Company Overview

Sally Beauty Holdings, Inc. (“SBH”) is an international specialty retailer and distributor of professional beauty supplies. The Company is organised into two business and reportable segments as follows:

Beauty Systems Group (“BSG”): This segment offers professional beauty supplies exclusively to salons and salon professionals throughout Canada and the U.S. BSG generally operates under the ‘Cosmo Prof’ banner through company-operates stores, as well as a mobile commerce-based app, chain portals, digital platforms, distributor sales consultants (“DSCs”) and franchised stores.
Sally Beauty Supply (“SBS”): This segment offers professional beauty supplies whilst providing education to retail consumers and salon professionals throughout North America, South America and Europe. SBS generally operates under a mobile commerce-based app, digital platforms, and retail stores (under the ‘Sally Beauty’ banner) where in Canada and the U.S. the average store offers an average of 7,000 beauty products and is typically located within a strip shopping centre.

This Security Issue came to our attention at the price of approximately 8.75 during March 2025, with drafting of this Piece beginning soon after. At the time it initially piqued our interest for several reasons, including:

The Company’s low P/E ratio
The Company’s low P/BV ratio
The Company’s ‘P/E * P/BV’ figure being less than 22.5
The Company’s current ratio
The Company’s previous earnings consistency and stability

Our Suspected Valuation at First Glance: Possibly ‘Gold’

Company Financials

All of the discussions below are based on the data presented in the Company’s SEC filings ^{[3 – 23]}.

Table 2 – 1 below shows the Company’s annual net income and diluted earnings per share, alongside their three-year averages:

Table 2 – 2 below shows data extracted from SBH’s most recently published SEC filing (10-Q) ^[3] regarding their balance sheet:

Using the information presented in the table above (Table 2 – 2) we have constructed a new table below (Table 2 – 3), consisting of the discernible tangibles which we here find more useful. We have included the values of these assets as stated on the balance sheet, alongside three liquidation values i.e., their ‘realizable value’ as presented in ‘Security Analysis’ (pg. 560) ^[1]:

Table 2 – 4 below shows how many of the Company’s relative assets and liabilities (as presented in Table 2 – 3) are attributable to each of the Company’s common shares:

Initial Discussions Regarding the Company’s Financials

The Issue’s current ratio is 2.18 in accordance with Table 2 – 3, and Table 2 – 4 above, whilst the best, average and worst-case scenarios are 1.71, 1.54 and 1.22 respectively, all of which apart from the last are above the minimum recommended figure of 1.5. The Issue also fails the acid test in all four instances.

The long-term debt value exceeds 110% of the net current asset value in all four scenarios.

The Company has not demonstrated any losses over the last decade and it is our opinion that the earnings have been fairly consistent. We believe the five- and 10-year averages can be taken as a reliable indication of the Issue’s previous earning power as opposed to the by-product(s) of a random assortment of numbers.

The Company has never paid any cash dividends on their common stock.

The Company’s most recent annual earnings were larger than those of six years prior; and looking at the three-year averages of our diluted EPS (beginning 2016) we can see that over the latest fiscal decade, the EPS have decreased by approximately 9%.

The discernible tangible equity per share is -5.29 in accordance with Table 2 – 4 above; and we calculate the best, average, and worst-case scenarios to be -8.76, -10.93 and -12.24, respectively; all of which are negative and render the 120%-price-paid-to-DTE metric invalid in this instance.

The following points are for the more-involved investor(s)/shareholder(s); those who view common stock holdings as part-ownerships in an enterprise, irrespective of the short term public valuations, and not merely a tradable certificate “which can be sold in a matter of minutes” ^[2]. All of the points presented below have been factored into our valuation of this Security Issue here discussed.

Further Discussions Regarding the Company’s Financials

There were five main points we felt warranted further discussion or highlighting here as opposed to a single bullet point under the ‘Additional Observations Regarding the Company’s Filings’ subsection. Here we shall remind the reader that it is up to them and anyone else to whom it may concern, to come to their own conclusions after carefully considering the information they encounter during their own investigative works. We felt that the following five points were to be highlighted but of course some of you may naturally disagree and in your perhaps more, or even less informed opinion may have a different take on the information presented.

Business Acquisitions

Albeit not immediately obvious SBH has a history of acquiring smaller businesses. One of the first giveaways being every consolidated statement of cash flows containing an ‘acquisitions, net of cash acquired’ line. Additionally, further down in the most recent annual reports exists a note entitled ‘acquisitions’ explaining the material acquisitions from the last few years. Reviewing the last few 10-K Filings provides some intelligence around the acquisition-trend but a more vivid picture is painted in an even earlier 10-K Form. Please see the following statement for your perusal:

We have completed more than 40 acquisitions during the last 10 full fiscal years. We believe that our experience in identifying attractive acquisition targets, our proven acquisition integration process and our highly scalable infrastructure have created a strong platform for potential future acquisitions. Recent acquisitions have included. ^[23]

Clearly this is something the Business has relied on. We’ve compiled a list of the most notable and recent examples as provided by SBH themselves over the last financial decade or so:

