UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2021
-OR-
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-33145
SALLY BEAUTY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
36-2257936
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
3001 Colorado Boulevard
Denton, Texas
76210
(Address of principal executive offices)
(Zip Code)
(940) 898-7500
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report): N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueSBHThe New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 30, 2021, there were 112,953,969 shares of the issuer’s common stock outstanding.
TABLE OF CONTENTS
Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
5
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
17
Item 3. Quantitative And Qualitative Disclosures About Market Risk
23
Item 4. Controls And Procedures
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
25
Item 1A. Risk Factors
Item 6. Exhibits
2
In this Quarterly Report, references to “the Company,” “Sally Beauty,” “our company,” “we,” “our,” “ours” and “us” refer to Sally Beauty Holdings, Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
cautionary notice regarding forward-looking statements
Statements in this Quarterly Report on Form 10-Q and in the documents incorporated by reference herein which are not purely historical facts or which depend upon future events may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “should,” “will,” “would” or similar expressions may also identify such forward-looking statements. Forward-looking statements may relate to, among other things, the impact on our business, operations and financial results of the novel coronavirus (“COVID-19”) pandemic.
Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made and involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth in our description of risk factors in Item 1A contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement.
The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements.
3
WHERE YOU CAN FIND MORE INFORMATION
Our quarterly and annual financial results and other important information are available by calling our Investor Relations Department at (940) 297-3877.
We maintain a website at www.sallybeautyholdings.com where investors and other interested parties may obtain, free of charge, press releases and other information as well as gain access to our periodic filings with the Securities and Exchange Commission (“SEC”). The information contained on this website should not be considered to be a part of this or any other report filed with or furnished to the SEC.
4
Item 1. Financial Statements.
The following condensed consolidated balance sheets as of March 31, 2021, and September 30, 2020, the condensed consolidated statements of earnings, condensed consolidated statements of comprehensive income (loss) and the condensed consolidated statements of stockholders’ equity (deficit) for the three and six months ended March 31, 2021 and 2020, and the condensed consolidated statements of cash flows for the six months ended March 31, 2021 and 2020, are those of Sally Beauty Holdings, Inc. and its subsidiaries.
SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands, except par value data)
March 31,
2021
September 30,
2020
(Unaudited)
Assets
Current assets:
Cash and cash equivalents
$
408,321
514,151
Trade accounts receivable, net
39,294
35,590
Accounts receivable, other
26,862
20,839
Inventory
949,695
814,503
Other current assets
42,278
48,014
Total current assets
1,466,450
1,433,097
Property and equipment, net of accumulated depreciation of $741,083 at
March 31, 2021, and $694,709 at September 30, 2020
289,070
315,029
Operating lease assets
524,955
525,634
Goodwill
544,630
540,038
Intangible assets, excluding goodwill, net of accumulated amortization of
$69,511 at March 31, 2021, and $63,491 at September 30, 2020
56,909
58,283
Other assets
27,558
23,066
Total assets
2,909,572
2,895,147
Liabilities and Stockholders’ Equity
Current liabilities:
Current maturities of long-term debt
197,596
180
Accounts payable
310,215
236,333
Accrued liabilities
195,467
170,665
Current operating lease liabilities
155,711
153,267
Income taxes payable
16,062
2,917
Total current liabilities
875,051
563,362
Long-term debt
1,389,545
1,796,897
Long-term operating lease liabilities
388,733
394,375
Other liabilities
30,113
32,976
Deferred income tax liabilities, net
91,297
92,094
Total liabilities
2,774,739
2,879,704
Stockholders’ equity:
Common stock, $0.01 par value. Authorized 500,000 shares; 112,949 and
112,824 shares issued and 112,679 and 112,405 shares outstanding at
March 31, 2021, and September 30, 2020, respectively
1,127
1,124
Preferred stock, $0.01 par value. Authorized 50,000 shares; none issued
—
Additional paid-in capital
9,525
1,913
Accumulated earnings
212,612
117,109
Accumulated other comprehensive loss, net of tax
(88,431
)
(104,703
Total stockholders’ equity
134,833
15,443
Total liabilities and stockholders’ equity
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
Three Months Ended
Six Months Ended
Net sales
926,328
871,023
1,862,350
1,851,231
Cost of goods sold
459,099
441,266
924,397
946,626
Gross profit
467,229
429,757
937,953
904,605
Selling, general and administrative expenses
391,087
383,299
757,257
761,228
Restructuring
631
3,193
863
5,725
Operating earnings
75,511
43,265
179,833
137,652
Interest expense
23,883
21,644
49,861
43,185
Earnings before provision for income taxes
51,628
21,621
129,972
94,467
Provision for income taxes
13,316
8,253
34,469
27,884
Net earnings
38,312
13,368
95,503
66,583
Earnings per share:
Basic
0.34
0.12
0.85
0.58
Diluted
0.84
0.57
Weighted-average shares:
112,603
114,823
112,538
115,478
114,342
115,795
114,028
116,462
7
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
Other comprehensive income (loss):
Foreign currency translation adjustments
(7,890
(23,784
17,117
(8,823
Interest rate caps, net of tax
-
(80
175
29
Foreign exchange contracts, net of tax
