Sally Beauty Holdings, Inc. (SBH)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the information contained in our 2025 10-K, including the Risk Factors section therein, and the condensed consolidated interim financial statements and related notes included elsewhere in this Quarterly Report.

Financial Summary for the Three Months Ended June 30, 2026 (the “Quarter”)

•Consolidated net sales for the quarter increased $2.2 million, or 0.2%, to $935.5 million, compared to the three months ended June 30, 2025 (the “prior year quarter”). Consolidated net sales for the quarter included a $4.7 million favorable impact from changes in foreign currency exchange rates;

•Consolidated comparable sales were flat compared to the prior year quarter;

•Consolidated gross profit increased $9.3 million, or 1.9%, to $490.2 million, compared to the prior year quarter. Consolidated gross margin increased 90 bps to 52.4% compared to the prior year quarter;

•Consolidated operating earnings increased $8.2 million, or 10.5%, to $86.4 million, compared to the prior year quarter. Operating margin increased 80 bps to 9.2% compared to the prior year quarter;

•Consolidated net earnings increased $8.4 million, or 18.3%, to $54.1 million, compared to the prior year quarter;

•Diluted earnings per share was $0.55 compared to $0.44 for the prior year quarter; and

•Cash provided by operations was $80.9 million compared to $69.4 million for the prior year quarter.

Comparable Sales

We believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period. Our comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and from e-commerce revenue. Additionally, comparable sales include sales to franchisees and full service sales. Our comparable sales exclude the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquired stores is excluded from our comparable sales calculation until 14 months after the acquisition. Our calculation of comparable sales might not be the same as other retailers, as the calculation varies across the retail industry.

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Table of Contents

Overview

Key Operating Metrics

The following table sets forth information concerning key measures on which we rely to evaluate our operating performance (dollars in thousands):

(a)Unallocated expenses consist of corporate and shared costs and are included in SG&A expenses in our condensed consolidated statements of earnings. Additionally, unallocated expenses include certain costs associated with our “Fuel for Growth” initiative as well as the $26.6 million gain related to the sale of our corporate headquarters during the nine months ended June 30, 2025. See Note 7, Property and Equipment, Net, for more information related to the sale of our corporate headquarters.

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Table of Contents

Results of Operations

Comparison of Three Months Ended June 30, 2026 to Three Months Ended June 30, 2025

Net Sales

Sally. The increase in net sales for Sally was primarily driven by the following (in thousands):

(a)Includes closed stores, net of stores opened for less than 14 months.

Sally's net sales increase was primarily driven by an increase in comparable sales and positive impacts from foreign exchange rates, partially offset by net store closures during the past twelve months. The increase in comparable sales was primarily driven by growth in hair color and digital marketplaces, partially offset by softness in our hair care category and the strategic exit of the majority of our full service operations across Europe. Sally’s comparable sales reflect increases in number of transactions and average unit retail.

BSG. The decrease in net sales for BSG was primarily driven by the following (in thousands):

(a)Includes closed stores, net of stores opened for less than 14 months and sales from acquired stores.

BSG's net sales decrease was primarily driven by a decline in comparable sales. The decrease in comparable sales was primarily attributable to softness in the hair care category. BSG's comparable sales reflect a decrease in the number of transactions and a lower average number of units per transaction, partially offset by a higher average unit retail.

Gross Profit

Sally. Sally’s gross profit increased $10.1 million for the three months ended June 30, 2026 primarily as a result of an increase in net sales and a higher gross margin on units sold. Sally’s gross margin improvement was driven primarily by higher product margins resulting from benefits associated with our Fuel for Growth initiative, partially offset by the write-off of certain inventory related to the strategic exit of the majority of our low-margin full-service operations in Europe.

BSG. BSG’s gross profit decreased $0.8 million for the three months ended June 30, 2026 due primarily to lower sales volume, substantially offset by higher gross margin on units sold that we attribute primarily to actions taken under our Fuel for Growth initiative. As a percentage of sales, BSG’s segment gross profit increased 70 basis points compared to the prior year quarter.

Selling, General and Administrative Expenses

Sally. Sally’s selling, general and administrative (“SG&A”) expenses increased $4.0 million, or 1.7%, for the three months ended June 30, 2026, and included an unfavorable impact from foreign exchange rates of $2.1 million. As a percentage of Sally’s net sales, SG&A expenses for the three months ended June 30, 2026 were 44.9%, compared to 45.1% for the three months ended June 30, 2025. The decrease as a percentage of sales was primarily due to leveraging as a result of higher net sales, partially offset by increased labor and other compensation-related expenses and commission costs from digital marketplaces.

