SBH - NYSE

Good morning, everyone, and welcome to Sally Beauty Holdings’ Call to discuss the Company’s Second Quarter Fiscal 2025 Results. All participants have been placed in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Additional instructions will be given at that time. Now I’d like to turn the call over to Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings.

Thank you. Good morning, and thank you for joining us. With me on the call today are Denise Paulonis, President and Chief Executive Officer; and Marlo Cormier, Chief Financial Officer. Before we begin, I would like to remind everyone that management’s remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Annual Report on Form 10-K and other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today and we undertake no obligations to update them. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. Now, I’d like to turn the call over to Denise to begin the formal remarks.

Thank you, Jeff, and good morning, everyone. For our second quarter, I’ll begin by saying I’m pleased with our team’s ability to deliver a 10% increase in adjusted operating earnings and 20% growth in adjusted earnings per share over the prior year, despite uneven top-line trends against a challenging external backdrop. Adjusted operating margin expansion of 90 basis points was supported by healthy gross margins of 52% and strict expense control. Additionally, the business continued to generate strong free cash flow in Q2, which we deployed towards further strengthening our balance sheet and returning value to shareholders through share repurchases. Looking at top-line trends, after a choppy start to the quarter, which we discussed on our February earnings call, the latter part of our second quarter reflected a more challenging external environment than we anticipated. This impacted purchasing behavior among both our Sally customers and professional stylists at BSG. While the beginning of the quarter primarily reflected transitory factors such as weather, wildfires and an unusually harsh flu season, we believe consumer sentiment and spending in the latter part of fiscal Q2 were impacted more broadly by economic uncertainty. In our Sally segment, comparable sales dipped into the slightly negative territory, declining 30 basis points. Customer behavior was similar to trends across the consumer landscape, reflecting a slow start to the quarter. While sales did pick up in March relative to January and February, trends remained below our expectations as the macro environment impacted consumer sentiment. Despite Sally’s Q2 comp decline, we delivered 130 basis points of gross margin expansion and increased profitability in the segment. Notably, we continue to see strong growth in our core category of color and robust performance coming from our newer digital marketplaces strategy. Looking at BSG, comparable sales declined 2.7%, reflecting the combination of an historic flu season and a challenging macro environment, which more than offset two key areas of ongoing momentum in the segment, expanded distribution and product innovation across categories and brands. Indeed, this year’s unusually harsh flu incidents delivered a setback to stylist appointment books resulting from the combination of their own illness and customer cancellations. This in turn naturally limited their product needs and purchasing behavior. With the flu season behind us, we’re seeing a pickup in trends in the BSG segment and while we believe the macro environment is having some degree of impact on stylist behavior, we anticipate that sales trends will continue to improve in the second half. In this uncertain environment, we are taking actions in the areas we can control protecting margins and free cash flow and continuing to execute on our strategic initiatives. From a tariff perspective, our exposure to incremental costs is limited to approximately 20% of our cost of goods sold, including approximately 10% of cost of goods tied to China and the rest mainly coming from Western Europe. In addition to having limited exposure, we also have levers to pull that will enable us to maintain our healthy gross margin profile. This includes the combination of cost sharing with vendors and price increases in the coming quarters and sourcing optimization in the medium to long-term. The fiscal Q3 guidance and full year outlook we’re providing today assumes the macroeconomic environment and broader consumer demand do not materially change. Against this backdrop, we remain focused on advancing our strategic pillars of enhancing our customer centricity, growing our high margin owned brands and amplifying innovation and increasing the efficiency of our operations. Noteworthy updates this quarter include our digital marketplaces, licensed colorist on-demand, product innovation, the Sally brand refresh, and happy beauty. First on the digital front, our marketplace strategy is enabling us to meet our Sally customers where they are, bring new customers to the brand and drive increasing profitability to our ecommerce channel. In fiscal Q2, ecommerce sales at Sally US and Canada increased 29% to last year. This reflects strong marketplace growth, as well as gains in buy online pickup in store. In addition to strong performance from DoorDash and Instacart, we’re excited to announce the expansion of our store fulfilled marketplace portfolio with the strategic addition of Uber Eats in March. Moving now to our licensed colors on-demand initiative. This continues to be a highly value-added service that is gaining increasing traction quarter-to-quarter. The online platform has grown to approximately 90 licensed