574
2,038
(1,020
1,838
Other comprehensive income (loss), net of tax
(7,316
(21,826
16,272
(6,956
Total comprehensive income (loss)
30,996
(8,458
111,775
59,627
8
Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
Accumulated
Additional
Other
Total
Common Stock
Paid-in
Comprehensive
Stockholders’
Shares
Amount
Capital
Earnings
Loss
Equity
Balance at September 30, 2020
112,405
57,191
Other comprehensive income
23,588
Share-based compensation
2,893
Stock issued for equity awards
133
1
(250
(249
Balance at December 31, 2020
1,125
4,556
174,300
(81,115
98,866
Other comprehensive loss
2,648
141
2,321
2,323
Balance at March 31, 2021
112,679
Equity (Deficit)
Balance at September 30, 2019
116,725
1,167
55,797
(117,287
(60,323
Cumulative effect of ASC 842
adoption
(445
53,215
14,870
Repurchases and cancellations of
common stock
(766
(7
(6,237
(5,113
(11,357
3,473
206
2,764
2,766
Balance at December 31, 2019
116,165
1,162
103,454
(102,417
2,199
(3,936
(39
(3,064
(46,897
(50,000
3,059
35
Balance at March 31, 2020
112,264
1,123
69,925
(124,243
(53,195
9
Condensed Consolidated Statements of Cash Flows
Six Months Ended March 31,
Cash Flows from Operating Activities:
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization
52,945
53,997
Share-based compensation expense
5,541
6,532
Amortization of deferred financing costs
2,326
1,767
Loss (gain) on early extinguishment of debt
1,390
(357
Loss (gain) on disposal of equipment and other property
1,741
(18
Deferred income taxes
(365
5,547
Changes in (exclusive of effects of acquisitions):
Trade accounts receivable
(3,437
158
(5,544
19,199
(127,324
1,365
3,588
(17,692
(4,307
575
Operating leases, net
(2,420
Accounts payable and accrued liabilities
101,331
(55,679
13,447
(7,199
(2,859
1,353
Net cash provided by operating activities
131,556
76,131
Cash Flows from Investing Activities:
Payments for property and equipment, net of proceeds
(27,095
(71,960
Acquisitions, net of cash acquired
(2,245
(1,944
Net cash used by investing activities
(29,340
(73,904
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt
787,500
Repayments of long-term debt
(213,271
(437,385
Payments for common stock repurchased
(61,357
Proceeds from equity awards
2,073
2,771
Net cash (used) provided by financing activities
(211,198
291,529
Effect of foreign exchange rate changes on cash and cash equivalents
3,152
(837
Net (decrease) increase in cash and cash equivalents
(105,830
292,919
Cash and cash equivalents, beginning of period
71,495
Cash and cash equivalents, end of period
364,414
Supplemental Cash Flow Information:
Interest paid
46,445
41,366
Income taxes paid
20,791
45,521
Capital expenditures incurred but not paid
3,255
5,090
10
Sally Beauty Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The condensed consolidated interim financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC, although we believe that the disclosures included herein are adequate to make the information not misleading. These condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020. In the opinion of management, these condensed consolidated interim financial statements reflect all adjustments that are of a normal recurring nature and which are necessary to present fairly our consolidated financial position as of March 31, 2021 and September 30, 2020, and our consolidated results of operations, consolidated comprehensive income, and consolidated statements of stockholders’ equity for the three and six months ended March 31, 2021 and 2020, our consolidated cash flows for the six months ended March 31, 2021 and 2020.
Our operating results for the three and six months ended March 31, 2021, may not be indicative of the results that may be expected for the full fiscal year ending September 30, 2021, in particular as a result of the uncertainty around the continuing effects of the COVID-19 pandemic on future periods. Due to the uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.
2. Significant Accounting Policies
We adhere to the same accounting policies in the preparation of our condensed consolidated interim financial statements as we do in the preparation of our full year consolidated financial statements. As permitted under GAAP, interim accounting for certain expenses, including income taxes, is based on full-year assumptions. For interim financial reporting purposes, income taxes are recorded based upon estimated annual effective income tax rates.
3. Recent Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12 which simplifies the accounting for income taxes by removing an exception related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period with year to date losses and the recognition of deferred tax liabilities for outside basis differences. Additionally, the update clarifies and simplifies other areas of ASC 740, Income Taxes. For public companies, the amendments in the update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, but all amendments must be adopted at once. The amendments in this update have different adoption methods including prospective basis, retrospective basis, and a modified retrospective basis dependent on the specific change. We are currently evaluating the impact of this update, but based on our preliminary assessment we do not believe that adoption of this update will have a material impact on our results of operations or financial position.
4. Revenue Recognition
Substantially all of our revenue is derived through the sale of merchandise at the point-of-sale. Revenue is recognized net of estimated sales returns and sales taxes. We estimate sales returns based on historical data.
Changes to our contract liabilities for the period were as follows (in thousands):
September 30, 2020
13,947
Loyalty points and gift cards issued but not redeemed, net of estimated breakage
7,998
Revenue recognized from beginning liability
(6,729
March 31, 2021
15,216
See Note 11, Business Segments, for additional information regarding the disaggregation of our sales revenue.
