Sally Beauty Holdings, Inc. Stock

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's third quarter fiscal 2026 results. [Operator Instructions] Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Paulonis, President and Chief Executive Officer, and [ Adrian Lee ], Chief Financial Officer. Before we begin, I would like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the risk factors section of our most recent annual report on Form 10-K and other filings with the SEC.

Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. Now, I'd like to turn the call over to Denise to begin the formal remarks.

Thank you, Jeff, and good morning, everyone. We're pleased to report a solid quarter, delivering top and bottom line results within our guidance ranges. Fiscal Q3 net sales totaled $935 million, with comparable sales flat. Gross margin expansion and ongoing cost management translated to strong bottom line delivery. Adjusted operating income totaled $87 million. And adjusted diluted EPS came in at $0.55, an 8% increase versus a year ago.

This performance enabled us to generate strong cash flow from operations of $81 million and continue to return value to shareholders in the quarter. It highlighted both the underlying strength of our business model and the benefits we are delivering from our strategic initiatives. The quarter was led by strong growth in the Sally segment, which delivered comparable sales growth of 1.6%, including a robust 3.5% increase at Sally U.S. and Canada, driven by balanced growth in both transactions and ticket, as well as strong performance across both stores and e-commerce.

From a category perspective, color continued to be a standout performer. On a total Sally segment basis, color was up 8%, while Sally U.S. and Canada delivered growth of 9%. Additionally, fragrance continues to build impressive momentum. Hair care trends have started to improve leading up to the category reset we talked about last quarter, which is rolling out this month. We believe our plans to refine our hair care product assortments, as well as the expansion of men's, will enable us to drive improvement in hair care sales performance over the coming quarters.

New brands coming as part of the assortment update include yellow and NatureLab Tokyo. We're also expanding Design Essentials, The Doux, and Camille Rose. In men's, we're doubling down on key brands, including Clubman and Level 3, to name a few. Importantly, our push into new, highly relevant categories, such as men's and fragrance, expands our total addressable market and positions us to capture increasing share over the long term.

Looking now at our BSG segment, stylist sentiment has remained fairly consistent through fiscal 2026. Appointment books are steady and color services continue to be strong, while add-on services have been inconsistent. In shopping behavior, stylists remain value-focused and choiceful with additional spending, particularly in hair care and styling tools. For the quarter, BSG comparable sales declined 2.1% with strength in color and nails offset by softness in hair care.

For the quarter, we lapped the April 2025 launch of K18, pressuring the flat hair care sales trend of the last few quarters. We know that both value and newness drive this category, and we are laser focused on accelerating our innovation pipeline, expanding distribution, and reinforcing our value proposition to reignite the care category in the coming quarters. In fact, we have recently started to action stronger price forward messaging, which is translating to higher customer engagement and an improvement in trends. Additionally, as we start Q4, we have expanded milk_shake to hundreds more stores and just launched Virtue Labs in 300 stores.

I'll now walk you through the latest updates on the initiatives supporting our four key growth drivers. Our first strategy is understanding and activating the customer. Sally CRM and performance marketing are driving new customer acquisition. The success of save and skip the salon messaging has been a key driver, and we'll be building on that in Q4 with the rebranding of the campaign to Your Beauty Journey, No Salon Required.

As we continue to reimagine beauty retail through immersive education and community connection, we're building on the success of our recent Sally Color Fest celebrations with college campus events across the southeast this month. Our experts will be bringing beauty resources, product discovery, and career networking opportunities to students at the University of Florida, Florida A&M, University of Alabama, University of Houston, and University of Texas at Austin. This is another great example of how our teams are always developing innovative ways to position Sally firmly at the center of beauty culture while driving customer engagement and new customer acquisition.

Another important tool for driving customer acquisition at Sally is our Licensed Colorist On Demand service, offering free color and care advice. In fiscal Q3, average weekly consultations exceeded 5,200, and the number of new customers increased by 28% versus the prior year. LCOD customers continued to outspend non-LCOD customers driven by increased frequency. In a nutshell, this service brings new customers to Sally and increases engagement by providing the digital equivalent of the accessible, friendly education and support that our store associates are known for.

Now shifting to our second growth driver, unlocking and harvesting digital value. Global e-commerce sales increased 11% in fiscal Q3, driven by continued strength in Sally's marketplaces, as well as the rollout of updated apps of both business segments earlier this year. On the Sally app, we're seeing strong engagement and higher conversion with order and sales growth outpacing sessions. Average order value is strong, up 6% in fiscal Q3. Notably, buy online, pick up in store represented the majority of app order volume in the quarter, our most efficient delivery channel.

At BSG, order and sales growth also outpaced sessions as features such as faster checkout, simplified reordering, inventory near me, and Apple Pay provided an improved customer experience. Similar to the Sally app, a significant portion of orders are being fulfilled through buy online, pick up in store. Moving to our third growth driver, differentiating with product assortment and innovation. Across both segments, innovation has always been a key competitive differentiator and central to unlocking growth.

At Sally, strong performance in both own and national brands is being fueled by innovation. Newness and brand refresh initiatives are resulting in improved performance across own brands like Beauty Secrets, ion Luxe, Salon Care, and Texture ID. As mentioned earlier, we also have a significant newness update coming on the national brand front with the assortment update in hair care. At BSG, recent brand launches like milk_shake, Keratin Complex, and [ Epilogue ] by Danger Jones continue to build momentum. As I mentioned, we have more innovation coming in fiscal '27.

Our fourth growth driver is accelerating new growth pathways. Let's start with our Sally Ignited initiative, where we have seen significant runway ahead. As of the end of July, we have completed 33 store refreshes year-to-date, and we have another 17 planned for fiscal Q4. This puts us on track with our plan to complete 50 remodels in fiscal 2026, which will put us at 80 Ignited locations by the end of September. As we watch KPIs, we're incredibly pleased with the way customers are responding. Traffic, dwell times, UPT, and ATV all continue to move up and to the right, with sales growth nicely outperforming the fleet.

From a category perspective, nails and fragrance remain standout performers. We are well underway with planning for the next phase of the rollout. More to come next quarter on our strategy for increasing scaled Ignited business in fiscal '27. In the skin and spa category, we are ramping BSG's presence and methodically expanding our footprint. During the quarter, we added IMAGE and Matter of Fact brands to another 250 stores and launched amika skin care across all of our U.S. and Canada locations.

Before wrapping up, I'll briefly touch on our Happy Beauty Co. initiative. At a high level, our mall locations continue to outperform with strong performance in key categories such as cosmetics, fragrance, and skincare. Ahead of the holiday season, we plan to open another 10 mall locations. Equally exciting, we're preparing for the upcoming launch of our Happy Beauty Co. e-commerce site at the end of the fourth quarter.

As we focus on driving sustainable, profitable growth, our Fuel for Growth program is delivering benefits across gross margin and SG&A. We are tracking to our plan to generate $45 million of benefits in fiscal 2026, and will have captured about $120 million of cumulative run rate savings over a three-year period at the conclusion of our fiscal year in September. Entering the final months of our fiscal year, the strength of our operating model, the traction we're seeing across our strategic initiatives, and our ability to navigate dynamic macroeconomic environments give us confidence in the path ahead.

I want to thank our teams across the organization for their relentless focus on our customers and disciplined execution as we work to deliver long-term shareholder value. Now I'll turn the call to [ Adrian ] to discuss the financials.

Thank you, Denise. We're pleased to report another solid quarter. Fiscal Q3 consolidated net sales totaled $935 million, approximately flat to last year, including 50 basis points of favorable impact from foreign currency translation, partially offset by operating 39 fewer stores. Consolidated comparable sales were flat, reflecting strong growth of 3.5% at Sally U.S. and Canada, offset by softness in the balance of the portfolio. Global e-commerce sales growth remained strong, up 11% year-over-year, representing four consecutive quarters of double-digit growth.

We maintained healthy gross profit in the quarter, with adjusted gross margin expanding 40 basis points to 52.4% when compared to a year ago. The improvement is primarily driven by higher product margins from our Fuel for Growth program. Looking to operating expenses, Q3 adjusted SG&A totaled $404 million. This is an increase of $5 million versus the prior year, partially due to higher labor and rent expense, partially offset by $2 million in Fuel for Growth benefits. Important to note, our adjusted SG&A has been relatively consistent quarter in and quarter out reflecting continued focus and discipline.

During the third quarter, we captured pre-tax 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, and as Denise mentioned, this would land us at our committed run rate savings of approximately $120 million over the course of the program. Adjusted operating income totaled $87 million in the quarter. Adjusted diluted earnings per share was $0.55, which is a $0.04 or 8% improvement versus the prior year.

Adjusted operating income and adjusted EPS came in at the high end of our guidance range as healthy gross margin and disciplined SG&A management resulted in strong bottom-line performance. Moving briefly to segment results. For Sally Beauty, top line grew 2.2% to $539 million and operating earnings were up 7.3%. Net sales growth of 2.2% included 90 basis points of favorable impact from foreign currency translation, partially offset by operating 30 fewer stores. We delivered comparable sales growth of 1.6%, driven by transaction growth of 0.6%, and an increase in average ticket of 1%.

For the Global Sally Beauty segment, color grew 8%, partially offset by care down 6% versus the prior year. Sally e-commerce continued its double-digit growth trend and grew 20% to $52 million, representing 10% of segment net sales for the quarter. U.S. and Canada e-commerce sales grew an impressive 28% in the third quarter. Gross margin increased 60 basis points to 61.5%, driven primarily by our Fuel for Growth program. Segment operating margin expanded by 80 basis points to 16.6%.