“On September 20, 2024, we acquired certain assets and business operations from Exclusive Beauty Supply, Inc. (‘Exclusive Beauty’), a distributor of professional beauty products operating in the State of Florida, for approximately $7.5 million, subject to certain holdback adjustments related to inventory” ^[5].
“On September 22, 2023, we acquired certain assets and business operations from Goldwell of NY, Inc. (‘Goldwell of NY’), a distributor of professional beauty products operating in the State of New York, for approximately $9.0 million. Under the terms of the agreement, we acquired the operations of five stores and a direct sales force, inventory, and exclusive and non-exclusive product distribution rights” ^[5].
“On September 28, 2020, we acquired La Maison Ami-Co (1981) Inc. (‘Ami-Co’), a professional beauty products distributor with ten stores in the province of Quebec, Canada, for approximately $8.9 million, pending certain holdbacks. In addition, this acquisition includes exclusive distribution rights in Quebec to premier professional hair color and hair care brands” ^[11].
“In addition, we completed several other individually immaterial acquisitions during the fiscal year 2020 in the aggregate cost of approximately $5.7 million and recorded intangible assets subject to amortization of $3.9 million” ^[13].
“In the fiscal year ended September 30, 2018, we acquired certain assets and business operations of H. Chalut, Ltee. (‘Chalut’), a distributor of beauty products with 21 stores operating in the province of Quebec, Canada, for approximately $8.8 million” ^[13].
“In the fiscal year ended September 30, 2016, we acquired certain assets and business operations of Peerless, a distributor of beauty products with 15 stores operating in the Midwestern region of the U.S. for approximately $23.9 million…In addition, we completed several other individually immaterial acquisitions during the fiscal year 2016 at the aggregate cost of approximately $2.3 million and recorded intangible assets subject to amortization of $2.3 million in connection with these acquisitions” ^[17].
“In the fiscal year ended September 30, 2013, the Company acquired certain assets and business operations of Essential Salon Products, Inc. (‘Essential Salon’), a professional-only distributor of beauty products operating in the northeastern region of the United States, for approximately $15.3 million” ^[23].
“In addition, we completed several other individually immaterial acquisitions during the fiscal years 2015, 2014 and 2013 at the aggregate cost of approximately $7.1 million, $4.9 million and $6.8 million, respectively, and recorded intangible assets subject to amortization of $2.2 million, $1.4 million and $4.0 million in connection with these acquisitions” ^[23].

Positively these aligned with SBH’s core functions, both with regards to its inception and its primary operations at the time of each happening. We’d also point out that common shares of SBH were not given in consideration for these purchases (at least in the last few years we investigated). On the downside a lot of the purchase price was owed to intangibles and the company often (or always) state that they funded their acquisitions via cash from operations and borrowings under the ABL facility; we’ll touch on the debt accumulation and say over the years the long-term debt has been incrementally declining however which is a bonus. Overall some may prefer consistent organic growth over the type that hinges on acquisitions but this may be a question of preference and either way the events remain in place. We’ve also not seen any mention of divestures indicating the business purchases have maintained suitable viability in the long run but further down there is mention of the ‘Plan’ which maybe perhaps disproves that idea. Perhaps the more meticulous of you may want to investigate this further or query such matters with Management.

Note’s Investment Merit

SBH has notes some may wish to investigate i.e., consider adding to a suitable investment portfolio. As usual we have calculated the fixed charge coverage, with the data presented in Table 4 – 1 below:

The fixed charge coverage is not sufficient as per Chapter 11 of The Intelligent Investor ^[2], so this is not a pass. Please also see the following relevant bullet points:

The notes are unsecured.
The Company often repays the notes before their maturity dates which at times results in a loss on the extinguishment of debt.
We are not aware of any outside entity’s guarantees and have not seen any mention of a sinking fund but those interested in this should review the prospectuses of the relevant notes payable.
The Company rolls over debt.
Other elements of the Company’s long-term debt are secured by their assets i.e., “borrowings under the ABL facility are secured by a first-priority lien in and upon the accounts and inventory (and the proceeds thereof) of the Company and its guarantor subsidiaries. Furthermore, the ABL facility is also secured by a second-priority lien in and upon the remaining assets of the Company and its guarantor subsidiaries” ^[5].
The Company is not averse to high interest rates i.e., the most recently issued senior notes have an interest rate of 6.75%, a few years ago the senior notes issued had an interest rate of 8.75% and the latest 10-K Filing said “during fiscal year 2024, the weighted average interest rate on our borrowings under the ABL facility was 7.25%” ^[5].

