Sally Beauty (SBH) Q1 2026 Earnings Transcript

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DATE

Monday, Feb. 9, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer — Denise Paulonis
• Chief Financial Officer — Marlo Cormier

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TAKEAWAYS

• Consolidated Net Sales -- $943 million, up 0.6%, with 90 basis points of favorable foreign currency impact and 38 fewer stores operating.
• Comparable Sales -- Flat; Sally US and Canada delivered positive comparable sales growth of 1.3%, while Beauty Systems Group (BSG) declined 20 basis points.
• Adjusted Diluted Earnings Per Share (EPS) -- Increased 12% to $0.48, finishing above guidance.
• Adjusted Gross Margin -- Improved by 50 basis points to 51.3%, attributed to higher product margin in both segments resulting from the Fuel for Growth program.
• Sally Segment Net Sales -- $532 million, up 1.2%, including 160 basis points of positive foreign currency effects, while operating 33 fewer stores.
• Sally Comparable Sales -- Essentially flat, increasing 10 basis points; average ticket rose 1%, with comparable transactions down 1%.
• Sally Color Category -- Grew 8% year over year globally, and up 8% in US and Canada; color customer count rose 3%.
• Sally E-commerce Sales -- Increased 20% to $50 million, 9% of segment net sales; US and Canada e-commerce sales rose 28%.
• Sally Gross Margin -- Rose 20 basis points to 59.8%; segment operating margin reached 14.7%.
• BSG Segment Net Sales -- $412 million, down 20 basis points; BSG e-commerce sales up 4% to $60 million, 15% of segment net sales.
• BSG Comparable Sales -- Down 20 basis points; transactions down 1%, ticket flat; color up 4%, care flat.
• BSG Gross Margin -- Improved 90 basis points to 40.2%; segment operating margin was 13.1%, up 90 basis points.
• Global E-commerce Sales -- Up 11% to $111 million, or 12% of total net sales.
• Operational Cash Flow -- $93 million from operations; free cash flow totaled $57 million.
• Debt and Share Repurchase -- $20 million term loan repaid; $21 million used for share repurchases, with 1.4 million shares bought back.
• Inventory -- $979 million, down 3% from the previous year end.
• Full-Service European Exit -- Substantial exit from lower margin operations in Europe, resulting in a $10 million expected full-year sales headwind, not expected to materially impact operating profit.
• Fragrance Launch -- Introduced in top 1,000 Sally US stores in November and expanding to 2,000 locations in Q2; strong consumer acceptance and out-of-stocks late in quarter.
• Guidance Update -- Full-year 2026 sales outlook ranges from $3.71 billion to $3.77 billion with adjusted EPS guidance raised to $2.02–$2.10, assuming 50% of free cash flow deployed to share repurchases.
• Next Quarter Guidance -- Q2 2026 expected net sales in the $895 million–$905 million range, comparable sales up 0.5%–1.5%, and adjusted EPS of $0.39–$0.42.
• Store Count Expectations -- Projected flat for the fiscal year, with 40 new stores, 40 closures, and 50 relocations.
• Fuel for Growth Program -- $14 million of benefits realized in Q1; on track for $45 million in benefits in fiscal 2026 and cumulative $120 million annualized savings by fiscal year-end.
• Sally Ignited Store Refreshes -- Eight completed in Q1, totaling 38 refreshed locations; KPIs in Ignited stores show mid to high single-digit increases in new and reactivated customers, with higher UPT and ATV, and plans to reach approximately 80 by year-end 2026.

SUMMARY

Sally Beauty Holdings (NYSE:SBH) leadership highlighted that adjusted operating income reached $80 million, which aligns with the upper end of expectations but was not previously detailed. Innovations and assortment expansion continued, with recent launches such as Milkshake and Keratin Complex expanding BSG's color and care offerings and increasing store-product coverage. Holiday promotional activity was up slightly for both segments, but gross margin strength was maintained without significant erosion from higher promotions. The company is initiating targeted digital and in-store strategies, including app enhancements for both segments and the rollout of Apple Pay and improved product discovery features, which are poised to affect future customer engagement. Management signaled ongoing momentum in millennial and Gen Z acquisition through performance marketing and acknowledged that customers acquired through Licensed Colors on Demand spend twice as much as traditional new customers in their first year. The full-year guidance incorporates strategic investments, an exit from unprofitable operations, and ongoing cost savings, positioning the company for continued margin improvement and capital return.

