Sally Beauty Supply 2006 Annual Report Download - page 15

Table of Contents
Strong and Consistent Financial Performance
We have a proven track record of strong growth and consistent profitability due to superior operating performance, new store
openings and strategic acquisitions. Over the past five fiscal years, our comparable store sales growth has been positive in each year
and has averaged 3.7%, as set forth in the following table:
Year Ended September 30,
Comparable store sales growth: 2006 2005 2004 2003 2002
Sally Beauty Supply 2.4% 2.4% 3.8% 2.7% 5.7%
Beauty Systems Group 4.1% (0.6% ) 8.5% 4.6% 4.4%
Consolidated 2.8% 1.8% 4.6% 3.8% 5.5%
Highly Experienced Management Team with a Proven Track Record
Our management team, led by President and Chief Executive Officer Gary Winterhalter, has a strong record of net sales growth and
profitability improvement. Our senior management team has an average tenure of 12 years with us and our subsidiaries and 21 years in
the beauty supply industry.
Customer Service
We strive to complement our extensive merchandise selection and innovative store design with superior customer service. We
actively recruit individuals with cosmetology experience because we believe that such individuals are more knowledgeable about the
products they sell. Additionally, Sally Beauty Supply recruits individuals with retail experience because we believe their general retail
knowledge can be leveraged in the beauty supply industry. We believe that employees’ knowledge of the products and ability to
demonstrate and explain the advantages of the products increases sales and that their prompt, knowledgeable service fosters the
confidence and loyalty of customers and differentiates our business from other professional beauty supply distributors.
We emphasize product knowledge during initial training as well as during ongoing training sessions, with programs intended to
provide new associates and managers with one and two weeks of intensive training, respectively. The training programs encompass
operational and product training and are designed to increase employee and store productivity. Managers are required to participate in
training on an ongoing basis to keep up-to-date on products and operational practices.
Most of our stores are staffed with a store manager, and two or three full-time or part-time associates. BSG stores are generally also
staffed with an assistant manager. The operations of each store are supervised by a district manager, who reports to a territory
manager.
Suppliers
We purchase our merchandise directly from manufacturers and fillers through supply contracts and by purchase order. For fiscal year
2006, our two largest suppliers were the Professional Products Division of L’ Oreal USA S/D, Inc. (“L’ Oreal”) and Procter & Gamble.
Sally Beauty Supply’ s five largest suppliers provided it with approximately 40.9% of the products Sally Beauty Supply purchased in
fiscal year 2006. BSG’ s five largest suppliers provided it with approximately 59.2% of the products BSG purchased in fiscal year
2006. Products are purchased from most manufacturers and fillers on an at-will basis or under contracts which can be terminated
without cause upon 90 days notice or less or expire without express rights of renewal. Such manufacturers and fillers could
discontinue sales to us at any time or upon short notice.
As is typical in distribution businesses, relationships with suppliers are subject to change from time to time (including the expansion
or loss of distribution rights in various geographies and the addition or loss of products lines). Changes in our relationships with
suppliers occur often, and could positively or negatively impact our net sales and operating profits. 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.” However, we believe that we can be successful in mitigating negative effects resulting from unfavorable changes in
the relationships
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