Growth, Stagnation or Decline

When we began reading the annual reports we initially envisioned the business itself being at risk because of the internet and footfall in retails stores typically decreasing but one particular admission caused partial erosion of these concerns:

In the fourth quarter of fiscal year 2022, our Board approved the Distribution Center Consolidation and Store Optimization Plan (“the Plan”) consisting of the planned closure of 330 SBS stores and 35 BSG stores. Stores identified for early closure were part of a strategic evaluation which included a market analysis of certain locations where we believe we are able to recapture demand and improve profitability. By optimizing our store base, we can further focus on our customers’ shopping experience and our product offerings as well as result in long term value to our shareholders and customers. Additionally, this Plan includes the closure of two BSG distribution centers in Clackamas, Oregon and Pottsville, Pennsylvania. Consolidating this work into our larger distribution centers will increase product availability, shorten delivery times and reduce overall costs as we focus on driving results. ^[9]

And for clarity the latest 10-K Form said the following:

As of September 30, 2024, the Plan has been substantially completed, as the only two remaining BSG stores to be closed were closed during the fiscal year. However, we may still incur future immaterial charges related to store closures such as exit costs, lease negotiation penalties, termination benefits and adjustments to estimates. As of September 30, 2024, there were no material outstanding liabilities for exit costs or involuntary employee termination benefits. In fiscal year 2023, we closed 294 SBS stores and 26 BSG stores, as well as the two BSG distribution centers. In fiscal year 2022, we closed 36 SBS stores and 7 BSG stores. ^[5]

This revealed small signs of adaptability although since fiscal year 2021 the net income has decreased. We would not say this is a long enough time frame to draw any solid conclusion from however, more something to keep an eye on going forward for all investors. The closing of stores though, was not without its negative impacts which is shown here:

SBS’s net sales decrease was primarily driven by lower comparable sales and the impact of store closures pursuant to the Plan. Comparable sales decreased $23.8 million resulting from store closures under the Plan; however, a significant portion of those lost sales were recaptured at other SBS locations. These decreases were partially offset by a favorable impact from foreign currency exchange rates. SBS’s comparable sales decline was a result of fewer transactions, partially offset by growth in our average unit retail, driven by inflationary impacts and pricing leverage. ^[5]

All-in-all this heighted our curiosity surrounding SBH and their overall state considering consumer shifts in shopping preferences that inspired the ‘Plan’ mentioned above, and the perhaps ever-shifting-trends within the beauty industry in general, especially if one is to factor in the constantly evolving digital landscape ceaselessly ingraining itself within today’s modern society. We decided to have a look at selected metrics over the latest decade for a rough idea, and yes, we will admit the overall picture is multifaceted versus the perhaps unilateral table below, but for now and for the sake of this discussion it will serve as a simple starting point from which the shrewder of you may wish to take your investigative steps further. Please see Table 4 – 2 directly below:

From a visual (not statistical) analysis the most notable changes were: i) The shareholder’s equity which is no longer in a deficit; ii) The rather recent net earnings decline; iii) The number of stores, as to be expected given the opening comments in this subsection; and iv) The number of DSCs. As previously said Table 4 – 1 is not the full diagnosis and if you really want to know how the Company may be coping given the points we mentioned and more, then much more security, market and other analysis will be required. From looking at the results present however, we would not comprehend any suitors possible trepidation and we would say the recent dip in net income in conjunction with the store closings and consumer shifts should not be an insurmountable task for a well-equipped business to handle, but of course how SBH navigates this will have to be observed with time. We’ll leave the reader to come to their own final conclusions after carrying out their necessary investigations themselves but so far we think any serious consternation is far from necessary.

Other Charges

The Company has many additional charges affecting the income values. Here is a list of the most recent instances from the last five 10-K Filings we found:

“On October 24, 2024, we sold our corporate headquarters located in Denton, Texas to Denton County, Texas for $45.5 million, excluding $1.5 million in closing costs. As of September 30, 2024, the assets included in the sale were classified as held for sale within other current assets on our consolidated balance sheets. As a result of the sale, we recognized a gain of approximately $26.8 million from the sale of these assets during our first quarter of fiscal year 2025. Additionally, we entered into a lease agreement with Denton County, Texas, to lease the building for $35,000 per month for twelve months, with the option to extend three additional months. At this time, we do not anticipate exercising this option” ^[5].
“For fiscal year 2023, we substantially completed the planned closures under the Plan and incurred $17.2 million in restructuring charges, primarily from lease termination costs” ^[7].
“During the fiscal years 2023 and 2022, we recognized $0.6 million and $21.6 million, respectively, in impairment charges related to the Plan” ^[7].
“For fiscal year 2022, we incurred $27.6 million in restructuring charges, which includes $24.8 million in asset impairments related to the Plan and other expenses in connection with a prior restructuring plan” ^[7].
“For fiscal year 2021, we incurred $4.6 million in restructuring charges related to our Transformation Plan and Project Surge” ^[9].
“Expenses incurred during the fiscal year ended September 30, 2020, represent costs incurred by SBS of $3.2 million. In addition, SBS recognized $1.4 million in cost related to inventory write-downs in connection with the plan within cost of products sold” ^[11].
“For fiscal year 2020, we incurred restructuring charges of $14.0 million in connection with Project Surge and the Transformation Plan. For fiscal year 2019, restructuring represents gains of $8.4 million in connection with the sale of our secondary headquarters and fulfillment center and our Marinette, Wisconsin fulfillment center, partially offset by expenses incurred in connection with the 2018 Restructuring Plan of $7.7 million” ^[13].
“During fiscal year 2020, we impaired approximately $1.9 million in operating lease assets and leasehold improvements, primarily as a result of the impact of COVID-19, within selling, general and administrative expenses” ^[13].
“For fiscal year 2020, we recognized an impairment loss of $4.1 million, due to the impact of COVID-19” ^[11].
“Additionally, other expenses in the table above includes a non-cash asset impairment of $2.3 million related to the re-measurement of certain long-lived assets and operating lease assets” ^[13].