• The company expects capital expenditures around $100 million and full-year free cash flow of $200 million.
• Fuel for Growth program is driving product margin improvement in both Sally and BSG, evidenced by rising segment gross margins.
• BSG is actively testing entry into the skin and spa category, with two brands in 250 stores and campaigns targeting estheticians planned for future quarters.
• Management plans to refine the Sally Ignited program with additional refreshes in fiscal 2026 and evaluates scaling it to 100–200 stores per year in fiscal 2027 and beyond.
• Happy Beauty holiday performance was highlighted by mall-store outperformance and growth in indie brands across cosmetics, skincare, and fragrance, with an ecommerce launch planned this fiscal year.
• Store count is expected to remain flat through opening and closing an equal number of stores along with targeted relocations, which may indicate continued emphasis on store productivity and fleet optimization.

INDUSTRY GLOSSARY

• LCOD (Licensed Colors on Demand): Digital consultation and fulfillment platform designed to engage customers in personalized color services and drive higher annual spend among newly acquired and reactivated users in Sally Beauty stores.
• UPT (Units Per Transaction): Measurement indicating how many items a customer purchases per transaction, used to evaluate basket size growth in retail performance.
• ATV (Average Transaction Value): Average dollar amount spent per transaction by customers, often tracked to assess the success of merchandising initiatives or store refreshes.
• BSG (Beauty Systems Group): The segment of Sally Beauty Holdings specializing in professional beauty product distribution to salons and stylists, operating through stores and ecommerce platforms.

Full Conference Call Transcript

Denise Paulonis: Thank you, Jeff, and good morning, everyone. Our first quarter financial performance marks a strong start to fiscal year 2026. We achieved top-line results and adjusted operating income at the high end of our expectations and adjusted diluted earnings per share above our guidance range. Through focused execution in the service of our customers, we delivered total sales of $943 million, with comparable sales flat to last year. Reflecting our ability to navigate and rebound from the macro volatility we saw during the quarter, most notably from the government shutdown.

Strong gross margins of 51%, careful cost control, and benefits from our Fuel for Growth program resulted in outperformance on the bottom line, with adjusted diluted earnings per share increasing 12% to $0.48. We also generated strong cash flow from operations of $93 million, which we deployed towards investing for growth, further strengthening our balance sheet with $20 million of debt pay down, and returning value to shareholders through $21 million of share repurchases. In our Sally segment, while our customers remained choiceful, they demonstrated overall resilience in a challenging macro environment.

We are pleased to see performance strengthen in December as the government reopened, and in turn, our Sally US and Canada business delivered positive comparable sales growth of 1.3% for the quarter. Of note, in the quarter, we did exit substantially all of our lower margin full-service operations in Europe. This represents a positive strategic shift for our business as it simplifies our operations and allows us to concentrate on driving growth within our core store and omnichannel businesses. While this exit will result in a modest sales headwind, approximately $10 million, to full year 2026, it is not expected to have a material impact on operating profit.

Underscoring the benefits of focusing our resources on areas with greater long-term potential. Our core color category was a standout performer at Sally, with year-over-year growth of 8%. For Sally US and Canada, color was also up 8%, and we saw a meaningful increase in color customer count, which increased 3% fueled by our performance marketing and personalization initiatives, as well as ongoing momentum in our licensed Colors on Demand platform. Additionally, our entry into the fast-growing fragrance category was met with a positive response. In November, we introduced fragrance in our top 1,000 Sally US stores, and strong demand drove out-of-stocks in the latter weeks of the quarter.

On the digital side, our ecommerce sales grew 20% in the quarter. This performance was powered by marketplaces, as well as positive trends across key categories, including color, hair, and styling tools, and reflects robust performance throughout the Black Friday, Cyber Monday weekend. Turning to our BSG segment, top-line results were roughly flat, with both net sales and comp sales down 20 basis points to last year as stylists continued to buy closer to need and seek value. Spending trends softened in tandem with the government shutdown but rebounded nicely in December. While stylists' appointment books were relatively busy, their customers were more cautious in their spending with some pullback in add-on services.

