Sally Beauty Supply 2007 Annual Report Download - page 19

to us." However, we believe that we can be successful in mitigating negative effects resulting from unfavorable changes in the relationships between us and our
suppliers through, among other things, the development of new or expanded supplier relationships.
On December 19, 2006, we announced that: (i) BSG, other than its Armstrong McCall L.P., or Armstrong McCall, division, would not retain its rights to
distribute the professional products of L'Oreal through its distributor sales consultants (effective January 30, 2007, with exclusivity ending December 31, 2006)
or in its stores on an exclusive basis (effective January 1, 2007) in those geographic areas within the U.S. in which BSG had distribution rights; and (ii) BSG's
Armstrong McCall division would not retain the rights to distribute Redken professional products through distributor sales consultants or its stores. In an effort to
replace these rights, BSG entered into long-term agreements with L'Oreal under which, as of January 1, 2007, BSG had non-exclusive rights to distribute the
same L'Oreal professional products in its stores that it previously had exclusive rights to in its stores and through its sales consultants. Sales of L'Oreal products
in BSG U.S. based stores (excluding BSG's Armstrong McCall division) were approximately $121 million during fiscal year 2007. Armstrong McCall retained
its exclusive rights to distribute Matrix professional products in its territories. During fiscal year 2007, sales of L'Oreal products at Armstrong McCall were
approximately $52 million. 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."
Distribution
As of September 30, 2007, we operated 21 distribution centers, 6 of which serviced Sally Beauty Supply and 15 of which serviced BSG. Our purchasing and
distribution system is designed to minimize the delivered cost of merchandise and maximize the level of merchandise in-stock in stores. This distribution system
also allows for monitoring of delivery times and maintenance of appropriate inventory levels. Product deliveries are typically made to our stores on a weekly
basis. Each distribution center has a quality control department that monitors products received from suppliers. We utilize proprietary software systems to
provide computerized warehouse locator and inventory support.
We are currently implementing a two-year, $19.0 million capital spending program, which will continue into fiscal year 2008, to consolidate warehouses and
reduce administrative expenses related to BSG's distribution network optimization program. We expect to achieve annual cost savings of approximately
$10.0 million annually from this project within the next two years. See "Risk Factors—We are not certain that our ongoing cost control plans will continue to be
successful."
Management Information Systems
Our management information systems provide order processing, accounting and management information for the marketing, distribution and store operations
functions of our business. Most of these systems have been developed internally. The information gathered by the management information systems supports
automatic replenishment of in-store inventory and provides support for product purchase decisions. See "Risk Factors—We may be adversely affected by any
disruption in our information technology systems."
Employees
In our domestic and foreign operations, we had approximately 18,500 full-time equivalent employees as of September 30, 2007 consisting of approximately
13,600 hourly personnel and 4,900 salaried employees.
Certain subsidiaries in Mexico have collective bargaining agreements, covering warehouse and store personnel, which expire at various times over the next
several years. We believe we have good relationships with our employees.
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Source: Sally Beauty Holding, 10-K, November 29, 2007