repurchase Program, that expires September 30, 2025.
We continue to monitor these challenges and implement measures to help mitigate their impacts, including managing our inventory levels to reduce out-of-stock items, adjusting our promotional activities, optimizing our store base through our Distribution Center Consolidation and Store Optimization Plan (see Note 16 , Restructuring ) and expanding our partnerships with delivery service providers.
We continue to monitor these challenges and implement measures to help mitigate their impacts, including managing our inventory levels to reduce out-of-stock items, adjusting our promotional activities, optimizing our store base and expanding our partnerships with delivery service providers. Although these initiatives - 27 - have helped mitigate ongoing macro-headwinds, we cannot reasonably predict the long-term effects of inflation.
Inventory shrinkage, in the aggregate, has remained less than 1.0% of consolidated net sales over the past two fiscal years. A 10% change in our estimate of inventory shrinkage and obsolescence reserves at September 30, 2022, would impact net earnings by approximately $4.1 million.
A 10% change in our estimate of inventory shrinkage and obsolescence reserves at September 30, 2023, would impact net earnings by approximately $2.1 million.
(the “Issuers”), under a shelf registration statement. - 31 - The notes are unsecured debt instruments guaranteed by us and certain of our wholly-owned domestic subsidiaries (together, the “Guarantors”) and have certain restrictions on the ability to pay restrictive payments to Sally Beauty. The guarantees are joint and several, and full and unconditional.
Guarantor Financial Information Our 2025 Senior Notes were issued by our wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc. (the “Issuers”). The notes are unsecured debt instruments guaranteed by us and certain of our wholly-owned domestic subsidiaries (together, the “Guarantors”) and have certain restrictions on the ability of our subsidiaries to make certain restrictive payments to Sally Beauty.
(b) Restructuring primarily relates to our Distribution Center Consolidation and Store Optimization and Transformation Plans. - 28 - The Fiscal Year Ended September 30, 2022, compared to the Fiscal Year Ended September 30, 2021 Net Sales SBS .
(b) Restructuring primarily relates to the Plan. - 29 - The Fiscal Year Ended September 30, 2023, compared to the Fiscal Year Ended September 30, 2022 Net Sales SBS .
Unallocated SG&A expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $20.6 million, or 10.3%, to $179.1 million.
Unallocated SG&A expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $18.4 million, or 10.3%, to $197.5 million, primarily due to higher wage and bonus - 30 - expenses, insurance costs and information technology expenses.
The increase in net sales for BSG was driven by the following (in thousands): Comparable sales $ 35,564 Sales outside comparable sales (a) (8,330 ) Foreign currency exchange (1,328 ) Total $ 25,906 (a) Includes stores opened for less than 14 months, net of stores closures.
The decrease in net sales for BSG was driven by the following (in thousands): Comparable sales $ (20,117 ) Sales outside comparable sales (a) (6,086 ) Foreign currency exchange (7,393 ) Total $ (33,596 ) (a) Includes closed stores, including stores closed under the Plan, net of stores opened (or acquired) for less than 14 months.
These charges are accrued and estimated based on facts and circumstances at the time. Actual cash flows and expected payments could be significantly different from our estimates. - 34 - For fiscal year 2022, we recognized an impairment loss of $24.8 million in connection with our Distribution Center Consolidation and Store Optimization Plan within restructuring.
These charges are accrued and estimated based on facts and circumstances at the time. Actual cash flows and expected payments could be significantly different from our estimates. For fiscal years 2023 and 2021, no material impairment losses were recognized.
Provision for Income Taxes For fiscal year 2022 and 2021, our effective tax rate was 24.8% and 26.2%, respectively. The decrease in the effective tax rate was primarily due to the release of $19.9 million of valuation allowance against foreign subsidiary net operating losses, offset by $7 million in expense arising from uncertain tax positions.
The increase in our effective tax rate was primarily due to additional taxes and interest recorded in the current fiscal year in connection with the one-time transition tax on unrepatriated foreign earnings ("Repatriation Tax") related to fiscal year 2018, and the net benefit recognized in the prior fiscal year from the release of $19.9 million of valuation allowances against foreign subsidiary net operating losses in the prior year for which a tax benefit was recognized, offset by $7.0 million in expense arising from uncertain tax positions.
During the fiscal year ended September 30, 2022, the weighted average interest rate on our borrowings under the ABL facility was 3.5% . - 30 - Share Repurchase Programs During fiscal year 2022, we repurchased and subsequently retired approximately 6.8 million shares of our common stock under a share repurchase program a cost of $130.3 million.
