Sally Beauty Holdings, Inc.

Previous wording

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

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

Previous wording

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

Current wording

The following section discusses management’s view of the Company’s financial condition and results of operations for fiscal year 2026 compared to fiscal year 2025. This section should be read in conjunction with the audited consolidated financial statements of the Company and the related notes included elsewhere in this Annual Report. Our fiscal year ends on September 30 of each year (fiscal year 2026 ended on September 30, 2026). Unless otherwise stated, years in this discussion refer to fiscal years rather than calendar years. This Management’s Discussion and Analysis of Financial Condition and Results of Operations section may contain forward-looking statements. See “Cautionary Notice Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements that could cause results to differ materially from those reflected in such forward-looking statements.

Previous wording

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

Current wording

•Consolidated net sales increased $33.1 million, or 0.9%, to $3,734.6 million and included a favorable impact from changes in foreign currency exchange rates of $27.0 million, or 0.7% of consolidated net sales;

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

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•Global e-commerce sales accounted for 11.8% of our consolidated net sales;

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

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•Consolidated gross profit increased by $33.0 million, or 1.7%, to $1,943.7 million. Gross margin increased 40 basis points to 52.0% compared to the prior fiscal year;

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

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•Diluted earnings per share were $2.02 compared to $1.89 for 2025;

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

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•Cash provided by operations was $322.6 million compared to $274.8 million in 2025; and

Previous wording

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

Current wording

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

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

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The following table provides information concerning key measures that we use to assess our operating performance:

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

Current wording

(a)Unallocated expenses represent certain corporate costs, including share-based compensation expense, that have not been charged to our segments and are included in SG&A expenses in our consolidated statements of earnings. Additionally, unallocated includes certain costs related to our Fuel for Growth initiative. In 2025, unallocated expenses is net of a $26.6 million gain on the sale of our former corporate headquarters.

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

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

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

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

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

Current wording

Sally’s net sales increase was primarily driven by higher comparable sales and favorable foreign currency exchange rates, partially offset by the impact of store closures, net of new store openings. The increase in comparable sales was primarily driven by growth in hair color and digital marketplaces, partially offset by softer consumer spending associated with the U.S. government shutdown early in the fiscal year, softness in the hair care category, and the strategic exit of the majority of our full-service operations across Europe. Sally’s comparable sales increase was primarily driven by higher average unit retail prices resulting from favorable product mix, as well as an increase in the number of transactions, partially offset by a lower average number of units per transaction.

Previous wording

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

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

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

Current wording

BSG's net sales decrease was from lower comparable sales and the impacts of net store closures over the past 12 months, partially offset by the positive impacts from foreign exchange rates. Comparable sales reflect pressure on stylist spending associated with the U.S. government shutdown early in the fiscal year and softness in the hair care category, partially offset by strong performance in the color category. BSG’s comparable sales reflect a decrease in the number of transactions and a lower average number of units per transaction, partially offset by higher average unit retail prices.

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

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BSG. BSG’s gross profit increased as a result of a higher gross margin on units sold, partially offset by lower sales volume. BSG’s gross margin improvement was driven by higher product margins including benefits from our Fuel for Growth program.

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Unallocated. Unallocated SG&A expenses, which represent certain corporate costs that have not been charged to our reporting segments, decreased $34.9 million, or 15.2%, to $195.2 million, primarily due to a $26.6 million gain on the sale of our corporate headquarters and lower costs in connection to our Fuel for Growth initiative, partially offset by increased compensation-related expenses.

Current wording

Unallocated. Unallocated SG&A expenses, which represent certain corporate costs that have not been charged to our reporting segments, increased $14.3 million, or 7.3%, primarily reflecting the absence of a $26.6 million gain recognized in fiscal 2025 on the sale of our former corporate headquarters, as well as higher facility expenses related to our new corporate headquarters. These increases were partially offset by lower legal expense and lower costs associated with our Fuel for Growth program.

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The decrease in interest expense was driven by a lower outstanding principle balance and interest rate on our term loan B, a lower average outstanding balance on our ABL facility, and lower losses on debt extinguishment compared to the prior year.

