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DATE

Monday, May 11, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• President & Chief Executive Officer — Denise Paulonis
• Chief Financial Officer — Adrianne Lee

TAKEAWAYS

• Consolidated Net Sales -- $903 million, up 2.3%, including a 1.5% benefit from foreign currency and partially offset by operating 47 fewer stores.
• Comparable Sales -- Increased 1.3%; with Sally U.S. and Canada up 4.4%, BSG down 0.3%.
• Adjusted Gross Margin -- Expanded 80 basis points to 52.8%, driven by higher product margin in both segments through the Fuel for Growth program.
• Adjusted Operating Income -- $73 million, supported by improved gross margin and cost controls.
• Adjusted Diluted EPS -- $0.44, above guidance, as reported by management.
• Operating Cash Flow -- $73 million, with $44 million in free cash flow.
• Share Repurchases and Debt Reduction -- $25 million used to repurchase 1.7 million shares and $20 million of term loan debt paid down.
• Sally Segment Net Sales -- $521 million, up 4.1%, including a 2.3% foreign currency benefit, and 38 fewer stores operated; segment comparable sales grew 2.5%, with transaction and average ticket each up 1%.
• Sally Segment Category Drivers -- Color up 11% and care down 6%; nail up 3%; fragrance expanded to 2,000 stores and outperforming expectations.
• Sally U.S. and Canada Transactions -- Both transactions and average ticket increased by 2%.
• Sally E-commerce -- 21% growth to $50 million (10% of segment sales), and U.S./Canada e-commerce sales up 28%.
• Sally Gross Margin -- Rose 10 basis points to 61.3%; operating margin declined 40 basis points to 15% due to planned expenses.
• BSG Segment Net Sales -- $382 million, down 0.1%, reflecting a 0.4% foreign currency benefit and 9 fewer stores; comparable sales declined 0.3%.
• BSG Segment Category Drivers -- Color up 3%, care flat; operating margin rose 90 basis points to 12.4%; BSG e-commerce sales increased 7% to $57 million (15% of segment).
• Fuel for Growth Program -- Delivered $9 million in Q2 pre-tax margin/SG&A benefits, remaining on track for $45 million in savings for the year and a $120 million three-year run rate.
• Store Refreshes -- 40 Sally Ignited locations completed; another 40 planned in H2, with higher cross-category penetration and stronger customer metrics reported in remodeled stores.
• Guidance Update -- Consolidated net sales expected at $3.725 billion to $3.750 billion, including a 0.5% FX benefit; comparable sales seen as flat to up 1%; adjusted operating earnings guided between $328 million and $342 million, and adjusted diluted EPS at $2.02 to $2.10.
• Q3 2026 Expectations -- Net sales guided between $932 million and $942 million, comparable sales flat, adjusted operating earnings $83 million to $89 million, and adjusted diluted EPS $0.52 to $0.56.

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RISKS

• Paulonis said, "We do believe that there's risk that there could be some persistence pain there that might start to come through results," signaling potential negative impact from external macroeconomic factors.
• Management noted ongoing softness in the hair care and styling tools categories, with hair care down 6% segment-wide and styling tools described as "a little bit lighter category" among lower- and middle-income consumers.
• Comparable sales at BSG declined 0.3%, with BSG transactions and average ticket flat, reflecting muted customer demand for that segment.

SUMMARY

Sally Beauty Holdings (SBH 3.31%) delivered net sales of $903 million, with Global e-commerce sales increased 13% in fiscal Q2 and robust color category expansion, especially in the Sally segment. Management reported disciplined capital returns, executing significant share repurchases and debt reduction. Guidance was revised to a narrower net sales range and stable earnings targets, with commentary highlighting further innovation rollouts and continued focus on the Fuel for Growth savings program.

• The newly launched Sally app drove higher engagement and improved conversion metrics, while buy online, pick up in store option gained traction as the most profitable e-commerce fulfillment method.
• Management highlighted the launch of Sally Beauty's TikTok shop and ongoing expansion in social commerce channels.
• The Sally Ignited store format showed KPI improvement over the base fleet, with increased cross-category shopping and dwell time, supporting incremental sales uplift.
• Expansion into fragrance and nail categories, and the scaling of the Licensed Colorist OnDemand (LCOD) platform, contributed to higher customer acquisition and annual customer spend.
• In BSG, new brand launches such as milk_shake and Keratin Complex improved category performance, and targeted marketing campaigns fueled growth in recently entered spa/skin care categories.
• Inventory levels declined 2% to $987 million, supporting a healthier balance sheet and positive free cash flow available for further shareholder returns.