11
5. Fair Value Measurements
Fair value on recurring basis
Consistent with the three-level hierarchy defined in ASC Topic 820, Fair Value Measurement, as amended, we categorize our financial assets and liabilities as follows (in thousands):
Classification
Fair Value Hierarchy Level
Financial Assets:
Cash equivalents
Level 1
194,612
Foreign exchange contracts
Level 2
20
Interest rate caps
18
27
38
194,639
.
Financial Liabilities:
516
Other fair value disclosures
Carrying Value
Fair Value
Long-term debt, excluding capital leases
Senior notes
1,177,380
1,234,481
1,217,707
Term loan B
422,625
421,040
635,788
619,397
Total long-term debt
1,600,005
1,655,521
1,813,168
1,837,104
The table above excludes amounts, if any, related to our ABL facility as the balance approximates fair value due to the short-term nature of our borrowings.
6. Stockholders’ Equity
Share Repurchases
In August 2017, our Board of Directors approved a share repurchase program authorizing the Company to repurchase up to $1.0 billion of its common stock, subject to certain limitations governed by our debt agreements, over an approximate four-year period expiring on September 30, 2021.
Information related to our shares repurchased and subsequently retired were as follows (in thousands):
Number of shares repurchased
3,936
4,702
Total cost of share repurchased
50,000
61,357
Accumulated Other Comprehensive Loss
The change in accumulated other comprehensive loss (“AOCL”) was as follows (in thousands):
Foreign Currency Translation Adjustments
Interest Rate Caps
Foreign Exchange Contracts
(102,111
(3,003
411
Other comprehensive income (loss) before
reclassification, net of tax
(69
(601
16,447
Reclassification to net earnings, net of tax
244
(419
(175
(84,994
(2,828
(609
The tax impact for the changes in other comprehensive loss and the reclassifications to net earnings was not material.
12
7. Weighted-Average Shares
The following table sets forth the reconciliation of basic and diluted weighted-average shares (in thousands):
Weighted-average basic shares
Dilutive securities:
Stock option and stock award programs
1,739
972
1,490
984
Weighted-average diluted shares
Anti-dilutive options excluded from our computation of diluted shares
4,197
5,076
4,222
8. Goodwill and Intangible Assets
During the three months ended March 31, 2021, we completed our annual assessment for impairment of goodwill and other intangible assets. For goodwill, we used a qualitative analysis and our actual and forecasted results are exceeding the estimates from the last quantitative test. No material impairment losses were recognized in the current or prior periods presented in connection with our goodwill and other intangible assets.
For the three months ended March 31, 2021 and 2020, amortization expense related to other intangible assets was $1.6 million and $2.2 million, respectively, and for the six months ended March 31, 2021 and 2020, amortization expense was $3.3 million and $4.6 million, respectively.
Additionally during the six months ended March 31, 2021, goodwill increased $4.6 million primarily from the effects of foreign currency exchange rates.
9. Short-term Borrowings and Long-term Debt
At March 31, 2021, there were no outstanding borrowings and we had $496.9 million available for borrowing under our ABL facility, including the Canadian sub-facility, subject to the conditions contained therein. Our ABL facility matures on July 6, 2022.
During the three months ended March 31, 2021, we paid the remaining $213.2 million of aggregate outstanding principal on our term loan B fixed tranche at par, excluding accrued interest. In connection with the debt repayment, we recognized a $1.4 million loss on the extinguishment of debt from the write-off of unamortized deferred financing costs.
Please see Note 13, Subsequent Event, for further information about our debt.
Covenants
The agreements governing our ABL facility, term loan B and the senior notes contain a customary covenant package that places restrictions on the disposition of assets, the granting of liens and security interests, the prepayment of certain indebtedness, and other matters with customary events of default, including customary cross-default and/or cross-acceleration provisions. As of March 31, 2021, we were in compliance with all debt covenants and all the net assets of our consolidated subsidiaries were unrestricted from transfer.
13
10. Derivative Instruments and Hedging Activities
During the six months ended March 31, 2021, we did not purchase or hold any derivative instruments for trading or speculative purposes. See Note 5, Fair Value Measurements, for the classification and fair value of our derivative instruments.
Designated Cash Flow Hedges
Foreign Currency Forwards
We regularly enter into foreign currency forwards to mitigate our exposure to exchange rate changes on inventory purchases in U.S. dollars by our foreign subsidiaries. At March 31, 2021, the notional amount we held through these forwards, based upon exchange rates at March 31, 2021, was as follows (in thousands):
Notional Currency
Notional Amount
Euro
8,717
Mexican Peso
7,235
Canadian Dollar
2,659
18,611
We record quarterly, net of income tax, the changes in fair value related to the foreign currency forwards into AOCL. As the forwards are exercised, the realized value is recognized into cost of goods sold based on inventory turns. For the three and six months ended March 31, 2021, we recognized gains of $0.1 million and $0.4 million, respectively, into cost of goods sold on our condensed consolidated statements of earnings. Based on March 31, 2021, valuations and exchange rates, we expect to reclassify losses of approximately $0.7 million into cost of goods sold over the next 12 months.
