Sally Beauty Supply 2013 Annual Report Download - page 73

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Operating Earnings
The following table sets forth, for the periods indicated, information concerning our operating earnings for
each reportable segment (dollars in thousands):
Fiscal Year Ended September 30,
2012 2011 Increase
Operating Earnings:
Segment operating profit:
Sally Beauty Supply ..................... $429,520 $380,963 $48,557 12.7%
BSG................................ 182,699 164,660 18,039 11.0%
Segment operating profit ................. 612,219 545,623 66,596 12.2%
Unallocated expenses ....................... (96,012) (81,594) 14,418 17.7%
Share-based compensation expense ............. (16,852) (15,560) 1,292 8.3%
Operating earnings ....................... $499,355 $448,469 $50,886 11.3%
Consolidated operating earnings increased by $50.9 million, or 11.3%, to $499.4 million for the fiscal year
ended September 30, 2012, compared to the fiscal year ended September 30, 2011. The increase in
consolidated operating earnings was due primarily to an increase in the operating profits of both segments,
partially offset by higher unallocated corporate expenses and share-based compensation expense, as more
fully discussed below. In addition, for the fiscal year ended September 30, 2012, consolidated operating
earnings reflect a $10.2 million charge resulting from a loss contingency. For the fiscal year ended
September 30, 2011, consolidated operating earnings reflect a net favorable impact of $21.3 million,
including a credit resulting from a litigation settlement ($27.0 million) and certain non-recurring charges
($5.7 million), including costs related to the closure of a BSG warehouse. The credit resulting from the
litigation settlement ($27.0 million) is reflected in the BSG segment’s results and in unallocated expenses
in the amount of $24.7 million and $2.3 million, respectively. Operating earnings, as a percentage of net
sales, increased to 14.2% for the fiscal year ended September 30, 2012, compared to 13.7% for the fiscal
year ended September 30, 2011. This increase reflects the increase in consolidated gross profit margin
described above, as well as a reduction in consolidated operating expenses (excluding the impact of the loss
contingency in 2012 and the benefit from the litigation settlement in 2011 mentioned above) as a
percentage of consolidated gross profit. This increase was partially offset by the credit from the litigation
settlement in the fiscal year 2011, without a comparable benefit in the fiscal year 2012.
Sally Beauty Supply. Sally Beauty Supply’s segment operating earnings increased by $48.6 million, or
12.7%, to $429.5 million for the fiscal year ended September 30, 2012, compared to the fiscal year ended
September 30, 2011. The increase in Sally Beauty Supply’s operating earnings was primarily a result of
increased sales volume and improved gross profit margins, partially offset by higher advertising costs of
approximately $7.3 million, higher freight and distribution expenses of $4.0 million and the incremental
costs related to approximately 151 net additional company-operated stores (stores opened or acquired
during the past 12 months) operating during the fiscal year ended September 30, 2012. In addition, for the
fiscal year ended September 30, 2012, Sally Beauty Supply’s operating profit reflects a $10.2 million charge
resulting from a loss contingency. Segment operating earnings, as a percentage of net sales, increased to
19.5% for the fiscal year ended September 30, 2012, compared to 18.9% for the fiscal year ended
September 30, 2011. This increase reflects the increase in the segment’s gross profit margin described
above, as well as a reduction in the segment’s operating expenses (excluding the charge resulting from the
loss contingency) as a percentage of the segment’s gross profit.
Beauty Systems Group. BSG’s segment operating earnings increased by $18.0 million, or 11.0%, to
$182.7 million for the fiscal year ended September 30, 2012, compared to the fiscal year ended
September 30, 2011. The increase in BSG’s operating earnings was primarily a result of increased sales
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