BSG. BSG’s SG&A expenses increased $0.9 million, or 0.8%, for the three months ended June 30, 2026. As a percentage of BSG net sales, SG&A expenses for the three months ended June 30, 2026 were 27.8% compared to 26.9% for the three months ended June 30, 2025. The increase in BSG’s SG&A expenses was primarily due to increased labor and other compensation-related expenses and rent expense.

Unallocated. Unallocated SG&A expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $3.9 million, or 6.9%, for the three months ended June 30, 2026 primarily due to lower labor and other compensation-related expenses and lower expenses in connection with our Fuel for Growth initiative, partially offset by higher facility expenses related to our new corporate headquarters.

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Interest Expense

Interest expense decreased due primarily to the lower average outstanding principal balance on our Term Loan B compared to the prior year quarter. See Note 10, Short-Term and Long-Term Debt, in Item 1 of this quarterly report for more details.

Provision for Income Taxes

The effective tax rates were 25.6% and 26.8% for the three months ended June 30, 2026 and 2025, respectively. The decrease in the effective tax rate was primarily attributable to the tax impact of the divestiture of the Spain operations in the prior-year quarter.

Comparison of Nine Months Ended June 30, 2026 to Nine Months Ended June 30, 2025

Net Sales

Sally. The increase in net sales for Sally was primarily driven by the following (in thousands):

(a)Includes closed stores, net of stores opened for less than 14 months.

Sally's net sales increase was primarily driven by positive impacts from foreign exchange rates and an increase in comparable sales, partially offset by net store closures during the past twelve months. The increase in comparable sales was primarily driven by s

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section discusses management’s view of the Company’s financial condition and results of operations for fiscal year 2025 compared to fiscal year 2024. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2024, for a discussion of the financial condition and results of operations for fiscal year 2024 compared to fiscal year 2023. This section should be read in conjunction with the audited consolidated financial statements of the Company and the related notes included elsewhere in this Annual Report. This Management’s Discussion and Analysis of Financial Condition and Results of Operations section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements that could cause results to differ materially from those reflected in such forward-looking statements.

Financial Summary for the Fiscal Year Ended September 30, 2025:

•
Consolidated net sales for the fiscal year decreased $15.6 million, or 0.4%, to $3,701.4 million and included a negative impact from changes in foreign currency exchange rates of $11.4 million, or 0.3% of consolidated net sales;

•
Global e-commerce sales represented 10.7% of our consolidated net sales;

•
Consolidated comparable sales for the fiscal year increased 0.3% compared to the prior fiscal year;

•
Consolidated gross profit increased by $20.4 million, or 1.1%, to $1,910.7 million. Gross margin increased 70 basis points to 51.6% compared to the prior fiscal year;

•
Consolidated operating earnings for the fiscal year increased $45.1 million, or 15.9%, to $327.8 million. Operating margin increased 130 basis points to 8.9% compared to the prior fiscal year;

•
Consolidated net earnings for the fiscal year increased $42.5 million, or 27.7%, to $195.9 million;

•
Diluted earnings per share for the fiscal year were $1.89 compared to $1.43 for the prior fiscal year;

•
Cash provided by operations was $274.8 million for the fiscal year compared to $246.5 million for the prior fiscal year; and

•
Total debt reduction of $119.0 million and the repurchase of 5.0 million shares under our share repurchase program through the use of excess cash.

Trends Impacting Our Business

The macroeconomic environment remains uncertain, continuing to influence global inflationary pressures driven by shifting trade policies and recent tariff volatility. These factors are affecting both consumer and stylist shopping behaviors, as well as the cost of products and services. Although inflation has moderated, our customers are still experiencing inflation fatigue and heightened price sensitivity.

In response to this evolving economic climate, we are deepening our focus on personalization and refining our performance marketing strategies to stay closely aligned with changing customer needs and purchasing patterns. In addition, innovation in our product assortment and expansion of our distribution rights is benefiting our BSG business.

We remain vigilant in monitoring inflationary challenges and are actively implementing measures to mitigate their impact. These include driving operational efficiencies through our Fuel for Growth program, optimizing promotional strategies, and expanding partnerships with delivery service providers. While these initiatives have helped offset some macroeconomic headwinds, the long-term effects of inflation remain difficult to predict.