colors. Consultations have also grown exceeding 4,500 per week during our second quarter. All of the leading indicators we track tell us the potential lifetime value of this customer is much higher than non-LCOD customers. LCOD customer spend is about 25% higher, driven by increased purchasing frequency and we continue to see a high percentage of customers using the service that are new to the brand. We view this elevated level of service as an important differentiator for Sally that is unmatched in the market. Turning now to product innovation, which is among our core competencies and a key competitive advantage at both banners. At BSG, we’re maintaining a robust innovation pipeline across categories and brands. Second quarter launches include color and care products from sought after brands like Amika, Schwarzkopf, Moroccan Oil and Wella. On April 1, BSG launched distribution of the cutting-edge haircare brand K18 in all stores and our ecommerce site, and is off to a fantastic start. We believe K18 creates an opportunity to increase the share of wallet with our stylists. Also in April, we debuted Goddess Maintenance, an innovative haircare brand emerging as a significant player in the biotech-driven beauty revolution. Turning to Sally Beauty, we saw strong performance from many of our own brands in the quarter, including Inspired by Nature, ION, Beauty Secrets and Bondbar. In April, we launched Madison Reed Color in select US stores and on our sallybeauty.com website. In the second half of the year, we have more innovation coming in color care, nails and cosmetics. This includes hair gloss and skincare from Sauce Beauty, as well as newness in color from Wella and Eero Eero, which is one of our top of vivid brands that will now be offering great coverage options. Lastly, Bondbar will be launching color conditioners, which provides great maintenance between coloring sessions. These three initiatives, marketplaces, LCOD and innovation, in addition to personalization and enhanced performance marketing, which are all more mature initiatives underpinning our strategy, drove over 225 basis points of comp sales growth in the quarter, consistent with the results we saw from fiscal Q3 2024 through fiscal Q1 2025 before being offset by heightened macro pressures in Q2. We believe these initiatives will continue to drive consumer engagement and sales over the coming quarters and years. Now, turning to two of our longer term initiatives, starting with our Sally brand refresh. We’re moving full steam ahead with the rollout of a fully updated and modernized Sally brand expression across all brand media touch points, in-store marketing and our ecommerce site. Beginning this month, the consumer will see a more consistent message across all channels and brand marketing with hair at the center, and a focus on elevating Sally Beauty as a modern beauty retailer that inspires core DIY customers and next generation beauty enthusiasts, which we believe will unlock new customer segments and drive stronger loyalty. From a retail store perspective, the initial eight locations we refreshed in the Orlando market in fiscal q1 continue to meet with positive response. We’re refreshing an additional five stores in Orlando in fiscal Q3 and expect to have over 30 total stores completed by fiscal year end, including some in other markets. We’re excited about the insights we’re gaining with this initial set of stores and our teams are energized by the opportunity to test, learn, read and react as we continue to progress towards a potential refresh of up to two-thirds of the Sally US fleet. Shifting now to Happy Beauty initiatives. We continue to be excited about the potential of this concept and with 20 stores open, we’re taking key learnings and acting upon them to further accelerate traffic and conversion. At a high level, we’ve listened to our customers and we’re doubling down on product and in store experience underpinned by great storytelling. A few notable call outs. We’re leaning into Happy Beauty as an indie brand headquarters and focused on key trends such as Korean beauty and fragrance stories, which is a key differentiator for our core customers. We’re also making a subtle shift from a pure value message to placing more emphasis on great prices on hot products. And at the same time, we’re evolving our marketing messages, highlighting on trend brands, offering tests before you buy and utilizing influencer partnerships and social to drive traffic and conversion. We’re pleased to see continued engagement with the brands, which gives us conviction that we’re on the right path with our refined strategies and focus on mall locations. As you’ll hear from Marlo, we’re continuing to drive operating efficiencies through our Fuel for Growth program, which is on track to generate cumulative gross margin and SG&A benefits of approximately $70 million by the end of the year. While not immune in the current environment, we are operating from a position of strength given the stickiness of our core categories, centered around colors, our Fuel for Growth program, our strong balance sheet and the resilience of our cash flow generation model. Over the past several years, we’ve built a substantial competitive moat through our commitment to customer service, education, advice and inspiration supported by a modern omni-channel go to market model. These differentiators and structural advantages help us navigate periods of uncertainty and create durability. We appreciate the support of our shareholders and remain committed to building long term value for all of our stakeholders. Now I’ll turn the call over to Marlo to discuss the financials.

