Sally Beauty reported it's first year results since being spun off from Alberto-Culver. I'd say the results are very encouraging. If you recall, the massive debt load from issuing a $25 a share dividend has been partially balanced by a significant tax savings. For the year:
Year 2007 2006 2005 2004 Net interest expense 145,972 92 2,966 2,250 Provision for income taxes 38,121 69,916 73,154 62,059That's a pretty significant tax savings, though not enough to offset the bigger interest expense. Sally's ability to finance the debt out of cash flow has improved:
Free cash flow 138,991 126,379 63,219 107,265 Free cash flow margin 5.53% 5.33% 2.80% 5.11%In fact, all the margins (except net earnings) have improved:
Gross margin 45.90% 45.80% 45.56% 45.33% Operating margin 9.09% 7.59% 8.54% 8.09% Net margin 1.77% 4.64% 5.17% 5.02%One of the reasons for this is that Sally has improved its inventory picture:
Inventory DIO 152.82 163.15 156.17 Receivable DSO 7.46 6.99 6.53 Payable DPO 47.41 50.12 44.94 Cash Conversion 112.87 120.03 117.76A large part of these gains come because same store sales increased 4.5% despite losing L'Oreal products from BSG.
Overall, Sally Beauty is doing everything they need to do in order to make the special dividend gamble pay off. I'm quite happy to hang onto my shares while the company pays down debt and exploits its leverage.