INDUSTRY GLOSSARY

• Fuel for Growth program: Sally Beauty Holdings' multi-year initiative focused on driving gross margin and SG&A savings through operational efficiencies and cost optimization.
• Licensed Colorist OnDemand (LCOD): Digital consultation service connecting customers to professional colorists for product recommendations and ongoing support.
• Point of Goods (POG) reset: Merchandising strategy involving SKU rationalization and assortment refresh, scheduled for August to improve category performance.
• KPI: Key Performance Indicator, a quantifiable measure used to gauge the success of specific business initiatives or store formats.

Full Conference Call Transcript

Denise Paulonis: Thank you, Jeff, and good morning, everyone. I'd like to start by welcoming Adrianne to Sally Beauty Holdings. She's been with us just under 2 weeks now and lunged into her role with tremendous energy and focus. Adrianne brings deep operational, strategic and financial expertise to our executive leadership team, and we are thrilled to have her onboard as we continue to advance our strategic initiatives and focus on long-term value creation. Looking at our second quarter performance. The results demonstrate the compounding benefits of our strategic growth drivers. Total sales of $903 million, up 2.3% versus last year and comparable sales growth of 1.3% were at the high end of our expectations.

Strong gross margins and effective cost control enabled us to deliver bottom line results above our guidance range with adjusted operating income coming in at $73 million and adjusted diluted EPS of $0.44. This drove strong cash flow from operations of $73 million, which we utilize to continue to invest for growth, further strengthening our balance sheet with $20 million of debt paydown and return value to shareholders through $25 million of share repurchases. In our Sally segment, our customer remained resilient, and we saw positive response to our initiatives, including marketing and personalization, digital enablement and product innovation.

This drove segment comparable sales growth of 2.5%, highlighted by a comparable sales increase of 4.4% in our Sally U.S. and Canada business with comparable transactions and average transaction value both up 2%. Our core color category delivered another quarter of impressive performance at Sally, up 11% on a total segment basis and up 12% at Sally U.S. and Canada. Beyond strength in color, we also delivered a 3% growth in the nail category, and momentum continued to build in the fragrance category. After launching fragrance in our top 1,000 Sally U.S. stores last November, we expanded to 2,000 locations during fiscal Q2 and continued to see results ahead of our expectations.

While trends in haircare remained soft, performance improved sequentially, and we are preparing for a category reset in the fourth quarter, which will include refined assortments and enhanced merchandising initiatives. Overall, the Sally segment delivered strong results with a business that is resilient, differentiated and well positioned for the future. Now moving to our BSG segment. We delivered improved profitability on flat top line results with operating margin up 90 basis points to 12.4%. From a category perspective, Color performed well, growing 3% in the quarter. We're in the progress on initiatives in the Care category, where sales have been trending generally flat in recent quarters. New brands, innovation and distribution expansion continue to be priorities.

Additionally, by leveraging our market leadership position, we see an opportunity to better communicate the differentiated value we provide. Now I'll turn to an update on some of the initiatives under our 4 key growth drivers. The first is understanding and activating the customer, which is focused on acquisition, retention and share of wallet. On the Sally side, our Save While you Skip the Salon marketing campaign continues to resonate with customers supported by disciplined execution, our cost planning and promotional activities. Additionally, our teams are actioning new marketing strategies to engage customers where they are through local events.

For example, as part of our COLORfest celebration in March, one of our feature events was a pop-up at The Grove in Los Angeles. This was strategically located in a high-traffic destination, close to Sally stores, and met with tremendous response, driving traffic and engagement, new customer acquisition and over 300 million PR impressions. On the heels of this success, we are planning additional experiences designed to drive customer engagement and acquisition. Similarly, in late February, we announced the continuation of our Rooted in Success campaign, which is dedicated to celebrating community along with the next generation of beauty. For this latest campaign, we've been holding events across 13 historically black colleges and universities, which will continue through fiscal Q3.

We're activating student leaders as brand ambassadors and creating authentic community-driven moments where they can discover and engage with brands. And we're amplifying this platform in collaboration with Esses Magazine. Our teams are thinking outside the box to build awareness and reach both new and existing customers, and the results are evident. The strength of our Licensed Colorist OnDemand platform is also driving customer acquisition. In fiscal Q2, average weekly consultations exceeded 5,200 and the number of new customers increased by 35% over the prior year. LCOD customers annual spend is also 80% higher than non-LCOD customers, driven by increased frequency.