Thank you, Denise, and good morning, everyone. We are pleased to deliver a third consecutive quarter of operating margin expansion and generate strong cash flow despite a challenging sales backdrop. Second quarter consolidated net sales of $883 million represented a decrease of 2.8% and included 110 basis points of unfavorable foreign currency impacts. Consolidated comparable sales declined 1.3%, reflecting a combination of external factors that impacted purchasing behavior among our Sally Beauty consumers and professional stylists at BSG. This included a difficult macro environment, as well as an unusually harsh flu season, the California wildfires, and inclement weather. This is partially offset by strong growth in hair color and digital marketplaces at Sally, as well as continued momentum at BSG driven by expanded distribution and new brand innovation. At constant currency, global ecommerce sales were $94 million, that’s up 6% versus last year and represented 11% of total net sales. Gross margin expanded 100 basis points to 52% in the second quarter. The year-over-year improvement is attributable to lower distribution and freight costs and reduced shrink expense across both business segments and strong product margins at Sally. Looking at the balance of the year, we expect to maintain our strong margin profile despite the dynamic tariff situation. From a cost of goods perspective, our exposure to incremental tariffs is limited to about 20% of our cost of goods, roughly split between China and Western Europe. Given our current inventory levels, we expect limited to no cost of goods impact in fiscal year 2025. Notwithstanding changes in consumer demand, based on our scenario planning, we anticipate that our mitigation tactics will enable us to largely offset potential cost of good impacts as we look beyond fiscal 2025. Primarily areas of focus include the following: cost sharing with vendors where we have long standing relationships and constructive ongoing dialogs, passing on modest price increases on select products where price elasticity is lower. And over the longer term, evaluating opportunities to diversify our sourcing base to additional countries. Turning now to expenses. Strip expense control drove year over year improvement in SG&A dollars. Adjusted SG&A in the quarter totaled $384 million, down $11 million to last year. The decline can be traced to a favorable impact from foreign currency exchange rates, savings from our Fuel for Growth program, lower advertising expense and depreciation expense. In the second quarter, we captured an incremental $8 million of pre-tax benefits to gross margin and SG and A from our Fuel for Growth program. Through the first half of fiscal 2025, we have delivered $20 million in pre-tax benefits. This leaves us on pace to capture $40 million to $45 million of savings in the full year and cumulative program savings of approximately $70 million. Our strong gross margin performance, coupled with careful expense control enabled us to deliver improved profitability versus a year ago. Adjusted operating margin of 8.5% increased 90 basis points. Adjusted EBITDA margin of 11.9% was up 90 basis points and adjusted diluted EPS of $0.42 was up 20% versus a year ago. Moving to segment results. Sally Beauty net sales decreased 2.5% to $501 million including 150 basis points of unfavorable FX impact on 17 fewer stores versus a year ago. Comparable sales were roughly flat at a minus 0.3%, reflecting the external factors that impact consumer spending, including ,weather an unusually harsh flu season, and macro uncertainty. Comparable transactions were down 1%, while average ticket was up 1%. At constant currency, Sally eCommerce sales were $41 million and represented 8% of segment net sales for the quarter. That’s up 21% year-over-year, primarily driven by the strength of our digital marketplace strategy. For the global Sally Beauty segment, color increased 4%, while care was down 8% compared to the prior year. At Sally US and Canada, color was up 6% and care decreased 8%. Gross margin in our Sally segment increased 130 basis points to 61.2%. The year-over-year improvement reflects three primary factors, lower distribution and freight costs, higher product margins resulting from our improved promotional strategies and enhanced vendor relationships, and lastly lower shrink expense. Segment operating margin was strong, coming in at 15.4%, up 40 basis points to last year. Looking at the BSG segment, net sales decreased 3.2% to $383 million including 50 basis points of unfavorable FX impacts, while comparable sales were down 2.7%, primarily reflecting the external factors that impacted stylist appointments and related purchases, including weather, an unusually harsh flu season and macro uncertainty. Comparable transactions were up 3%, while average ticket was down 6%. On a constant currency basis, BSG ecommerce sales were $53 million, representing 14% of segment net sales for the quarter. From a category perspective, color was flat and care was down 5%. Gross margin at BSG increased 40 basis points to 39.8%, primarily reflecting lower distribution and freight costs and lower shrink expense, partially offset by lower product margins due to brand mix. Segment operating margin was also strong, coming in at 11.5%, up 60 basis points to the prior year. Turning to the balance sheet and cash flow. We ended the quarter in strong financial condition with $92 million of cash and cash equivalents and no outstanding borrowings under our asset-based revolving line of credit. Inventory levels remained healthy at slightly over a $1 billion, down about 3% to last year. During the quarter, we maintained our balanced capital allocation strategy as we continue to prioritize long-term value creation for shareholders. The business generated strong cash flow from operations of $51 million, while operating free cash flow totaled $32 million reflecting capital expenditures of $19 million in the quarter. Halfway through the year, we have delivered free cash flow of $90 million and that puts us on track to still achieve approximately $180 million to $200 million in free cash flow for the full year. We brought our net debt leverage ratio down to 1.8 times after utilizing excess cash to repay $36 million of term loan B debt in the quarter. We also deployed cash to return value to shareholders in Q2, utilizing $10 million to repurchase 1.1 million shares of stock under our existing share repurchase program. One final note before discussing guidance. You may have seen that today we announced a four year extension to our share repurchase program, which was set to expire in September of this year. We have approximately $500 million remaining under the original $1 billion authorization. Turning now to guidance. We are introducing third quarter guidance and updating our full year outlook based on current business trends. Given the evolving global trade policy and how that may impact consumer sentiment and spending, the outlook we’re providing today assumes no material change in the macroeconomic environment or broader consumer demand trends. Our updated fiscal 2025 guidance is as follows: Comparable sales are expected to be in the range of flat to down 1% versus prior expectations for flat to up 2%. Consolidated net sales are now expected to be approximately 75 basis points lower than comparable sales due to the expected unfavorable impact from foreign exchange rates. This compares to our prior guidance of approximately 100 basis points. Adjusted operating margin is expected to be in the range of 8% to 8.5%, compared to our prior expectation of 8.5% to 9%. Our guidance for the third quarter of fiscal 2025 is as follows: Comparable sales are expected to be approximately flat to down 2% versus prior year. Consolidated net sales are expected to be approximately 50 basis points lower than comparable sales due to the expected unfavorable impact from foreign exchange rates. And adjusted operating margin is expected to be in the range of 8% to 8.5%. In terms of deployment of cash, we expect to repurchase approximately $20 million of stock and repay approximately $20 million of debt during our third quarter. We appreciate your time this morning. Now, I’ll ask the operator to open the call for Q&A.