The ratio of current assets to current liabilities was 2.12 to 1.00 at September 30, 2023, compared to 1.70 to 1.00 at September 30, 2022. - 31 - Share Repurchase Programs During the fiscal years 2023 and 2022, we repurchased and subsequently retired approximately 1.5 million shares and 6.8 million shares of our common stock under our share repurchase program at a cost of $15.0 million and $130.3 million, respectively, excluding the impact of excess taxes on share repurchases.
During fiscal year 2022, we estimated $19.4 million in obsolete inventory reserves in connection with our Distribution Center Consolidation and Store Optimization Plan. We estimate inventory shrinkage between physical counts and product damage based upon our historical experience. Actual results differing from these estimates could significantly affect our carrying value of inventory and cost of goods sold.
We estimate inventory shrinkage between physical counts and product damage based upon our historical experience. Actual results differing from these estimates could significantly affect our carrying value of inventory and cost of goods sold. Inventory shrinkage, in the aggregate, has remained less than 1.0% of consolidated net sales over the past two fiscal years.
As a percentage of SBS net sales, SG&A for fiscal year 2022 was 42.1% compared to 39.5% for fiscal year 2021. The increase as a percentage of sales was driven by higher wage expenses, as a result of higher wages within general labor markets and store re-openings in certain international markets. BSG .
As a percentage of SBS net sales, SG&A for fiscal year 2023 was 42.4% compared to 42.1% for fiscal year 2022. The increase as a percentage of sales was driven by higher wage and bonus expenses, partially offset by cost savings from the closure of stores in connection with the Plan and lower advertising expenses. BSG .
The ratio of current assets to current liabilities was 1.70 to 1.00 at September 30, 2022, compared to 2.08 to 1.00 at September 30, 2021. We utilize our ABL facility for the issuance of letters of credit, for certain working capital and liquidity needs and to manage normal fluctuations in our operational cash flow.
Our debt consists of $680.0 million in 2025 Senior Notes outstanding and $398.0 million remaining on our term loan. At September 30, 2023, there were no outstanding borrowings under our ABL facility. We utilize our ABL facility for the issuance of letters of credit, certain working capital and liquidity needs, and to manage normal fluctuations in our operational cash flow.
Restructuring For fiscal year 2022, we incurred $27.6 million in restructuring charges, which includes $24.8 million in asset impairments related to our Distribution Center Consolidation and Store Optimization Plan and other expenses in connection to our Transformation Plan. For fiscal year 2021, we incurred $4.6 million in restructuring charges related to our Transformation Plan and Project Surge.
For fiscal year 2022, we incurred $27.6 million in restructuring charges, which includes $24.8 million in asset impairments related to the Plan and other expenses in connection with a prior restructuring plan. See Note 16 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for more information on our restructuring plans.
BSG’s SG&A expenses increased $22.1 million, or 5.1%, to $451.9 million for fiscal year 2022. As a percentage of BSG net sales, SG&A for fiscal year 2022 was 27.9% compared to 26.9% for fiscal year 2021. The increase as a percentage of sales was driven primarily by higher delivery expense, advertising expense and depreciation expenses. - 29 - Unallocated.
BSG’s SG&A expenses decreased $0.7 million, or 0.1%, to $451.2 million for fiscal year 2023 and includes a favorable impact from foreign exchange rates of $2.5 million. As a percentage of BSG net sales, SG&A for fiscal year 2023 was 28.4% compared to 27.9% for fiscal year 2022.
Interest Expense Interest expense was flat due to the interest savings from the repayment of our 2025 Senior Notes in fiscal year 2022 offset by the impact of debt extinguishment cost, including a redemption premium of $ 13.1 million in connection with repayment of the 2025 Senior Notes, higher interest rates on our variable debt and increased borrowings on our ABL facility during the current fiscal year.
Interest Expense The decrease in interest expense was primarily due to the lapping of debt extinguishment costs related to the repayment of our 8.75% Senior Notes due 2025 in fiscal year 2022, partially offset by debt extinguishment costs related to the repricing of our Term Loan B, higher interest rates on our variable rate debt and an increase in our average borrowings outstanding under our ABL facility.
For fiscal year 2022, we completed a qualitative assessment and determined that there were no material impacts to the reporting units to require a quantitative assessment. Like goodwill, our indefinite-lived intangible assets are tested for impairment by comparing the fair value of each asset to its carrying value.