We are pleased to have delivered healthy gains in key categories and brands, highlighting the innovation and value we bring to our stylists. As our teams continue to execute against our four key growth drivers, we remain focused on delivering consistent performance with a business that is resilient and positioned for long-term growth. Now I'll provide an update on our strategies and discuss our near-term initiatives. Our first strategy, understanding and activating the customer, is focused on acquisition, retention, and share of wallet. At Sally, our Save While You Skip the Salon campaign that we launched in Q1 is resonating with customers. Additionally, as we continue to drive new customer acquisition, we're continuing to run that in Q2.

From our performance marketing, CRM, and personalization initiatives, we are pleased to see expanding customer counts among the millennial and Gen Z cohorts. We believe there is a meaningful opportunity to grow our brand with these important customer cohorts that embrace color trends, hair health, and DIY. Our brand marketing strategy also includes licensed Colors on Demand, which continues to drive strong economics and serve as a powerful customer acquisition tool. Of note, customers acquired through LCOD spend two times more than customers acquired through other means over their first year with us. And our existing customers that engage through LCOD show a lift of over 25% in their annualized spend.

With that level of impact, we are pleased to see that in Q1, the number of new and reactivated customers continued to grow, and we averaged approximately 5,000 weekly consultations. Moreover, we recently launched a new care consultation strategy, which is gaining traction quickly in the New Year and is expected to help drive long-term improvement in care category performance. Looking now at BSG, we are implementing new personalization and journey optimization strategies to deepen engagement with our stylists. While BSG is in the early innings relative to Sally in this area, we are already seeing our efforts make a difference in two places.

First, we use targeted offers to drive strong reactivations of customers that had previously lapsed, and we have plans to expand our targeted offers as we move through the next few quarters. Second, we are partnering with our brands to drive more effective and direct communication with our stylists, and we saw several key brands drive significant growth in customer counts in the quarter, like Schwarzkopf, Color Wow, and Major Jones. Moving now to our second strategy, unlocking and harvesting digital value. Ecommerce sales were up 20% in the Sally segment and up 4% in the BSG segment in the quarter.

With strong ecommerce sales momentum in both business segments, our teams are focused on leveraging our existing capabilities and strengthening our digital foundation to drive increased engagement and conversion. In fiscal Q1, we saw broad-based ecommerce gains across categories at Sally, fueled in part by our marketplaces strategy. The upgrade of our Sally app is underway and will continue to roll out in the coming quarters, which will improve the user experience and reduce friction. Notable enhancements include coupon clarity and loyalty transparency, so value is more visible, easier to interpret, and actionable at the right moments, as well as a more efficient search engine for easier product discovery.

At BSG, during the quarter, we launched Apple Pay to reduce friction at checkout, introduced inventory near me functionality, and created a favorites category for our stylists, enabling quicker discovery of frequently purchased items. In addition, we're on track to roll out substantial updates to the BSG app in the coming months. The updates are designed to deliver an improved user experience, faster payment checkout, and enhanced capabilities around education, AI, and personalization. The changes will begin to roll out to our stylists this spring. Turning to our third strategy, differentiating with product assortment and innovation. In the Sally segment, we are quite pleased to see that our customers have given us permission to participate in the fragrance category.

In our second quarter, we're expanding to another 1,000 Sally locations and expect to end the quarter with fragrance in 2,000 stores. On the own brands front, the Q1 relaunch of Texture ID is bringing customers back to the brand and building momentum. Looking ahead, we have more brand refreshes and innovation coming throughout the year. At BSG, we have some exciting launches planned for fiscal 2026. Earlier this month, we introduced Milkshake and Keratin Complex, brands that are well-loved by stylists and bring exciting innovation to BSG. We brought Milkshake to 225 US stores and ecommerce with products across both color and care.