Additionally, our new hair care consultation strategy continues to gain traction, and we believe this will help reinvigorate category sales in the coming quarters. In our BSG segment, we are increasing our usage of integrated marketing partnerships with our key brands, which is fostering increased engagement with our stylists. In the latter part of the year, we will be building on the use of AI and applying our initial learnings to drive more personalized experiences, particularly among our most highly engaged stylists. Moving now to our second growth driver, unlocking and harvesting digital value. The early results from the launch of our updated Sally app are compelling.

In just 2 months' time, we've seen increased engagement, higher-quality conversion, larger average order value, reduced cart abandonment and improved order completion rates. Notably, as our customers utilize the new app, improved store level inventory visibility has also led to more customers selecting buy online, pick up in store for fulfillment, our most profitable e-commerce fulfillment option. Looking ahead, we believe there is a meaningful opportunity to continue to drive conversion efficiency, reduce friction and a more profitable fulfillment mix through the app. Also at Sally, as part of our growing marketplace strategy and increasing focus on discovery-driven shopping, we are excited to expand into social commerce with the March launch of Sally Beauty on TikTok chalk.

The site features our entire owned brand product portfolio as well as an initial offering of national brands, which we will expand upon as the channel continues to grow. Turning to BSG. In April, BSG successfully rolled out its updated app, strengthening the stylist experience through improved functionality, including faster checkout and simplified reordering based on order history. The app enhancements will also include the ability to add future capabilities around education, geo-targeting, inventory and personalization. In addition, we saw good growth into our delivery driven by marketing and better in-store communication. Looking at our third growth driver, differentiating with product assortment and innovation.

In the Sally segment, we're engaging our customers with a robust pipeline of innovation across both owned and national brands. Most recently, our high-margin ion Luxe brand launched a new infrared collection of tools, aimed at minimizing hair damage. Infrared is amongst the fastest evolving trends in styling, and we're particularly excited to offer this innovation to our customers with affordable pricing as they prioritize hair health. In our BSG segment, innovation continues to drive loyalty, engagement and sales. New brands like Stylists Love milk_shake and Keratin Complex as well as expansion within existing brands are driving results. In fiscal Q2, we added Epilogue, the full range permanent hair color from Danger Jones.

And in the second half, we'll be launching Moroccanoil in two new states. In the nail category, refreshed assortments and merchandising initiatives generated an improved trend in fiscal Q2, which is expected to continue into the second half of the year. Our final growth driver is accelerating new growth pathways. I'll start with our Sally Ignited initiative, which builds on our core strengths, including trusted customer service and professional hair expertise while modernizing the experience to drive relevant engagement and growth with the next generation of consumers. During fiscal Q2, we completed 2 store refreshes, bringing us to 40 completed locations.

We have another 40 refreshes planned in the back half, which puts us on track with our plan to have approximately 80 Sally Ignited stores in the market by the end of our fiscal year. Ignited stores are delivering strong KPI momentum, driven by higher cross-category penetration, UPT and ATV, which is translating into incremental growth. Further, we are pleased to see increased dwell times, positive response to our enhanced nail assortment and strong engagement with our newest category fragrance. During the balance of the year, we'll continue to read and react as we plan for an increasingly scaled rollout beginning in fiscal 2027. Looking at the BSG segment. Our entry into skin and spa category is progressing well.

Recall that we launched with 2 brands, Image and Matter of Fact, in 250 stores. Initial performance has been strong, and we are planning to add another 250 stores in the fourth quarter. During fiscal Q2, we activated targeted marketing programs for esthetician to build awareness and drive consideration and conversion. We believe our authority in the beauty space puts us at a significant advantage and provides us with an organic opportunity to build a meaningful position in the category over the long term. Finally, we are excited to launch Amika skin care in all U.S. and Canadian stores starting in June.

As we continue to focus on accelerating the top line, the work we've accomplished under our Fuel for Growth program is translating into higher quality, more profitable growth. Halfway through the year, we are on track to capture approximately $45 million of gross margin and SG&A benefits in fiscal 2026, that will bring us to $120 million of cumulative run rate savings over a 3-year period, which is in line with our stated goal at the start of the program. We are entering the second half of fiscal 2026 with momentum and confidence.

We've tightened our top line guidance range to reflect 3 key dynamics: First and foremost, we are incredibly excited about the strength we are seeing in the Sally segment. Consumers are clearly responding to our customer-centric engagement strategies, compelling product offerings and key growth initiatives. Next, in BSG, our teams are focused on leveraging our market leadership position to return to growth in the segment. Finally, we are taking a pragmatic stance regarding the ongoing geopolitical environment and its potential effects on consumer behavior. In closing, I appreciate the hard work of our teams who continue to demonstrate that our beauty expertise, curated assortment and value proposition resonate with our DIY Sally customers and BSG stylists across market conditions.

