Executive Summary

Margin resilience despite soft sales: net sales $0.88B (-2.8% YoY) and comps -1.3%, but gross margin +100 bps to 52.0% and adjusted operating margin +90 bps to 8.5%, driving adjusted EPS up 20% YoY to $0.42 .
Clear beat/miss: Q2 adjusted EPS $0.42 vs $0.393 consensus (beat); revenue $883M vs $902M consensus (miss). Management cut FY25 outlook (comps flat to -1% from flat to +2%; adj op margin 8.0–8.5% from 8.5–9.0%), citing macro headwinds and FX . Consensus values marked with asterisks below (S&P Global).
Cash generation intact; buyback extended: Q2 operating FCF $32M; $36M debt repaid; $10M buybacks; board extended repurchase program four years with ~$501M remaining authorization .
Catalysts ahead: marketplace/e-commerce expansion (Uber Eats launch), LCOD adoption, and innovation (K18 at BSG) to support H2; Q3 guide: comps flat to -2%, adj op margin 8.0–8.5% .

What Went Well and What Went Wrong

What Went Well
- Margin execution: gross margin expanded to 52.0% (+100 bps) on lower freight/distribution costs and shrink; adjusted operating margin 8.5% (+90 bps) with tight SG&A control .
- Digital/e-comm traction: e-commerce $94M (10.7% of sales); marketplaces broadened (DoorDash, Instacart, Amazon, Walmart, and Uber Eats), supporting Sally U.S./Canada e-comm +29% YoY in Q2; LCOD consultations >4,500/week .
- Capital allocation: $36M term loan repayment; $10M repurchases; net debt leverage ~1.8x; repurchase authorization extended to 2029 with ~$501M remaining .
What Went Wrong
- Top-line softness: net sales -2.8% YoY; comps -1.3% on weather, flu, wildfires and macro uncertainty; BSG comps -2.7%, average ticket -6% despite higher transactions .
- Guidance cut: FY25 comps now flat to -1% (from flat to +2%); adj operating margin 8.0–8.5% (from 8.5–9.0%); Q3 comps flat to -2% .
- Category mix: care declined in both segments (Sally care -8%; BSG care -5%) offsetting color strength; FX headwinds (110 bps to total company sales) .

Management quotes:

“We are pleased to report a third consecutive quarter of adjusted operating margin expansion and increased profitability… amidst a challenging macro backdrop.” — CEO Denise Paulonis .
“Our exposure to incremental tariffs is limited to about 20% of cost of goods… we expect limited to no COGS impact in FY25.” — CFO Marlo Cormier .

Financial Results

Recent quarters (oldest → newest)

Metric	Q4 2024	Q1 2025	Q2 2025
Net Sales ($USD Millions)	$935.0	$937.9	$883.1
GAAP Diluted EPS	$0.46	$0.58	$0.38
Adjusted Diluted EPS	$0.50	$0.43	$0.42
Gross Margin %	51.2%	50.8%	52.0%
GAAP Operating Margin %	8.8%	10.7%	7.9%
Adjusted Operating Margin %	9.4%	8.4%	8.5%
Adjusted EBITDA Margin %	12.6%	11.7%	11.9%
Operating Free Cash Flow ($M)	$73.3	$57.0	$32.2

Q2 2025 vs consensus and prior periods

Metric	Q2 2024	Q1 2025	Q2 2025 Actual	Q2 2025 Consensus*	Surprise
Revenue ($M)	$908.4	$937.9	$883.1	$901.9*	Miss
Adjusted Diluted EPS ($)	$0.35	$0.43	$0.42	$0.393*	Beat

Non-GAAP adjustments: adjusted EPS/operating margin exclude Fuel for Growth/severance, HQ relocation/sale items, asset impairments, restructuring, and debt extinguishment costs; reconciliations provided in exhibits .
Discrepancy note: press release cites net debt leverage ~1.8x; the call transcript mentions “11.8x” which is almost certainly a transcription error; rely on press release/8-K figure .

