Sally Beauty Supply 2006 Annual Report Download - page 44

Table of Contents
availability, competitive activity, relationships with suppliers, new product introductions and price. BSG’ s
product assortment and sales are not seasonal in nature.
Cost of Products Sold and Distribution Expenses. Cost of products sold and distribution expenses consist of the cost to purchase
merchandise from suppliers, less rebates and allowances, and certain overhead expenses including purchasing costs, freight from
distribution centers to stores and handling costs in the distribution centers. Cost of products sold and distribution expenses are also
affected by store inventory shrinkage, which represents products that are lost, stolen or damaged at the store level.
Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of store personnel
costs, commissions paid to professional distributor sales consultants, benefits, utilities, property maintenance, advertising, rent,
insurance, freight and distribution expenses for delivery to customers and administrative costs.
Corporate Charges from Alberto-Culver. Historically, Alberto-Culver and its affiliates performed certain administrative services for
our business. In addition, certain of our subsidiaries had entered into consulting, business development, management and advisory
services agreements with Alberto-Culver. Corporate charges from Alberto-Culver represent charges for these services based on an
allocation of specific services and a sales-based service fee. Following the closing of the transactions separating us from Alberto-
Culver, the arrangements giving rise to the corporate charges from Alberto-Culver were terminated and the related charges have
ceased.
Comparison of the Years Ended September 30, 2006 and 2005
Net Sales
Consolidated net sales increased $118.8 million, or 5.3%, to $2,373.1 million for the year ended September 30, 2006 compared to
$2,254.3 million for the same period in 2005. This increase was primarily the result of comparable store sales growth of 2.8%, the
inclusion of a full reporting period for the CosmoProf business for the year ended September 30, 2006 which resulted in a 1.1%
increase in net sales, the acquisition of Salon Success, which resulted in a 0.5% increase in net sales and the opening of new stores,
including 98 net new stores opened during the year ended September 30, 2006. The CosmoProf business was acquired in the first
quarter of fiscal 2005 and the Salon Success business was acquired during the third quarter of 2006.
Sally Beauty Supply. Net sales for Sally Beauty Supply increased $60.4 million, or 4.4%, to $1,419.3 million for the year ended
September 30, 2006 compared to $1,358.9 million for the same period in 2005. Net sales increased primarily due to a 2.3% increase
resulting from the opening of new stores, including 92 net new stores opened during the year ended September 30, 2006, and
comparable store sales growth of 2.4%. These increases were partially offset by the effect of foreign exchange rates, which decreased
net sales by 0.2%.
Beauty Systems Group. Net sales for BSG increased $58.4 million, or 6.5%, to $953.8 million for the year ended September 30, 2006
compared to $895.4 million for the same period in 2005. This improvement in net sales resulted primarily from the inclusion of a full
reporting period for the CosmoProf business for the year ended September 30, 2006, which provided 2.8 percentage points of the
increase in net sales and the acquisition of Salon Success which provided 1.0% increase in net sales. The remaining increase was
principally due to a 0.6% increase in net sales resulting from the opening of new stores, including 6 net new stores opened during the
year ended September 30, 2006 (including franchised stores), comparable store sales growth of 4.1% and a 0.7% positive impact from
foreign exchange rates. These increases for the year ended September 30, 2006 were partially offset by lower sales by BSG’ s
professional distributor sales consultants as salon professionals shifted some of their purchases from sales consultants to BSG stores.
Gross Profit
Consolidated gross profit increased $59.8 million, or 5.8%, to $1,086.8 million for the year ended September 30, 2006 compared to
$1,027.0 million for the same period in 2005. Consolidated gross profit, as a percentage of net sales, was 45.8% for the year ended
September 30, 2006 compared to 45.6% for the prior year period. The gross profit margin improvement is primarily attributable to
improved vendor pricing, an increase in the percentage of
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