We believe our competitive and structural advantages position us to drive long-term growth and meaningful shareholder value. Now I'll turn the call to Adrianne to discuss the financials.

Adrianne Lee: Thank you, Denise. I'm honored to be part of the Sally Beauty Holdings team. The company's robust growth strategies, strong gross margin and cash flow generation and healthy balance sheet are incredibly attractive, backed by a focused team aligned on driving the business forward. I look forward to engaging with our analysts and investors and hearing your perspectives as we continue to execute against our growth strategies and long-term financial targets. Now I'll turn to our fiscal Q2 financial results. Our team delivered another quarter of strong performance across the P&L, reflecting the resilience of our business model and disciplined execution.

Fiscal Q2 consolidated net sales totaled $903 million, up 2.3% year-over-year, including 150 basis points of favorable impact from foreign currency translation, partially offset by operating 47 fewer stores. Consolidated comparable sales increased 1.3%, driven by strong growth of 4.4% at Sally U.S. and Canada, partially offset by a 30 basis point decline at BSG. Notably, global e-commerce sales increased 13% to $108 million and represented 12% of total net sales. We delivered healthy gross profit in the quarter with adjusted gross margin expanding 80 basis points to 52.8%. The year-over-year improvement is primarily due to higher product margin in both business segments, driven by benefits from our Fuel for Growth program. Turning to expenses.

Q2 adjusted SG&A totaled $404 million, an increase of $20 million versus the prior year, which was in line with our expectations and Q1 2026 run rate. The increase was primarily driven by higher labor and other compensation-related expenses, rent and unfavorable foreign currency translation impact, partially offset by $3 million in Fuel for Growth benefits. As a reminder, in Q2 of last year, we had unusually favorable FX impacts as well as expense timing shifts as we manage through last year's sales headwinds. During the second quarter, we captured pretax Fuel for Growth benefits of $9 million across gross margin and SG&A. For full year 2026, we remain on track to deliver approximately $45 million in savings.

Notably, we expect to achieve our target run rate savings of approximately $120 million over the course of the program. Adjusted operating income totaled $73 million and adjusted diluted earnings per share came in at $0.44. Top line growth, coupled with strong gross margin performance and effective cost control drove results above our guidance range. Moving now to segment results. Sally Beauty net sales increased 4.1% to $521 million, which included 230 basis points of favorable impact from foreign currency translation, partially offset by operating 38 fewer stores versus a year ago. We delivered comparable sales growth of 2.5%, driven by transactions growth of 1% and average ticket was up 1%.

For the Global Sally Beauty segment, Color grew 11%, while Care was down 6% versus prior year. Sally e-commerce sales grew 21% to $50 million and represented 10% of segment net sales for the quarter. E-commerce sales for Sally U.S. and Canada grew by 28%. Gross margin increased 10 basis points to 61.3%, driven primarily by higher product margin from our Fuel for Growth program. This was partially offset by an inventory write-off related to exiting the majority of our low-margin full-service operations in Europe during Q1. Segment operating margin declined 40 basis points to 15%, primarily reflecting higher planned expenses. In the BSG segment, top line results were roughly flat, while profitability improved meaningfully.

Net sales totaled $382 million, down 10 basis points versus a year ago, driven by 40 basis points of favorable impact from foreign currency translation, partially offset by operating 9 fewer stores versus a year ago. Comparable sales declined 30 basis points with transactions and average ticket flat to prior year. From a category perspective, color grew 3% and care was flat. BSG e-commerce sales increased 7% to $57 million, representing 15% of segment net sales for the quarter. Gross margin at BSG expanded 110 basis points to 40.9%, primarily driven by higher product margins from our Fuel for Growth program. Segment operating margin was strong coming in at 12.4%, up 90 basis points versus a year ago.

Turning to our healthy balance sheet and cash flow. At quarter end, cash and cash equivalents totaled $157 million, reflecting disciplined capital management. We had no outstanding borrowings under our asset-based revolving line of credit. Inventory levels of $987 million remain well positioned, representing a decline of 2% compared to a year ago. The business generated strong cash flow from operations of $73 million and free cash flow of $44 million. This enabled us to return cash to shareholders. During the quarter, we deployed $25 million of cash to repurchase 1.7 million shares of stock under our existing share repurchase program.

We also utilized excess cash to repay $20 million of term loan debt, which maintains our net debt leverage ratio at 1.5x. Moving now to guidance. As Denise mentioned, we are tightening the range of our top line outlook while maintaining the rest of our full year guidance metrics. Consolidated net sales are now expected to be in the range of $3.725 billion to $3.750 billion, which includes approximately 50 basis points of favorable impact from foreign currency rates. Comparable sales are expected to be flat to up 1%. Adjusted operating earnings are expected to be in the range of $328 million to $342 million.