And Keratin Complex launched in 525 of our US stores, full service and ecommerce, deepening our participation in the glossing and straightening trend. We're also excited about upcoming expansion in key brands where we already have strong momentum, including Moroccan Oil, Danger Jones, and K18. Now to discuss our fourth strategy, accelerating new growth pathways. I'll start with our Sally Ignited initiative, which encompasses both physical and digital refreshes, category and brand expansion, and immersive experiences focused on discovery and community. During fiscal Q1, we completed eight store refreshes, bringing us to 38 locations and putting us on track to have approximately 80 Sally Ignited stores in the market by the end of 2026.

We're pleased to see positive KPIs in our Ignited stores, reinforcing that we are on the right path. Let me share a few details. First, from a customer perspective, we are seeing a mid to high single-digit increase in new and reactivated customers. Second, on the sales front, UPT and ATV continue to trend above the rest of the fleet, with customers spending more time in-store and cross-shopping categories at an increased rate. Notably, this stronger performance is especially evident in our larger format stores, where expanded skincare and cosmetics assortments have contributed to even stronger basket growth. We'll continue to use fiscal 2026 to refine the program as we look towards scaling the rollout in fiscal 2027.

In the BSG segment, we are advancing our initiatives to enter the skin and spa category with testing underway. Currently, we have two brands in 250 stores, and we activated marketing in the first quarter as well. We are focused on building awareness within the skincare community and will continue to roll out campaigns targeting estheticians in the coming quarters to drive consideration and conversion. Turning now to an update on Happy Beauty. Our recent merchandising and marketing initiatives are proving successful and contributed to strong holiday season results. Our mall locations outperformed, with indie brands leading the way across key categories, including cosmetics, skincare, and fragrance.

Building on the traction we saw in our mall locations, we are actively at work on our Happy Beauty ecommerce site that will launch later this fiscal year, and we continue to evaluate the optimal path forward for brick and mortar. More to come in the quarters ahead. While continuing to fuel the top line through these four growth drivers, our teams are also remaining laser-focused on driving profitability unlocks via our Fuel for Growth program and ongoing financial discipline. We're in year three of the program, which is expected to be an important contributor to gross margin profitability in fiscal 2026.

We're tracking to capture approximately $45 million of benefits this year, putting us at total cumulative run rate savings of $120 million by the end of fiscal 2026. We are grateful to our talented teams and remain confident in our path forward. We are committed to driving durable growth and building long-term shareholder value in the quarters and years ahead. Now I'll turn the call to Marlo to discuss the financials.

Marlo Cormier: Thank you, Denise, and good morning, everyone. Our first quarter results reflect the benefits of our strategic initiatives and disciplined execution. We are pleased to deliver net sales and adjusted operating income at the high end of our expectations and adjusted diluted earnings per share above our guidance. Q1 consolidated net sales totaled $943 million, up 0.6%, and included 90 basis points of favorable impact from foreign currency translation while operating 38 fewer stores compared to the prior year.

Consolidated comparable sales were flat, which is in line with our expectations and reflects positive comps of plus 1% at Sally US and Canada, partially offset by the full-service exit in Europe that Denise previously mentioned, as well as a 20 basis point comp decline at BSG. Global ecommerce sales increased 11% to $111 million and represented 12% of total net sales. We delivered healthy gross profit in the quarter, with adjusted gross margin expanding 50 basis points to 51.3%. The year-over-year improvement is primarily attributable to higher product margin in both business segments, driven by the benefits of our Fuel for Growth program.

Turning to expenses, Q1 adjusted SG&A totaled $404 million, reflecting a modest increase of $6 million to last year. Higher costs across labor and other compensation-related expenses, rent, and advertising were partially offset by $4.5 million in Fuel for Growth benefits in the period. During Q1, we captured $14 million of pretax Fuel for Growth benefits to both gross margin and SG&A, and remain on track to capture full-year fiscal 2026 benefits of approximately $45 million. Our teams are continuing to act with rigor and discipline, putting us on track to deliver cumulative run rate savings of about $120 million by fiscal year-end.