In the BSG segment, net sales were $397 million, a decrease of 2.4% versus a year ago, and includes operating 9 fewer stores. Comparable sales declined 2.1% with transactions down 3.2% while average ticket was up 1.1% versus prior year. From a category perspective, color grew 1% and care declined 5%. BSG e-commerce sales increased 4% to $58 million, representing 15% of segment net sales for the quarter. Gross margin at BSG expanded 70 basis points to 40.1%, primarily driven by higher product margins from our Fuel for Growth program. Operating margin declined 20 basis points to 12.3%.

We ended the quarter with a healthy balance sheet and strong cash flow. At quarter end, cash and cash equivalents totaled $173 million, and we had no outstanding borrowings under our ABL credit facility. Inventory levels at quarter end totaled $996 million, down 1% versus last year, and in line with our expectations. The business generated strong cash flow from operations of $81 million and free cash flow of $62 million.

This enabled us to invest in the business, pay down $20 million of term loan debt, bringing our net debt leverage ratio to 1.4x, and to return cash to shareholders through the repurchase of $25 million of stock under our repurchase program. Moving to guidance. Entering the final quarter of fiscal 2026, we are narrowing our full-year outlook to reflect our current top-line trends of sales growth momentum in Sally U.S. and Canada, the underlying strength of our core hair color category, double-digit e-commerce growth, and the effectiveness of our marketing initiatives offset by softness in the care category.

We are pleased with how our teams are navigating and delivering results. For the full year fiscal 2026, we expect consolidated net sales in the range of $3.725 billion to $3.733 billion, which includes approximately 30 basis points of favorable impact from foreign currency rates. Comparable sales are now expected to be approximately 0.5%. Adjusted operating earnings are now expected to be in the range of $329 million to $335 million.

Adjusted diluted earnings are now expected to be in the range of $2.04 to $2.08 to $2.10 per share, which compares to our prior range of $2.02 to $2.10. The following guidance remains unchanged. 50% of free cash flow is expected to be deployed to share repurchases. Capital expenditures are expected to be approximately $100 million, and free cash flow is expected to be approximately $200 million. We appreciate your time this morning. Now I'll ask the operator to open the call for Q&A.

[Operator Instructions] Our first question comes from the line of Oliver Chen with TD Cowen, your line is now open.

This is [ Julia Shulansky ] on for Oliver Chen. First, on the care planogram reset, given we're only a few weeks in, I'd love to hear about some early signals you're seeing about sell-through, basket behavior, customer feedback, and what you're learning so far that might shape how you approach the resets going forward. And second, on fragrance, and the fragrance in 2,000 stores not performing. Can you share whether that customer is predominantly incremental or more of a basket add-on for existing shoppers? Thank you.

Good morning, [ Julie ], and thanks for the questions. As you can tell, we're really excited about all the momentum at Sally, both with new product assortment, as well as everything we're doing on marketing and customer engagement. Specifically, when we talk about the care reset, we are very early on. So this morning, I don't have metrics to share for you, but what I do have is just engagement in the customer, customers in the stores and importantly our store associates being very excited about the assortment.

You know we're touching general market hair care with brands like yellow, we're touching our textured or curly coily wavy with expanded product assortment and men's which has been a big request from our store associates. We're doubling down on that business where the business has actually been growing double digits as well. So more to come next quarter as we get that set and can really read it, but very excited about what we're hearing as the buzz in the stores to date.

You know, on the fragrance front, you know, it's been exciting to do and launch into this space. As you know, it started because we had with our first Ignited stores tested a bit of fragrance. We moved quickly to 1,000 stores and now to 2,000 stores. We're generally finding it's not necessarily a new customer. It is our existing customer adding to their basket. And that's a nice basket add. These are items that are priced, you know, north of $20 for the most part in the stores. So we love that add-on, it's the cross shop we're looking for.

It's giving us extra enthusiasm around doubling down on other categories like nail. We're going to be entering with a test of some new product in skin as well. So really pleased with where we're headed there.

Our next question comes from the line of Susan Anderson with Canaccord Genuity. Your line is now open.

I wanted to maybe ask about the Sally comp was obviously impressive, especially when you just look at the U.S. and Canada. I guess I was curious, what's the driver in the difference in performance between the other international markets and if you've rolled out the same initiatives over there? Is it just the consumer may be a bit softer over there? And then also maybe if you could just talk about the promotional environment and the quarter and how it was versus your expectations and what you're expecting the rest of the year. Thanks. Yes.

Morning, Susan. Thank you for the comment on the quarter. We are pleased with where we came in. We are seeing great performance with both Sally as a segment and Sally U.S. Canada. As you rightfully mentioned, the segment overall is growing a little bit more slowly than what we're seeing as a total Sally U.S. business. When we think about what's in there, we have our business in Latin America and we also have our business in Europe. And the two are a little bit different story. In Europe, we're actually pleased with the underlying performance of the business there, but there are two things that we've done over the course of the last year that actually pull down results a bit.

First, we made some changes broadly in our full-service distribution. We exited the majority of our full service, which was a very low margin portion of the business, to focus on e-commerce and stores where we are strong. That took some sales out of the business, and that does come through in comp, but a nice strategic repositioning. We've also shifted geographies a bit, and we've leaned more into Ireland and exited some places where we are a bit lower scale. So I would just call this a bit of a transition year of the numbers coming through Europe as we're really repositioning that segment for future growth.

And then in this business as well is our business in Mexico and Chile. Mexico, for a number of years has been an incredibly strong performer in the fleet. We've been expanding store count. Over the last year or so, macroeconomic conditions there have definitely softened a bit. So while we're still excited about the business, we are, you know, it's a bit more cautious right now and a little bit more conservative in how customers are buying in Mexico in particular. So we'll keep watching that and reacting as we can, but pleased with the business overall. So I consider in both cases just a little bit of change underway in our strategy and execution for the most part, so healthy overall.

And then on promo environment, you know, you asked about promo environment. What I would say is in both businesses, we are seeing promotional activity on the rise. You know, the great news is that, you know, for us in navigating that, our gross margin remains strong and so our participation in that promo is healthy. But what we see underneath it is there is a customer who is just searching and buying more when the opportunity presents itself to get it on sale. So a little bit more patient for those sales to come and then they'll come in and purchase on promo. We'll keep watching that as well, but seeing it on both sides of the house.

Okay, great. Thanks for all the details there. Good luck the rest of the year. Thanks.

And James, your line is now open.

My first question is on BSG, and if you could just kind of break down the challenges there a little bit, you know, how much of this decline do you think is salon channel traffic and, you know, and demand woes that are weighed down by macro pressures versus actions you need to take on your assortment or exclusivity? I know you talked about K18 lapping. But, you know, as you look at the pipeline of things coming over the next 6 to 12 months, if there are things that will help that lap. And then, did you see any material difference across stores versus e-commerce? And can you talk about the magnitude of difference in performance between color and care? Thanks.

Sure. So on the BSG front, thanks for the question. Overall, I think the important part to remember here is we are the largest distributor to salons in the U.S. and Canada. We do know every stylist, so we feel like we do have a very good handle on what's going on in the marketplace and our positioning within it. I think we saw real nice strength in color and nails in the quarter, but it was offset by the softness in care. Particularly the last few quarters, we've been running, hair care has been growing about flat, right?

This quarter, we saw a little bit of incremental pressure because it was last quarter this year, April of 2025, that we launched K18, which certainly came out as a big bang last year to a lot of success. So that put a little bit more pressure on just the lap of the trends this year. When we step back and say what's really going on, our stylist consumer sentiment is pretty healthy. So they're still seeing books being steady, color service is strong. Where we do see them particularly choiceful is a bit more with additional spending in hair care and styling tools. That's kind of a double-edged sword piece of our hair care challenge in lapping a K18 as well.

So back to the points under our control and what we're working on. You know, we're going to keep doubling down on the strength in color. We're really pleased with the updated app and the engagement we're seeing from customers. And then in care specifically, focus on value, newness, and value messaging. So we talked about on the call some innovation and expansion of product assortment coming with Virtue Labs in 300 stores, milk_shake expanding. That newness does drive customers into our store, and we'll keep building on that into Q4 and beyond.

And then price forward messaging. Our customers are really wanting us to be sharper in how we communicate price to them, to motivate them to get into the store, just that value equation. So that's under our control as well and things that we're working on. But overall, we're pleased with the business and the underlying trends in the business. We've just got a little work to do to get hair care back where we'd like it to be.

And then I'm pleased that you were asking about stores and e-comm. I'm really pleased to say that in both businesses we're seeing very nice balanced growth between stores and e-comm. In Sally, e-com continues to be growing north of 20% in the business, but that's not to say that stores are not growing as well, which is great to see for us, increased foot traffic. We talked about both transaction and ticket being up for the market overall. And in BSG, stores are flat-ish, and the growth is really coming from some more of the online sales, which is supported by the new app. So, I think a really nice win there as well.

And then when we talked about the strength in color versus care, color right now in both businesses is quite strong, in Sally particularly strong. We're doubling down on that here in August with our Color Fest activity, which includes activations out with a lot of key universities, so pulling more customers into our fray. And I think in particular, we have seen nice new customer growth from our work in performance marketing and that customer experience, which is picking up on some of our color strengths as well. Care is the place that in both businesses, we're going to continue to work and evolve. And I talked about a lot of those levers already.

Great. If I could follow up just on Ignited, you'll be at 80 doors by the end of the year. As you refresh these, how are you thinking about the eventual rollout to more of the you know, you've added fragrance, you've added skin, you've added a number of new categories. I would imagine they're more disproportionately heavier in the Ignited doors. So, just thinking about the learnings that you've made in Ignited and how that impacts how you think about the rollout to additional doors. Thanks.

Yes, I think first and foremost, our Ignited stores, as you said, you know, the things that we're learning in categories where we can expand in nails and fragrance, we're going to be testing a new skin line here. Also with men's are really great learning tools for us that we have been activating through the rest of the fleet. But when we think about those Ignited stores themselves, as we mentioned before, will be 80 by the end of the year. That's still a small proportion of our overall sales base.