Segment breakdown (Q2 2025)

Segment	Net Sales ($M)	Comp Sales	Gross Margin %	Op Margin %	E-comm ($M, % of seg)	Store Count
Sally Beauty Supply (SBS)	$500.6	-0.3%	61.2%	15.4%	$41, 8.2%	3,117
Beauty Systems Group (BSG)	$382.6	-2.7%	39.8%	11.5%	$53, 13.9%	1,329
Consolidated	$883.1	-1.3%	52.0%	7.9% (GAAP); 8.5% adj	$94, 10.7%	4,446

Selected KPIs (Q2 2025)

KPI	Q2 2025
Global e-commerce sales	$94M; 10.7% of sales
Operating Free Cash Flow	$32.2M
Cash from Operations	$51.1M
Inventory	$1.01B
Cash & Equivalents	$92M
Net Debt Leverage	~1.8x
Share Repurchases	$10M (1.1M shares)
Debt Repayment	$36M Term Loan B
BSG Distributor Sales Consultants	632

Guidance Changes

Metric	Period	Previous Guidance (Feb 13)	Current Guidance (May 12)	Change
Comparable Sales (Consolidated)	FY25	Flat to +2%	Flat to -1%	Lowered
Net Sales vs Comps (FX impact)	FY25	~100 bps lower than comps	~75 bps lower than comps	Slightly improved FX impact
Adjusted Operating Margin	FY25	8.5%–9.0%	8.0%–8.5%	Lowered
Comparable Sales	Q3 FY25	—	Flat to -2%	New
Net Sales vs Comps (FX impact)	Q3 FY25	—	~50 bps lower than comps	New
Adjusted Operating Margin	Q3 FY25	—	8.0%–8.5%	New
Capital Deployment (Q3)	Q3 FY25	—	~$20M buybacks; ~$20M debt repayment	New

Management noted limited to no FY25 tariff impact to COGS given inventory position; mitigation levers include vendor cost sharing, selective pricing, and sourcing diversification .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4 2024 and Q1 2025)	Current Period (Q2 2025)	Trend
Digital marketplaces & e-commerce	E-comm 9.8% of Q4 sales; expanding digital efforts . Q1 e-comm $99M (10.6%); strong marketplace partners (DoorDash, Instacart, Amazon, Walmart) .	E-comm $94M (10.7%); added Uber Eats nationwide; Sally U.S./Canada e-comm +29% YoY in Q2 .	Strengthening channel mix and reach
Licensed Colors On Demand (LCOD)	>4,000 consultations/week; AOV +23% vs non-LCOD .	~90 licensed colors; >4,500 consultations/week; LCOD customers spend ~25% more .	Scaling adoption; higher-value customers
Tariffs/macro sensitivity	FX -30 bps to Q4 sales; held gross margin . Q1 macro noise in January; reiterated FY25 targets .	Macro/flu/weather pressured comps; exposure ~20% of COGS; limited/no FY25 impact expected .	Near-term demand headwind; manageable cost risk
Product innovation	Q4 momentum, BSG acquisition, brand expansion . Q1 announced K18 launch 4/1, plus brand pipeline .	K18 off to strong start; new launches (care/color; nails, cosmetics) .	Robust
Store refresh & Happy Beauty	Start of Sally brand refresh; 8 Orlando pilots; Happy Beauty > holiday traction .	Positive early read; >30 stores refreshed by FY-end; Happy Beauty focusing on mall locations, indie/K-beauty/fragrance .	Iterating; building conviction
Gross margin drivers	Lower freight/shrink aided Q4 . Q1 +60 bps GM on shrink, freight .	+100 bps GM; lower freight/shrink, better promo strategy at Sally; strong GM profile maintained .	Sustained tailwinds