Moving down the P&L, the combination of healthy gross margins and careful cost control enabled us to deliver strong bottom-line results. Adjusted operating income of $80 million is at the high end of our expectations. Adjusted diluted earnings per share of $0.48, which increased 12% last year, came in above our guidance range. Turning now to segment results, Sally Beauty net sales increased 1.2% to $532 million, which included 160 basis points of favorable impact from foreign currency translation while operating 33 fewer stores versus a year ago. Comparable sales were essentially flat, up 10 basis points to last year. Comparable transactions were down 1%, and average ticket was up 1%.

For the global Sally Beauty segment, color increased 8% while care declined 6% versus prior year. Sally ecommerce sales grew 20% to $50 million and represented 9% of segment net sales for the quarter. In addition, ecommerce sales for Sally US and Canada grew by 28%. Gross margin in our Sally segment increased 20 basis points to 59.8%, driven primarily by higher product margin from benefits of our Fuel for Growth program. Segment operating margin came in at 14.7%. Looking at the BSG segment, net sales totaled $412 million, a decrease of 20 basis points. Comparable sales were also essentially flat, coming in down 20 basis points. Comparable transactions were down 1% while average ticket was flat.

From a category perspective, color increased 4%, and care was flat. BSG ecommerce sales increased 4% to $60 million, representing 15% of segment net sales for the quarter. Gross margin at BSG expanded 90 basis points to 40.2%, primarily reflecting higher product margins from the benefits of our Fuel for Growth program. Segment operating margin was strong, coming in at 13.1%, up 90 basis points to last year. Turning to the balance sheet and cash flow, we ended the quarter in strong financial condition with $157 million in cash and cash equivalents and no outstanding borrowings under our asset-based revolving line of credit. Inventory levels totaled $979 million, down 3% versus last year.

First quarter cash flow from operations totaled $93 million, and free cash flow came in at $57 million. During the quarter, we utilized excess cash to repay $20 million of term loan debt, bringing our net debt leverage ratio to 1.5 times. We also deployed $21 million of cash to repurchase 1.4 million shares of stock under our existing share repurchase program. Turning to our fiscal 2026 outlook, on a full-year basis, we are raising the low end of our EPS guidance as we flow through our Q1 beat.

We are reiterating the rest of our full-year guidance, which now includes the following: consolidated net sales in the range of $3.71 to $3.77 billion, which includes approximately 50 basis points of favorable impact from foreign currency rates; comparable sales flat to up 1%; adjusted operating earnings of $328 to $342 million; adjusted diluted earnings in the range of $2.02 to $2.10 per share, up from a prior range of $2 to $2.10, and assumes that 50% of free cash flow goes towards share repurchases. Capital expenditures are expected to be approximately $100 million, and free cash flow is expected to be $200 million.

In addition, we expect our store count to be approximately flat, including about 40 new stores, 40 store closures, and about 50 relocations. For Q2 2026, we expect the following: consolidated net sales in the range of $895 to $905 million, which includes approximately 100 basis points of favorable impact from foreign currency rates; comparable sales up 0.5% to 1.5%. Given the soft comparison to Q2 of last year, we expect this to be our strongest comp sales quarter of fiscal 2026. Adjusted operating earnings of $68 million to $71 million.

In our Q2 guidance, we are returning to a more normal quarterly pattern for SG&A, with overall SG&A dollars expected to remain relatively consistent from Q1 2026 to Q2 2026. It's worth noting that Q2 last year benefited from unusually favorable foreign currency impacts that have since reversed, as well as timing shifts in incentive compensation, advertising, and IT as we managed through last year's sales headwind. Looking over a two-year period, we expect SG&A growth in Q1 and Q2 to be similar, reflecting stable underlying expense trends. Adjusted diluted earnings in the range of $0.39 to $0.42 per share. We appreciate your time this morning. Now I'll ask the operator to open the call for Q&A. Thank you.

Our first question comes from the line of Oliver Chen with TD Cowen. Your line is now open.

Oliver Chen: Hi, Denise and Marlo. On the BSG customer relative to the Sally customer, it sounds like the BSG customer is somewhat value-focused. Would love your take on comparing and contrasting what trends are happening there and the health of your consumer. Also, you have a lot of really exciting initiatives ahead, including fragrance and Sally Ignited. What are your thoughts on fragrance and other categories as a percentage of sales over time as a big nice opportunity, and we're seeing such a compelling structural growth there? And on Sally Ignited, the KPIs look really robust. What's holding you back from the timing of rolling those out? Thank you.