We expect adjusted diluted earnings in the range of $2.02 to $2.10 per share with 50% of free cash flow being deployed to share repurchases. Capital expenditures are expected to be approximately $100 million, and free cash flow is expected to be approximately $200 million. For the third quarter of fiscal 2026, we are expecting the following: Consolidated net sales in the range of $932 million to $942 million, which includes approximately 40 basis points of favorable impact from foreign currency rates. Comparable sales to be approximately flat. Adjusted operating earnings of $83 million to $89 million and adjusted diluted earnings in the range of $0.52 to $0.56 per share.

This guidance implies that Q4 net sales will be slightly higher on a sequential basis, reflecting ongoing strength at Sally and our initiatives to drive improvements in the BSG segment. In closing, I am energized by the opportunity to be part of the Sally Beauty Holdings team. I was drawn to the company's strong competitive positioning, focused and collaborative team and its compelling growth opportunities. All of this supported by a healthy balance sheet and strong free cash flow, providing ample opportunity to fund growth and scale. I look forward to diving deeper into the business in the coming months and getting to know our key stakeholders. We appreciate your time this morning.

Now I'll ask the operator to open the call for Q&A.

Operator: [Operator Instructions] Our first question comes from the line of Susan Anderson with Canaccord Genuity.

Susan Anderson: Maybe, I guess, to start off, if you can maybe just talk about how you're feeling about the health of the customer in the BSG stores. I think last quarter, you mentioned that they were maybe making some trade-offs. I guess maybe just if you're still seeing that? And then also, any color on how salons have been performing or stylists.

Denise Paulonis: Susan, let me start off on the BSG stylist point that you asked. Overall, appointment books are busy. And we do see the stylist wanting promotion and promotion being important as they're navigating inflationary pressures. We are seeing customers who are sitting in those stylist chairs looking for maybe easier maintenance lived-in looks that might be able to reduce their frequency a little bit of coming in. But overall, the stylists are performing well, reasonably healthy. We continue to watch that with the consumer pressures that are out there, but feel good about it. And as we talked about, the Sally customer, it remains quite resilient.

So while they're still being choiceful in more discretionary categories that we're seeing in color and the resonance of good value for the money there with our Save While You Skip the Salon campaign is resonating well.

Susan Anderson: Okay. Great. And then maybe, I don't know if you could give some color just on the remodeled stores and what you're seeing from a comp perspective versus the base? I know they have a lot of the new products such as fragrance in the stores. Just curious if that's helping to drive the basket size at all? And then also, what you're seeing from a traffic perspective as you kind of reopen those after remodel.

Denise Paulonis: Yes, we're feeling really good about the Sally Ignited stores. We're up to 40 stores in the market today, we'll be 80 by the end of the fiscal year. We are seeing great results across core KPIs. So in particular, UPT, AUR, ATV where customers are spending more time in the store. They are cross-shopping more categories than what we would see in a non Ignited store and overall are performing above the fleet. So we're seeing the trend in the way that we would like to see that evolve and feel very good about it. You mentioned fragrance. I will tell you, it's been great to see how that can be showcased in the Ignited stores.

We are certainly seeing good performance there. But I'd also mention that in our 2,000 stores that have fragrance, we're seeing very nice performance actually ahead of our expectations.

Susan Anderson: Okay. Great. That's great to hear. Maybe if I could just add one last one on the haircare, which it sounds like continues to be a little bit pressured. I know some of the remodeled stores have a lot of displays, more experiential type shopping, where consumers can touch and feel. Maybe if you could talk about if that's helping, I guess, the performance of that product category. And then also, I think you mentioned that you have plans to do some more merchandising around haircare. Maybe if you could give a little bit more color there.

Denise Paulonis: Yes, absolutely. Our Ignited stores are serving as a great test model from what we're doing to work out and roll to the rest of the fleet some changes within care. Importantly, we have a POG reset coming up in August, where we're actually going to take out some underperforming SKUs while adding about 110 new SKUs. Some of the most exciting part of that is expansion of men's from 4 feet to 8 feet in the store. And we've been seeing the men's space grow at 7% this year. So we're excited about what can be coming in August. And as I said, some learnings from our existing Ignited stores.

What we're also doing is adjusting personalization and how we think about some of the marketing tactics to really be sure in the Care category that value and efficacy are coming through loud and clear. And then we're complementing that with expanding our LCOD offering beyond just helping you color your hair to also about your hair health. And that ties nicely into the hair care business and what we can do to offer our customers a different performance there. And so at the end of the day, we're making good progress. I'm excited about that POG reset. I think that it's going to improve the business and build on the learnings we've had from the Ignited stores.

