00:00Denise, always good to have you on the program. Appreciate you taking the time today. I do want
00:03to remind everybody, two different segments. You have your own stores. You also sell to,
00:09in the other segment, you sell to beauty salons. You're global, so you have a really good
00:14understanding of the consumer. Can you expand on the comments that you made when you were
00:18answering that analyst question on the call a little earlier today? A little bit more frugality
00:25out of the marketplace with our kind of lower middle-income consumer. What do you mean by that?
00:30Yeah, thanks so much for having me on. Interestingly, we had a great second quarter,
00:34so our overall sales were up 2.3%, comp sales up 1.3%, and real outperformance on the consumer side
00:41with our Sally brand up 4.4% here in the U.S. But that said, we do serve a
00:47lower middle-income
00:48consumer, and so we watch them be more choiceful in their behavior, which means they don't replace
00:54things like blow dryers or flat irons if they don't need them. But they're buying what matters
00:59to them right now, which is hair color, it's nail gel, it's press-on nails, and those pieces
01:04continue to see strength. But as we watch a consumer that continues to get a little bit more pressured
01:09by gas prices, we're conscious of the fact that they're feeling a little bit more stretched.
01:16So if the war continues, energy prices continue, Denise, you think then this trend continues
01:23in the current quarter? I'm assuming you're still seeing kind of this restraint, if you will,
01:28among some of your consumers.
01:30Yeah, to date, we're seeing the same restraint that we've seen the last few quarters. I think
01:35we're just a little wary that it could get a little bit worse as we get out of Q2 and
01:39tax refunds
01:40are fully absorbed into the economy. And if that gas price stays a little inflated, we can be
01:45watching for some concern. But what I'd say right now is stylists still have busy chairs, they're
01:50still serving a lot of customers, they're seeing good business come through, and that consumer
01:55continues to buy. We saw both transactions and ticket, each up 2% in our U.S. Sally business. So
02:01good news, just watchful.
02:03What are they buying differently? Are they trading down a little bit?
02:07Do you offer, at least on the side of where people are buying the consumables, the shampoos,
02:14the conditioners, those things that people use on their nails, are people trading down at price
02:20point? I think what they're doing is they're really trading into Sally to some extent. So for
02:25those folks who color their hair, a lot of them share between coloring in a salon and coloring at
02:30home. Our color business was up 12% in the U.S. And so what does that mean? It means
02:36somebody
02:36might be going to the salon a little less frequently and maybe doing their root touch
02:40up at home. Or going to a nail salon is very expensive. And so our nail business was up
02:453% as people were trading in and saying, I can get a lot of this look at home for
02:49a lot
02:50less cost.
02:51So do you think, are you frustrated then with investor reaction here?
02:56You know, I can't predict the market anymore. I certainly think that we've got a strong business
03:02with a lot of momentum behind us. You know, we continue to be in the first half of the year.
03:07Our EPS is up 8% versus last year. Lots of good things to be looking forward to the right
03:13amount of cash to keep investing in the business. So my hope is the market will catch up once
03:19there's a little less maybe worry about consumer discretionary.
03:22What about geographies? Particular strength in different parts of the country, particular
03:27weakness in other parts? What can you tell us?
03:29No, we've seen pretty consistent behavior across the U.S. You know, I think what we always
03:34watch is we always watch border stores. We watch lower income stores. They might index
03:39a little bit lower than what we'll see across the fleet as a whole. But as the geographies
03:44go, not a lot of difference.
03:46What I'm always, you know, curious, and we love, Denise, talking to folks like yourself,
03:51where you do have a great window into the consumer and different, you know, we say consumer,
03:56but there's all kinds of consumers, right? There are wealthier consumers which can shrug
03:59off a lot of stuff. There are other consumers that, you know, middle income and so on that
04:05feel these higher energy prices, and it's an impact, and you have to make some choices.
04:09Is there anything, though, that you're seeing within the different consumer segments that
04:15says to you that we could be headed for something more significant in terms of an economic slowdown?
04:20Or is it just, you think, reactionary to higher energy prices, and if energy prices come down,
04:26things kind of go back to quote-unquote normal?
04:29The best I can see is it feels a bit more reactionary right now. You know, overall,
04:33consumer trends are pretty consistent. Transactions are healthy, so it's not as if customers are not
04:40coming in. You know, I think what we'd watch for, or I'd watch for, is if grocery prices or other
04:45things started to tick back up and there was more pressure beyond just gas prices,
04:49we aren't seeing that yet. So, I'm certainly hoping that this is a period in time, and as we
04:55head through the summer, we will see things feel maybe a little bit better for that end customer.
05:00What if they don't?
