Sally Beauty Supply 2006 Annual Report Download - page 47

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Table of Contents
Gross Profit
Consolidated gross profit increased $76.1 million, or 8.0%, to $1,027.0 million for the year ended September 30, 2005 compared to
$950.9 million for the same period in 2004. Consolidated gross profit, as a percentage of net sales, was 45.6% for the year ended
September 30, 2005 compared to 45.3% for the prior year period. The gross profit margin improvement is primarily attributable to
improved vendor pricing, lower store inventory shrinkage and favorable changes in Sally Beauty Supply’ s sales mix between retail
and professional customers.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses increased $78.2 million, or 11.0%, to $789.4 million for the year ended
September 30, 2005 compared to $711.2 million for the same period in 2004. These expenses, as a percentage of net sales, were
35.0% for the year ended September 30, 2005 compared to 33.9% for the prior year period. The increase in fiscal year 2005 primarily
resulted from the higher selling and administrative costs associated with the growth of the Sally Beauty Supply and BSG businesses,
including $38.6 million resulting from the acquisitions of CosmoProf in December, 2004 and West Coast in December, 2003. In
addition, a portion of the increase in fiscal year 2005 relates to the $1.9 million lease accounting adjustment discussed in “—
Overview—Other Significant Items—Lease Accounting.”
Corporate Charges From Alberto-Culver
Corporate charges from Alberto-Culver, which include charges for administrative services and a sales-based service fee, decreased
$2.1 million, or 4.8%, to $40.9 million for the year ended September 30, 2005 compared to $43.0 million for the same period in 2004.
Charges for administrative services were $13.3 million in fiscal year 2005 versus $16.9 million in fiscal year 2004. The $3.6 million
decrease in charges for administrative services in fiscal year 2005 was primarily due to lower incentive compensation costs at Alberto-
Culver which, in turn, reduced the charge to our business. The sales-based service fee amounted to $27.6 million and $26.1 million in
fiscal years 2005 and 2004, respectively. Following our separation from Alberto-Culver, the arrangements giving rise to the corporate
charges from Alberto-Culver terminated and the related charges have ceased.
Other Expenses
Other expenses include a non-cash charge related to Alberto-Culver’ s conversion to one class of common stock of $4.1 million for the
year ended September 30, 2005 compared to $27.0 million for the same period in 2004. See “—Overview—Other Significant Items—
Alberto-Culver’ s Conversion to One Class of Common Stock.”
Operating Earnings
As a result of the foregoing, consolidated operating earnings increased by $23.0 million, or 13.5%, to $192.6 million for the year
ended September 30, 2005 compared to $169.6 million for the same period in 2004. Operating earnings, as a percentage of net sales,
were 8.5% for the year ended September 30, 2005 compared to 8.1% for the year ended September 30, 2004.
Sally Beauty Supply. As a result of the foregoing, Sally Beauty Supply’ s segment operating profit increased $16.9 million, or 11.1%,
to $168.7 million for the year ended September 30, 2005 compared to $151.8 million for the same period in 2004. Segment operating
profit, as a percentage of net sales, was 12.4% for the year ended September 30, 2005 compared to 11.7% for the year ended
September 30, 2004.
Beauty Systems Group. BSG’ s segment operating profit decreased $15.3 million, or 21.6%, to $55.6 million for the year ended
September 30, 2005 compared to $70.9 million for the same period in 2004. Segment operating profit, as a percentage of net sales,
was 6.2% for the year ended September 30, 2005 compared to 8.8% for the year ended September 30, 2004. The decrease in segment
operating profit for BSG during fiscal year 2005 was primarily due to the loss of sales that resulted from certain suppliers’ decisions to
begin selling their products directly to salons.
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