Sally Beauty Supply 2007 Annual Report Download - page 46

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Overview
Description of Business
We are the largest distributor of professional beauty supplies in the U.S. based on store count. We operate primarily through two business units, Sally Beauty
Supply and BSG. Through Sally Beauty Supply and BSG, we operate a multi-channel platform of 3,368 stores and supplied 200 franchised stores in North
America as well as selected European countries and Japan, as of September 30, 2007. Within BSG, we also have one of the largest networks of professional
distributor sales consultants in North America, with approximately 1,100 professional distributor sales consultants who sell directly to salons and salon
professionals. We provide our customers with a wide variety of leading third-party branded and exclusive label professional beauty supplies, including hair care
products, styling appliances, skin and nail care products and other beauty items. Sally Beauty Supply stores target retail consumers and salon professionals, while
BSG exclusively targets salons and salon professionals. For the year ended September 30, 2007, our net sales and operating earnings were $2,513.8 million and
$228.6 million, respectively.
Sally Beauty Supply is the largest open-line distributor of professional beauty supplies in the U.S. based on store count. As of September 30, 2007, Sally Beauty
Supply operated 2,669 company-owned retail stores and supplied 25 franchised stores acquired in the Salon Services acquisition, which is discussed in greater
detail below under "—Recent Acquisitions," 2,226 of which are located in the U.S., and the remainder in the U.K. and certain other countries in Europe, Canada,
Puerto Rico, Mexico and Japan. Sally Beauty Supply stores average 1,700 square feet and are primarily located in strip shopping centers. The product selection
in Sally Beauty Supply stores ranges between 5,400 and 7,700 SKUs of beauty products, and includes products for hair care, nail care, beauty sundries and
appliances, targeting retail consumers and salon professionals. Sally Beauty Supply stores carry leading third-party brands such as Clairol, Revlon and Conair, as
well as an extensive selection of exclusive label merchandise. For the year ended September 30, 2007, Sally Beauty Supply's net sales and segment operating
profit were $1,567.4 million and $273.4 million, respectively, representing 62.4% and 80.9% of consolidated net sales and segment operating profit, respectively.
We believe BSG is the largest full-service distributor of professional beauty supplies in the U.S. As of September 30, 2007, BSG operated 699 company-owned
stores, supplied 175 franchised stores and had a sales force of approximately 1,100 professional distributor sales consultants selling exclusively to salons and
salon professionals in 47 U.S. states and portions of Canada, Mexico and certain European countries. BSG stores average 2,700 square feet and are primarily
located in secondary strip shopping centers. Through BSG's large store base and sales force, BSG is able to access a significant portion of the highly fragmented
U.S. salon market. The product selection in BSG stores, ranging between 2,700 and 9,800 SKUs of beauty products, includes hair care, nail care, beauty sundries
and appliances targeting salons and salon professionals. BSG carries leading professional beauty product brands, intended for use in salons and for resale by the
salon to consumers. Certain BSG products are sold under exclusive distribution agreements with suppliers, whereby BSG is designated as the sole distributor for
a product line within certain geographic territories. For the year ended September 30, 2007, BSG's net sales and segment operating profit were $946.4 million
and $64.6 million, respectively, representing 37.6% and 19.1% of consolidated net sales and segment operating profit, respectively.
Business Trends
We operate within the large and growing U.S. professional beauty supply industry. Potential growth in the industry is expected to be driven by increases in hair
color, hair loss prevention and hair styling products. We believe the following key industry trends and characteristics will influence our business going forward:
•
High level of customer fragmentation. The U.S. salon market is highly fragmented with over 230,000 salons. Given the fragmented and
small-scale nature of the salon industry, we believe that salon
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Source: Sally Beauty Holding, 10-K, November 29, 2007