Sally Beauty Supply 2011 Annual Report Download - page 55

We expect to continue to expand our product line offerings and to gain additional distribution rights
over time through either further negotiation with suppliers or by acquisitions of existing distributors.
Although we are focused on developing new revenue and cost management initiatives, there can be no
assurance that our efforts will partially or completely offset any potential loss of distribution rights in
the future. Please see ‘‘Risk Factors—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.’’
•High level of competition. Sally Beauty Supply competes with other domestic and international
beauty product wholesale and retail outlets, including local and regional open-line beauty supply
stores, professional-only beauty supply stores, salons, mass merchandisers, drug stores and
supermarkets, as well as sellers on the internet and salons retailing hair care items. BSG competes
with other domestic and international beauty product wholesale and retail suppliers and
manufacturers selling professional beauty products directly to salons and individual salon
professionals. We also face competition from authorized and unauthorized retailers and internet
sites offering professional salon-only products. The increasing availability of unauthorized
professional salon products in large format retail stores such as drug stores, grocery stores and
others could also have a negative impact on our business. Please see ‘‘Risk Factors—The beauty
products distribution industry is highly competitive and is consolidating.’’
•Economic conditions. We appeal to a wide demographic consumer profile and offer a broad
selection of professional beauty products sold directly to retail consumers, and salons and salon
professionals. Historically, these factors have provided us with reduced exposure to downturns in
economic conditions in the countries in which we operate. However, a downturn in the economy,
especially for an extended period of time, could adversely impact consumer demand of
discretionary items such as beauty products and salon services, particularly affecting our electrical
products category and our full-service sales business. In addition, higher freight costs resulting from
increases in the cost of fuel, especially for an extended period of time, may impact our expenses at
levels that we cannot pass through to our customers. These factors could have a material adverse
effect on our business, financial condition and results of operations. Please see ‘‘Risk Factors—The
health of the economy in the channels we serve may affect consumer purchases of discretionary
items such as beauty products and salon services, which could have a material adverse effect on our
business, financial condition and results of operations.’’
•Controlling expenses. Another important aspect of our business is our ability to control costs,
especially in our BSG business segment, by right-sizing the business and maximizing the efficiency
of our business structure. For example, we recently completed implementation of a $22.0 million
capital spending program to consolidate warehouses and reduce administrative expenses related to
BSG’s distribution network which has resulted in annualized cost savings of at least $14.0 million
beginning in the fiscal year 2010. Please see ‘‘Risk Factors—We are not certain that our ongoing
cost control plans will continue to be successful.’’
•Opening new stores. Our future growth strategy depends in part on our ability to open and
profitably operate new stores in existing and additional geographic areas. The capital requirements
to open a U.S.-based Sally Beauty Supply or BSG store, excluding inventory, average approximately
$70,000 and $80,000, respectively, with the capital requirements for international stores costing less
or substantially more depending upon the marketplace. We may not be able to open all of the new
stores we plan to open and any new stores we open may not be profitable, any of which could have a
material adverse impact on our business, financial condition or results of operations. Please see
‘‘Risk Factors—If we are unable to profitably open and operate new stores, our business, financial
condition and results of operations may be adversely affected.’’
•Changes to our information technology systems. As our operations grow in both size and scope, we
will continuously need to improve and upgrade our information systems and infrastructure while
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