In July 2017, we purchased two interest rate caps with an initial aggregate notional amount of $550 million (the “interest rate caps”) to mitigate the exposure to higher interest rates in connection with our term loan B. The interest rate caps are comprised of individual caplets that expire ratably through June 30, 2023, and are designated as cash flow hedges. Accordingly, changes in fair value of the interest rate caps are recorded quarterly, net of income tax, and are included in AOCL. Over the next 12 months, we expect to reclassify approximately $1.5 million into interest expense, which represents the original value of the expiring caplets.
The effects of our interest rate caps on our condensed consolidated statements of earnings were not material for the three and six months ended March 31, 2021.
11. Business Segments
Segment data for the three and six months ended March 31, 2021 and 2020, is as follows (in thousands):
Net sales:
Sally Beauty Supply ("SBS")
542,664
519,509
1,090,334
1,088,657
Beauty Systems Group ("BSG")
383,664
351,514
772,016
762,574
Earnings before provision for income taxes:
Segment operating earnings:
SBS
100,063
56,373
195,191
130,598
BSG
47,843
41,039
96,415
103,473
Segment operating earnings
147,906
97,412
291,606
234,071
Unallocated expenses
71,764
50,954
110,910
90,694
Consolidated operating earnings
Sales between segments, which are eliminated in consolidation, were not material during the three and six months ended March 31, 2021 and 2020.
14
Disaggregation of net sales by segment
Hair color
35.1
%
32.8
35.3
31.9
Hair care
18.6
19.5
19.7
Skin and nail care
14.0
12.8
12.3
13.5
Styling tools
12.2
12.7
14.4
13.4
Salon supplies and accessories
8.2
7.6
7.8
7.2
Textured hair products
6.4
6.1
6.0
5.7
Other beauty items
5.5
8.5
5.6
8.6
100.0
43.5
40.1
42.1
38.8
37.6
36.3
34.8
7.7
6.2
6.6
6.5
2.4
3.0
2.6
2.8
Promotional items
3.1
7.4
4.7
8.9
The following tables disaggregate our segment revenue by sales channels:
Company-operated stores
93.0
94.9
93.5
95.4
E-commerce
6.9
4.9
4.4
Franchise stores
0.1
0.2
0.0
70.2
70.4
69.9
69.8
Distributor sales consultants
13.7
16.6
17.3
9.1
5.9
8.8
7.0
7.1
7.3
12. Income Tax
For the three months ended March 31, 2021 and 2020, our effective tax rates were 25.8% and 38.2%, respectively, and for the six months ended March 31, 2021 and 2020, our effective tax rates were 26.5% and 29.5%, respectively. The decrease in the effective tax rates was primarily a result of the establishment of a valuation allowance in a foreign subsidiary in the prior year. Additionally, we had greater losses in the prior year from foreign subsidiaries for which a tax benefit could not be recognized.
15
Refer to the following rate reconciliation for more details relating to the period over period differences in the effective tax rate:
U.S. federal statutory income tax rate
21.0
State income taxes, net of federal tax benefit
3.7
3.4
3.6
Effect of foreign operations
(0.1
0.8
0.9
Foreign valuation allowances
1.2
15.9
0.3
3.9
Other, net
(3.2
1.0
Effective tax rate
25.8
38.2
26.5
29.5
13. Subsequent Event
On April 1, 2021, we called the entire outstanding balance of $197.4 million on our 5.50% senior notes due 2023 at par plus a premium. In connection with the repayment, we recognized losses on extinguishment of debt in the aggregate amount of $2.8 million, which included a $1.8 million call premium and $1.0 million from the write-off of unamortized debt issuance costs.
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This section discusses management’s view of the financial condition, results of operations and cash flows of Sally Beauty. This section should be read in conjunction with the information contained in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, and our other filings with the Securities and Exchange Commission, including the Risk Factors sections therein, and information contained elsewhere in this Quarterly Report, including the condensed consolidated interim financial statements and notes to those financial statements. The results of operations for any interim period may not necessarily be indicative of the results that may be expected for any future interim period or the entire fiscal year, in particular as a result of the uncertainty of the continued effects of the COVID-19 pandemic on future periods.
Highlights for the Three Months Ended March 31, 2021
•
During the three months ended March 31, 2021, we experienced further disruption to sales from COVID-19, including mandated store closures in international markets and salon closures in California in January;
Consolidated net sales for the three months ended March 31, 2021, increased $55.3 million, or 6.3%, to $926.3 million, compared to the three months ended March 31, 2020;
Consolidated same store sales increased 6.5% for the three months ended March 31, 2021, while our global e-commerce sales increased 56%, compared to the three months ended March 31, 2020;
Consolidated gross profit for the three months ended March 31, 2021, increased $37.5 million, or 8.7%, to $467.2 million, compared to the three months ended March 31, 2020. Gross margin increased 110 basis points to 50.4% for the three months ended March 31, 2021, compared to the three months ended March 31, 2020;
Consolidated operating earnings for the three months ended March 31, 2021, increased $32.2 million, or 74.5%, to $75.5 million, compared to the three months ended March 31, 2020. Operating margin increased 320 basis points to 8.2% for the three months ended March 31, 2021, compared to the three months ended March 31, 2020;
Consolidated net earnings for the three months ended March 31, 2021, increased $24.9 million, or 186.6%, to $38.3 million, compared to the three months ended March 31, 2020;
For the three months ended March 31, 2021, we had diluted earnings per share of $0.34, compared to $0.12 for the three months ended March 31, 2020; and
Cash provided by operations was $92.6 million for the three months ended March 31, 2021, compared to $13.8 million for the three months ended March 31, 2020.