Susan Anderson: Great. Good luck for the rest of the year.

Operator: Our next question comes from the line of Oliver Chen with TD Cowen.

Oliver Chen: Regarding hair care, what are you seeing in that category? And on the BSG side, what's happening in terms of trends regarding perhaps the transaction and the conversion relative to ticket? And looking at balancing profitability and growth, what's the road map there for turning that more sustainably positive? And then as we look across many great modernization efforts, including TikTok and Beauty Reimagined, what would you thing, Denise, as being the more traffic driving ones in the nearer term versus longer term. Finally, regarding the management of margins, [Technical Difficulty] going balancing product margins against the promotional environment and back up as well.

Denise Paulonis: Oliver, let me start with the care question. On the Sally side, in general, what we're seeing is customers are leaning into products that help them find solutions. So a little bit less in the core shampoo and conditioner space and more in masks, treatments, serum, styling products and that has continued for a number of quarters now where they're looking for kind of bang for the buck in their choices within the category. I talked about just previously the things that we're doing to continue to reignite more of that category for us with the August POG reset as well as personalization and LCOD efforts. At the BSG front, hair is really stabilizing.

It's been flat for 3 consecutive quarters, and we see great performance with our new innovative products coming in, which includes milk_shake, Keratin Complex, which have been recently launched, a little softer performance with some of the more legacy brands in the portfolio. But what we're really working on is focusing on that assortment. So we continue to target new brands and distribution expansion. And we're also partnering with our vendors to drive opportunities for growth through personalization and marketing activities. And finally, we're really working to leverage our market position. We think there's an opportunity to better communicate the differentiated value that we provide to stylists and so continue to be focused on that.

And I'll jump to your margin question in a minute because I think it relates to some of this category. In both businesses, we saw margin perform well even in what is a bit of a heightened promotional environment. So we're not concerned about the level of promotion that is out there, but we do see it as a response, particularly on the pro side, to the pressure that we're feeling in terms of inflation come through the portfolio. And we need to be on trend and message right in terms of the value we provide.

But with gross margin continuing to increase as we optimize how we do those promotions, how we work with our vendors to fund high-quality promotions, we feel good about where we are. And on the Sally side, similarly, promotion remains important to our customers, but with a strong margin and then supporting things like Save While You Skip the Salon and programmatic opportunities we have there with ColorFest in March, a healthy place to be. And then I think your final question was around traffic-driving initiatives and what we're working on for the business overall.

I think what was great to see in the Sally side of the business, transactions, Sally U.S., Canada were up 2% and ticket was also up 2%. So when we think about things working on that traffic front. Clearly, performance marketing and personalization are performing for us. We continue to dial in where to reach the customer, the messaging that we're using through those formats and getting that customer in to shop with us. I'd also say what we're seeing in terms of our e-commerce business is very healthy. So the strength that we've had in the reset of our app, the continued focus and elevation of marketplaces, including the entry to TikTok shop are all trending well.

We've lapped entry into a number of marketplaces that now continue to grow into year 2, which we feel great about. And I'll just say TikTok is at the beginning stages. So all of our own brands and a few national brands are available from us on TikTok. We look to build into that over time. The thing it's really important to be where our customer is in the beauty space, and we know that today, that is TikTok. And then finally, initiatives around innovation are certainly driving performance as well on the Sally side. In tools, having just launched an infrared offering in the ion Luxed brand is a meaningful innovation into the market and good for hair health.

We hope that, that will engage with our customers quite well. And then nail category as well. In both of our businesses, we've done a lot of work to be resetting and upgrading the nail category, so also feel good about where we stand there.

Oliver Chen: TikTok sounds very exciting and relevant. What have been your earlier findings and why now? And how do you see this customer in terms of incrementality or demographics? Also, we're excited about your store renovations as well as fragrance in men's. Can you move faster in these buckets? Or you're really measuring and testing to make sure that this is the right strategy in terms of what you're executing?

Denise Paulonis: Sure. So on the TikTok front, what we're most excited about is, this is really an authentic platform for our customers to engage. We see what they do very much, who they are, a natural outgrowth of wanting to be there. So when we see influencers and all of that, it comes through with a very authentic basis to it, which is why we know it is such an important place to be when you're with beauty. We've seen good engagement. We're early on. We launched in early March and continue to watch that ramp and build.

