Sally Beauty Supply 2011 Annual Report Download - page 36

If we are unable to profitably open and operate new stores, our business, financial condition and results of
operations may be adversely affected.
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. Despite these relatively low opening costs, 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, either of which could have a material
adverse impact on our financial condition or results of operations. There are several factors that could
affect our ability to open and profitably operate new stores, including:
• the inability to identify and acquire suitable sites or to negotiate acceptable leases for such sites;
• proximity to existing stores that may reduce the new store’s sales or the sales of existing stores;
• difficulties in adapting our distribution and other operational and management systems to an
expanded network of stores;
• the potential inability to obtain adequate financing to fund expansion because of our high leverage
and limitations on our ability to issue equity under our credit agreements, among other things;
• increased (and sometimes unanticipated) costs associated with opening stores in international
locations;
• difficulties in obtaining any governmental and third-party consents, permits and licenses;
• limitations on capital expenditures which may be included in financing documents that we enter
into; and
• difficulties in adapting existing operational and management systems to the requirements of
national or regional laws and local ordinances.
In addition, as we continue to open new stores, our management, as well as our financial, distribution and
information systems, and other resources will be subject to greater demands. If our personnel and systems
are unable to successfully manage this increased burden, our results of operations may be materially
affected.
The 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.
Our results of operations may be materially affected by conditions in the global capital markets and the
economy generally, both in the U.S. and internationally. Concerns over inflation, employment, energy
costs, geopolitical issues, terrorism, the availability and cost of credit, the mortgage market, sovereign and
private banking systems, sovereign deficits and increasing debt burdens and the real estate and other
financial markets in the U.S. and Europe have contributed to increased volatility and diminished
expectations for the U.S. and certain foreign economies. We appeal to a wide demographic consumer
profile and offer a broad selection of beauty products sold directly to retail consumers and salons and salon
professionals. Continued uncertainty in the economy could adversely impact consumer purchases of
discretionary items such as beauty products, as well as adversely impact the frequency of salon services
performed by professionals using products purchased from us. Factors that could affect consumers’
willingness to make such discretionary purchases include: general business conditions, levels of
employment, interest rates, tax rates, the availability of consumer credit and consumer confidence in future
economic conditions. In the event of a prolonged economic downturn or acute recession, consumer
spending habits could be adversely affected and we could experience lower than expected net sales. In
addition, a reduction in traffic to, or the closing of, the other destination retailers in the shopping areas
where our stores are located could significantly reduce our sales and leave us with unsold inventory. The
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