Impact of COVID-19 on Our Business and Business Strategy Update
As mentioned above, we continued to see disruption resulting from COVID-19 due to mandated store closures in parts of our international markets and salon closures in California in January. However, we did experience an increase in sales driven primarily by the favorable impact in the U.S. from improving consumer confidence, government stimulus payments and the easing of COVID-19 restrictions in the U.S. salons.
The effects of the COVID-19 pandemic and related responses continued to impact our first two quarters of fiscal year 2021 results of operations and cash flows. Additionally, due to the continued uncertainty over the duration and severity of the economic and operational impacts of COVID-19, the adverse impact of the pandemic may continue further into our fiscal year 2021 and possibly beyond, and it may be material.
Furthermore, we continue to make progress against our key business initiatives, which includes leveraging and optimizing our elevated digital capabilities, growing our customer engagement and loyalty, and implementing the final steps in our successful transformation journey, which is remains on track to be substantially completed by the end of the year.
Overview
Key Operating Metrics
The following table sets forth, for the periods indicated, information concerning key measures we rely on to evaluate our operating performance (dollars in thousands):
Increase (Decrease)
23,155
4.5
1,677
32,150
9,442
Consolidated
55,305
6.3
11,119
0.6
Gross profit:
317,161
289,067
28,094
9.7
632,973
598,057
34,916
5.8
150,068
140,690
9,378
6.7
304,980
306,548
(1,568
(0.5
)%
37,472
8.7
33,348
Segment gross margin:
58.4
55.6
280
bps
58.1
54.9
320
39.1
40.0
(90)
39.5
40.2
(70)
50.4
49.3
110
48.9
150
Net earnings:
43,690
77.5
64,593
49.5
6,804
(7,058
(6.8
50,494
51.8
57,535
24.6
Unallocated expenses and restructuring (a)
72,395
54,147
18,248
33.7
111,773
96,419
15,354
32,246
74.5
42,181
30.6
2,239
10.3
6,676
15.5
30,007
138.8
35,505
5,063
61.3
6,585
23.6
24,944
186.6
28,920
43.4
Number of stores at end-of-period (including franchises):
3,625
3,701
(76
(2.1
1,379
1,374
0.4
5,004
5,075
(71
(1.4
Same store sales growth (decline) (b):
(7.0
1,190
0.7
(4.0
470
9.9
(7.4
1,730
2.1
(3.0
510
(7.1
1,360
(3.6
480
(a)
Unallocated expenses consist of corporate and shared costs and are included in selling, general and administrative expenses in our consolidated statements of earnings.
(b)
For the purpose of calculating our same store sales metrics, we compare the current period sales for stores open for 14 months or longer as of the last day of a month with the sales for these stores for the comparable period in the prior fiscal year. Our same store sales are calculated in constant dollars and include e-commerce sales from certain digital platforms, but do not generally include the sales from stores relocated until 14 months after the relocation. The sales from stores acquired are excluded from our same store sales calculation until 14 months after the acquisition.
Results of Operations
The Three Months Ended March 31, 2021, compared to the Three Months Ended March 31, 2020
Net Sales
Consolidated. Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $7.5 million, or 0.9% of consolidated net sales.
SBS. The increase in net sales for SBS was primarily driven by the following (in thousands):
Same store sales
24,295
Other (a)
(6,758
Foreign currency exchange
5,618
Other consists of non-store sales, which include catalog and internet sales of our Sinelco Group subsidiaries.
SBS experienced higher unit volume primarily due to temporary closure of all of our customer-facing store operations in the U.S. and Canada due to the effects of COVID-19 in the prior year, the expansion of our digital commerce capabilities and the favorable impact in the U.S. from improving consumer confidence. For the three months ended March 31, 2021, there was minimal impact from temporary closures of certain customer-facing store operations as a result of COVID-19. Additionally, SBS experienced an increase in average unit prices, resulting from a change in product mix to higher-priced products.
BSG. The increase in net sales for BSG was primarily driven by the following (in thousands):
23,845
3,309
3,163
1,833
Other consists of stores outside same store sales, included recently acquired businesses, and sales to our franchisees.
BSG experienced an increase in average unit prices and higher unit volume. The increase in average unit price was driven primarily from a decrease in promotional activity. The higher unit volume was primarily due to temporary closure of all of our customer-facing store operations in the U.S. and Canada due to the effects of COVID-19 in the prior year and higher operating capacities in salons. During the three months ended March 31, 2021, we experienced minimal temporary store closures and restricted capacity of certain customer-facing store operations in various markets in the U.S. and Canada due to the effects of COVID-19.
