Sally Beauty Supply 2007 Annual Report Download - page 60

2.8% 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 fiscal year 2006 (including franchised stores),
comparable store sales growth of 4.1% and a 0.7% positive impact from foreign exchange rates. These increases for fiscal year 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 fiscal year 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 sales made to retail customers (since such sales
are at a higher gross profit margin than those made to salons and salon professionals) and with an increase in sales of exclusive label products.
Selling, General and Administrative Expenses
Consolidated selling, general and administrative expenses increased $29.4 million, or 3.8%, to $798.2 million for fiscal year 2006 compared to $768.8 million
for the same period in 2005. These expenses, as a percentage of net sales, were 33.6% for fiscal year 2006 compared to 34.1% for the prior year period. The
increase in expense is primarily attributable to selling and administrative costs associated with the growth of the Sally Beauty Supply and BSG businesses,
including $9.0 million of selling and administrative costs from the acquired CosmoProf business and $3.3 million of costs from Salon Success, along with
$5.2 million of stock option expense recognized pursuant to SFAS 123(R) and costs related to our corporate support facility.
Depreciation and Amortization
Consolidated depreciation and amortization increased $4.1 million, or 12.1%, to $38.0 million for fiscal year 2006 compared to $33.9 million for the same
period in 2005, primarily due to the addition of assets associated with acquisitions and the unit growth of the Sally Beauty Supply and BSG businesses.
Sales-based Service Fee Charged by Alberto-Culver
The sales-based service fee charged to us by Alberto-Culver increased to $28.9 million for fiscal year 2006 from $27.6 million for fiscal year 2005, which is
consistent with the increase in net sales. The consulting, business development and advisory services agreement between certain of our subsidiaries and
Alberto-Culver was subsequently cancelled in fiscal year 2007 in connection with the Separation Transactions.
Other Expenses
Other expenses for fiscal year 2006 include expenses related to the terminated transaction with Regis. In accordance with the terms of the related transaction
agreement, Alberto-Culver allocated to our business $41.5 million in expenses for fiscal year 2006 representing our share of the termination fee paid to Regis as
well as legal and other professional fees and expenses related to the transaction. Other expenses for fiscal year 2005 include $4.1 million in non-cash charges
related to Alberto-Culver's conversion to one class of common stock.
Operating Earnings
Consolidated operating earnings decreased by $12.4 million, or 6.4%, to $180.2 million for fiscal year 2006 compared to $192.6 for the same period in 2005.
Operating earnings, as a percentage of net sales, were 7.6% for fiscal year 2006 compared to 8.5% for the same period in 2005. The decrease in consolidated
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Source: Sally Beauty Holding, 10-K, November 29, 2007