Of course, such items can affect reported earnings and we will admit that in spite of these earnings were consistent and the values here were not grand. The unpredictable factor does still exist though, hence our inclusion of this.

Management Observations

We saw several issues concerning Management and initially everything was going to be listed as a negative bullet point under the ‘Additional Observations Regarding the Company’s Filings’. The main points that caught our attention were (in descending order or importance), the exiting of named parties in the DEF 14A Forms, the historic overlap of named parties, and the compensatory practices; all of which synergistically justified this subsection’s existence i.e., had only one existed ‘Management Observations’ would not be a thing here, but yet here we are and we shall proceed accordingly. As we just stated the first matter was the frequent departing of named individuals with the examples we captured presented as follows:

“ Miller retired from the Board on November 3, 2014” ^[22].
“ Golliher resigned from the Board effective on October 1, 2015” ^[22].
“ Winterhalter is retiring from the Board and as the Executive Chairman of the Corporation effective as of February 2, 2016” ^[22].
“On September 30, 2016, Mark J. Flaherty resigned from his position as Senior Vice President and Chief Financial Officer” ^[20].
“On May 1, 2017, Ms. Sharon M. Leite resigned from her position as President of Sally Beauty Supply LLC.” ^[18].
“ Nealy Cox resigned as a member of the Board of Directors on November 10, 2017, and the Board of Directors changed the size of the Board of Directors from eleven to ten members” ^[18].
“ McDermott commenced employment with us in August 2017 and resigned in October 2018” ^[16].
“ Magnacca resigned as a director December 2, 2019” ^[12].
“ Gibbs did not stand for re-election at the 2020 Annual Meeting” ^[12].
“ Alt resigned from his position as Senior Vice President, Chief Financial Officer and President, Sally Beauty Supply effective November 16, 2020” ^[10].
“ Kohn is not included in the table because she resigned effective May 31, 2022” ^[8].
“Due to a job change Mr. Conroy is not standing for re-election, but will serve out his current term” ^[4].

We don’t know the reason for all of these and we won’t act like organic departures are not commonplace, but in this instance the frequency seems higher than we are used to seeing sparking pensive thoughts aimed at possible (and we would like to stress the importance of the word “possible”, as it is far from definite) internecine activities. The second matter of importance we mentioned above was named parties in the DEF 14A Forms having some form of shared history e.g.:

‘McKinsey & Company’ (which is affiliated with four named parties).
‘Fossil Group’ (which is affiliated with two parties).
‘Sprouts Farmers Market’ (which is affiliated with two named parties).

This in conjunction with the first matter is ‘curious’ and we wonder if the two things are related. The third and final point was concerning the compensation of NEOs. Whilst none of the practices were divergently out of the ordinary they remain not positive. We can start with the 2020 DEF 14A saying the following:

Prior to March 12, 2020, the Company was on track for an excellent second quarter…However, COVID-19 forced the shutdown of customer-facing operations at almost all of our global stores, and the impact on our financial results caused us to fall well short of achieving the minimum performance required…As a result, under our AIP, most participants would have received no bonus based on these financial metrics for FY20, with only those subject to a percentage payout based on achievement of our Strategic Initiatives eligible for some amount of payout…Because of the contributions our management team and other associates made this year, the Committee determined that they deserved to be rewarded. The Committee determined to exercise its discretion under the AIP to award bonuses to the management team and all AIP eligible associates in an amount equal to 60% of their target AIP award for FY20. The Committee determined this amount after balancing the significant impact of COVID-19 on the Company’s financials and not achieving threshold performance on our AIP metrics with the contributions from our management team and other associates to weather the crisis and put us in a strong position going forward. The Committee also believed it was appropriate to provide the same percentage of their target AIP award across the Company to acknowledge that all associates led and managed the Company through the unique challenges of FY20 as one team. ^[12]

All of which meant targets were not met but they paid out regardless. Then there were the following matters:

There is not an easily identifiable clear-cut statement from the Company’s 10-K or DEF 14A Forms (most not certainly in comparison to other companies) stating whether related party transactions occurred and outlining those that did. Again, it is very far from obvious.
The metrics used to determine NEO payments are not very consistent.
There are many non-GAAP metrics used to determine NEO compensation including TSR and “adjusted” metrics.
The compensation plans could stand to be simplified because they seem unnecessarily intricate.
There have been rather large cash sign-on bonuses the credibility of which we are unsure of.
The CEO is involved in the NEO compensation determination in spite of the Compensation Committee having an independent compensation consultant.
2 DEF 14A Forms ago, the CEO’s common stock holding requirements jumped from 5x the base salary to 6x the base salary.
The CEO pay ratio has visibly gone up since it was first provided.