But I think the thing that we're liking the most there is we are seeing cross shopping in the stores. So UPT, ATV up as customers are coming in. Traffic is getting back to the healthy state that we would like it to be. We mentioned on the call that comps are nicely outperforming the rest of the fleet, which is a real positive as we look forward to expanding the program. So, it's going to be more to come on our call next November as we kind of share guidance for the next year and our plans for rollout, but we feel really pleased and think that we'll be able to continue to expand the program in '27 and beyond.

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

This is [ Skyler Tennant ] on for Simeon Gutman. Firstly, you described last quarter the consumer as resilient, but called out some choiceful behavior, incremental pressure in low-income stores. So has the income cohort pressure kind of broadened beyond the low-income store base given ongoing conflict? And are you able to quantify what percentage of the Sally fleet falls into that low-income classification?

Yes, you know, first and foremost, I think you said it well. What we said last quarter remains this quarter. The consumer has remained extremely resilient. So when we see absolute purchase levels, we are not seeing those decline, which is fantastic. That choicefulness is very real. The strength in color and that being a staple category rather than discretionary category is quite meaningful. Where things are a little lighter, you really need newness. You need care and you need styling tools, places like that you're going to buy when you need it.

In the low income cohort, you're not going to break out the count of stores. We do have a low to middle income consumer in general. We have not seen market change from last quarter. You know, I think last quarter I mentioned it, and I would say it the same right now, is the importance of the reset of our hair care category is that what we are seeing in our care assortment is in core things like shampoo and conditioner, our lower income consumer might be more willing to trade down to mass. And so it's our job to be getting right assortment and newness for them to be excited to shop in our stores and pay slightly more than maybe for that mass market brand and keep them engaged in the category. And we feel like our assortment changes are going to be spot on with helping to do that for our customer base. So overall, thrilled that there is a resilient consumer, but we remain very watchful.

Great, thank you. And then as kind of the Fuel for Growth program nears completion, I guess between gross margin and SG&A, which portion is more durable into the coming fiscal year and should we expect margin expansion to depend on improving the top line?

Thanks for that question. Appreciate it. I'll just say some overarching thoughts. As our Fuel for Growth program does come to an end, the great thing about our enterprise is we've already built that muscle in-house. As I think about, I feel confident in our ability to continue to find efficiencies, I would say that I think we're generally pleased with our gross margin performance and we think that's a really great place to be in that right zip code. Our long term algorithm does call for, and I think you're acutely aware, leverage in our P&Ls, so we'll continue to look at kind of our SG&A bucket and find efficiencies and productivities just in our P&Ls kind of day-to-day activities.

Great. Thank you and good luck.

[Operator Instructions] Our next question comes from the line of Sydney Wagner with Jefferies. Your line is now open.

You noted that promotional activity increased across both businesses and consumers are more so concentrating their purchases around those events. Just curious. So, I mean, has that behavior changed versus 90 days ago? What are you seeing in terms of areas within your assortment where maybe that pressure is most acute? And then for care, you've discussed, it's been under pressure the last few quarters. Beyond the assortment reset, what do you view as the biggest unlock to getting that category back to sustainable growth? Thank you.

Sure, good morning, Sydney. So let me make a few more comments on promotional levels. The world has not changed materially in the last 90 days. So I think we've been talking about it being incrementally more promotional in terms of how the customers are choosing to respond and buy. So no outsized change in trend. And it's about the same, that little bit more about us offering more promo days, right? So we might vary the promotions that we do, but having there be something that can appeal to someone to get them to move, to push that buy button on e-comm or come into the stores. It is most pronounced in styling tools and in care would be the two that I would call out. Color, nails, generally very resilient categories in terms of how people are purchasing into those.

So like I said, I wouldn't call any cause for concern. Our gross margin remains strong. We were actually at 40 basis points in the quarter. So we can navigate it, but I think to the point of what's in our control and how we navigate through here, it's as much of what the promotion is, but it's more so how we're communicating it. And, you know, what we're finding is that consumer has gone through a series of iterations where if you ask this question two years ago, they were wanting to buy in bulk when the sale was on and stock up. So they loved the buy two, get one free or buy three, get one free type of offer.

You know, last year they migrated much more to saying, I don't want more out of pocket. What I really want to do is get a great price on my item. And I love seeing, you know, strong percentage offs that make me move. We've actually watched a customer now gravitate towards tell me what I'm going to pay. So, if you've got a sharp price point, and this is both on the consumer and the pro side, tell me that price point so I know that I'm going to get a great deal without having to think too hard about it, about whether I want to make that choice. So, that's in our control to keep evolving the way we communicate, even though the underlying discounting behavior is not changing consistently on our behalf.

And then in care, I think there's two different points to that depending upon what business you're in. You know, I think on the Sally side of the business, the assortment changes are an important part in addition to the expansion of men's. So this is a place where we have seen double-digit growth. We think there's more that we can do there, which is really taking us deeper into a new subcategory within care while the assortment will play out as well. And then everything that we can do on our performance marketing front to communicate the messages, to have people know what we've got, things like our Color Fest. While it's focused on color, there's a residual effect that people get to know more about our own brands like ion that carry over into the care category as well.

And then on the pro side, innovation matters. We're focused on that. We feel great about our in-stock levels in our stores. And then this is the place where that communication of value probably matters more than anywhere right now and what we'll work on as well.

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

Well, thank you, and thank you everyone for joining us this morning. I hope you heard that we're excited about the trajectory of our business. Our associates across the globe are doing a fantastic job serving our customers, so I thank them for the work that they do every day. And I look forward to giving all of you an update as we come to our end of year call in November. Thank you.

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

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's second quarter fiscal 2026 results.

[Operator Instructions]

After management's prepared remarks, there will be a question-and-answer session. Additional instructions will be given at that time. Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Paulonis, President and Chief Executive Officer; and Adrianne Lee, our new Chief Financial Officer.

Before we begin, I'd like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K and other filings with the SEC.

Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website.

Now I'd like to turn the call over to Denise to begin the formal remarks.

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 launched 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 on board 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.

Each 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 hair care remained soft, performance improved central caring 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, in and share of wallet. On the Sally side, our SAFE and Skip the salon marketing campaign continues to resonate with customers supported by disciplined execution, our cost planning and promotional activities. Additionally, our teams are initiating new marketing strategies to engage customers where they are through local events. For example, as part of our Color Fest 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 and 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 Estes 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 Color on demand 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 styles.

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 card 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 IOM Lux brand launched a new infrared collection of tools aimed at minimizing hair damage. Infrared is amongst the fastest selling 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 Stylist blood Milkshake and Keratin Complex as well as expansion within existing brands are driving results. In fiscal Q2, we added Epilog, the full range permanent hair Color from Danger Jones. And in the second half, we'll be launching Moroccanoil in 2 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 skilled 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 astititians 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 Emeka 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.

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 the main 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. Adjusted diluted earnings in the range of $2.02 to $2.10 per share 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 seeing 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 position 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 Instructions]

Our first question comes from the line of Susan Anderson with Canaccord Genuity.

Maybe, I guess, to start off, if you can maybe just talk about how you're feeling about the health of the customer and 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 at Sally.

Let me start off on the BSG stylus 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 silos chairs look 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 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.

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.

Yes, we're feeling really good about the Sally Ignited stores. We're up to 40 stores in the market today, will 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 stores that have fragrance, we're seeing very nice performance actually ahead of our expectations.

Okay. Great. That's great to hear. Maybe if I could just add 1 last 1 on the hair care, 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 text 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 hair care. Maybe if you could give a little bit more color there.

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 pod 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 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 page set. I think that it's going to improve the business and build on the learnings we've had from the Ignited stores.

Great. Thank you so much for all the detail. Good luck for the rest of the year.

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

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 as Denise as being the more traffic driving ones in the nearer term versus longer term.

Finally, regarding the management of margins, going balancing product margins against the promotional environment and back up as well.

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, which includes Milkshake, Keratin complex, which have been recently launched, a little softer performance with some of the more legacy brands in the portfolio. 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 the 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 and the Ion Lux 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 about where we stand there.

Okay. And 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 and 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.

Sure. So on the TikTok front, what we're most excited about is, 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, 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.

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?

Great. Thank you. 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 is the start of week 3, right? So in addition, 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.

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

I was wondering if you could just talk a little bit about consumer backdrop with Food where it is now and the impact to your cost, but more importantly, thinking about pace the impact of the top line, whether you see more interest traffic or ticket and then the promotional backdrop. And then the focus on hair has continued to increase beyond into care and basic styling whether it's bonding, moisturizing repair, et cetera.

Could you just talk about how you're ensuring that you create outsized benefits both to Sally, whether in the Sally Beauty store side or the side.

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 of 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. Point of 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 silos 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 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 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 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 Milkshake 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 24,000 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.

Our next question comes from the line of 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 to -- in your perspective, the 1 or 2 key things that have enabled that stabilization? And then I have a follow-up.

Simeon. So I think when we talk about sale supply 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 say, well, you Skip the Salon messaging, relevance like what we just did as a pop-up in the Grove in L.A. really appealing to a consumer base that spans demographics.

And we're excited about 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 than 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 is 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.

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 with into your guidance?

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 software category remains care, and I spoke quite a bit about what we're working on there. And in the August core set 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 LUX 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.

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

Absolutely. Yes. 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.

Our next question comes from the line of Brian Panado with Jefferies.

This is Brian 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, and 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?

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 visits. 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 and is a truing 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 types of polishes, the care and maintenance items, and we've really doubled down on making sure that, that offering is robust.

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

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.

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

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's first quarter fiscal 2026 results. [Operator Instructions] Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Paulonis, President and Chief Executive Officer; and Marlo Cormier, Chief Financial Officer. Before we begin, I'd like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K and other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligations to update them.