Denise Paulonis: Morning, Oliver. Let me start with unpacking a little bit about what's going on with the customer. So on the Sally side of the house, the Sally customer was resilient. They really responded well to initiatives like LCOD, marketing marketplaces, innovation, and with color comps up 8%, we felt really good about where that business was. Of course, there was a minor disruption there through the government shutdown, which did hinder results a bit. But even with that, Sally US and Canada posted a 1.3% growth in the quarter.

Where we are seeing that customer be a bit more choiceful is in discretionary categories like styling tools, still looking for value, and really being disciplined in where they shop in places like the care category. On the BSG side of the house, I think two trends. One, similar to Sally, where we did see slower business around the government shutdown but saw that recover nicely in December. We did also see our stylists tell us that while they were busy, their customers were being a little bit more choiceful with add-on services. So, all in all, we think the customer in general is healthy.

We're navigating through pluses and minuses that happen out there, but feeling good overall about where we are with them. On the initiatives front, you specifically called out new categories. Really pleased with fragrance in Sally. So we were in a thousand stores as we went through the holiday period. We'll be in another thousand stores for a total of 2,000 stores in pretty short order. The customer's loving, kind of a high-end value offering is what I would say. So a bit of a dupe-focused strategy, but one that is resonating well. How high is high? I don't think we know yet. We're certainly navigating and testing our way through that.

And then as I mentioned in particular with the ignited remarks, as we're pushing further into cosmetics and skincare, we're pleased to see that our customer is really giving us permission to play in a targeted way in those categories, often something that maybe they won't find in maybe some other mainstream beauty stores. So, once again, haven't sized it yet, more to come as we continue to test and learn there, but feeling really good about where we're headed. And finally, absolutely, very excited about Sally Ignited.

What we saw as we've had these stores now open a bit longer in terms of both new customer and reactivated customer accounts as well as ATV and cross-shopping in the categories is certainly giving us momentum behind our plans. We think it's important this year to stay pretty disciplined to get these test stores, the next 50 stores up and running and really hone the model. But we're certainly prepared to accelerate into FY 2027 assuming that everything that we're seeing now continues to bear fruit.

Oliver Chen: Okay. And a follow-up. On the comp guidance, how do you see that manifesting between traffic and ticket? You had some nonrecurring, hopefully nonrecurring headwinds this quarter. Just would love your thoughts on risk factors on the comp guidance and why it can even be better than what you're forecasting?

Denise Paulonis: Yes. I think when you think about Q2, we guided 0.5% to 1.5% comp for the quarter. When we look at that, we are lapping a softer quarter last year when there were so many transitory impacts. When we think about what's leaning towards the positive, I think the underlying momentum in the Sally initiatives, whether that is LCOD, marketplaces, innovation, performance marketing, personalization, and then on the BSG side, continued strength in color as we also see in Sally, but also innovation with Keratin Complex and Milkshake coming online. And we think we're really well positioned for the quarter.

We hope that there could be a little help from tax refunds, but until we see how that manifests itself across income groups and how people used to spend money, that could be a little bit of upside. And then these new categories that we're playing in, whether that be skin and spa on the BSG side or fragrance in the early steps into skincare and cosmetics, could be a little bit of upside on the business as well. Thank you. Best regards. Thank you. Our next question comes from the line of Susan Anderson with Canaccord Genuity. Your line is now open.

Alec Legg: Hi. Good morning. Alec Legg on for Susan. Thanks for taking our question. I'm just curious, how was the promotional environment over the holiday versus maybe initial expectations? And how should we think about promotions heading into Q2 and for the rest of the year?

Denise Paulonis: Yes. So value continues to be important on both our Sally and our BSG sides of the house, no doubt about that. Promotional levels were up slightly year over year in both segments. With that, we maintained a very strong gross margin over 51%. So kind of all factored into our plans and activities. But we do see those customers leaning in when there's an offer that is resonating with them, and we saw that within the competitive set on both sides of our business as well. What we're also monitoring is how we think about flexing to what the consumer wants.