Management Commentary

Strategic pillars: enhance customer centricity, grow high-margin owned brands, amplify innovation, improve operational efficiency .
Digital/marketplaces: “Our marketplace strategy is enabling us to meet our Sally customers where they are… We are excited to announce the expansion… with the strategic addition of Uber Eats.” .
Cost/COGS: “Exposure to incremental tariffs is limited to approximately 20% of our cost of goods… we expect limited to no cost of goods impact in fiscal year 2025.” .
Fuel for Growth: On track for ~$70M cumulative benefits by year-end; $20M pretax benefits delivered in 1H FY25; $45M full-year FY25 savings targeted .
Consumer/macro: Q2 softness tied to weather/flu/macro; improving BSG trends into Q3; cautious on consumer .

Q&A Highlights

Segment dynamics: Sally comps -0.3% with color strength offset by care decline; BSG comps -2.7% driven by flu/macro; BSG trends improved into April .
E-commerce outlook: Penetration ~11% and expected to grow with marketplace and personalization initiatives .
Store refresh & Happy Beauty: Early positive response; >30 stores refreshed by FY-end; Happy Beauty leaning into mall locations, indie/K-beauty, fragrance with refined marketing .
Tariffs: No meaningful FY25 impact; mitigation levers include vendor sharing, selective pricing, and sourcing shifts .
Guidance clarifications: FY25 lowered to reflect macro; Q3 comps flat to -2%, adj op margin 8.0–8.5%; planned $20M buybacks and $20M debt repayment in Q3 .

Estimates Context

Q2 2025: Adjusted EPS $0.42 vs $0.393 consensus (beat); Revenue $883M vs $902M consensus (miss). Q1 EPS was in line; Q1 revenue slightly below; Q3 consensus ahead of report was EPS $0.42 and revenue $929.3M. Values with asterisks from S&P Global.

Period	Revenue Consensus Mean ($M)*	Revenue Actual ($M)	EPS Consensus Mean ($)*	Adjusted EPS Actual ($)
Q1 2025	943.2*	937.9	0.43*	0.43
Q2 2025	901.9*	883.1	0.393*	0.42
Q3 2025	929.3*	—	0.42*	—

Disclaimer: Values marked with an asterisk (*) retrieved from S&P Global.

Implications: Estimate revisions likely include trimming FY25 sales growth and margin assumptions (to 8.0–8.5% adj op margin), while raising near-term EPS modestly given Q2 beat but lowering revenue tracks due to macro and FX .

Key Takeaways for Investors

Quality of earnings intact: margin expansion and cost discipline offset macro softness; FCF generation remains robust, enabling deleveraging and buybacks .
Near-term sales risk: comps pressure and FX headwinds weighed on revenue; FY25 guide reset de-risks H2 trajectory .
Structural drivers: color-led mix, own brands, marketplace/e-comm expansion (incl. Uber Eats), and LCOD scaling support medium-term growth and profitability .
Tariff overhang manageable: limited exposure (~20% of COGS) and playbook from prior cycle; minimal FY25 impact expected .
Watch H2 execution: K18 rollout at BSG, Sally brand refresh/store tests, and Happy Beauty refinement; monitor care category trends and ticket recovery .
Capital returns optionality: ~$501M remaining authorization through 2029 plus low-2x or below leverage offers support; Q3 planned ~$20M buybacks .
Trading lens: Stock likely trades on guidance reset vs EPS beat; catalysts include improving BSG trends, incremental marketplace penetration, and sustained gross margin strength .

Appendix: Additional Details and Reconciliations

Non-GAAP definitions and reconciliations (Adjusted EPS, Adjusted Operating Margin, Adjusted EBITDA, Operating FCF) are provided in the company’s exhibits .
Segment operating/gross margin and comps provided in schedules .
Board authorization extension through Sep 30, 2029 with ~$501.1M remaining under the initial 2017 authorization .

Sally Beauty Holdings, Inc. (SBH)·Q2 2025 Earnings Summary