And as an additional point to include in this subsection we thought the fees paid to the independent registered public accounting firm were excessive.

All of this may however be immaterial as for now the Company is still operating profitably. For now. As usual the individual can come to their own conclusions and decisions.

Additional Observations Regarding the Company’s Filings

Points we feel may be considered neither positive nor negative

SBH may currently be in a business cycle trough.
The Company is not very conservatively capitalized so may make for an interesting speculative purchase in this regard.
The Company does not frequently provide any numerical anticipations for the following year(s) so we are not able to comment on their accuracy in this regard as we like to.
We do not here suspect any corporate pyramiding.
The Company’s basis of presentation does not say the consolidated financials are representative of them and their “wholly-owned subsidiaries”, and in Exhibit Number 21.1 on the 10-K Filings there are no percentage ownerships mentioned. We have presumed that all subsidiaries are wholly-owned as there has been no mention of other owners e.g., non-controlling interests but it should be made clear however and maybe even still confirmed with Management.
The depreciation and amortization costs are included in the ‘cost of goods sold’, and/or ‘selling, general and administrative expenses’ items on the income statement. Concerning the depreciation costs, they are calculated using the straight-line method based on the estimated useful lives of the assets which are as follows: ‘Buildings and building improvements’ is 5-40 years; ‘Furniture, fixtures and equipment’ is 1-10 years as of the latest annual report, although prior to that it was 2-10 years from the 2014 annual report, before which it was actually 3-10 years; ‘Leasehold improvements’ are depreciated over the lesser of the estimated useful lives of the assets or the term of the related lease including renewals considered reasonably assured, with the reported estimated useful lives being 1-12 years as of the latest annual report, although prior to that it had been 2-10 years since the 2019 annual report.
There is an active share repurchase program under which the Business repurchases and subsequently retires their shares.
There are two methods used to determine stock options price/intrinsic values displayed in the following two extracts from 2024’s 10-K Filing:
1. “Market-based awards: In fiscal years 2024, 2023 and 2022, we issued market-based awards that vest over three years and are dependent on the level of achievement of relative total shareholder return (‘rTSR’) against a group of peer companies measured over a three-year period. For each rTSR, a grantee may earn from 0% to 200% of the original awarded amount. The fair value was determined by using the Monte Carlo simulation model due to the award being subject to a market condition. During fiscal years 2024, 2023 and 2022, the fair value of our market-based awards was $11.02, $15.54 and $23.39, respectively. Expense is determined upon issuance and is recognized regardless of whether the market performance target is achieved” ^[5].
2. “Stock options: Stock option awards are valued using the Black-Scholes option pricing model to estimate the fair value of each stock option award on the date of grant and expense ratably over the vesting period, generally three years. Stock options have a ten year life” ^[5].
SBH’s net earnings typically approximate to the comprehensive income although the latter can vary with said deviations principally on account of ‘foreign currency translation adjustments’; but with the exception of fiscal 2022 the difference is not significant in our opinion. Tangentially related, the Business includes certain geographic data concerning the location of particular assets. Judging off the information provided it seems assets are predominantly located inside the U.S., so a liquidation type would not seem too affected by currency fluctuations. The exact value of assets located in each country should be disclosed, however.
Concerning inventory valuations, the current situation is explained best by the Company themselves as follows:
1. “Effective August 1, 2020, we changed our method of accounting for inventory located in the U.S. and Canada at both our distribution centers and store fronts. Prior to August 2020, we valued inventory at the lower of cost or net realizable value on a FIFO basis. Effective August 1, 2020, all company-wide inventories have been valued at the lower of cost or net realizable value using the weighted average cost method. These changes were made in connection with the implementation of a new perpetual inventory system, which provides us with better information to manage inventory. We believe the weighted average cost method is preferable to the FIFO cost method because it results in greater precision in the determination of cost of goods sold and inventories at the SKU level and results in a consistent inventory valuation method for all of the Company’s inventories. We recorded the cumulative effect of this change in accounting principle as of August 1, 2020. The effects of this change in accounting principle as of August 1, 2020 were not material to our consolidated financial statements. Prior to implementation of the new perpetual inventory system, we were not able to determine the impact of the change to the weighted average cost method. Therefore, we did not retroactively apply the change to prior periods” ^[11].
There were “other current assets” and non-current “other assets” on SBH’s latest consolidated balance sheet but the items were not included in our valuations as they were not fully detailed.
The Company’s effective tax rates have been rather consistent, not wavering too much from each other year-over-year. Usually, they are a few points higher than the official statutory rate however.
Concerning operating loss carry-forwards SBH had the following to say in the latest 10-K Filing – “At September 30, 2024 and 2023, we had total operating loss carry-forwards of $106.6 million and $119.4 million, respectively, of which $52.5 million and $62.7 million, respectively, are subject to a valuation allowance. At September 30, 2024, operating loss carry-forwards of $106.6 million have no expiration date” ^[5].
The Company does not have any concerning payments due in the next year or so.
The assets (current and non-current) have not been on a notable decline in recent years causing any cause for concern.
The Company identifies as a “large accelerated filer” Rule 12b-2 of the Exchange Act and has done so in all of our sampled 10-K Forms.
‘Evaluation of vendor rebates and concessions’ has been a critical audit matter reported by the independent registered public accounting firm in the last six annual reports.
The 2021 10-K Filing reports 116,986,000 shares issued for the end of fiscal 2020, but the 2020 10-K Filing reports 112,824 shares issued for the end of fiscal 2020. We used the values from 2021.
We could not locate the equity compensation plan information for fiscal year 2015 as it was neither in the 10-K Form, nor the relevant DEF 14A Form.