Current wording

The decrease in interest expense was primarily due to a lower average outstanding principal balance and lower interest rates on our Term Loan B.

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Our effective tax rate may fluctuate on a quarterly and/or annual basis due to various factors, including, but not limited to, total earnings and the mix of earnings by jurisdiction, new tax laws, as well as changes in valuation allowances and uncertain tax positions.

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Our effective tax rate is subject to fluctuations on both a quarterly and annual basis due to various factors, including, but not limited to, the level and jurisdictional mix of earnings, new tax laws, and changes in valuation allowances and uncertain tax positions.

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For fiscal years 2025 and 2024, our effective tax rate was unchanged at 25.6%. See Note 15, Income Taxes, for more information on our effective tax rate.

Current wording

See Note 14, Income Taxes, for more information on our effective tax rate.

Previous wording

Our principal sources of liquidity are cash from operations, cash and cash equivalents, and borrowings under our ABL facility. A substantial portion of our liquidity needs arise from funding the costs of our operations, working capital, capital expenditures and debt-servicing. Additionally, under our share repurchase program (see below for more details) we will, from time-to-time, repurchase shares of our common stock on the open market to return value to our shareholders. At September 30, 2025, we had $631.6 million in our liquidity pool, which includes amounts available for borrowings under our ABL facility of $482.4 million and cash and cash equivalents of $149.2 million. Based upon the current level of operations and anticipated growth, we anticipate existing cash balances (excluding certain amounts permanently invested in connection with foreign operations), as well as cash 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 investments and store projects) and service our debt obligations over the next 12 months and beyond.

Current wording

Our principal sources of liquidity are cash from operations, cash and cash equivalents on hand, and borrowings under our ABL Facility. A substantial portion of our liquidity needs relates to funding operations, working capital, capital expenditures, and debt service. In addition, we may repurchase shares of our common stock through open market purchases under our Share Repurchase Program (see below for more details). At September 30, 2026, we had total available liquidity of $640.6 million consisting of $482.4 million available under our ABL facility and $158.2 million of cash and cash equivalents. Based on the current level of operations and anticipated growth, we believe that existing cash balances (excluding certain amounts permanently invested in connection with foreign operations) plus cash expected to be generated by operations and funds available under the ABL Facility will be sufficient to fund our working capital requirements, potential acquisitions, anticipated capital expenditures (including information technology investments and store projects), and debt service obligations for at least the next 12 months and over the longer term.

Previous wording

Our working capital (current assets less current liabilities) increased $12.9 million to $725.5 million at September 30, 2025, compared to $712.6 million at September 30, 2024. The increase in our working capital was driven by a higher cash and cash equivalents balance, and the timing of account payable and receivable, including contingent lease incentives recognized in connection with our new headquarters. These impacts were partially offset by lower inventory, as a result of a strategic focus on inventory optimization and productivity, the disposal of assets held for sale previously included in other current assets as a result of the sale of our corporate headquarters, and the timing of lease renewals and new leases. The ratio of current assets to current liabilities was 2.26 to 1.00 at September 30, 2025, compared to 2.20 to 1.00 at September 30, 2024.

Current wording

Our working capital (current assets less current liabilities) increased $28.1 million to $753.6 million at September 30, 2026, compared to $725.5 million at September 30, 2025. The increase in working capital was primarily driven by higher cash, inventory, and other current assets, as well as decreases in accounts payable and accrued liabilities. The ratio of current assets to current liabilities was 2.4 to 1.0 at September 30, 2026, compared to 2.3 to 1.0 at September 30, 2025.

Previous wording

During the fiscal years 2025 and 2024, we repurchased and subsequently retired approximately 5.0 million shares and 5.1 million shares of our common stock under our share repurchase program at a cost of $53.5 million and $60.0 million, respectively, excluding the impact of excise taxes on share repurchases. Share repurchases are funded primarily with cash from operations and, occasionally, with borrowings under the ABL facility. As of September 30, 2025, we had approximately $467.3 million of additional share repurchase authorization remaining under our Share Repurchase Program. See Note 4, Accumulated Stockholders’ Equity, for more information about our share repurchase program.