Comparable Sales

We believe that comparable sales is an appropriate performance indicator to measure our sales growth compared to the prior period. Our comparable sales include sales from stores that have been operating for 14 months or longer as of the last day of a month and from e-commerce revenue. Additionally, comparable sales include sales to franchisees and full-service sales. Our comparable sales amounts exclude the effect of changes in foreign exchange rates and sales from stores relocated until 14 months after the relocation. Revenue from acquired stores is excluded from our

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comparable sales calculation until 14 months after the acquisition. Our calculation of comparable sales might not be the same as other retailers, as the calculation varies across the retail industry.

Results of Operations

Key Operating Metrics

The following table sets forth, for the periods indicated, information concerning key measures on which we rely to assess our operating performance (dollars in thousands):

(a)
Unallocated expenses represent certain corporate costs, including share-based compensation expense, that have not been charged to our segments and are included in SG&A expenses in our consolidated statements of earnings. Additionally, unallocated includes certain costs related to our Fuel for Growth initiative.

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The Fiscal Year Ended September 30, 2025, compared to the Fiscal Year Ended September 30, 2024

Net Sales

Sally. The decrease in net sales for Sally was primarily driven by the following (in thousands):

(a)
Includes closed stores, including the divesture of Spain, net of stores opened for less than 14 months.

Sally's net sales decrease was primarily driven by net stores closed during the fiscal year and negative impacts from foreign exchange rates, partially offset by an increase in comparable sales. The increase in comparable sales was primarily driven by strong growth in hair color and digital marketplaces, partially offset by external factors that impacted consumer spending, including weather, an unusually harsh flu season and macro uncertainty. Sally’s comparable sales increase was a result of growth in our average unit retail, driven by inflationary impacts and pricing leverage, partially offset by fewer average number of units per transaction and a decrease in the number of transactions.

BSG. The decrease in net sales for BSG was driven by the following (in thousands):

(a)
Includes closed stores, including stores closed under the Plan, net of stores opened (or acquired) for less than 14 months.

BSG's net sales decrease was primarily from the negative impacts from foreign exchange rates and the impacts of net store closures over the past 12 months, partially offset by an increase in comparable sales. The increase in comparable sales was driven by continued momentum from expanded distribution and new brand innovation, partially offset by external factors during the fiscal year that impacted stylist purchasing behavior, including weather, an unusually harsh flu season and macro uncertainty. BSG's comparable sales increase was a result of an increase in number of transactions and a higher average unit retail, partially offset by fewer average number of units per transaction.

Gross Profit

Sally. Sally’s gross profit increase was a result of a higher gross margin, partially offset by lower net sales. Sally’s gross margin improvement was primarily driven by higher product margins, resulting from enhanced promotional strategies and benefits from our Fuel for Growth initiative, lower distribution and freight costs and lower shrink, partially offset by an inventory write-off in our European operations in connection with our Fuel for Growth initiative.

BSG. BSG’s gross profit increased as a result of a higher gross margin, partially offset by lower net sales. BSG’s gross margin improvement was driven by lower distribution and freight costs from supply chain efficiencies.

Selling, General and Administrative Expenses

Sally. Sally’s SG&A expenses increased $22.3 million, or 2.4%, to $945.9 million for fiscal year 2025, which includes the favorable impact from foreign exchange rates of $12.9 million due to the weakening of the U.S. Dollar compared to currencies in our foreign operations. As a percentage of Sally net sales, SG&A for fiscal year 2025 was 45.2% compared to 43.8% for fiscal year 2024. This increase as a percentage of sales was primarily due to increased labor and other compensation-related expenses, deleveraging resulting from lower net sales, and impairment charges related to certain trade names (non-cash expense of $4.5 million), partially offset by cost savings from our Fuel for Growth initiative.

BSG. BSG’s SG&A expenses decreased $12.2 million, or 2.7%, to $441.9 million for fiscal year 2025 and includes a favorable impact from foreign exchange rates of $0.8 million. As a percentage of BSG net sales, SG&A for fiscal year 2025 was 27.5% compared to 28.2% for fiscal year 2024. This decrease was primarily due to lower depreciation and delivery expenses, and savings generated from our Fuel for Growth initiative.

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Unallocated. Unallocated SG&A expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $34

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