Points we feel may be considered negative

There is a very large number of shares authorized which may allow room for much equity dilution.
There is very large institutional ownership of the current shares outstanding (90+% at the time of this piece’s posting ^[27]).
Over the last fiscal decade there have been more year-over-year decreases in cash and cash equivalents than increases.
The Company frequently engages in hedging activity and over the years this has resulted in both reclassified net losses and net gains on the consolidated balance sheets.
The Company has never paid any cash dividends on their common stock and opts to repeat the proceeding elucidation effort every year – “We have not declared or paid dividends at any time during the two fiscal years prior to the date of this Annual Report. We currently anticipate we will retain future earnings to support investments in our business, to repay outstanding debt or to return capital to shareholders through share repurchases” ^{[5, 7, 9, 11]}.
Every year the Company states from time to time they are involved in various claims, administrative proceedings and lawsuits incidental or related to the conduct of their business, which may range from single-plaintiff to class action litigation.
Much like the affiliated technological environment, the trends this business has to navigate may be fast paced and subject to rapid change.
The Company has had a few interesting dealings with the Internal Revenue Service (IRS):
1. “In fiscal year 2023, we remitted $4.3 million in tax and interest to the IRS. Income tax expense of $2.7 million was recorded in fiscal year 2023 related to the payments. Previously, $1.6 million had been reserved for this issue. We maintain our tax positions are fully supportable” ^[5].
2. “The IRS has concluded the field work associated with their examination of the Company’s consolidated federal income tax returns for the fiscal years ended September 30, 2007 through September 30, 2011 and issued their examination reports. The Company is currently seeking relief from double taxation through competent authority on certain cross-border adjustments, and it does not anticipate the ultimate resolution of these items to have a material impact on the Company’s financial statements” ^{[23, 22]}.
3. “In January 2012, the IRS concluded the field work associated with their examination of the Company’s consolidated federal income tax returns for the fiscal years ended September 30, 2007 and 2008 and issued their examination report. The Company is appealing certain disputed items and it does not anticipate the ultimate resolution of these items to have a material impact on the Company’s financial statements” ^{[25, 26]}.
There has been an interesting history of cyber-security incidents. The first of the following two quotes speaks to previous incidents whilst the latter implies there has since been a threat reduction:
1. “As previously disclosed, we experienced data security incidents in prior years that involved the unauthorized installation of malicious software (‘malware’) on our information technology systems, including our point-of-sale systems that may have placed at risk certain payment card data for some transactions. We received an assessment from another payment card network during fiscal year 2018 in connection with the data security incidents and recognized $7.9 million of expenses. The assessment was based on the network’s claims against our acquiring banks for costs that it asserts its issuing banks incurred in connection with the data security incidents, including incremental counterfeit fraud losses and non-ordinary course operating expenses, such as card reissuance costs. As of September 30, 2019, we had paid the full amount of the assessment, and, we believe that, we have no remaining liability related to the data security incidents as of September 30, 2020 or 2019” ^[13].
2. “From time to time, we experience cybersecurity threats and incidents. As of the date of this Annual Report, we have not identified any instances that have occurred in the current year, or in prior years, that would have a material impact on our Company or on our results of operation, or financial position” ^[5].
The DEF 14A Forms seem loquacious and contain irrelevant information making them longer than the 10-K Forms.

Points we feel may be considered positive

We would say the operations of the business are relatively easy for layman comprehension.
The Company began their operations in the 1960s thus has stood the test of time.
The Business profited during both years of the 2008 and 2009 recession ^[26].
The Company does not rely on a small number of customers for revenue generation and with regards to their suppliers, for fiscal years 2020, 2021, 2022, 2023 and 2024 their top five suppliers accounted for 38%, 29%, 42%, 43% and 47% of the consolidated merchandise purchases respectively.
To us this is a relatively large company given the consolidated financials.
There have been five historical stock splits but the last one happened in 1997 ^[28].

