Sally Beauty Supply 2011 Annual Report Download - page 17

health of the economy in the channels we serve may affect consumer purchases of discretionary
items such as beauty products and salon services, which could have a material adverse effect on our
business, financial condition and results of operations.’’
•Controlling expenses. Another important aspect of our business is our ability to control costs,
especially in our BSG business segment, by right-sizing the business and maximizing the efficiency
of our business structure. For example, we recently completed implementation of a $22.0 million
capital spending program to consolidate warehouses and reduce administrative expenses related to
BSG’s distribution network which has resulted in annualized cost savings of at least $14.0 million
beginning in the fiscal year 2010. Please see ‘‘Risk Factors—We are not certain that our ongoing
cost control plans will continue to be successful.’’
•Opening new stores. Our future growth strategy depends in part on our ability to open and
profitably operate new stores in existing and additional geographic areas. The capital requirements
to open a U.S.-based Sally Beauty Supply or BSG store, excluding inventory, average approximately
$70,000 and $80,000, respectively, with the capital requirements for international stores costing less
or substantially more depending upon the marketplace. We may not be able to open all of the new
stores we plan to open and any new stores we open may not be profitable, any of which could have a
material adverse impact on our business, financial condition or results of operations. Please see
‘‘Risk Factors—If we are unable to profitably open and operate new stores, our business, financial
condition and results of operations may be adversely affected.’’
•Changes to our information technology systems. As our operations grow in both size and scope, we
will continuously need to improve and upgrade our information systems and infrastructure while
maintaining the reliability and integrity of our systems and infrastructure. The expansion of our
systems and infrastructure will require us to commit substantial financial, operational and technical
resources in advance of any increase in the volume of our business, with no assurance that the
volume of business will increase. For example, we are in the process of designing and implementing
a standardized enterprise resource planning (‘‘ERP’’) system internationally, which we anticipate
will be completed over the next few years. In addition, we are currently implementing a
point-of-sale system upgrade program in a number of our divisions (primarily in our Sally Beauty
Supply operations in the U.S.), which we anticipate will provide significant benefits, including
enhanced tracking of customer sales and store inventory activity. These and any other required
upgrades to our information systems and information technology (or new technology), now or in the
future, will require that our management and resources be diverted from our core business to assist
in completion of these projects. There can be no assurance that the time and resources our
management will need to devote to these upgrades, service outages or delays due to the installation
of any new or upgraded technology (and customer issues therewith), or the impact on the reliability
of our data from any new or upgraded technology will not have a material adverse effect on our
financial reporting, business, financial condition or results of operations. Please see ‘‘Risk Factors—
We may be adversely affected by any disruption in our information technology systems.’’
Business Segments, Geographic Area Information and Seasonality
We operate two business segments: (i) Sally Beauty Supply, an open-line and exclusive-label distributor of
professional beauty supplies offering professional beauty supplies to both retail consumers and salon
professionals primarily in North America, Europe, Puerto Rico and South America, and (ii) BSG,
including its franchise-based business Armstrong McCall, a full-service beauty supply distributor offering
professional brands directly to salons and salon professionals through our own sales force and
professional-only stores, many in exclusive geographical territories, in North America, Puerto Rico, the
United Kingdom and certain other European countries. BSG operates stores under the CosmoProf service
mark. BSG also franchises professional beauty supply outlets in the southwest portion of the U.S. and in
Mexico, and supplies sub-distributors in Europe. Sally Beauty Supply accounted for approximately 62%,
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