Thank you. [Operator Instructions] Our first question comes from the line of Oliver Chen of TD Cowen. Your line is now open.

Hi, thanks a lot for all the details. I would love for you to try to compare and contrast the Sally division relative to BSG on the lighter comp versus estimates and what’s in your control and what’s not there? And then would also just love your thoughts as we forecast ecommerce going forward. You had a really nice number there. What should we know in terms of that momentum and what will happen going forward? Thank you.

Good morning, Oliver. I am happy to take those questions. While we saw a little bit lighter sales in both segments in the quarter, we’re pleased with the things that are under our control, which are all of our strategic initiatives. And as I mentioned, they delivered about 225 basis points of comp on the total business, which is very consistent to what we’ve been doing the three prior quarters before we hit a little bit of macro headwind as we came into the second quarter. When you think about the difference between the two businesses, so Sally comps declined just about 30 basis points after growing for three quarters. That 30 basis point decline was really about a growth in color, as well as marketplaces, offset by a bit of decline in hair care. What we really just saw was a bit of softening in transactions and ticket compared to the prior quarter, where customers were being more choiceful, particularly at that end of the quarter with a little bit of economic uncertainty and volatility. But I am really pleased with the way that we navigated with the 130 basis points improvement in gross margin, 40 basis points improvement in operating margin. And clearly, the things under our control there are all of our strategic initiatives, as well as being nimble around promotional cadence. If you turn to BSG, you know, comp decline was bigger. It did follow five quarters of solid sales growth. And when we looked at what really happened there, the stylists got hit early in the quarter, in particular with the flu season. They came in and told us they were sick, their families were sick, their customers were sick. It impacted their stylist appointment book quite a bit. And in turn, you saw the pullback in the need for supplies from us. Once again, really pleased with how Color performed amidst all of that and very pleased with the launch of K18, which we’re excited as we’ve turned to the new quarter to see that be able to build in the business, as well. And on the BSG side, we saw strengthening as we went from January, February into March. We’ve seen continued strengthening in April and we expect that that will continue, as well. Clearly, the biggest things under our control there are our territory expansions and our innovation, which we will continue to drive. On ecommerce front, absolutely really pleased with the results we’re seeing. What we’re really intersecting now is the strength of the marketplace strategy, expansion beyond DoorDash, Instacart, Amazon, Walmart and now the addition of Uber Eats. We are seeing customers enjoy the convenience of being able to shop with us through all of those platforms. I’ll also say our core ecommerce platform is starting to benefit from our personalization initiatives that are ramping up and our sophistication in being able to deliver that right message to the customer at the right time. So we’re right about 11% penetration today. We think that’s going to continue to grow naturally as our programs evolve and as consumers understand our awareness out there. So looking forward to continued growth.