Possible Questions for SBH’s Approximate 409 Stockholders to Consider, Investigate and/or Raise with Management

The net earnings have not much improved over the latest fiscal decade. What course of affirmative action is Management taking to address this if any?
Going forward can the Company’s annual reports include a brief overview of their provenance, just as they used to prior to the 2017 annual reports?
How are the Company’s acquired businesses now performing?
When there are significant acquisitions can an organic net sales reconciliation table be provided showcasing what the net earnings would have looked like had such transactions not transpired?
Whenever acquisitions happen can the acquired assets and liabilities be tabulated in an easily digestible format for all to see?
What happened to the ‘Mega-Salon Stores’ professional beauty supply industry distribution channel last mentioned in the 2021 annual report?
When the ‘restructuring’ item on the income statements is negative, can a clear explanation of why this is the case be provided always?
In SBH’s annual reports the number of stores open at the end period of 2021 varies. The 2021 annual report says 4,911 were open at the end of fiscal 2021 but the 2022 annual report says 5,038 stores were open at the end of fiscal 2021. Why was the number different and which was accurate?
The 2021 10-K Filing reports 116,986,000 shares issued for the end of fiscal 2020, but the 2020 10-K Filing reports 112,824 shares issued for the end of fiscal 2020. Why was the number different and which was accurate?
From the 2017 to the 2018 annual report, a number of financial metrics such as the Total Liabilities had their values restated. Why?
Over the last five financial years the Business’ top five suppliers accounted for 38%, 29%, 42%, 43% and 47% of the consolidated merchandise purchases for fiscal years 2020, 2021, 2022, 2023 and 2024 respectively. This has been increasing year-over-year, is this a trend to be expected going forward?
Can the Company truthfully not pay shareholders any cash dividends? Can it really be justified that the investors are best served having the capital reinvested rather than paid out to them directly in the long run? Can the relevant data be provided to prove this?
Why do Management believe the reported number of holders of record of their common stock has been decreasing year-over-year for at least the last 14 annual reports?
Why have so many shares been authorized and can Shareholders be re-assured that the Business will not dilute Shareholder equity in the near-term future?
The number of stock options has been decreasing year-over-year, are these intentionally being phased out?
Going forward can the Company provide some predictions for the following year, such as ‘capital expenditures’ for instance?
Can the Company always state whether or not the consolidated financials include subsidiaries 100% owned by themselves? And if they are not 100% owned by them, can the other owners be disclosed?
Can the Business say exactly how many of their assets are located in each country as opposed to mentioning certain assets only?
Going forward can a full compressive breakdown of all ‘other’ assets (current and/or non-current) be provided in all 10-K and 10-Q Filings?
Obsolete inventory reserves were last mentioned in the 2022 annual report. Why did the Company stop mentioning them?
Can exact estimated useful lives of the depreciated assets be provided as opposed to ranges?
Why have the estimated useful lives of some of the assets been altered, in some instances several times e.g., ‘furniture, fixtures and equipment’?
The Company often state they are involved in various claims and lawsuits incidental to the conduct of their business in the ordinary course. Is there a minimum estimated legal or settlement cost at which it is decided that the details of these will be provided to shareholders? And can examples of these claims and lawsuits be provided as they occur?
Whenever the Company mentions upcoming leases such as in the following example can the full details be provided? – “The table above does not include operating leases we have entered into of approximately $4.0 million that have not commenced, primarily related to future retail stores” ^[5].
Why does the Company frequently have such high interest rates on their outstanding debt?
We could not locate the equity compensation plan information for fiscal year 2015 as it was neither in the 10-K Filing, nor the DEF 14A Filing. Where is it? And going forward can it never be left out of the SEC Filing(s)?
Why are the DEF 14A Forms so long? Can they be shortened and less verbose?
Why do some of the DEF 14A Forms filed with the SEC have images of information instead of said information in the appropriate text format resembling the entire document? Can this be avoided going forward?
Why is the independent registered public accounting firm remuneration so comparatively large to that of other businesses?
What would the Company say in response to those thinking there is culture of high turnover of Directors and/or NEOs? Is anything happening internally to trigger these events?
Why is there not a clear-cut statement stating whether or not related party transactions occurred like in other company’s 10-K or DEF 14A Forms? Can this always be included going forward?
Were any of the Directors or NEOs founders or co-founders of the Company?
Why is the CEO involved in other NEO compensation determination in spite of the Compensation Committee having an independent compensation consultant?
Why are two different methodologies used to value shares awarded as opposed to one?
Two DEF 14A Forms ago the CEOs common stock holding requirements increased from 5x the base salary to 6x the base salary. Why was this metric bumped up?

Valuations

The price of this Security Issue at the time of this Piece’s publication is 9.44. Using our most recent three-year average of the diluted EPS (1.49) as opposed to the most recent EPS figure (1.36) reduced the P/E ratio from 6.94 to 6.35; and using our discernible tangible equity value per share (-5.29) as opposed to the stated book value per share (5.82, in accordance with Table 2 – 2) has rendered the P/BV ratio negative. With that in mind and considering current federal interest rates (4.33% at the time of writing), the current price does not appear to offer a sufficient margin of safety as per Benjamin Graham’s concept i.e., “over a ten-year period the typical excess of stock earning power over bond interest may aggregate 50% of the price paid” ^[2]. We should now also remind the reader of some of Graham’s other thoughts regarding the ‘margin of safety’ principle, viz.:

Diversification is an established tenet of conservative investment. By accepting it so universally, investors are really demonstrating their acceptance of the margin-of-safety principle, to which diversification is the companion…It is our argument that a sufficiently low price can turn a security of mediocre quality into a sound investment opportunity provided that the buyer is informed and experienced and that he practices adequate diversification. ^[2]

On account of a negative P/BV value, our P²/BV*E upper-limit check is not feasible.