As such, no impairment was recorded for the fiscal years 2023, 2022 or 2021. Like goodwill, our indefinite-lived intangible assets are tested for impairment by comparing the fair value of each asset to its carrying value, but only if a triggering event exists. As of September 30, 2023, our indefinite-lived assets were comprised of only trade names.
The following table shows our sources and uses of cash for the periods presented (in thousands): Fiscal Year Ended September 30, 2022 2021 Change Net cash provided by operating activities $ 156,500 $ 381,860 $ (225,360 ) Net cash used by investing activities (102,419 ) (76,019 ) (26,400 ) Net cash used by financing activities (373,679 ) (419,968 ) 46,289 Effect of foreign currency exchange rate changes on cash and cash equivalents (10,803 ) 935 (11,738 ) Net decrease in cash and cash equivalents $ (330,401 ) $ (113,192 ) $ (217,209 ) Net Cash Provided by Operating Activities Net cash provided by operating activities decreased for fiscal year 2022, compared to fiscal year 2021, primarily due to the reduction in our accounts payable and accrued liabilities, which was mostly attributable to the timing of payments for inventory, personal-protective equipment donations in the prior year and the impact of a lower bonus accrual for the current year.
Historical Cash Flows The following table shows our sources and uses of cash for the periods presented (in thousands): Fiscal Year Ended September 30, 2023 2022 Change Net cash provided by operating activities $ 249,311 $ 156,500 $ 92,811 Net cash used by investing activities (99,776 ) (102,419 ) 2,643 Net cash used by financing activities (100,824 ) (373,679 ) 272,855 Effect of foreign currency exchange rate changes on cash and cash equivalents 3,732 (10,803 ) 14,535 Net increase (decrease) in cash and cash equivalents $ 52,443 $ (330,401 ) $ 382,844 Operating Activities The increase in net cash provided by operating activities for fiscal year 2023, compared to fiscal year 2022, was primarily driven by fewer inventory purchases in the current year as a result of the Plan and the additional inventory purchases related to BSG's growth through distribution partnerships in the prior fiscal year.
Although these initiatives have helped mitigate ongoing macro-headwinds we cannot reasonably predict the long-term effects of inflation and supply chain disruptions. Furthermore, in a measure to curb inflation, the U.S. Federal Reserve has continued to increase the federal funds effective rate. In turn, these increases have raised the cost of debt borrowings.
Furthermore, in a measure to curb inflation, the U.S. Federal Reserve has increased the federal funds effective rate. In turn, these increases have raised the interest expense of some of our customers’ outstanding borrowings which has reduced their discretionary spending.
Additionally, the decrease in our operating activities was driven by lower net earnings and the increase in our inventory balance for fiscal year 2022 . Net Cash Used by Investing Activities Net cash used by investing activities was higher for fiscal year 2022, compared to fiscal year 2021, primarily due to investments in technology and store leasehold improvements.
Investing Activities The decrease in net cash used by investing activities for fiscal year 2023, compared to fiscal year 2022, was primarily due to fewer capital expenditures, partially offset by cash paid for acquisitions this fiscal year compared to last fiscal year.
If it is determined the asset’s fair value is less than its carrying value, then an impairment charge is recorded to reduce the carrying value down to its fair value. No impairment losses were recognized in fiscal years 2022, 2021 or 2020.
If it is determined the asset’s fair value is less than its carrying value, then an impairment charge is recorded to reduce the carrying value down to its fair value. Due to the aforementioned goodwill triggering event, during the three months ended September 30, 2023, the Company determined that a triggering event had occurred for its intangible assets.
The higher average ticket resulted a from higher average unit retail prices, led by color, care and styling tools categories, partially offset by lower average unit volume. Gross Profit SBS . SBS’s gross profit decrease was driven by a decrease in sales, partially offset by a higher gross margin.
Additionally, BSG’s comparable sales were impacted by the continuation of stylist demand trends seen over the last several quarters, which resulted in fewer transactions and units per transaction, partially offset by an increase in our average unit retail. Gross Profit SBS . SBS’s gross profit decrease was driven by lower net sales, partially offset by a higher gross margin.
Working capital (current assets less current liabilities) decreased $254.2 million to $464.5 million at September 30, 2022, compared to $718.7 million at September 30, 2021. This decrease was driven by the repayment of our 8.75% Senior Notes through the use of excess cash and additional borrowing on our ABL facility.
