Sally Beauty Supply 2011 Annual Report Download - page 15

styles are expected to result in continued demand for hair styling products. Changes in consumer
tastes and fashion trends can have an impact on our financial performance. Our continued success
depends largely on our ability to anticipate, gauge and react in a timely and effective manner to
changes in consumer spending patterns and preferences for beauty products. We continuously adapt
our marketing and merchandising initiatives in an effort to expand our market reach or to respond
to changing consumer preferences. If we are unable to anticipate and respond to trends in the
marketplace for beauty products and changing consumer demands, our business could suffer. Please
see ‘‘Risk Factors—We may be unable to anticipate changes in consumer preferences and buying
trends or manage our product lines and inventory commensurate with consumer demand.’’
•International growth strategies. A key element of our growth strategy depends on our ability to
capitalize on growth opportunities in the international marketplace and to grow our current level of
non-U.S. operations. For example, in December 2009, we acquired Sinelco Group BVBA
(‘‘Sinelco’’), a wholesale distributor of professional beauty products located in Belgium with sales
throughout Europe and, in September 2009, we acquired Distribuidora Intersalon Limitada
(‘‘Intersalon’’), a distributor of premier beauty supply products then with 16 stores located in Chile.
These acquisitions furthered our expansion plans in Europe and Latin America, key targets of Sally
Beauty Supply’s international growth initiative. We intend to continue to identify and evaluate
non-U.S. acquisition and/or organic international growth targets. Our ability to grow our non-U.S.
operations, integrate our new non-U.S. acquisitions and successfully pursue additional non-U.S.
acquisition and/or international organic growth targets may be affected by business, legal,
regulatory and economic risks. Please see ‘‘Risk Factors—We may not be able to successfully
identify acquisition candidates or successfully complete desirable acquisitions,’’ ‘‘If we acquire any
businesses in the future, they could prove difficult to integrate, disrupt our business or have an
adverse effect on our results of operations’’ and ‘‘Our ability to conduct business in international
marketplaces may be affected by legal, regulatory and economic risks.’’
•Continuing consolidation. There is continuing consolidation among professional beauty product
distributors and professional beauty product manufacturers. We plan to continue to examine ways
in which we can benefit from this trend, including the evaluation of opportunities to shift business
from competitive distributors to the BSG network as well as seeking opportunistic, value-added
acquisitions which complement our long-term growth strategy. We believe that suppliers are
increasingly likely to focus on larger distributors and retailers with a broader scale and retail
footprint. We also believe that we are well positioned to capitalize on this trend as well as
participate in the ongoing consolidation at the distributor/retail level. However, changes often occur
in our relationships with suppliers that may materially affect the net sales and operating earnings of
our business segments. Consolidation among suppliers could exacerbate the effects of these
relationship changes and could increase pricing pressures. For example, as we announced in the
fiscal year 2007, one of our largest suppliers, L’Oreal, moved a material amount of revenue out of
our BSG distribution network and into regional distribution networks that compete with BSG.
More recently, L’Oreal acquired distributors that compete with BSG in the Midwest, Southeast and
West Coast regions of the U.S. and, as a result, L’Oreal directly competes with BSG in certain
geographic areas. If L’Oreal acquired other distributors or suppliers that conduct significant
business with BSG, we could lose related revenue. There can be no assurance that BSG will not lose
further revenue over time due to potential losses of additional products (both from L’Oreal and
from other suppliers) as well as from the increased competition from L’Oreal-affiliated distribution
networks. Please see ‘‘Risk Factors—The beauty products distribution industry is highly competitive
and is consolidating’’ and ‘‘We depend upon manufacturers who may be unable to provide products
of adequate quality or who may be unwilling to continue to supply products to us.’’
•Relationships with suppliers. Sally Beauty Supply, BSG and their respective suppliers are dependent
on each other for the distribution of beauty products. We do not manufacture the brand name or
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