Okay. Just a follow-up. How has the store refresh done in terms of traffic and expectations in terms of that store refresh driving some change? And then we’re pretty excited or happy about Happy Beauty. What’s keeping you in terms of growing that and as you assess a refinement of that model for profitability? It seems like a big addressable market. Thank you.

Yeah, we’re pleased with the start of the store refresh activity. We’ve had eight stores open for a pretty short period of time here. So it’s a little early to read full results. But we are seeing customers come in and cross shop a bit more of the store, come in and talk about it being is this Sally? And just the experience that you get, the sight lines through the store, the appreciation there. We’re going to continue to be watching all of the underlying metrics as the sales trends kind of come in and stabilize a bit as we have those stores open and get some more open in the market. But pleased with what we’re seeing so far on that front. And then, when you turn to Happy Beauty, really nice seeing that, in particular, the mall stores that we had opened ahead of the holidays are performing and are quite strong in the mix. With 20 total stores open, we’ve had a lot of learnings, as I mentioned in the prepared remarks and where we’re pivoting on some things. I’m feeling good about the path on both traffic conversion, as well as UPT. What we want to see is those continue to trend in that direction, that we’ve been seeing, as we assess expansion plans. So, more to come in future quarters as we watch those metrics and, and, prepare next steps as appropriate.

Okay. Final, on the tariff changes, which are happening so dynamically, what do you think your consumer - how do you think your consumer may respond? And what have they thought about in the past relative to all the headlines? And just would love your take as these rates move lower for the hopefully foreseeable future. Thanks.

As you mentioned, it is certainly dynamic. Nothing like waking up this morning with some new news. We’re hopeful that with the news that came out this morning with some news from the UK last week as well, that we’ll start to get a little bit more clarity and consumers will feel less uncertainty in terms of what their behaviors and their habits will be able to be. That’s what we’ll be watching for. The hope will be those things settle down a bit. Consumer trends will have less choppy sentiment as all the new cycles come through. But given that was just budding news last night, I think we’re all waiting to see how customers respond in the coming weeks as we look ahead.

Thanks. Best regards.

Our next question comes from the line of Korinne Wolfmeyer with Piper Sandler. Your line is now open.

Hey, good morning, team. Thanks for taking the question. I’d like to touch a little bit more on the guidance change and how you’re thinking about each segment into the back half. It seems like you’re a little bit more optimistic on BSG. So, is it fair to assume that the Sally Beauty side is the main driver of the guidance reduction? Or just how are you thinking about the trends for each segment into the back half? Thanks.