Finally, we can make the following conclusions regarding the original points that initially piqued our interest in the Issue, considering our adjustments:

The Company’s low P/E ratio – still valid
The Company’s low P/BV ratio – no longer valid
The Company’s ‘P/E * P/BV’ figure being less than 22.5 – no longer valid
The Company’s current ratio – still valid
The Company’s previous earnings consistency and stability – still valid

Whether the current price is reflective of the Company’s future, present and past, in the reader’s opinion is for the reader to decide based upon their own research, however in our opinion this Security Issue appears currently overvalued on account of its current and previous quantitative showing.

Our Valuation: Plastic

This Security Issue did not fare well in our ‘Initial Discussions Regarding the Company’s Financials’ section and the qualitative elements were not spectacular. At this point in time there is currently no pricing point at which we would have assigned this Issue a valuation of ‘Gold’ or higher.

At this point in time and all matters here considered, this is not stock pick we would likely follow nor likely add to a stock portfolio even at a seemingly reasonable price.

References

Graham, B., Dodd, D.L., Security Analysis, (6^th edition), (Warren, B.E., Klarman, S.A., Grant, J., Laderman, J.M., Lowenstein, R., Marks, H.S., Merkin, J.E., Berkowitz, B., Greenberg, G.H., Greenwald, B., Abrams, D), McGraw-Hill Education, 2008 – {ISBN 10: 0071592539/ISBN 13: 9780071592536 & ISBN-13: 978-0071592536/ISBN-10: 0071592539}
Graham, B., The Intelligent Investor, (Revised Subsequent Edition), (Warren, B.E., Zweig, J), Harper Business, 2006 – {ISBN-10: 9780060555665 / ISBN-13: 978-0060555665}
SBH’s 1^st2025 quarterly fiscal report (10-Q) – https://www.sec.gov/Archives/edgar/data/1368458/000095017025019869/sbh-20241231.htm
SBH’s 2024 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000119312524275572/d697182ddef14a.htm
SBH’s 2024 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000095017024127217/sbh-20240930.htm
SBH’s 2023 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000119312523294463/d468280ddef14a.htm
SBH’s 2023 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000095017023064558/sbh-20230930.htm
SBH’s 2022 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000119312522304801/d289193ddef14a.htm
SBH’s 2022 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000156459022037949/sbh-10k_20220930.htm
SBH’s 2021 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000119312521357689/d595724ddef14a.htm
SBH’s 2021 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000156459021057810/sbh-10k_20210930.htm
SBH’s 2020 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000119312520318812/d948967ddef14a.htm
SBH’s 2020 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000156459020054910/sbh-10k_20200930.htm
SBH’s 2019 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000119312519317108/d762659ddef14a.htm
SBH’s 2019 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000156459019044262/sbh-10k_20190930.htm
SBH’s 2018 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000119312518352784/d619094ddef14a.htm
SBH’s 2018 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000156459018029551/sbh-10k_20180930.htm
SBH’s 2017 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000104746917007688/a2233567zdef14a.htm
SBH’s 2017 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000104746917007074/a2233150z10-k.htm
SBH’s 2016 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000104746916017112/a2230245zdef14a.htm
SBH’s 2016 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000104746916016713/a2230256z10-k.htm
SBH’s 2015 proxy statement (DEF 14A) – https://www.sec.gov/Archives/edgar/data/1368458/000104746915009175/a2226677zdef14a.htm
SBH’s 2015 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000104746915008573/a2226468z10-k.htm
SBH’s 2014 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000104746914009151/a2221854z10-k.htm
SBH’s 2013 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000104746913010533/a2217261z10-k.htm
SBH’s 2012 fiscal annual report (10-K) – https://www.sec.gov/Archives/edgar/data/1368458/000104746912010611/a2211766z10-k.htm
https://www.gurufocus.com/stock/SBH/ownership
https://www.splithistory.com/sbh/?l=1

Throughout this Piece, any mention of a given year’s annual report refers to the 10-K Filing/Annual Report which represents the financial year ended that same year, typically in the calendar month of September, i.e., any mention of the ‘2021 10-K Filing’ or ‘2021 Annual Report’ etc. refers to the 10-K Filing representing the fiscal year ended September 2021. The Filings are usually published a couple of months later, that same calendar year.

Throughout this Piece, any mention of a given year’s Proxy Statement refers to the DEF 14A Form/Proxy Statement which accompanied the most recent 10-K Filing, i.e., any mention of the ‘2021 Proxy Statement’ refers to the DEF 14A Form which accompanied the 2021 10-K Filing; usually published not too soon after the 10-K Filing (typically the following calendar month relative to the 10-K Filing’s filing date).

Disclaimers and Disclosures – https://wp.me/PcbS4Q-V