Our working capital (current assets less current liabilities) increased $184.2 million to $648.7 million at September 30, 2023, compared to $464.5 million at September 30, 2022.
Removed
Executive Summary Fiscal 2022 was a successful year, delivering strong gross margins and positive net earnings amidst a highly dynamic and challenging macro environment. Our Company navigated inflationary pressures and supply chain headwinds, while remaining focused on serving our customers.
Added
Operating margin decreased 10 basis points to 8.7% compared to the prior fiscal year; • Consolidated net earnings for the fiscal year decreased $1.0 million, or 0.6%, to $184.6 million; • Diluted earnings per share for the fiscal year were $1.69 compared to $1.66 for the prior fiscal year; and • Cash provided by operations was $249.3 million for the fiscal year compared to $156.5 million for the prior fiscal year.
Removed
For fiscal 2023, we will be leveraging and building upon the modern retail infrastructure we’ve built in recent years and focusing on three key strategic initiatives to drive growth and profitability: • Enhancing our customer centricity; • Growing high margin owned brands at Sally Beauty and amplifying innovation; and • Increasing the efficiency of our operations and optimizing our capabilities.
Added
Distribution Center Consolidation and Store Optimization Plan Last fiscal year, we announced our Distribution Center Consolidation and Store Optimization Plan (the "Plan"). The Plan was designed to improve overall profitability by optimizing our store base and distribution network through the planned closing of 330 SBS stores, 35 BSG stores and two BSG distribution centers.
Removed
We believe focusing in these areas will position our company for future growth and further enhance our ability to meet our customers where they are.
Added
This fiscal year, we were able to complete the majority of our planned closures and further optimized our store supply chain network based on our new store fleet, while meeting our sales recapture and cost savings expectations.
Removed
Operating margin decreased 200 basis points to 8.8% compared to the prior fiscal year; • Consolidated net earnings for the fiscal year decreased $56.3 million, or 23.5%, to $183.6 million; • Diluted earnings per share for the fiscal year were $1.66 compared to $2.10 for the prior fiscal year; • Cash provided by operations was $156.5 million for the fiscal year compared to $381.9 million for the prior fiscal year; • Reduction of $231.0 million in debt resulting mostly from the early redemption of our 8.75% senior notes due 2025 (“2025 Senior Notes”); and • In the fourth quarter of the fiscal year, our Board approved t he planned closure of 330 SBS and 35 BSG stores mostly over the next fiscal year and two BSG distribution centers in Clackamas, Oregon and Pottsville, Pennsylvania during the first fiscal quarter of fiscal year 2023, as part of our Distribution Center Consolidation and Store Optimization Plan. - 26 - Distribution Center Consolidation and Store Optimization Plan The Distribution Center Consolidation and Store Optimization Plan’s core strategy is accelerating store closures in various markets where we believe we can successfully recapture sales and improve profitability.
Added
As of September 30, 2023, we have two BSG stores left to be closed as part of the Plan and expect additional immaterial costs to be incurred in the first half of fiscal year 2024. See Note 16 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report for more information on the Plan.
Removed
By optimizing our large store portfolio, we can further focus on our customers’ shopping experience and our product offerings, while returning value to our shareholders. In addition, the Company will also be optimizing its supply chain by closing two small distribution centers in Oregon and Pennsylvania and transferring the volumes to larger distribution centers, effective in December 2022.
Added
Trends Impacting Our Business Global inflationary pressures continued to influence consumer and stylist shopping behavior along with the cost for products and services.
Removed
Trends Impacting Our Business Inflationary pressures started to impact consumer spending behavior in fiscal 2022 as cautious shoppers stalled discretionary spending due to the higher cost for products and services. Moreover, there was still volatility in the global supply chain, as freight carriers passed higher fuel prices to customers.
Added
In the U.S. and Canada, we saw our SBS retail customers color their hair less frequently and reduce the size of their basket when they shop with us, while at BSG we saw a continuation of stylist demand trends of buying closer to needs we’ve seen over the last several quarters.
Removed
We currently have approximately $476.0 million in variable rate debt, with $407.5 million hedged with interest rate caps to help mitigate the impact of rising rates. Future increases in the federal funds effective rate could have a material adverse impact to our cost of debt, including any future changes in our debt structure.
Added
SBS's sales decrease was primarily driven by the impact of store closures in connection with the Plan in an amount of approximately $112.0 million, partially offset by a significant portion of these sales being recaptured in other locations including within comparable sales.