So beyond just leaning in on promotion, I think we're very focused on the right messaging about value, and I spoke a little bit about Save While You Skip The Salon and that campaign resonating very well on the Sally side of the house as another element of communicating value. When we go into Q2 here, I don't think there's any real material changes in trends. We don't expect it to be a highly promotional period. Certainly haven't seen that yet.

Alec Legg: Thanks. And then just a quick follow-up on fragrance. I guess what type of customers are shopping fragrance at Sally? Are they existing customers just adding it to their basket while shopping online or in-store? Or maybe is it helping bring in a new customer base?

Denise Paulonis: Early days. I'd say right now because of the way that it came to market in-store, it's going to be more customers that would already have been shopping with us. We have not done a heavy marketing push through performance marketing or things like that to a new customer base. So far so good with the customers that are coming in, and we'll continue to expand that communication to a broader set of potential customers as we expand to 2,000 stores here very shortly.

Alec Legg: Thank you.

Denise Paulonis: Our next question comes from the line of Olivia Tong with Raymond James. Your line is now open.

Olivia Tong: Great. Thanks. Good morning. I apologize I was on a little bit late. But so I hope my questions haven't been answered. But first, just short term looking at the Q2 outlook, last year, you had a lot of illness hitting results. You had mentioned in the past that stylists and customers had to postpone appointments. So could you just put that in context to the Q2 outlook that you just provided, which would suggest that at least on top line a little bit better than on a year-over-year basis against an arguably weak comp and an EPS sort of plus or minus flattish.

Just trying to understand how much of this is timing, anything that looked to be hitting harder this quarter versus a year ago, just to put some context around the Q2 outlook. Thanks.

Denise Paulonis: Sure. So I'll start on the sales front. When you think about the top line, we are lapping our softest quarter of last year. So clearly, there is a bit of a tailwind from that. But overall, we think the business is performing well on both sides of the house. We're excited about where we are with the Sally consumer and engagement with the Sally US Canada business up 1.3% comps in Q1. We expect momentum to be strong and continue. And BSG with the strength of color behind it also anticipates good news there. We, of course, have just rolled through a pretty recent weather event, which is also always factored into our guidance as we know it.

So that is in our numbers as well. And then I think when you turn further down the P&L, we still expect very positive gross margins in the business coming through. And then we articulated in the prepared remarks a bit of color about SG&A, where we really do have a bit of a timing shift there. SG&A last year really benefited from two sets of factors. First, foreign exchange was very favorable, which has since reversed. And then we had timing shifts last year on expense items like incentive comp, advertising, and IT as we really managed some pretty tough sales headwinds last year.

So we're getting back to a normalized SG&A cadence where we expect dollars to be relatively flat from Q1 2026 to Q2 2026. And on a two-year basis, relative very modest SG&A growth consistent Q1 to Q2. So we really feel good about the trajectory for the full year. Flowing through that first quarter EPS beat, taking up the low end of the guidance. Excited to see how the rest of the year continues to unfold.

Olivia Tong: Great. Thanks. And then just wanted to dig a little bit deeper into some of the ignited stores and understand the trends there relative to the base and whether you're seeing anything different or what you're seeing different in traffic and ticket in those post-Ignite stores? Thanks.

Denise Paulonis: Yeah. I mentioned it a bit earlier, but I'd reiterate. I think what we're really pleased about is the economics that we're seeing overall with the Ignited stores. We think that we are seeing more new and reactivated customers coming into those stores, which is a great win for what we're exactly trying to do in terms of bringing more customers into the box. And then in terms of building value with our existing customers, seeing overall ATV up, UPT up, AUR up compared to the rest of the fleet. So customers are coming in. They're spending more time in the store, they are cross-shopping more inclusive of fragrance and cosmetics and skincare. So really good track.

We like what we see and are excited to keep underway here.

Olivia Tong: Great. Thank you. Best of luck.

Denise Paulonis: Thank you. Our next question comes from the line of Sydney Wagner with Jefferies. Your line is now open.