The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. Now I'd like to turn the call over to Denise to begin the formal remarks.

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 and 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 paydown 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 solid U.S. 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 of 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 U.S. 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 positive response.

In November, we introduced fragrance in our top 1,000 Sally U.S. stores and strong demand drove out of stocks in the latter weeks of the quarter. On the digital side, our Sally global e-commerce business delivered strong results, growing 20% in the quarter. This performance was powered by marketplaces, as well as positive trends across key categories, including color, care 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 solid continued to buy closer to need and seek value. Spending trends softened in tandem with the government shutdown, but rebounded nicely in December. While Sally's 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 4 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 and is resonating with customers, and we're continuing to run that in Q2.

Additionally, as we continue to drive new customer acquisition 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 color on demand, which continues to drive strong economics and serve as a powerful customer acquisition tool. Of note, customers acquired through LCOD spend 2x more than a customer 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 NOI 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 stylist. While BSG is in the early innings relative to Sally in this area, we are already seeing our efforts make a difference in 2 places. First, we use targeted offers to drive strong reactivations from 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 to drive significant growth in customer counts in the quarter, like Schwarzkopf, Color Wow and [ Major Jens. ] Moving now to our second strategy, unlocking and harvesting digital value.

E-commerce sales were up 20% in the Sally segment and up 4% in the BSG segment in the quarter. With strong e-commerce 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 e-commerce gains across categories at Sally, fueled in part by our marketplace 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 favorite 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 out to our styles 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 owned 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 Milk Shake and Keratin Complex, brands that are well loved by sales and bring exciting innovation to BSG. We brought Milkshake to 225 U.S. stores and e-commerce with products across both color and care and Cerraton Complex launched in 525 of our U.S. stores, full service and e-commerce, deepening our participation in the glassing 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 8 store refreshes, bringing us to 38 locations and putting us on track to have approximately 80 Sally United stores in the market by the end of fiscal 2026. We're pleased to see positive KPIs in our United 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, UPC and ACV continued 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 skin care 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 spot category with testing underway. Currently, we have 2 brands: image and matter of fact in 250 stores, and we activated marketing in the first quarter as well. We are focused on building awareness within the skin care community and we'll continue to roll out campaigns targeting expositions 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, skin care and fragrance.

Building on the traction we saw in our mall locations. We are actively at work on our Happy Beauty e-commerce 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 4 growth drivers, our teams are also remaining laser-focused on driving profitability unlocks via our Fuel for Growth program and ongoing financial discipline. Work in year 3 of the program, which is expected to be an important contributor to gross margin and 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 2020. 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.

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. That's 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 U.S. 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 e-commerce 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 and 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 e-commerce sales grew 20% to $50 million and represented 9% of segment net sales for the quarter. In addition, e-commerce sales for Sally U.S. and Canada grew by 28%. Gross margin in our Sally segment increased 20 basis points to 59.8% and 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 e-commerce sales increased 4% to $60 million, representing 15% of segment net sales for the quarter.

Gross margin at BSG expanded 50 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 of 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 1.5x.

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 billion 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 million to $342 million, adjusted diluted earnings in the range of $2.02 and to $2.10 per share.

That's 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 the second quarter of fiscal 2026, we expect the following: consolidated net sales in the range of $895 million 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 has since reversed as well as timing shifts in incentive compensation, advertising and IT as we manage through last year's sales headwind.

Looking over a 2-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.

[Operator Instructions] Our first question comes from the line of Oliver Chen with TD Cowen.

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 for fragrance and other categories as a percentage of sales over time. It's a big, nice opportunity, and we're seeing such compelling structural growth there. And on Sally Ignited, the KPIs look really robust. Is what's holding you back from timing of rolling those out?

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, Sally Customer was resilient. I really responded well to initiatives like LCOD, marketplaces, innovation and with colored comps up 8%, 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, so U.S., 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 2 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 [indiscernible] full 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. I'm really pleased with fragrance in Sally. So we were in 1,000 stores as we went through the holiday period, we'll be in another 1,000 stores for a total of 2,000 stores in pretty short order.

The customer is loving kind of 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, is we're pushing further into cosmetics and skin care, we're pleased to see that our customer is really giving us permission to play in a targeted way in the categories offer 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 is we've had these stores now open a bit longer in terms of both new customer and reactivated customer accounts well as ATV and cross shopping in the categories is certainly giving us a 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 '27, assuming that everything that we're seeing now is -- continues to bear fruit.

Okay. And a follow-up on the comp guidance. How do you see that manifesting between traffic and ticket? I mean 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?

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 Milk Shake 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 that money, that could be a little bit upside.

And then these new categories that we're playing in, whether that be skin and spa on the BSG side or fragrance and early steps into skin care and cosmetics could be a little bit of upside. upside on the business as well.

Our next question comes from the line of Susan Anderson with Canaccord Genuity.

Alec Legg on for Susan. I'm just curious, how is the promotional environment over the holiday versus maybe initial expectations? And how should we think about promotions heading into 2Q? And for the rest of the year?

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%. And kind of all factored into our plans and activities.

But we do see those customers leaning in when there is 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 needs. 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 while you skip the salon and that campaign, resonating very well in the Sally side of the house is 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.

And then just a quick follow-up on fragrance. I guess what type of customers are shopping fragrance at sell? 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?

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 to -- 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.

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

I apologize, I hopped 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 [ Starlite ] 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 our UP weak comp and EPS sort of put your 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.

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 U.S. 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 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 that SG&A last year really benefited from 2 sets of factors. First, foreign exchange was very favorable has since reversed. And then we had timing shifts last year on expense items like incentive comp, advertising and IT as we really manage 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 '26 to Q2 '26 and on a 2-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 be taking up the low end of the guidance. Excited to see how the rest of the year continues to unfold.

Great. And then I 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?

Yes. 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 what we're 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 ACV 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 into fragrance and cosmetics and skin care. So really good traction. We like what we see and are excited to keep underway here.

Our next question comes from the line of Sydney Wagner with Jefferies.

We've had 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, I'm thinking about the salon consumer 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 or colors that could maybe accelerate that pacing of visits.

Sydney. When I 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, vivids, 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 fall on the BSG side, on the Sally side, where it's less about our expectations in 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 and 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 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 styles shares are going to 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 glassing and super straight look.

So any product that is aimed at helping that straightening and very clean line look is what customers are looking for, for both at home use as well as in the salon.

Our next question comes from the line of Simeon Gutman with Morgan Stanley.

This is Lauren on for Simeon. 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 remained 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?

Yes. When we think about the comp guide for the full year, we laid out a flat to up 1% with where we guided the second quarter, we'll be kind of at the midpoint of that coming out of the and that did reflect a little bit easier comps in the second quarter that we'll be lapping from last year.

When we look to the second half, we're very optimistic once again, we think that there's plenty of opportunity for us to continue to grow our customer base with these new categories. And with the full suite of initiatives that we have around LCD 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 in guarded in our guidance as we see some of the bumps in the road with macro still out there. but we expect the second half of the year to be continuing the momentum that we've seen in the business to date.

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?

So we haven't provided all of that information yet. We're evaluating the pace at which we could roll out in the future, likely these are not 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 nice there's a favorable tailwind as we work that program over a multiyear 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.

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.

Well, thank you for joining us all today. As always, very thankful for all of our team members around the world, serving our customers 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 our next quarter performance in about 90 days.

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

Hello, and welcome to the 2026 Annual Meeting of Stockholders of Sally Beauty Holdings, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Denise Paulonis, Director, President and Chief Executive Officer. Please go ahead.

Good morning, everyone. Welcome to the Sally Beauty Holdings, Inc. 2026 Annual Meeting of Stockholders. I'm Denise Paulonis, Director, President and Chief Executive Officer. As previously announced in the notice and proxy statement, today's stockholder meeting is being held virtually. The agenda and rules of procedure appear on the meeting website you logged into for today's meeting. Please take a moment to review the rules that are posted as we will follow them closely.

First, I'll introduce our Board of Directors and other officials; second, we will vote on proposals listed on the agenda; third, we will report the preliminary voting results; and finally, after adjournment, we will answer your questions.

It is my privilege to introduce my fellow Directors of Sally Beauty Holdings, Inc. With us today are: Rachel Bishop, former President, Hefty Tableware, Reynolds Consumer Products; Jeffrey Boyer, Chief Financial Officer of UI Solutions Group; Diana Ferguson, [ our Board ] Chair and Principal of Scarlet Investments, LLC; Dorlisa Flur, Strategic Adviser and former Chief Strategy and Transformation Officer for Southeastern Grocers, Inc; James Head, Chief Financial Officer of Alignment Health; Lawrence Chip Molloy, former Chief Financial Officer, Sprout Farmers Market; Erin Nealy Cox, partner of the law firm of Kirkland and Ellis; Debra Perelman, Managing Partner of InviNext Growth Partners; Max Rangel, Chief Executive Officer of PetSafe Brands. Also with me is Scott Sherman, our Senior Vice President, Chief Legal and Human Resources Officer.

Our independent auditors, KPMG LLP, are represented here today by Laura Crystal, Chris Hughes and [ Spencer Feld. ] And a representative from Computershare, Stephanie Simon, is here serving as our independent inspector of election. Scott will now present the Corporate Secretary's report and explain our voting procedures.

Thank you, Denise. I present for the record an affidavit certifying that an annual report on Form 10-K for 2025 and a proxy statement and proxy card for this meeting were mailed on or about December 10, 2025, to all stockholders of record as of November 24, 2025, which is the record date for this meeting. Accordingly, this meeting has been duly called under the laws of Delaware, the state of incorporation of Sally Beauty Holdings, Inc. and under the company's bylaws.

