Sally Beauty Supply 2011 Annual Report Download - page 13

PART I
ITEM 1. BUSINESS
Introduction
Sally Beauty Holdings, Inc. is an international specialty retailer and distributor of professional beauty
supplies with operations primarily in North America, South America and Europe. We believe the
Company is 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 Beauty Systems Group, or BSG.
Through Sally Beauty Supply and BSG we sell and distribute beauty products through 4,128 company-
owned stores, 181 franchised stores and 1,116 professional distributor sales consultants. Sally Beauty
Supply stores target retail consumers and salon professionals, while BSG exclusively targets salons and
salon professionals. We have store locations in the United States (including Puerto Rico), Canada, the
United Kingdom, Ireland, Belgium, France, Germany, Spain, Chile and Mexico. Within BSG, we also have
one of the largest networks of professional distributor sales consultants in North America, with
approximately 1,116 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 color products, hair care products, hair dryers and hair
styling appliances, skin and nail care products and other beauty items. Approximately 82%, 82% and 84%
of our consolidated net sales for the fiscal years ended September 30, 2011, 2010 and 2009, respectively,
were from customers located in the U.S. For the fiscal year ended September 30, 2011, our consolidated
net sales were $3,269.1 million.
Sally Beauty Supply began operations with a single store in New Orleans in 1964 and was acquired in 1969
by our former parent company, Alberto-Culver Company, which we refer to as Alberto-Culver. BSG
became a subsidiary of Alberto-Culver in 1995. In November 2006, we separated from Alberto-Culver and
became an independent company listed on the New York Stock Exchange. We refer to our separation from
Alberto-Culver and its consumer products-focused business as the Separation Transactions. When we refer
to Alberto-Culver, we mean Alberto-Culver Company prior to the Separation Transactions or the company
from which we separated.
In connection with the Separation Transactions, CDRS Acquisition LLC, or CDRS, and CD&R Parallel
Fund VII, L.P., which we refer to as the Parallel Fund and, together with CDRS, the CDR Investors,
invested an aggregate of $575.0 million in cash equity in Sally Beauty. CDRS, which, together with the
Parallel Fund, at November 11, 2011, owns approximately 35.5% of the outstanding shares of our common
stock on an undiluted basis, is a Delaware limited liability company organized by Clayton, Dubilier & Rice
Fund VII, L.P., a private investment fund managed by Clayton, Dubilier & Rice, Inc. Also in connection
with the Separation Transactions, certain of our subsidiaries incurred approximately $1,850.0 million of
indebtedness, as more fully described below. Please see ‘‘Risk Factors—Risks Relating to Our Substantial
Indebtedness’’ in Item 1A below.
Professional Beauty Supply Industry Distribution Channels
The professional beauty supply industry serves end-users through four distribution channels: full-service/
exclusive distribution, open-line distribution, direct and mega-salon stores.
Full-Service/Exclusive
This channel exclusively serves salons and salon professionals and distributes ‘‘professional-only’’ products
for use in salons and resale to consumers in salons. Many brands are distributed through arrangements
with suppliers by geographic territory. BSG is a leading full-service distributor in the U.S.
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