And we're very conscious of monitoring what the performance is, the profitability of that channel and how it's going to play in our overall marketplace mix, but feel good about where we're headed. On the Ignited speed, as we've talked about in prior quarters, we're working towards 80 stores by the end of the year. We're doing lots of minor tweaks as we're going through these to be sure that we're getting that recipe right. The great news is, with the cash flow that we have and the strength of our balance sheet overall, when we think we're ready to go, we will be ready to go.

I would expect that we'll talk to you towards the end of calendar '26 about that ramp-up plan as we look to '27 and beyond. And how fast we ramp is both capacity as well as our readiness to say we've got the model right, and we're going to go.

Oliver Chen: And then finally, Adrianne, regarding SG&A, as we model that going forward, any puts and takes that we should be sure to consider? And also what has been your biggest surprises so far?

Adrianne Lee: Thanks for the question. And I'll say, similar to within my prepared remarks, obviously, year-over-year, we'll have kind of the typical pressure in labor and rents and those kind of things, as I've said again in my prepared remarks. And I'll say as far as my first, I think, this is the start of week 3, right? So in addition to what I shared, again, in my scripted remarks, I've had the opportunity to actually be here at Sally Beauty with the team. I've been able to see their focus and dedication to the growth drivers and also just to achieving the results that we need to do. And overall, just really thrilled to be here.

Operator: Our next question comes from the line of Olivia Tong with Raymond James.

Olivia Tong Cheang: I was wondering if you could just talk a little bit about consumer backdrop with fuel, where is that now and the impact to your cost? But more importantly, thinking about past cycles, the impact to the top line, whether you see more impact to traffic or ticket and then the promotional backdrop. And then the focus on hair has continued to increase beyond basic care and basic styling, whether it's bonding, moisturizing, repair, et cetera. Could you just talk about how you're ensuring that you can create outsized benefits both to Sally, whether in the Sally Beauty store side or the BSG side?

Denise Paulonis: Sure. Olivia. So let me start out with the consumer. As I mentioned in my prepared remarks, the consumer is remaining resilient today. So what we're watching on the Sally side is choiceful behavior, a little bit more pressure in stores that identify as low-income stores. But overall, buying into the core categories, as we talked about with color being up 11% to 12% depending upon the segment versus Sally U.S., Canada. We're watching closely what is happening with the Middle East conflict and what is happening with fuel prices. We do believe that there's risk that there could be some persistence pain there that might start to come through results, early on and watching.

And then similarly, on the BSG side, that stylist sentiment is holding in there and pretty steady. Appointment books continue to be busy, as I mentioned, certainly searching for promotion, right? And those promotional offerings matter, not just big promotions that might happen once a quarter or so, but that daily communication of value as that stylist is coming in and navigating their own cost pressures they see in their business. And then the stylist customer pretty healthy. At the end of the day, continuing to come in.

We do believe they might be mixing more between their salon visits and their at-home styling as we're seeing in the strength of our Sally customer -- Sally color business, but feel good about where we are. As we talked about for the Sally business, this traffic and ticket were up in the quarter. So both were up 2% in Sally U.S., Canada. So really great trends that we like to see. BSG, they were both relatively flat, similar to comp being relatively flat. So we're not seeing a disproportionate trade away from in-store shopping visits and where are we seeing a disproportionate change in buying habit when they're in the store.

And then we talked about care quite a bit on the call. What I would say is care continues to be very important in the marketplace. This is a place where stylists, in particular, can find newness and are looking for newness and efficacy with brands that are unique to the stylist, like that's what they continue to tell us is, they want something that feels special and personal when that customer is coming in to shop.

So as we can launch things like Keratin Complex or milk_shake that provides that stylist with a unique offering, we love doing that as well as continuing to build on the strength that we see in some of our other largest brands like Moroccanoil, Amika and so forth. And then on the Sally side, they're looking for the exact same efficacy that a pro is looking for.

We talked about we have a 24K ion product that we just launched, that is amazing treatment product that compares to a pretty high-end product in the market, great results there, where our customer is actually willing to pay over $20 for a bottle of treatment where they know that they're going to get the efficacy that they want on the other side. So to your point, care remains very important for hair health, but we do watch our customers being value driven in terms of ensuring they're getting the efficacy for the dollar.

Operator: Our next question comes from the line of Simeon Gutman.

Simeon Gutman: Denise, can you talk about Sally Beauty Supply? So if we look over the last couple of years, there's been stabilization. I wanted, in your perspective, the one or two key things that have enabled that stabilization? And then I have a follow-up.