Our representative from Computershare has been appointed by the Board of Directors as inspector of election for this meeting. She has executed the appropriate oath of office. The inspector of election has presented for the record. A certificate of quorum indicating that there are represented at the meeting of approximately 89,239,188 shares of the company's common stock. Each share of common stock is entitled to 1 vote at this meeting. Therefore, shares representing 90.81% of the voting power of the company's outstanding shares are represented at this meeting in person or by proxy, so a quorum is present.

This meeting has 3 proposals before it: One, the election of directors; two, the approval of the advisory resolution endorsing the company's compensation of executive officers, including the company's compensation practices and principles and their implementation; and three, the ratification of the selection of KPMG LLP as the company's auditors for the 2026 fiscal year.

Each of these proposals are described in the company's proxy statement and will be presented in the order in which they appear on the agenda. No other nominations for election as a director or proposals were received in accordance with the company's bylaws or the SEC's proxy rules. So no additional nominations or proposals will be considered at this meeting. Voting at this virtual meeting will be done electronically via online ballot. If you wish to vote now, click on the Vote tab in the meeting center. Stockholders who executed proxies or voted online or by telephone do not need to vote again by electronic ballot unless you wish to change your vote. After the proposals have been considered at this meeting and the electronic ballot is completed, the polls will close and no more ballots will be accepted.

An opportunity to respond to any questions that have been submitted to us will be provided after the adjournment of the meeting. It is now 9:05 a.m. Central Time on Thursday, January 22, 2026. The polls are now open. Polls will close immediately following the presentation of the third proposal and my call for the collection of ballots. We will now consider the 3 proposals before us. The first proposal is the election of 10 directors. They are Rachel Bishop, Jeffrey Boyer, Diana S. Ferguson, Dorlisa K. Flur, James M. Head, Lawrence Chip Molloy, Erin Nealy Cox, Denise Paulonis, Debra Perelman and Max Rangel. Each individual has been nominated to serve as a Director of Sally Beauty Holdings, Inc. for a 1-year term ending at the Annual Stockholders Meeting in 2027. This proposal is discussed beginning on Page 12 of your proxy statement.

The second proposal is for the approval of the advisory resolution endorsing the compensation of the company's executive officers, including the company's compensation practices and principles and their implementation. This proposal is discussed beginning on Page 47 of your proxy statement. Third proposal is the ratification of the selection of KPMG LLP as the independent auditors for the company fiscal year 2026. This proposal is discussed on Page 88 of your proxy statement. All proposals are now submitted to a vote of our stockholders. If you are voting by electronic ballot and have not already done so, please vote your shares by clicking on the Vote tab on the meeting site at this time.

[Voting]

This completes the voting on proposals before the stockholders.

At this time, Scott will give us the preliminary voting results.

Thank you, Denise. Based upon the preliminary report, the 3 proposals have been approved by at least a majority vote of the votes cast, including election of each of the 10 director nominees named in the proxy statement.

The business of the meeting is concluded, and I move that this meeting be adjourned.

I second the motion.

The meeting is now adjourned. We'll proceed to the question-and-answer session.

Before we open the floor for questions, I want to quickly remind you of the following procedures. Only stockholders or their authorized representatives with a validated attendance at this virtual meeting may ask questions. If you wish to address the meeting, please click on the Q&A tab at the top right of the meeting center pane and enter your question or comment in the field provided. Any person addressing the meeting will be allowed a maximum of 2 questions. Questions should be addressed directly to Denise. Please confine your questions to one subject at a time. Denise will not answer questions that are unrelated to matters properly before the meeting.

Do we have any questions?

No questions.

Seeing there are no questions, this concludes the question-and-answer session. Thank you for attending the Sally Beauty Holdings 2026 Annual Meeting of Stockholders.

Ladies and gentlemen, this does conclude the meeting. Thank you for your participation, and you may now disconnect.

Good morning, everyone, and welcome to the Sally Beauty Holdings conference call to discuss the company's Fourth Quarter and Full Year Fiscal 2025 Results. [Operator Instructions]

Now I would like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Thank you. Good morning, everyone, and thank you for joining us. With me on the call today are Denise Paulonis, President and Chief Executive Officer; and Marlo Cormier, Chief Financial Officer.

Before we begin, I'd like to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K and filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website.

Now I'd like to turn the call over to Denise to begin the formal remarks.

Thank you, Jeff, and good morning, everyone. Fiscal 2025 was a meaningful year for the company, highlighted by strong operating and financial performance in the context of a rapidly changing and uncertain macro environment. We're pleased to report both Q4 and full year results that exceeded our expectations. For our fourth quarter, we delivered comparable sales growth of 1.3% and 100 basis points of gross margin expansion to 52.2%, adjusted operating margin of 9.4% and a 10% increase in adjusted diluted earnings per share to $0.55. On a full year basis, we delivered $3.7 billion in revenue, positive comparable sales, gross margin north of 51% and adjusted operating margin of 8.9%, which is up 40 basis points to the prior year and above the high end of our guidance range. Adjusted diluted earnings per share came in at $1.90, representing 12% growth compared to last year.

Our core strategic pillars drove customer engagement and sales contributing approximately 260 basis points of comp sales growth for the full year. The business also generated a strong cash flow from operations of $275 million, which we deployed towards investing for growth, further strengthening our balance sheet with $119 million of debt paydown and returning value to shareholders through more than $50 million of share repurchases. These results are a testament to the executional excellence across our organization and demonstrate the underlying strength of our business model. We have resilient customers defensible categories and strategic initiatives built to drive growth and increase profitability.

Touching on some of the strategic highlights of the year, we advanced the business through several important initiatives. We maintained our leadership position in color, delivering growth of 7% in fiscal Q4 and 4% for full year 2025. We delivered on our promise of customer centricity, driving strong growth in our licensed colors on-demand consultation service by delivering standout education and advice. We spend our reach and fuel digital growth with the expansion of our marketplace strategy, adding Uber Eats to our already strong roster of partners, which includes DoorDash, Instacart, Amazon and Walmart. We delivered a continuous pipeline of product innovation, adding new powerhouse brands like K18 at BSG and expanding our partnership with [indiscernible] Beauty as well as adding newness in color from Wella and [ Euro Euro ] at Sally.

We launched a comprehensive Sally brand refresh, which we are now calling Sally Ignited, designed to transform the business from a trusted beauty supplier to a modern dynamic beauty power apps. We generated an incremental $46 million of benefits through our Fuel for Growth program in fiscal 2025, building our cumulative run rate benefits to $74 million. Of that cumulative total, approximately $42 million flow to the bottom line, with the remaining $32 million being reinvested in the business. And lastly, we are responsible stewards of capital, focused on building long-term value for all of our stakeholders.

Entering fiscal 2026 we have proven our ability to navigate a complex and dynamic external backdrop, and we will continue to execute, leveraging the power of our competitive and structural advantages, our global scale, our compelling value proposition, and the strong fundamentals for our business to drive top line and bottom line growth. Throughout the year, our teams will focus on actioning on 4 key growth drivers: Understanding and activating the customer, unlocking and harvesting digital value, differentiating with product assortment and innovation and accelerating new growth pathways. I'll discuss each of these. Our customer activation strategy is focused on acquisition, retention and share of wallet. Much of our success is rooted in our customer-centric capabilities. We've always been intensely focused on delivering unmatched levels of education, service and advice. Today, we are deepening our understanding of customers beyond the transactional view by leveraging our rich customer data, advanced analytics such as our enhanced media mix model and robust customer research, we better target high potential segments. This will enable us to improve customer engagement across touch points that include performance marketing and personalization at both Sally and BSG as well as refresher brand marketing and our license colors on-demand offering at Sally. On the performance marketing front, we are refining our paid search, social media, PR and influencer strategies informed by our enhanced media mix model to acquire new customers and drive sales growth. When it comes to personalization, we are focused on expanding our personalization experiences across all customer touch points, deepening our customer insights to drive the richness of the personalization decisioning and targeting and strengthening our omnichannel communication and customer connections. A great example of our refined marketing campaigns is our plan for holiday at Sally. We're bringing elevated marketing to our stores and digital channel that has contemporary, unified look and feel, designed to resonate with today's beauty consumer while staying true to Sally's brand heritage. Our holiday messaging platform see while you ship this along, was created based on our latest customer data and insights and represents a tactical shift from the buying bulk promotions of recent quarters.

Additionally, at Sally, we are betting licensed colors on demand, or LCOD, into our brand marketing strategy to reinforce our key pillars of expertise and accessibility. Our leading indicators offer a compelling view of the lifetime value of our LCOD customer. 12-month spend is almost 2x higher than non-LCOD customers, including about 2 additional transactions per year. New entering activated customers comprise more than 50% of the LCOD customer base and the number of consultations at fiscal year-end was averaging a record 5,000 plus per week. Additionally, our licensed colors are strengthening their knowledge of the care category and beginning to test care consultations where we're seeing positive early response.

Moving now to our digital strategy. On the Sally side, there is a clear opportunity to build on momentum of our Marketplaces success, which continues to be a key driver of e-commerce sales at Sally U.S. and Canada. In fiscal Q4, Sally using [indiscernible] e-commerce sales increased 34% over the prior year and comprised 9% of total sales. Our teams are focused on unlocking greater digital value through the marketplace expansion, leveraging our speed-to-market delivery capabilities and strengthening our digital foundation. This will include website and app enhancements that feature an elevated beauty persona, modern navigation and a more seamless customer journey designed to drive increased engagement and conversion.

On the BSG side, mobile app usage accounts for a significant portion of our digital traffic with increasing reliance on our app for education and transacting. We are targeting the spring of 2026 for substantial update to the [ BG ] app and e-commerce platform designed to deliver improved user experience and enhanced personalization. We believe this will fuel long-term benefits, including higher conversion increased retention and engagement and enhanced brand loyalty. We're also in the early stages of developing an exclusive digital ecosystem designed to expand BSG's relationship with a stylist and increasingly integrate into their businesses. This will include a centralized hub for education, community and services, one that will enable us to leverage data to continuously create incremental value for both our stylists and brand partners.