Hi, Korinne. Good morning. What I’d say overall is the guidance is really just reflecting the current environment that we’ve seen. If we came through the first half of the year, our comps were slightly positive, operating earnings up 7%, operating earnings up 8%, operating earnings rate at 8.4%. So the guidance really just says a steady Eddie as you kind of look to the second half, but perhaps a little bit of softness given what we don’t know about the consumer. There is two portions of the business, I think when you think about the business, BSG had a bit tougher quarter this past quarter than what the Sally business did. As we talked about that, our stylists told us that was flu-related behavior. So we do expect there to be a recovery there as we go through the second half of the year including Q3. There’s just a bigger recovery that we anticipate. And on the Sally side, I think we’re expecting that color remains quite robust and care business is likely to remain a bit softer just as customers are being a bit more frugal. We saw that in the fact that we run a 4 for $30 hair care promotion. Buying four bottles at $30 ended up feeling a little rich to our customers in March. We pivoted and made that buy two for $15 and we saw a really nice uptake. But that’s our indicator of that Sally customer and where that threshold for spending might be. But overall, we think it’s just prudent as we look to the back half of the year to take into account what current business trends are and the uncertainty. We’re hopeful that the news from last night and into this morning will provide us a little bit more upside than what we might have thought as of last night, in fact.

Great. Thanks. That’s really helpful. And then on the margin front, pretty good margin performance, both on the gross margin and the operating margin line this quarter, but there was a bit of a guidance adjustment. So, I guess, first, what would you say were the biggest drivers of the margin strength this quarter? And then, what’s changing in the back half to drive some of that reduction? I know there’s going to be some maybe some deleverage with the top-line adjustments, but anything else to call out would be great. Thank you.

Yeah, thank you. So the really our Fuel for Growth program that is driving our margin expansion both through gross margins, as well as the benefits that we’re seeing through SG&A. And so, right now we’ve got about $20 million of benefits that we’ve already delivered through the first half of this year. And we are on track to deliver another 40 million to $45 million on the full year for incrementality. So see that flow through happening now. As we look to the back half of the year, a few things happening. We expect the strong gross margin to continue. On the SG&A side, we will see a bit of a step up in expenses, a bit of that is due to the timing of advertising, as well as our investments, that’s tied to our investment in brand refresh. We do have some general cost inflation that happens with merits that come in for our store associates in Q3. But we are looking to feel for growth to offset a lot of that and mitigate. And so we do expect to see some continued strong performance on the earnings side, but we will see a bit of a step up on the SG&A.

Thank you.

Our next question comes from the line of Susan Anderson of Canaccord Genuity. Your line is now open.

Hi, good morning. Thanks for taking my questions. I think maybe if you could talk a little bit about just kind of what you’ve seen, I guess, heading into the back half. It sounds like you’re expecting maybe consumers to kind of pull back on spending, but just curious if you’ve seen any of that since Liberation Day and the decline in consumer sentiment. And then also, I’m curious just if you’re seeing any trade down to consumers kind of doing their own coloring. It sounds like coloring was strong at really at both segments. So, just curious if you’ve seen any of that yet. Thanks.

Good morning. Let me start with saying, when we thought about the first quarter, we talked about January and February had some transitory factors like weather and flu that weighed on kind of retail overall. And then, as we came into March, those trends really subsided, but we did see a little bit more anxiety amongst the consumer as news was starting about tariffs and potential impacts to the macroeconomic environment. As we started into April, those trends remained consistent and I think guidance, that’s what you see reflected in our guidance. What I’d say underpinning that is, BSG certainly had more transitory factors and we’ve seen those mitigate and expect that as we’re going through our third quarter into our fourth that you will continue to see a good performance at BSG, even in the current environment that we’re in. And then on the Sally side, similarly, as I mentioned, we’ve seen transactions be a little bit lighter than we anticipated. And that price point and units of people putting it into their basket, there’s some conservatism there. So, these are minor pressure points in the grand scheme of things. We’re coming off of three quarters of top-line growth at Sally, five quarters at BSG. We hope that what we’re seeing right now is transitory, but we have reflected that what we saw in March would continue further into the year at this point. In terms of trade-down, it’s a really interesting question. The world that we see right now is more pressure on a lower middle income consumer than maybe on a middle to higher income consumer that’s more likely to be using stylist services, coloring and highlighting and all of those items. We would expect that you would really not see that trade-down from pro to DIY, unless you did have a full recession. So something that would be a much more notable in terms of a wage challenge, employment challenge come through. That would be historically kind of the trigger that you would see there. But we certainly have seen customers looking for ways to extend their services, so ways that they can do touch up in between just to be able to get a few extra weeks between their color. And then in general, we have not seen folks trade-down in terms of brand mix in either of our businesses, although people are always looking for value. And as I mentioned, we’ve seen customers looking for that promotion or looking for that deal on both businesses.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is now open.