Gross Profit
Consolidated. Consolidated gross profit increased for the three months ended March 31, 2021, due to higher net sales in both segments and a higher gross margin in SBS, partially offset by a lower gross margin in BSG.
SBS. SBS’s gross profit increased for the three months ended March 31, 2021, as a result of an increase in net sales and a higher gross margin. SBS’s gross margin increased primarily as a result of fewer promotions, partially offset by the write-down of personal-protective equipment inventory.
BSG. BSG’s gross profit increased for the three months ended March 31, 2021, as a result of an increase in net sales, partially offset by a lower gross margin. BSG’s gross margin decreased primarily as a result of the write-down of personal-protective equipment inventory.
Selling, General and Administrative Expenses
Consolidated. Consolidated selling, general and administrative expenses increased primarily as a result of donation expense related to personal-protective equipment inventory and incremental costs from businesses acquired in the past 12 months. These increases were partially offset by a decrease in advertising and field labor expenses. Consolidated selling, general and administrative expenses, as a percentage of net sales, decreased 180 basis points to 42.2% for the three months ended March 31, 2021, due to the increase in sales.
SBS. SBS’s selling, general and administrative expenses decreased $15.6 million, or 6.7%, for the three months ended March 31, 2021. The decrease was driven by lower compensation and compensation-related expenses of $8.4 million and lower advertising expenses of $8.3 million.
BSG. BSG’s selling, general and administrative expenses increased $2.6 million, or 2.6%, for the three months ended March 31, 2021. The increase was driven primarily by an increase in shipping costs of $1.8 million, resulting primarily from increased e-commerce
19
volume, and incremental expenses from recently acquired businesses in the past twelve months. These increases were partially offset by lower compensation and compensation-related expenses of $1.3 million.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $20.8 million, or 40.8%, for the three months ended March 31, 2021, primarily due to higher COVID-19 expense in the current period mainly from the donation expense related to personal-protective equipment inventory of $31.2 million, compared to COVID-19 expense of $14.7 million last year, and higher compensation and compensation-related expenses of $7.9 million as a result of employees furloughed in the prior year.
For the three months ended March 31, 2021, we incurred restructuring charges of $0.6 million primarily in connection with our previously communicated Project Surge and the Transformation Plan. For the three months ended March 31, 2020, we recognized charges of $3.2 million in connection with our previously communicated Project Surge and the Transformation Plan.
Interest Expense
The increase in interest expense is primarily from incremental interest on the senior notes issued in April 2020 of $6.6 million, partially offset by the impact of lower interest rates on our term loan B variable tranche of $1.7 million and the repayment of our term loan B fixed tranche in January 2021 of $3.1 million. See “Liquidity and Capital Resources” below for additional information.
Provision for Income Taxes
The effective tax rates were 25.8% and 38.2%, for the three months ended March 31, 2021, and 2020, respectively. The higher effective tax rate in the prior year period was primarily driven by the establishment of a valuation allowance for a foreign subsidiary and increased foreign losses, as compared to the current period.
The Six Months Ended March 31, 2021, compared to the Six Months Ended March 31, 2020
Consolidated. Consolidated net sales include a positive impact from changes in foreign currency exchange rates of $11.0 million, or 0.6% of consolidated net sales.
6,784
(13,806
8,699
SBS experienced an increase in average unit prices, resulting from a reduction in promotional activity and consumers selecting higher-priced products. The increase in average unit prices was partially offset by lower unit volume primarily due to the impact of the restrictions in the U.S. and Canada due to the effects of COVID-19 along with fewer company-operated stores. For the six months ended March 31, 2021, various markets globally where impacted by temporary closures of certain customer-facing store operations and reduced capacity.
11,050
(11,957
8,093
2,256
BSG experienced an increase in average unit prices and a higher unit volume. The increase in the average unit price was primarily driven by lower promotional activity. The higher unit volume was primarily due to the impact of the temporary closure of certain customer-facing store operations in the U.S. and Canada due to the effects of COVID-19 in the prior period. For the six months ended March 31, 2021, we experienced additional temporary closures and restricted capacity of certain customer-facing store operations in various markets in the U.S. and Canada, as well as salon closures in parts of California and Canada due to the effects of COVID-19.
Consolidated. Consolidated gross profit increased for the six months ended March 31, 2021, due to higher net sales in both segments and a higher gross margin in SBS, partially offset by a lower gross margin in BSG.
SBS. SBS’s gross profit increased for the six months ended March 31, 2021, as a result of increased net sales and a higher gross margin. SBS’s gross margin increased primarily as a result of fewer promotions, partially offset by the write-down of personal-protective equipment inventory.
BSG. BSG’s gross profit decreased for the six months ended March 31, 2021, as a result of a lower gross margin, partially offset by increased net sales. BSG’s gross margin decreased primarily as a result of the write-down of personal-protective equipment inventory during our second fiscal quarter, partially offset by fewer promotions.