Turning to product assortment and innovation. For the Sally segment, we are focused on driving multi-category performance by continuing to bring in new brands and products while expanding and nurturing categories beyond color. The most obvious opportunities exist in the strategic categories of care and nails where we already have a strong presence in authority. In addition, we added fragrances as a new category in our top 1,000 Salad U.S. stores at the beginning of November. We're also leveraging our higher-margin owned brand offerings and have a number of initiatives on deck for fiscal 2026. First, we are refreshing and relaunching some of our key brands in new texture ID, inspired by nature, and [indiscernible] summer breaks, and we're bringing infrared innovation to the market with a dynamic action of ion styling tools. We believe that building momentum with our higher-margin owned brands will enable us to drive increased customer retention and frequency at Sally, fueling long-term growth and profitability.

For the BSG segment, we are pleased to serve as a trusted and valued resource to our BSG side, we are always seeking the list and greatest in trends and innovation. With our ability to reach nearly every stylists in the U.S. and Canada, we provide a valuable platform for brands to grow, and we have found that one great brand begets another. Of note, innovation drove upwards of 30% of BSG's total hair care sales in fiscal 2025. For perspective, that's up approximately 3x from just a few years ago. In fiscal 2026, we have another exciting lineup of innovation coming. Key trends include grossing, blonding, smoothing, molecular repair and scalp care and will be in stock with highly desired brands like Briogeo, [ Color Wow, ] Danger Jones, K18, Moroccan Oil, Schwarzkopf and United. In addition, we see incremental opportunities for BSG to build upon its strong track record of expanding its distribution rights. This can take shape by partnering with existing brands, pursuing opportunistic acquisitions and adding new brands, all strategies we successfully actioned in recent years.

Lastly, looking at our strategy from new growth pathways. For our Sally business, we've viewed Sally Ignited as a true game changer for our platform going forward. Sally Ignited is a comprehensive initiative encompassing both physical and digital refreshes, category and brand expansion and immersive experiences focused on discovery and community. We see a tremendous opportunity to supercharge a fundamentally better store experience, especially as we double down on multi-category expansion continue to deliver a relentless flow of innovation and lean into momentum in areas like LOCD and marketplaces. Our mission is to ensure that the Sally brand emotionally connects with our customers while creating a discovery-focused omnichannel specialty beauty experience, all enabling us to more effectively compete in today's product assessed beauty marketplace. At the end of fiscal 2025, we have completed 30 store refreshes. The stores are modern, on trend, open, warm and inviting with a new layout that increases the ease of way finding. We've continued to see customers spending more time in store and cross shopping categories at an increased rate. Key indicators, including UPT and ATV are trending above the rest of the fleet. We are planning to bring Sally Ignited to an additional 50 locations throughout the remainder of fiscal 2026. Because these refreshes are mostly occurring in stores that were previously slated for updates or relocation. The investment is not incremental to our planned capital spending for the year.

Looking further ahead, we continue to have conviction in the opportunity to refresh up to 1,500 stores or approximately 2/3 of the salary fleet. Sally's strong brand equity and 60 years of heritage certainly provide a powerful foundation from which to build. In fact, we are incredibly proud that just last month, Sally is ranked as the #3 BD retail brand in the procedures Partners Consumer Sentiment Index for 2025.

Turning to our BSG business. We're looking at new category expansion. We're focused on expanding BSG's addressable market by entering adjacent product categories, either organically or through acquisition. We recently began testing a couple of brands in the skin and spa space while pursuing stetsons. More to come on this in the coming quarters.

Now moving to an update on our Happy Beauty initiative, which currently has 20 stores. We have leaned into Happy Beauty as an intern headquarters known for on-trend brands and key categories such as skin care and fragrance. Leading up to the holiday season, we recently completed key merchandising updates and implemented new marketing tactics, including increased influencer engagement and messaging that highlights [indiscernible], test before you buy, [indiscernible] and value. We're putting a lot of energy behind the holiday selling season and believe that coming out of that period, we'll be better positioned to understand the trajectory of the concept and the optimal path forward. Underpinning the top line growth drivers I discussed is a core discipline focused on profitability unlocks. In fiscal 2025, we generated meaningful operating efficiencies through our Fuel for Growth program. This work is ongoing and encompasses merchandising, sourcing, supply chain, best cost location and non-trade spend, where we have carried out deep dives and are continuing to extract value. In the first 2 years of the program, we generated cumulative run rate gross margin and SG&A benefits of $74 million, above our original expectation for $70 million, and we expect to capture cumulative run rate savings of $120 million by the end of our current fiscal year. Key levers we're focused on include SKU optimization, further supply chain optimization, promotion and pricing. The expected benefits will continue to be an important contributor to gross margin and bottom line profitability in fiscal 2026.

Looking further ahead, we are committed to delivering significant value for our customers, associates and shareholders. Our focused strategies and consistent execution position us to achieve compounding growth while the strength and flexibility of our balance sheet will enable us to remain disciplined capital allocators. As part of our long-range planning, we are introducing financial targets to reflect our 3-year planning horizon, ending with fiscal 2028.

On an annual basis, we expect to generate net sales growth in the range of 1% to 3%, adjusted operating earnings growth of 3% to 5%. Adjusted diluted EPS growth of at least 10%, including approximately 50% of free cash flow going to share repurchases, capital expenditures in the range of $90 million to $120 million, and free cash flow of approximately $200 million. Our foundation is strong and our focus is clear. Our fiscal 2025 performance underpins our confidence that we have the strategy, capabilities and team in place to scale and win with significant runway for growth and value creation.

Now I'll turn the call over to Marlo to discuss the financials.

Thank you, Denise, and good morning, everyone. We concluded the year with strong business momentum, enabling us to deliver fourth quarter and full year results ahead of our expectations on the top and bottom line. Our performance reflects our disciplined execution and commitment to long-term value creation.

Turning to the details of the fourth quarter. Consolidated net sales increased 1.3% to $947 million, which included 40 basis points of favorable impact from foreign currency translation, while operating 38 fewer stores compared to the prior year. Consolidated comparable sales increased 1.3%. On the selling side, we saw strong growth in our core acquire of color, our digital marketplaces and from our Sally e-commerce site. At BSG, color also performed well and extended distribution and new brands drove another quarter of positive comp sales. Global e-commerce sales increased 15% to $105 million and represented 11% of total net sales. We maintained our strong margin profile in Q4. With gross margin expanding 100 basis points to 52.2%. The year-over-year improvement is primarily attributable to higher gross margin in both business segments, driven by the benefits of our Fuel for Growth program. We expect to maintain our healthy margin profile in fiscal 2026 and anticipate we can continue to offset potential cost of goods impacts related to tariff increases through [indiscernible] with vendors, sourcing optimization and modest price increases on select products.

Looking at expenses. Q4 adjusted SG&A totaled $405 million, that's up $14 million to last year, reflecting higher labor costs bonus expense, rent expense and IT costs, partially offset by $7 million in Fuel for Growth benefits. In total, we captured an incremental $13 million of pretax Fuel for Growth benefits to both gross margin and SG&A in Q4, enabling us to deliver an incremental $46 million in pretax benefits and full year fiscal 2025. This translates to $74 million of cumulative run rate benefits since we initiated a program in fiscal 2024. Of that amount, the margin benefits totaled $32 million coming from the optimization of our supply chain, vendor partnerships and promotional efficiencies.

SG&A benefits totaled $42 million coming from transportation efficiencies, outsourcing and reductions in non-trade spend. Approximately $32 million was reinvested in the business to support our strategic initiatives with $42 million flowing to the bottom line as profit were to offset in patients. We anticipate delivering an additional $45 million in run rate savings in fiscal 2026 with about 2/3 coming from gross margin and 1/3 from SG&A. By the end of fiscal 2026, we expect that our cumulative run rate savings will be approximately $120 million.

Returning to the P&L. We're pleased to report that bottom line results exceeded our expectations driven by gross margin expansion and cost reduction. Adjusted operating margin came in at 9.4% and adjusted diluted earnings per share was $0.55, a 10% increase over the prior year. On a full year basis, we delivered adjusted operating margin expansion of 40 basis points to 8.9% and adjusted diluted earnings per share growth of 12% to $1.9.

Moving to segment results. Sally Beauty net sales increased 1.4% to $542 million, which included 80 basis points of favorable impact from foreign currency translation, while operating 33 fewer stores versus a year ago. Comparable sales increased 1.2%, with comparable transactions flat and average ticket up 1%. For the Global Sally Beauty segment, Color increased 8%, while Care declined 7% compared to the prior year. Sally e-commerce sales grew 23% to $47 million and represented 9% of segment net sales for the quarter. In addition, e-commerce sales for Sally U.S. and Canada grew by 34%. Gross margin in our Sally segment increased 9 basis points to 61.3%, driven primarily by higher product margins from the benefits of our Fuel for Growth program.

Segment operating margin came in at 15.9%. Looking at the BSG segment. Net sales increased 1.1% to $406 million, which included 10 basis points of unfavorable impact from foreign currency translation while operating 5 fewer stores versus a year ago. Comparable sales increased 1.4% with comparable transactions up 6%, while average ticket was down 4%. From a category perspective, Color increased 5% and Care was up 1%. BSG e-commerce sales increased 8% to $58 million, representing 14% of segment net sales for the quarter. Gross margin at BSG expanded 100 basis points to 40%, primarily reflecting higher product margins from the benefits of our Fuel for Growth program. The operating margin was strong, coming in at 12.6%, up 160 basis points to the prior year.