Removed
Impact of COVID-19 on Our Business During the fiscal year, we experienced disruptions to our business as a result of the COVID-19 pandemic and we took certain actions in order to protect our customers and associates. In particular, our store operations faced challenges and disruptions related to COVID-19 surges and variants.
Added
The increase in SBS's comparable sales was a result of growth in our average unit retail, primarily from inflationary impacts and pricing leverage, partially offset by a decrease in our average units per transaction. BSG .
Removed
While we have seen signs of stabilization, we cannot reasonably predict the effects of new variants or expect improving trends to continue. Therefore, our future performance may partially depend on impacts of COVID-19 such as decreased customer in-store traffic, temporary store closures, and continued labor and supply chain disruptions. Refer to Item 1A.
Added
BSG's sales decrease was primarily driven by the impact of store closures in connection with the Plan in an amount of approximately $8.8 million and the negative impacts of exchanges rates, partially offset by a significant portion of these sales being recaptured in other locations, including within comparable sales.
Removed
The decrease in SBS’s net sales was driven by the impact of store closures, the unfavorable impact of foreign exchange rates and lower comparable sales. SBS’s comparable sales were lower due to fewer transactions, impacted by lower traffic, partially offset by a higher average ticket.
Added
SBS’s gross margin grew as a result of pricing leverage, increased penetration of our owned-brand products and adjustments to our expected obsolescence reserve related to the Plan. BSG . BSG’s gross profit decreased as a result of lower net sales, while BSG’s gross margin was unchanged.
Removed
The average ticket increase resulted from higher average unit retail prices, led by our hair color and care categories, partially offset by lower average unit volume. BSG .
Added
Gross margin included lower product margin resulting from an unfavorable sales channel mix between stores and lower-margin Regis e-commerce sales, and a shift in some distribution center costs from selling, general and administrative expenses into gross margin, offset by adjustments to our expected obsolescence reserve related to the Plan. Selling, General and Administrative Expenses SBS .
Removed
The increase in BSG’s net sales was driven by higher comparable sales, partially offset by the impact of closed stores and the unfavorable impact of foreign exchange rates. BSG’s comparable sales increase was driven by a higher average ticket, partially offset by lower traffic.
Added
The increase was primarily driven by higher labor and bonus expenses, partially offset by a shift in some distribution center costs from selling, general and administrative expense into gross margin. Unallocated.
Removed
SBS’s gross margin increase was driven by improvement of pricing leverage and the impact of fewer write-downs of obsolete personal-protective equipment.
Added
These increases were partially offset by prudent cost control and the lapping of disposal costs for obsolete personal-protective equipment inventory. Restructuring For fiscal year 2023, we substantially completed the planned closures under the Plan and incurred $17.2 million in restructuring charges, primarily from lease termination costs.
Removed
This improvement to margins was partially offset by the impact of inventory write-downs resulting from our Distribution Center Consolidation and Store Optimization Plan, higher distribution and freight costs and an unfavorable sales mix shift between the U.S. and international markets, resulting from the temporary closing of certain international operations in the prior year due to COVID-19. BSG .
Added
Additionally, our interest rate derivatives have helped mitigate some of the impacts from higher interest rates on a portion of our variable rate debt. Provision for Income Taxes For fiscal year 2023 and 2022, our effective tax rate was 26.8% and 24.8%, respectively.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

10 edited+1 added−2 removed2 unchanged
Biggest changeForeign currency exchange rate risk We are exposed to potential gains or losses from foreign currency fluctuations affecting net investments in subsidiaries (including intercompany balances not permanently invested) and earnings denominated in foreign currencies as well as exposure resulting from the purchase of merchandise by certain of our subsidiaries in a currency other than their functional currency and from the sale of products and services among the parent company and subsidiaries with a functional currency different from the parent or among subsidiaries with different functional currencies.
Biggest changeCurrently, we do not purchase or hold any derivative instruments for speculative or trading purposes, and are restricted from engaging in, by our debt and credit agreements. - 36 - Foreign currency exchange rate risk We are exposed to potential gains or losses from foreign currency fluctuations affecting net investments in subsidiaries (including intercompany balances not permanently invested) and earnings denominated in foreign currencies as well as exposure resulting from the purchase of merchandise by certain of our subsidiaries in a currency other than their functional currency and from the sale of products and services among the parent company and subsidiaries with a functional currency different from the parent or among subsidiaries with different functional currencies.