Sydney Wagner: Hi. Thanks for taking my question. We've seen some beauty companies report last week who adjusted down their expectations for category growth. Can you just talk about yours? Maybe have there been any changes since we last chatted? And then just kind of on a more, I guess, high-level trend piece, in thinking about the salon consumer, you know, and kind of the maybe longer frequency, longer time between visits. Is that a trend? Is that more macro-driven? Do you see any trends on the horizon maybe towards higher maintenance cuts, colors that could maybe accelerate that pacing of visits? Thank you.

Denise Paulonis: Morning, Sydney. You want to think about the category growth, I wouldn't say that we've materially changed any of our expectations. Where we are seeing really nice strength is in color. In color that is expanding through regular color, vivid, blonding, just great activity in that space, and we're excited to see that continue. The care front care has been a tougher category. We had that factored in coming into the year, so probably not a change in our expectations. But it's subcategories like serums and treatments that are performing well and more traditional shampoo conditioner that feels a little bit more softness. Where we have real opportunity is real entrance into new categories.

Skin and Spa on the BSG side, Fragrances on the Sally side, where it's less about our expectations on the category and more new opportunity and new business for us given that we have not materially played there before. So very excited about the trends we're seeing. And then your second question was around salon customers. What we're seeing for the folks who are sitting down in the chair. What we saw was just a little bit of pullback in the first quarter, particularly just add-on services. And then this disruption that came from the government shutdown, right? It just distracted consumers a bit, and so we saw them behave a little bit differently than they had before.

But nobody really neglects their hair long term, so I think those stylist chairs are gonna stay busy over time and get to a good spot. In terms of trends, I'd say the most interesting trend right now is really around the glass and super straight look. So, you know, any product that is aimed at helping that straightening and very clean line look is what customers are looking for both at-home use as well as in the salon.

Sydney Wagner: Thank you.

Denise Paulonis: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Laureen Ng: Hi, this is Laureen Ng on for Simeon. Thanks for taking our question. So first, I just wanted to touch on the comp guide for Q2 and the implied second half. Also, assumes trends for the full year remain stable in the first half versus the second half. Can you walk us through this maybe as you're expanding into other categories and sound a little bit more positive on your initiatives? I guess why shouldn't we assume trends can materially improve into the second half of '26? Thank you.

Denise Paulonis: Yeah. When we think about the comp guide for the full year, we laid out a flat to up one with where we guided the second quarter, we'll be kind of at the mid of that coming out of the first quarter. And that did reflect a little bit easier comps in the second quarter that will be lapping from last year. When we look to the second half, we're very optimistic. So once again, we think that there's plenty of opportunity for us to continue to grow with our customer base with these new categories and with the full suite of initiatives that we have around LCOD, personalization, performance marketing, our digital and marketplaces, and then innovation.

So all in all trending in the right way, I think we're being appropriate and guarded in our guidance as we see some of the bumps in the road with macro is still out there. But expect the second half of the year to be continuing the momentum that we've seen in the business to date.

Laureen Ng: Great. And then just a question on Sally Ignited. That also sounds encouraging with your KPIs positive. Curious if you could help us understand maybe where the comp run rate could get to based on your current remodels?

Denise Paulonis: So we haven't provided all of that information yet. You know, we're evaluating the pace at which we could roll out in the future, you know, likely. These are not small remodels. These are pretty big pieces of work. So we're evaluating ranges from anywhere from 100 to 200 stores a year to be able to go and touch. And so as we do that, we would anticipate that there's a favorable tailwind as we work that program over a multi-year horizon. But I'd say more to come as I said, pretty wide range right now in terms of how we're thinking about the rollout. As we continue to evaluate performance and plans to go ahead.

Laureen Ng: Okay. Great. Thank you.

Denise Paulonis: Thank you. And I'm currently showing no further questions at this time. I'd now like to turn the call back over to Denise Paulonis for closing remarks.

Denise Paulonis: Well, thank you for joining us all today. As always, I'm very thankful for all of our team members around the world serving our customers. We appreciate all you do through busy quarters up and down, no matter what it is. The great work you do in serving our customers is always appreciated. And we look forward to updating our shareholders on next quarter's performance in about ninety days.

Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.

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