Turning to balance sheet and cash flow. We ended the year in strong financial condition with $149 million of cash and cash equivalent and no outstanding borrowings under our asset-based revolving line of credit. Inventory levels totaled $988 million, down 5% versus last year. Entering fiscal 2026, we remain focused on driving process improvements to enable faster inventory turns and improve working capital productivity. Fourth quarter cash flow from operations totaled $121 million, while free cash flow totaled $78 million. In Q4, we utilized excess cash to repay $21 million of term loan debt, bringing our net debt leverage ratio at year-end down to 1.6x. We also deployed $20 million of cash to repurchase 1.7 million shares of stock under our existing share repurchase program. On a full year basis, we generated $275 million of operating cash flow and $216 million of free cash flow, allowing us to repay nearly $120 million of term loan debt and repurchased more than $50 million of our shares.

[Audio Gap]

Turning to our fiscal 2026 guidance. On a full year basis, we expect the following: consolidated net sales in the range of $3.71 billion 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 million to $342 million. Adjusted diluted earnings in the range of $2 to $2.10 per share, which assumes that 50% of free cash flow go towards share repurchase. Capital expenditures are expected to be approximately $100 million, and free cash flow is expected to be approximately $200 million. In addition, we expect our store count to be approximately flat, including about 40 new stores, 40 store closures and 50 relocations.

For our first quarter of fiscal 2026, we expect the following: Consolidated net sales in the range of $935 million to $945 million, which includes approximately 40 basis points of favorable impact from foreign currency rates. Comparable sales to be approximately flat. Adjusted operating earnings of $75 million to $80 million and adjusted diluted earnings in the range of $0.43 to $0.47 per share.

In summary, we are pleased to finish the year strong and look forward to making meaningful progress in fiscal 2026 towards the long-term financial targets Denise outlined.

We appreciate your time this morning. Now I'll ask the operator to open the call for Q&A.

[Operator Instructions] Our first question comes from Oliver Chen with TD Securities.

Denise and Marlo, on the quarter, you just had -- I would love to hear about what were some of the key factors that help drive the upside at both -- at each division. And then as we think about the comp complexion this quarter, did ticket run similar to what you expected in terms of the negative ticket trends at BSG relative to the positive ticket trends at Sally. And then I would just love to hear your thoughts on your guidance, on your comp guidance relative to occupancy leverage. What do you see happening in terms of your ability to leverage some of the fixed costs with the comp outlook?

Oliver. And we are very pleased with the performance in Q4. In terms of factors that drove the performance and drove the upside I think what's really notable in the quarter is the strength of color in both of our businesses. So in the quarter, Color was up 7% overall, 8% in Sally and 5% in BSG, really speaking to the the strength of the DIY kind of Pro product in our Sally segment and then the importance of the brands that we carry on the BSG side. And I think underlying that, the other things that we saw a great strength, marketplaces continue to overperform on the Sally side of the business, which we are pleased to see. Innovation in BSG helped to drive care back into positive sales growth territory, which we were pleased to see as well. And then finally, customer activation. The strength of the LCOD program with 5,000 to 6,000 consultations a week and a nice conversion rate in there was a real benefit complemented by personalization. So thrilled with the outcome, and I think there's a lot of things there that are positive momentum that will continue with us into fiscal '20. When we think about the ticket, particularly, I think you commented on the ticket and BSG. It was not surprising at all to us. The ticket was down and transactions were up. The behavior that we're seeing from that stylist is they still have a fairly healthy book of business but they continue to buy what they need when they need it. So they're more likely to come in more frequently and pick up those items, which then in turn makes it for a little bit lower basket. But in total, delivering a little over 1% sales growth, 1.4% comp growth on the BSG side. The relationship that customer is still extremely healthy. And then Marlo, maybe you'll talk a little bit about the occupancy level SG&A for the coming year?

Yes. So for the coming year. In Q1, we're -- the top line is a bit under pressure from some of the government shutdowns. So we'll see a little bit of deleverage there. But as we go through the year, we'll see that leverage improving on a full year basis, we would expect leverage to be fairly similar to last year.

It'd be helpful to ask you a bit about the consumer environment because it's pretty bifurcated as what we see with more pressure in the middle and low. And as you called out, sentiment and the number of shutdowns on people's minds as well. How is that interplaying? And what might drive comps better than your guidance? It feels somewhat conservative, but I know there's a cautious optimism in terms of what you're seeing with the top line? And then second question on the long-term outlook on your net sales growth of 1% to 3% relative to operating earnings growth of 3% to 5%, where are the leverage points we should think about and that algorithm.

Absolutely. So let me start with on the consumer front. I think what we've seen today is that the Sally customer is resilient continues to respond well to a lot of the key initiatives we have in play, like life at colors on demand, marketplaces, innovation. We also see the Cylus business being nice table. Certainly, we look forward to them having a very positive holiday season upcoming here. Underneath all of this, I'd say, in particular, on the consumer side, we are seeing consumers remain choiceful. That's not new news. And for us, choiceful means continuing to spend in the core color category, depending a little wider in styling tools and leaning into value a bit more. We did see a bit of a slowdown particularly on the low income customer coming into our stores as we've navigated through the 40-plus days of the government shutdown. At this point, we hope that, that's transitory behavior. We're certainly watching and monitoring what is happening with that consumer base. But I think if we step back, we just feel really good about the momentum in the business with the strategic initiatives driving over 250 basis points of comp this past year and those continuing into the new year. So focused on innovation, performance marketing, personalization, license colors on demand. If we said what could help us a little bit more and drive a little bit outsized growth, we always have the potential on the BSG side for expanded distribution tuck-in M&A that continues to expand our reach with brands existing or new brand partners that is out there. We're also excited with the work that we're doing on Sally ignited. We're starting to understand with while that's just in a few stores today, what things we're learning that we can lift and shift for example, putting in 1,000 Sally stores, our fragrance assortment kind of coming into holiday. So I think those are things that could trend positive, but we think with what we just witnessed with the government shutdown, it's prudent in the way that we're thinking about Q1, but feel great momentum for the full year. And then, Marla, do you want to comment a bit on the sales to profit equation, I think, Oliver asked about.

Yes. And I think you were asking to the longer term. And so I think the growth on the top line, on top of that, where we see additional leverage coming and additional growth opportunity to the bottom line is certainly through the continuation of our field for growth program. We have -- most of the heavy lifting will be done through the end of fiscal '26, but it's the muscle memory that will remain within our organization and continue as we go forward. So we'll continue to optimize and leverage the capabilities of our Fuel for Growth program. for incremental opportunities to drive savings for both reinvestment and flow through to the bottom line. And then on top of that, our own brand performance continues to drive those results.

Our next question comes from Susan Anderson with Canaccord Genuity.

I was wondering if maybe you can give us an update on the Sally store remodel program. I guess, where are you at with the store remodels? Have you completed any be on the Orlando market? And then maybe if you could just talk about where they're performing versus the core in the Orlando market and then also if you've completed the ones outside.

Sure. I'm happy to provide an update there. So as of this quarter, we've kind of branded our Sally brand refresh as Sally Ignited. And we think it's a great representation of how our customers are reacting when they're coming into our North stores. Just as a reminder, what are we really doing? It's a physical and digital refresh. It really is about creating a more immersive experience that lets us get more discovery and community. The store update, in particular, really has a new layout. Nail is displayed in a rotunda that's very dramatic as you come into the store. There's a discovery bar to help you in hair color choices that's fixtures built for purpose to shop as a specialty retailer rather than a supply store. And there's a cash wrap in the center that really helps our associates to deliver the high-quality service that customers have come to expect with us. Where we are today, at the end of the fiscal year, we had about 30 stores open, which included the full Orlando market as well as a handful of stores in other locations throughout the country. We're doing both of those models because Orlando will let us test kind of a full marketing program tied with the new program. And then when you think about the drop in markets, we'll have a great ability to read an APT results against specific changes that we're making in the stores to understand what's working, what we might do differently. We plan for 50 stores in fiscal '26 that will let us continue to extend that reach and test and try. The great news is that within our capital program for the year because we would have been doing remodels or relocations to the number of stores, and we're really doubling down on sale guided specifically on what we're seeing. We love that we're seeing customers have higher dwell time and shop cross category when they come into the store, which is a great part of the design that we were looking to do. that hair color customer exploring in nail, that textured hair customer, looking and thinking differently about styling tools is what we were trying to drive. In turn, we are seeing UPT as well as ATV. So our units per transaction and our average transaction value higher than the rest of the fleet. That's very encouraging to us, and what we hope we'll continue to see as the test progresses. And I'd be remiss not to say we are working to lift and shift things that we're finding that are working quite quickly into some of our core fleet. A great example of that is the expansion of fragrances into 1,000 stores in Sally here for the holiday.

Okay, great. Interesting. And then I wanted to maybe follow up just on the strong growth in color at Sally. I think you had said that you are seeing, I guess, more new low-income consumers coming in. I guess, one, are you seeing more people do their hair themselves? And is that, I guess, do you think being driven by just their wallets being stretched and wanting to save some money on that front? And I guess, are these new consumers as well to Sally or are they just coming back? And then while they're in the stores, I guess, are you seeing them pick up other products in the stores when they do come in to buy Color?

Yes. So we love what's happening with Color in Sally. I'd say the great thing is that we are seeing new, reactivated and existing customer growth. When we think about the new customer growth, we think there's an extra benefit from licensed colors on demand. when that customer can get support from an expert to get confidence in what is really a high stakes category that you're going to go purchase and take on in your own DIY endeavor. We're seeing that customer come in and that is fueling some of the growth in the model. There's no doubt about that. Secondarily, when you think about the customer and then trying to manage their budget, no matter what income level you are doing your hair in us along all the time is a very expensive proposition. We recently did a survey and out of the 61% of customers who told us they color their hair, it was quite fascinating that 25% of them do it just DIY, 25% of them split their time between DIY and salon. So think about that as they might get a big update at the salon and they might do touch-ups at home. And it was only that remaining 11%, 12% that actually said I only go to a salon. So our ability to have them understand how we can help them get that better outcome with things like our in-store support and our LCOD, we think is driving people into the store, complemented by a great lineup of product and really easy accessibility.