Consolidated. Consolidated selling, general and administrative expenses decreased primarily as a result of cost saving initiatives in response to COVID-19, including savings associated with lower compensation and compensation-related expenses and advertising expenses, and the suspension or elimination of all non-critical projects and non-essential spend. These decreases were partially offset by donation expense related to personal-protective equipment inventory, increased shipping costs resulting from increased e-commerce volume and incremental costs from businesses acquired in the past 12 months. Consolidated selling, general and administrative expenses, as a percentage of net sales, increased 40 basis points to 40.7% for the six months ended March 31, 2021, due to the increase in sales.
SBS. SBS’s selling, general and administrative expenses decreased $29.7 million, or 6.3%, for the six months ended March 31, 2021. The decrease was driven by lower compensation and compensation-related expenses of $19.2 million and lower advertising expenses of $13.2 million. These decreases were partially offset by an increase in shipping costs of $4.2 million, resulting primarily from increased e-commerce volume.
BSG. BSG’s selling, general and administrative expenses increased $5.5 million, or 2.7%, for the six months ended March 31, 2021. The increase was driven primarily by an increase in shipping costs of $4.7 million, resulting primarily from increased e-commerce volume, and incremental expenses from recently acquired businesses in the past 12 months. These increases were partially offset by lower compensation and compensation-related expenses of $2.5 million.
Unallocated. Unallocated selling, general and administrative expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $20.2 million, or 22.3%, for the six months ended March 31, 2021, primarily due to higher COVID-19 expense in the current period mainly from the donation expense related to personal-protective equipment inventory of $31.2 million, compared to COVID-19 expense of $14.7 million last year, and higher compensation and compensation-related expenses of $10.5 million as a result of employees furloughed in the prior year.
For the six months ended March 31, 2021, we incurred restructuring charges of $0.9 million primarily in connection with the Project Surge and Transformation Plan. For the six months ended March 31, 2020, we recognized charges of $5.7 million in connection with Project Surge and the Transformation Plan.
The increase in interest expense is primarily from incremental interest on the senior notes issued in April 2020 of $13.1 million, partially offset by the impact of the repayment of our term loan B fixed tranche in January 2021 of $4.0 million and lower interest rates on our term loan B variable tranche of $3.5 million. See “Liquidity and Capital Resources” below for additional information.
The effective tax rates were 26.5% and 29.5%, for the six months ended March 31, 2021, and 2020, respectively. The higher effective tax rate in the prior year period was primarily driven by the establishment of a valuation allowance for a foreign subsidiary and increased foreign losses, as compared to the current period, which cannot be tax benefitted.
Liquidity and Capital Resources
We are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on our outstanding indebtedness and from funding the costs of operations, working capital, capital expenditures, debt repayment and share repurchases. Working capital (current assets less current liabilities) decreased $278.3 million, to $591.4 million at March 31, 2021, compared to $869.7 million at September 30, 2020, resulting primarily from the reclassification of our 5.50% Senior Notes due 2023 (“2023 Senior Notes”) to current maturities of long-term debt.
21
At March 31, 2021, cash and cash equivalents were $408.3 million. Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), funds expected to be generated by operations and funds available under the ABL facility will be sufficient to fund working capital requirements, potential acquisitions, anticipated capital expenditures, including information technology upgrades and store remodels, and debt repayments over the next 12 months. Due to the improving COVID-19 conditions, we have shifted our focus to reducing our debt levels while also being proactive in maintaining our financial flexibility.
We utilize our ABL facility for the issuance of letters of credit, certain working capital and liquidity needs, and to manage normal fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the ABL facility for general corporate purposes including funding of capital expenditures, acquisitions, interest payments due on our indebtedness, paying down other debt and opportunistic share repurchases. During the six months ended March 31, 2021, we did not borrow on our ABL facility. As of March 31, 2021, we had $496.9 million available for borrowings under our ABL facility, subject to borrowing base limitations, as reduced by outstanding letters of credit. Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities.
Share Repurchase Programs
During the six months ended March 31, 2021, we did not repurchase any common stock. As of March 31, 2021, we had authorization of approximately $726.1 million of additional potential share repurchases remaining under the 2017 Share Repurchase Program.
Historical Cash Flows
Historically, our primary source of cash has been net funds provided by operating activities and, when necessary, borrowings under our ABL facility. While historically, the primary uses of cash have been for share repurchases, capital expenditures, repayments and servicing of long-term debt and acquisitions, we have shifted our focus in the short-term to reduce cash expenditures.
Net Cash Provided by Operating Activities
Net cash provided by operating activities during the six months ended March 31, 2021, increased $55.4 million to $131.6 million, compared to the six months ended March 31, 2020, mainly due to increased net income and the timing of inventory purchases and payments as we restock to new levels of demand.
Net Cash Used by Investing Activities
Net cash used by investing activities during the six months ended March 31, 2021, decreased $44.6 million to $29.3 million, compared to the six months ended March 31, 2020. This change was primarily a result of our focus on reduced capital expenditures.
Net Cash (Used) Provided by Financing Activities
Net cash used by financing activities during the six months ended March 31, 2021 resulted from the paydown of our term loan B fixed tranche. During the six months ended March 31, 2020, we had a source of cash from financing activities primarily from the borrowings on our ABL and the issuance of senior notes as a response to COVID-19.