Hey, good morning. Just to start, can you talk about quarter-to-date again? I know you said there was some pickup in one of the businesses. I missed that. Are you seeing a similar pickup in quarter-to-date for both of your businesses?

Good morning, Simeon. We are seeing improved performance as we’re into Q3. As we talked about in particular on the BSG side of the business, that recovery post to the flu situation has been, we’ve definitely seen that come through. So nice to see that we’ve picked up from some of those baselines, but we remain cautious as we’re just looking at the consumer further into the third quarter and fourth quarter, depending upon the way the economy moves.

Okay. And then as a follow-up to the prior question, because I got most of the answers. There was no tariff built into weaker margin for the back half of the year. Is that correct? Meaning you didn’t have any assumption that tariffs were going to weaken the margins or the gross margins in the back half?

Yeah, that’s correct. Just given the timing of our fiscal year that ends in September, the timing of the tariff inventory position. We do have some purchase orders on hold for China. We don’t see any flow through flowing through of any material impact to this year.

Okay. And then, just one more. I know you said there was like flu and weather and things hurt some of the stylists in the business in early part of the quarter. Were there any - do you have any markets where you can control for that, meaning incidence wasn’t as high and/or weather was more favorable, where you had more normal trends that you can point to from the quarter?

Yeah, what I would say is flu was pretty broad based. But when you look at other things like the incidents of the LA wildfires or some of the weather situations, we can very clearly see where those pockets got hit harder. When we think about both sides of the business in terms of absolute store closure days from things like weather, fires, employee sickness, it was up notably versus last year, which is the basis of the analysis.

Okay. Thank you. Good luck.

Next question comes from the line of Olivia Tong with Raymond James. Your line is now open.

Good morning. This is Lillian on for Olivia. And I was wondering if you could just talk about the current promotional environment. In the past, you’ve talked a bit about shifting your strategy. So just wondering if you anticipate having to change as consumer sentiment is weaker. Thank you.

I think we feel good about our strategy overall. When we talk about the key initiatives that we’re leaning into behind customer centricity with things like license colors on-demand, our CRM activity and personalization, the marketplaces, performance that we’ve seen, combine that with innovation, we believe that we’re on the right track with our initiatives. When we think about anything that could pivot or we think differently about the consumer environment, we’re watching that pretty closely. But we think that’s more about the tactics rather than fundamental changes to the strategy. So, I think that we feel like we’re on a good track to stay on our commitment to the initiatives that we have out there. And speaking to that, when you think about the quarters leading up to Q2, we were three consecutive quarters for both businesses of top-line and bottom-line growth. So it is not just our sales initiatives starting to perform, but Fuel for Growth really helping the bottom-line as well. So in terms of the core of the business, we’re feeling quite positive about it.

Thank you. [Operator Instructions] Our next question comes from the line of Sydney Wagner with Jefferies. Your line is now open.

Hi. I was wondering if you could kind of share what innovation you’re seeing drive the most traffic or conversion in stores. Thank you.

Sure. On the pro side of the business, I think that there is definitely a trend around glossing or glass hair looks. So that very much smooth look that you see out there is certainly gaining a lot of traction across all services, whether that be color or care. On the consumer side, that trend is there as well, but I’ll also say a trend in press on nails is a very interesting one. A different way to get that at home DIY manicure that you can do that we’ve seen notable strength in. We’ve also seen pickup in our Inspired by Nature brand, which would be our free from hair color brand that we have out there. So seeing that come through a bit, as well. But we’re pleased on both sides of the business to have brands that really support this. So the Pro side, our new launch of K18, Moroccan Oil, Amika, Color Wow, Goddess Maintenance, that’s brand new to us are all places where we’re able to lean in and support those trends. And on the Sally side, the strength of our own brands in many of those places combined with our brand partners, including Sauce Beauty, Wella and others, we’re pleased that we’re able to support those trends.

Thank you. And this concludes the question-and-answer session. I would now like to turn the call back over to Denise Paulonis for closing remarks.

Well, thank you. I appreciate everyone tuning in to hear our update on the second quarter and we’re looking forward to the back half of our year. I appreciate all the interest of shareholders and all that we are doing to drive long-term shareholder value. And I’d just like to take a final moment to thank our team for all they do to help our customers around the globe. And with that, we’ll be back with an update next quarter.