Our next question comes from Simeon Gutman with Morgan Stanley.

This is Lauren on for Simeon. Our first one is on the longer-term outlook you provided this morning. Just curious, as your fuel for growth initiatives wind down this year. What gives you confidence for achieving that longer-term outlook for the EBIT dollar growth, 3% to 5% range?

Oh, yes. Yes, the longer-term algorithm that we've set forward, certainly, you're seeing this fiscal '26 is on the path to that. And again, a big part of that is our growth drivers on the top line, which will help flow through to the bottom line, but then also adding to that is the further opportunity within our Fuel for Growth program, which we've got more runway on our supply chain optimization, further opportunities within our vendor negotiations as well as the combination of owned brand penetration continuing to increase.

Okay. Great. And just a shorter-term question. On the Sally side, it looks like transactions are still a little bit soft, can you help us understand how you're thinking about maybe traffic versus ticket for '26 as it relates to the Sally segment and maybe how your initiatives are positioned to reignite growth for both in '26?

Yes. Transactions in the Sally segment in the fourth quarter were pretty much flat and our 1.5% came from a contribution of AUR and ticket coming into the stores. That's actually an improvement from what we've seen of late where traffic has been a bit more sure, particularly on that lower income consumer side of the business. Looking ahead into 2026, we expect all the metrics will improve and continue to grow, right? Driving transactions will really be things around our performance marketing and attracting new customers into the fleet. The strength of our personalization and how we continue to enable and fuel that with customer to really drive customer frequency. And then when we think about the basket itself, this focus on cross-category shopping is a primary effort that we have going on within our stores, but they think is complemented nicely by new innovation coming in and the continued drive the continued success in our digital strategy that we've had of late.

Our next question comes from Sid Wagner with Jefferies.

Can you just share a little bit more about your expectations category growth that are underpinning the long-term net sales growth range. curious kind of what trends and innovation you maybe are expecting to drive the category. And then maybe just an update on the promotional environment what you saw during the quarter and maybe what you're expecting into 2026.

Yes. So when we think about the long-term growth of the business, we believe Color is still going to be at the core of both our businesses, and we would anticipate continued nice growth in that space. When we look beyond that, we're looking to have in the Sally business, care and nails really continue to gain traction. Nail and what we're working on the Sally ignited stores is quite dramatic and quite exciting for us, and what we're delivering. And on the [indiscernible] side, the innovation flywheel, particularly on the care side of the business quite strong. But I think [ Cards ] is exciting in our long-range plan is how we're working on further category expansion. So when we think about that on the BSG side, we're starting to test into skin and [ BAW, ] which not only can be bought by our existing beauty professionals that are coming into the store, but can expand our base to talk more to estheticians, and what they need for their business. And on the salary side, the opportunity to understand how cosmetics, fragrance men's grooming can play a larger role in the box and online is going to be an important part of that category side of growth as well. So all good things that are underpinned by our ability to update the customer harvest digital value overall. And then our new growth pathways that can help us advance that as well. And then your other question on promotional levels and what we saw in the fourth quarter. In general, I'd say levels for us were fairly similar year-over-year at both businesses. a little bit of nuance underneath that. Sally running more promos, but shorter days. So that idea of if this is important to you, there's an expiration time on when you can come in and get a certain offer. It's been something we've been working on. And then BSG ran a little bit heavier in promo, but a part of that as well was strength of what we've been able to do with a lot of our brand partners in terms of preparing for the holiday selling season as we were approaching into the quarter. So we felt good about that. I think 1 thing that's really interesting that we're doing in Q1 here and the holiday on the Sally side is trying to move the customer a little bit more in the emotional reason to shop with us. So we've historically done more buying bulk promotions, buy and safe promotions. And the quality message platform that we have out there now, which is save while you skip the salon is really the emotional appeal to say, how can you get the outcomes that you want when your budget might not be able to be perfect to be able to afford all of that. We're really looking to see how that resonates with the customer and are excited about.

[Operator Instructions] Our next question comes from Olivia Tong with Raymond James.

Great to hear your confidence in providing the long-term targets. So can you talk about the underlying category growth assumptions embedded in those targets, your market share assumptions? And then how you think about the contribution of existing doors versus some of the newer categories and doors that you're expanding into or entering. And then specific to Q1, the guide is a little bit lighter than we had expected. It would be a deceleration versus Q4. But you also expect things to improve as the year progresses. So can you talk about the headwinds that you're seeing and then how you plan to build over the course of the year to give you the confidence despite the volatile backdrop.

Maybe I'll actually do this in reverse order. So I think, first and foremost, when we think about Q1, I want to reemphasize feel great about the underlying momentum in the business. What we've seen in terms of license Color on demand, innovation, performance marketing, personalization, we think are all very strong. For the full year, when we think about what underpins that, we assume that the consumer behavior and spending would be very similar to what we saw in fiscal 2025, which is choiceful, but resilient. And we don't think that, that's the case. We are realistic that we do expect that we will have seen some incremental pressure on lower income consumers in Q1 from the permit shutdown. Just the fear of the nature of when I'm getting that paycheck has an impact on low-income consumers. And so we're hoping that we're going to be past that very soon, but it's reflected in the expectations for the quarter. And I think importantly, the model has really proven resilient with the hair color category at the core, it's really a stable value quarry rather than the discretionary category. So strength there and will remain nimble to respond to changes as the customer starts moving into the selling season. I think on the top line, what the other important part to note is that we move into Q2, we actually are up against an easier compare to last year. So while it's our smallest quarter, recall last year, there were a lot of transitory events, whether that was the announcements around tariffs, the very high flu season and our stylists quite hard. So we expect Q2 to be a stronger category because of what we're lapping there. And then the back half of the year to be on trend and on the base of the business. So I think we're just is we're watchful about how that consumer is spending through this government shutdown period, which is what you're seeing in our Q1 expectations. And your bigger question, I think, was about long-term growth, and what is supporting our long-term growth drivers and that 1% to 3% top line growth. And our guidance this year suggests that we'll be on the low end of that range as we move through the year. I talked about on the call, the 4 key pillars that we're really focused on, which is understanding and activating the customer unlocking and harnessing digital value, differentiating with product distant and innovation, which includes category expansion and then accelerating new growth pathway, which importantly is our Sally Ignited program as well as Happy Beauty. When I think about where we are in the cycle of these different initiatives, I think the thing to think about is all of these are prudent track record in what we delivered in FY '25 with about 250 basis points growth coming of those from comp. In terms of pacing and how you see the progression of impact right? I think what's important to think about is as we go into '27 and '28, what customer activation can do for us and the understanding of the customer, being able to respond to that, incorporating how artificial intelligence can help us on that curve. We think impact in personalization, performance marketing and our LCOD campaign. I can't overstate the opportunity that we see there, and what we're working on and delivering. And then secondarily, I would say category expansion is the other big opportunity as you look to the later years within that long-term guidance range. We're already working on how to work -- how to think about this. So in we're sampling into skin and spa. We're excited about seeing how our customers react to that and that ability to attract a new esthetician customer and how we might be able to grow that business meaningfully as we look to future years. And then on the Sally side of the business, we think that there's a lot more runway in the nail portion of business, and the way that our Sally Ignited force bring nail to the forefront in terms of what a new customer can experience coming in. We think there's a lot there. And then we expect that we will also start to more meaningfully play in categories like cosmetics and fragrance in Sally as well as men's grooming. So that's going to be some things that are going to go on our growth curve. We expect that we will continue to have extremely strong performance in color. It core of what we do and the expertise that we have. And then with these other categories providing underlying growth, our confidence in that 1% to 3% top line growth is quite solid. And I think there's a lot of things underpinning that just for the Sally business as well. But when you think about the global it, the global scale we have as well as sticky customers and great high NPS scores. And we think we're really on the path here to giving those customers what they want and being rewarded in return.

Great. Just one follow-up on [indiscernible], you had mentioned how stylists are buying closer to demand just in time. I imagine you're pretty adept in terms of providing to them. So can you talk about what you're doing to support that given that you have that footprint and capability to do that?

Absolutely. So I think the great thing in the strength here is with 1,300 stores entry, our stylists can easily access us and then we can easily support them. So in addition to being able to come directly into the stores, we do offer 2-hour delivery. So if you're engaging digitally and need that product right away, we're there and offer that service for you as well as buy online, pick up in store. For our customers who buy in larger quantities, our full service portion of our business there to actively serve our customers and pull through. But I think what we're excited about is to make things even easier for our customers in the -- a little bit later into 2026. We're actually relaunching our app. And our stylists are heavily engaged in the app. If you ever sat behind -- got your haircut, they are on their phones all the time. It's how they place their orders, it's how they write them what they need, it's how they think about how they're going to serve their customers. Our ability to have that app be more intuitive, faster for them to be able to build a basket. So then whether they want to buy online, pick up in the store, whether they want to come shop in store, whether they want us to deliver that product to them. We can handle that in all the ways that we need to. But that idea of supporting feed to market to that customer is very important to us.

That concludes today's question-and-answer session. I'd like to turn the call back to Denise Paulonis for closing remarks.

Well, thank you for joining us all today, and thank you to our teams around the world for delivering a strong quarter and a strong year. most importantly, supporting our customers and helping them get the looks that they love and what they like to achieve in their own personal lives. So thank you to everyone and an early happy holidays, and we'll talk to you again next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.