05:03You know, if they don't, we serve our customer well with value. Our save while you skip the salon
05:08message can help drive hair color growth. We've got a great promotional offering and value offering
05:14for our stylists to be able to shop across color and care, and our business is generally resilient.
05:20You know, when we talk about comps at 1.3%, you know, we see good performance. We might not see
05:26real high highs, but we don't see real low lows because at the end of the day, we participate in
05:31categories that customers need. If you start coloring your hair, you generally don't stop. If you love
05:37your nails and you want to take care of them, you're going to do that. If you want healthy hair,
05:41you're going to come and get styling treatments, you're going to get serums and masks, and we will
05:47keep being there for our customers.
05:49So, top of mind, obviously, you want to watch what, you know, customers are up to, what salons are up
05:56to. But beyond that, in terms of the macro, what is top of mind for you, Denise, as you look
06:01at,
06:01you know, kind of so many things that are coming at folks that run companies just like you?
06:07You know, I'm really looking at the places where we can differentiate and where other companies can
06:11differentiate as well. So, our e-commerce business is up 28% in the Sally, a business in the U
06:16.S.
06:17We just recently launched on TikTok Shop, a really important place to be because that's where
06:21customers are and that's where they're engaging with beauty. And so, the more we can respond to
06:26that. Or our licensed colorist on demand program, where once again, if that consumer is pressured and
06:32they need to learn how to color their hair at home, we've got a pro right there willing to help
06:36them walk along with them and help them have that be a successful journey. So, things where we can
06:41drive growth while that customer might be feeling a little pinched. Yeah. Denise, talk a little bit
06:46more about finding those new customers and bringing them in through these channels. How do you know,
06:51you know, how do you follow the customer from that TikTok journey and then maybe they end up in the
06:56store? Yeah. So, with the TikTok journey, you know, they'll definitely start on TikTok Shop,
07:01but those orders are all fulfilled by us. So, our ability to understand that customer and see their
07:06journey, we feel pretty good about. You know, we've done work in black box work with some of our other
07:12marketplace partners and we've seen about 75% of those transactions through places like DoorDash
07:17should be incremental business to us, which we think is great news and is bringing a new customer
07:22into the Sally fold. Overall, our marketing campaigns with what we can do with performance marketing
07:27and then trace those activities back into our customer fold. You know, our customer database,
07:34customer information management continues to get better to let us watch those trends. And we've
07:39seen new growth. We've seen customer, new customer growth. We've seen reactivated customers picking up.
07:45And importantly, with our core customers, our good everyday shoppers, frequency is going up. So,
07:50you know, feel like all the, all the engines are firing the right way around understanding our
07:55customer on the Sally side of the business. Hey, one thing I want to ask you a year ago,
07:59when you guys reported earnings, you extended your buyback program through September of 2029.
08:04What's your best use of cash right now in your view? Yeah, we really are focused on three things.
08:10First and foremost, investing behind the business. So, whether that is supporting our marketplaces,
08:15digital campaigns, our Sally ignited store refresh that is starting, that is first and foremost.
08:21You know, secondly, we're managing to a really good debt position. So, we have a targeted net
08:25leverage ratio of 1.5 to 2. We're at the 1.5 level. So, we're still doing a little bit
08:30of pay
08:30down. And then we've committed to invest about 50% of our free cash flow back into share buybacks.
08:36So, you know, we're really firing across all those dimensions and believe that, as you can see with
08:42the stock price today, you know, there's some good value for us to be purchasing there. But most
08:46importantly, we have the cash we need to the invest in the business. And that's going to be our
08:50primary objective go forward. And what about in terms of the labor force? We just came off of
08:54a jobs report on Friday. And this is really important. We think about this in terms of what
08:58the Fed may or may not do if we see weakness in the labor market. We didn't get that on
09:03Friday,
09:03necessarily. But what about when you need workers? Are you able to fill them? Are you holding off on
09:10hiring in terms of maybe managing costs a little bit? What's your position? Yeah, out in the field in
09:16both our stores and our distribution centers, we are able to hire as we need to. We've actually seen
09:22turnover slow. So, voluntary turnover has gone down, which is great for us because that drives
09:28retention and good understanding of our customers and our business amongst our store teams. You know,
09:33in our support center, we are always frugal in terms of how we manage headcount and cost. We'll
09:38continue to do that. But we don't have any plans to either stop hiring or to ramp up hiring. I
09:44think
09:44we're going to be pretty status quo in the near term. In other words, low hire, low fire.
09:48Exactly. No robots coming. You know, Elon wants to put robots everywhere.
09:53You know, we love AI. We're driving it hard in personalization and on the marketing side of our
09:58house. But at the moment, we need every person that we've got to keep growing our business.
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