Long-Term Debt and Guarantor Financial Information
At March 31, 2021, we had $1,600.0 million in debt, not including capital leases, unamortized debt issuance costs and debt discounts, in the aggregate, of $13.0 million. Our debt consisted of $1,177.4 million of senior notes outstanding and a term loan with an outstanding principal balance of $422.6 million. As of March 31, 2021, there were no outstanding borrowings under our ABL facility.
During the three months ended March 31, 2021, we paid the remaining $213.2 million of aggregate outstanding principal on our term loan B fixed tranche at par.
We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.
See Note 9, Short-term Borrowings and Long-term Debt, and Note 13, Subsequent Event, for more information on our debt.
Guarantor Financial Information
We are providing the following information in compliance with Rule 13-01 of Regulation S-X for guaranteed issued securities that have been registered under such regulation. Currently, our issued securities consist of the 5.625% Senior Notes due 2025 and the 2023 Senior Notes. These debt instruments were issued by our wholly-owned subsidiaries, Sally Holdings LLC and Sally Capital Inc. (the “Issuers”), under a shelf registration statement. See and Note 13, Subsequent Event, for more information on our 2023 Senior Notes.
These notes are unsecured debt instruments guaranteed by us and certain of our wholly-owned domestic subsidiaries (together, the “Guarantors”) and have certain restrictions on the ability to pay restrictive payments to Sally Beauty. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors.
22
The following summarized consolidating financial information represents financial information for the Issuers and the Guarantors on a combined basis. All transactions and intercompany balances between these combined entities has been eliminated.
The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of March 31, 2021 and September 30, 2020 (in thousands):
736,497
615,092
Intercompany receivable
72,845
75,892
Current assets
1,177,328
1,166,250
2,272,374
2,281,896
Current liabilities
438,933
325,380
2,550,861
2,657,033
The following table presents the summarized statement of income information for six months ended March 31, 2021 (in thousands):
1,553,633
787,895
114,872
85,546
Contractual Obligations
There have been no material changes outside the ordinary course of our business in any of our contractual obligations since September 30, 2020, other than the extinguishment of our term loan B fixed tranche, as discussed above.
Off-Balance Sheet Financing Arrangements
At March 31, 2021, and September 30, 2020, we had no off-balance sheet financing arrangements other than outstanding letters of credit related to inventory purchases and self-insurance programs.
Critical Accounting Estimates
There have been no material changes to our critical accounting estimates or assumptions since September 30, 2020.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, of the Notes to Condensed Consolidated Financial Statements in Item 1 – “Financial Statements” in Part I – Financial Information.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates and government actions. There have been no material changes to our market risks from September 30, 2020. See our disclosures about market risks contained in Item 7A. “Quantitative and Qualitative Disclosures about Market Risk” in Part II of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020.
Item 4. Controls and Procedures
Controls Evaluation and Related CEO and CFO Certifications. Our management, with the participation of our principal executive officer (“CEO”) and principal financial officer (“CFO”), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2021. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.
Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Quarterly Report. This “Controls and Procedures” section includes the information concerning the controls evaluation referred to in the certifications and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.
Limitations on the Effectiveness of Controls. We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely.
Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.
Scope of the Controls Evaluation. The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this Quarterly Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Many of the components of our disclosure controls and procedures are also evaluated by our internal audit department, by our legal department and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis and to maintain them as dynamic systems that change as conditions warrant.
Conclusions regarding Disclosure Controls. Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of March 31, 2021, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. During our most recent fiscal quarter, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
24
We are involved, from time to time, in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of these matters. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.
We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.
In addition to the other information set forth in this Quarterly Report, you should carefully consider the factors contained in Item 1A. “Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended September 30, 2020, which could materially affect our business, financial condition or future results. There have been no material changes from the risk factors disclosed in such Annual Report. The risks described in such Annual Report and herein are not the only risks facing our company.
Exhibit No.
Description
Third Restated Certificate of Incorporation of Sally Beauty Holdings, Inc., dated January 30, 2014, which is incorporated herein by reference from Exhibit 3.3 to the Company’s Current Report on Form 8-K filed on January 30, 2014
3.2
Amended and Restated Bylaws of Sally Beauty Holdings, Inc., dated April 26, 2017, which is incorporated herein by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on April 28, 2017
List of Subsidiary Guarantors*
31.1
Rule 13a-14(a)/15d-14(a) Certification of Christian A. Brickman*
31.2
Rule 13a-14(a)/15d-14(a) Certification of Marlo M. Cormier*
32.1
Section 1350 Certification of Christian A. Brickman*
32.2
Section 1350 Certification of Marlo M. Cormier*
101
The following financial information from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) the Condensed Consolidated Statements of Stockholders’ Equity (Deficit); (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements.
104
The cover page from our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2021, formatted in Inline XBRL (contained in Exhibit 101).
* Included herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
(Registrant)
Date: May 6, 2021
By:
/s/ Marlo M. Cormier
Marlo M. Cormier
Senior Vice President, Chief Financial Officer
For the Registrant and as its Principal Financial Officer
26