Sally Beauty Supply 2013 Annual Report Download - page 20

the past three years that increased our European and South American footprint. We intend to continue to
identify and evaluate non-U.S. acquisition and/or organic international growth opportunities. Our ability to
grow our non-U.S. operations, integrate our new non-U.S. acquisitions and successfully pursue additional
non-U.S. acquisition and/or organic international growth opportunities may be affected by business, legal,
regulatory and economic risks. Please see ‘‘Risk Factors—We may not be able to successfully identify
acquisition candidates or successfully complete desirable acquisitions,’’ ‘‘If we acquire any businesses in the
future, they could prove difficult to integrate, disrupt our business or have an adverse effect on our results
of operations’’ and ‘‘Our ability to conduct business in international marketplaces may be affected by legal,
regulatory and economic risks.’’
Continuing consolidation. There is continuing consolidation among professional beauty product
distributors and professional beauty product manufacturers. We plan to continue to examine ways in which
we can benefit from this trend, including the evaluation of opportunities to shift business from competitive
distributors to the BSG network as well as seeking opportunistic, value-added acquisitions which
complement our long-term growth strategy. We believe that suppliers are increasingly likely to focus on
larger distributors and retailers with a broader scale and retail footprint. We also believe that we are well
positioned to capitalize on this trend as well as participate in the ongoing consolidation at the distributor/
retail level. However, changes often occur in our relationships with suppliers that may materially affect the
net sales and operating earnings of our business segments. Consolidation among suppliers could
exacerbate the effects of these relationship changes and could increase pricing pressures. For example,
L’Oreal has acquired distributors that compete with BSG in the Midwest, Southeast and West Coast
regions of the U.S. and, as a result, L’Oreal directly competes with BSG in certain geographic areas. If
L’Oreal or any of our other suppliers acquired other distributors or suppliers that conduct significant
business with BSG, we could lose related revenue. There can be no assurance that BSG will not lose
further revenue over time (including within its franchise-based business) due to potential losses of
additional products as well as from the increased competition from distribution networks affiliated with
any of our suppliers. Please see ‘‘Risk Factors—The beauty products distribution industry is highly
competitive and is consolidating’’ and ‘‘We depend upon manufacturers who may be unable to provide
products of adequate quality or who may be unwilling to continue to supply products to us.’’
Relationships with suppliers. Sally Beauty Supply and BSG, and their respective suppliers are dependent
on each other for the distribution of beauty products. We do not manufacture the brand name or exclusive-
label products we sell. We purchase our products from a limited number of manufacturers. As is typical in
distribution businesses (particularly in our industry), these relationships are subject to change from time to
time (including the expansion or loss of distribution rights, including exclusive rights, in various
geographies and the addition or loss of product lines). Since we purchase products from many
manufacturers on an at-will basis, under contracts which can generally be terminated without cause upon
90 days’ notice or less or which expire without express rights of renewal, such manufacturers could
discontinue sales to us at any time or upon the expiration of the distribution period. Some of our contracts
with manufacturers may be terminated by such manufacturers if we fail to meet specified minimum
purchase requirements. In such cases, we do not have contractual assurances of continued supply, pricing
or access to new products and vendors may change the terms upon which they sell. Infrequently, a supplier
will seek to terminate a distribution relationship through legal action. Changes in our relationships with
suppliers occur often and could positively or negatively impact our net sales and operating profits. We
expect to continue to expand our product line offerings and to gain additional distribution rights over time
through either further negotiation with suppliers or by acquisitions of existing distributors. Although we
focus on developing new revenue and cost management initiatives to mitigate the negative effects resulting
from unfavorable changes in our supplier relationships, there can be no assurance that our efforts will
continue to completely offset the loss of these or other distribution rights. Please see ‘‘Risk Factors—We
depend upon manufacturers who may be unable to provide products of adequate quality or who may be
unwilling to continue to supply products to us.’’
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