As more fully discussed in Note 12 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report, we use, from time to time, derivative instruments in order to manage risk relating to cash flows and interest rate exposure. Credit risk We are exposed to credit risk in connection with certain assets, primarily accounts receivable.
As more fully discussed in Note 11 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report, we use, from time to time, derivative instruments in order to manage risk relating to cash flows and interest rate exposure. Credit risk We are exposed to credit risk in connection with certain assets, primarily accounts receivable.
We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. We believe our exposure of credit risk with respect to trade receivables is largely mitigated by our broad customer base and that our allowance for doubtful accounts is sufficient to cover customer credit risks at September 30, 2022.
We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. We believe our exposure of credit risk with respect to trade receivables is largely mitigated by our broad customer base and that our allowance for doubtful accounts is sufficient to cover customer credit risks at September 30, 2023.
Our derivative instruments expose us to credit risk in the event of default by a counterparty. We believe such exposure is mitigated by the substantial resources and strong creditworthiness of the counterparties to our derivative instruments at September 30, 2022. In the event a counterparty defaults in its obligation under our derivative instruments, we could incur substantial financial losses.
Our derivative instruments expose us to credit risk in the event of default by a counterparty. We believe such exposure is mitigated by the substantial resources and strong creditworthiness of the counterparties to our derivative instruments at September 30, 2023. In the event a counterparty defaults in its obligation under our derivative instruments, we could incur substantial financial losses.
As more fully discussed in Note 12 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report, we use, from time to time, foreign exchange forward contracts to mitigate exposure to changes in foreign currency exchange rates.
As more fully discussed in Note 11 in the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report, we use, from time to time, foreign exchange forward contracts to mitigate exposure to changes in foreign currency exchange rates.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As a multinational corporation, we are subject to certain market risks including risks resulting from our exposure to foreign currency fluctuations, changes in interest rates and government actions. We consider a variety of practices to manage these market risks, including, when deemed appropriate, the use of derivative financial instruments.
ITEM 7A. QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK As a multinational corporation, we are subject to certain market risks including risks resulting from our exposure to foreign currency fluctuations, changes in interest rates and government actions. We consider a variety of practices to manage these market risks, including, when deemed appropriate, the use of derivative financial instruments.
A 10% increase or decrease in the exchange rates for the U.S. dollar versus the foreign currencies to which we have exposure would have impacted our consolidated net sales by approximately 1.8% in the fiscal year 2022, and it would have impacted our consolidated net assets by approximately 2.0% at September 30, 2022.
A 10% increase or decrease in the exchange rates for the U.S. dollar versus the foreign currencies to which we have exposure would have impacted our consolidated net sales by approximately 1.8% in the fiscal year 2023, and it would have impacted our consolidated net assets by approximately 2.2% at September 30, 2023.
For each of the fiscal years 2022, 2021 and 2020, less than 20% of our consolidated net sales were made in currencies other than the U.S. dollar.
For each of the fiscal years 2023, 2022 and 2021, less than 20% of our consolidated net sales were made in currencies other than the U.S. dollar.
However, at the present time, no such losses are deemed probable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See “Index to Financial Statements” which is located on page 47 of this Annual Report. - 36 - ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
However, at the present time, no such losses are deemed probable. ITEM 8. FINANCIAL STATEMEN TS AND SUPPLEMENTARY DATA See “Index to Financial Statements” which is located on page 47 of this Annual Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCO UNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. - 37 -
Interest rate risk We are sensitive to interest rate fluctuations as a result of borrowings under our ABL facility and term loan B. At September 30, 2022, there were $68.5 million in outstanding borrowings under the ABL facility and the term loan B had $407.5 million in outstanding principal balance.
Interest rate risk We are sensitive to interest rate fluctuations as a result of borrowings under our ABL facility and term loan B. At September 30, 2023, there were no outstanding borrowings under the ABL facility, and the term loan B had $398.0 million in outstanding principal balance.
Removed
Currently, we do not purchase or hold any derivative instruments for speculative or trading purposes, and are restricted from engaging in, by our debt and credit agreements.
Added
Additionally, at September 30, 2023, we held a $200 million of SOFR denominated interest hedged under an interest rate swap agreement to help mitigate a portion of our interest rate risk. At September 30, 2023, a 1.0 percentage point interest rate increase would negatively impact our annual interest expense and cash flows by $2.2 million.
Removed
Based on our September 30, 2022, outstanding floating interest rate debt, a 1.0 percentage point interest rate increase would impact interest expense by $4.8 million.

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