Denise Paulonis: Simeon, so I think when we talk about Sally Beauty Supply, it is the core and representation of the growth drivers and strategic initiatives we've been working on. So understand and activating the customer, which really comes down to all of our performance marketing, CRM, personalization. The progress that we've made in those areas to be relevant to the consumer with things like Save While You Skip the Salon messaging, relevance like what we just did as a pop-up in the Grove in LA, really appealing to a consumer base that spans demographics. And we're excited about how that is activating and coming together. The second is clearly our digital strategy.

The way that we've moved performance in the core sally.com experience as well as the app, which is growing nicely, but you compound that with marketplaces where marketplaces, the great news is we're seeing that be an incremental customer to us. What we've understood and done with some black box testing up to 3/4 of that customer base is new into the Sally environment, and we love that. But the fact that we are where they need to be, on a Saturday, when they need lashes, they can get those lashes through DoorDash and have them come right to us.

When you're in the middle of a hair color process and maybe something isn't going quite to plan, you have an easy way to get the product that you need to continue to finish your activity. So the strength on digital has certainly been a good point as well. And then as we move with assortment, we continue to refine our assortment.

We feel great about how our own brands play and they do outperform the fleet in terms of growth, but we're also with the entry into things like fragrance and a significant expansion in nails, getting people to cross-shop our store and put more items in the basket where they see compelling curated assortments in those spaces have performed very well. So all three of those are key for us to go forward as well as working on Sally Ignited, but we think they have a long runway ahead.

Simeon Gutman: Okay. And then my follow-up is, if you look at the breadth of Sally Beauty Supply, can you talk about what percentage today maybe below average versus above average and how that's changed over the last couple of years? And if you're able to, within the back half of the year guidance, I know you don't like to break out the 2 businesses, but can you tell us the movement between the 2 businesses to fit within to your guidance?

Denise Paulonis: So when you said breadth, and I think you said above or below average, I assume that just remains the relative performance of the categories within the business that we see today. We certainly see outperformance in color, up 11% in the segment, 12% Sally U.S., Canada, great strength there. We've seen growth in the nail category as well. We feel very good about that. The softer category remains care, and I spoke quite a bit about what we're working on there including the August POG reset and to move that forward.

And then with their being a little bit more frugality out in the marketplace with our kind of lower middle income consumer, we also see styling tools being a little bit lighter category as well. That's been the trend for a number of quarters now. And so we're going to bring in some innovation that I just mentioned with our new ion Luxe products that we're bringing out, which should be well received by our customer, and we will be watching that. And then if you could remind me your second question?

Simeon Gutman: Sorry, Denise. The movement of -- what's within the comp for the back half of the year between the 2 divisions?

Denise Paulonis: Absolutely. So when you think about what's in the guide, we expect the Sally segment to outperform the BSG segment, both in Q3 and in Q4. We have a lot of work underway to get BSG back to nice positive performance, but we think that, that will take a couple of quarters as we're watching consumer stylist shopping habits right now.

Operator: Our next question comes from the line of Bryan Pinedo with Jefferies.

Bryan Pinedo: This is Bryan, on for Sidney. I was wondering if you could give us an update on what innovation is resonating with most for customers on the Sally side of the business overall? You spoke a little bit about new category expansion on the Sally side. If you could maybe give any more color or updates there overall?

Denise Paulonis: Sure. So on the innovation front, as I mentioned, on the styling tool side, we've just launched an infrared based line of styling tools under our ion Luxe brand. We're seeing great engagement there. We are certainly seeing good engagement as well within the nail category, and we've just launched Kiara Sky into our Sally stores, and that has been very well received. Within our core categories, there's always something new going on. I mentioned ion 24K as a great treatment offer for those looking for repair for their hair and healthy hair maintenance. And then color, we continue to see nice performance with Vivid. So great to see that.

We love that we have a customer who is expressive and wants to create their look and feel. And then as we think about the expansion in new categories, fragrance is a truly new category. We're really pleased, 2,000 stores and we're overperforming our expectations. It is a small, but mighty assortment grounded with ALT. and Sabrina Carpenter with more newness to come as we come through the year. And then nail, we've really expanded the assortment to be sure that everything that you could go get done in a salon, you can now do at home.

So all of the embellishments, all of the different types of polishes, the care and maintenance items, we've really doubled down on making sure that, that offering is robust.

Operator: This concludes the question-and-answer session. I would now like to hand the call back over to Denise Paulonis for closing remarks.

Denise Paulonis: Well, as I close today, I want to thank all of our associates around the world for all they do every day to serve our customers. Without you, we would not be Sally Beauty Holdings. So thank you for all the work you do and to all of our stakeholders, we appreciate your interest in Sally Beauty, and we look forward to updating you again next quarter.

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