Current wording

During fiscal 2026 and 2025, we repurchased and subsequently retired approximately 7.5 million shares and 5.0 million shares of our common stock under our Share Repurchase Program at a cost of $112.9 million and $53.5 million, respectively, excluding the impact of excise taxes on share repurchases. Share repurchases are funded primarily with cash from operations and, occasionally, with borrowings under the ABL Facility. As of September 30, 2026, we had approximately $354.4 million of additional share repurchase authorization remaining under our Share Repurchase Program. See Note 1, Basis of Presentation and Significant Accounting Policies, and Note 11, Stockholders’ Equity, for more information about our Share Repurchase Program.

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The following table shows our sources and uses of cash for the periods presented (in thousands):

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The following table shows our sources and uses of cash (in thousands):

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The increase in net cash provided by operating activities for fiscal year 2025, compared to fiscal year 2024, was primarily driven by increased net earnings, lower inventory purchases and lower interest paid on our debt, partially offset by the timing of accounts payable and income tax payments, and lower cash receipts from customers.

Current wording

The increase in net cash provided by operating activities in fiscal 2026 compared to fiscal 2025 was primarily driven by increased earnings, and lower interest and income tax payments, partially offset by higher inventory levels in fiscal 2026 compared to fiscal 2025, which benefited from a strategic reduction in slower-moving inventory.

Previous wording

At September 30, 2025, we had $875.0 million in outstanding debt, excluding finance lease obligations, unamortized debt issuance costs and discounts, in the aggregate, of $9.0 million. Our debt consists of $600.0 million in 2032 Senior Notes outstanding and $275.0 million remaining on our term loan B. At September 30, 2025, there were no outstanding borrowings under our ABL facility. 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, debt servicing and, occasionally, share repurchases. Amounts drawn on our ABL facility are generally paid down with cash provided by our operating activities. During fiscal year 2025, the weighted average interest rate on our borrowings under the ABL facility was 5.7%.

Current wording

At September 30, 2026, we had $795.0 million in outstanding debt principal and $7.0 million of unamortized debt issuance costs and discounts. Our debt consisted of $600.0 million in 2032 Senior Notes outstanding and $195.0 million remaining on our term loan B. At September 30, 2026, there were no outstanding borrowings under our ABL Facility. 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, debt servicing and, occasionally, share repurchases. Amounts drawn on our ABL Facility are generally paid down with cash provided by our operating activities.

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We are currently in compliance with the agreements and instruments governing our debt, including our financial covenants.

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As of September 30, 2026, we were in compliance with the agreements and instruments governing our debt, including our financial covenants.

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Our 2032 Senior Notes were issued by our wholly-owned subsidiaries, Sally Holdings and Sally Capital Inc. (the “Issuers”). The 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 of our subsidiaries to make certain restrictive payments or otherwise transfer assets to us. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors.

Current wording

Our 2032 Senior Notes were issued by our wholly-owned subsidiaries, Sally Holdings and Sally Capital Inc. (the “Issuers”). The notes are unsecured debt instruments guaranteed by us and certain of our wholly-owned domestic subsidiaries (together, the “Guarantors”) and contain restrictions on certain payments and transfers of assets by our subsidiaries to us. The guarantees are joint and several, and full and unconditional. Certain other subsidiaries, including our foreign subsidiaries, do not serve as guarantors.

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The following table presents the summarized balance sheets information for the Issuers and the Guarantors as of September 30, 2025 and 2024 (in thousands):

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The following table presents summarized balance sheets information for the Issuers and the Guarantors (in thousands):

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The following table presents the summarized statement of earnings information for fiscal year 2025 (in thousands):

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The following table presents summarized statement of earnings information for 2026 (in thousands):

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The amounts reported for operating leases do not include common area maintenance (CAM), property taxes or other executory costs. The amounts shown above do not include immaterial contingent liabilities for operating leases for which we are liable in the event of default by a franchisee.

Current wording

(a)Excludes common area maintenance, property taxes, other executory costs, and immaterial contingent liabilities for operating leases for which we are liable in the event of default by a franchisee.

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Purchase obligations reflect legally binding agreements that are entered into by us to purchase goods or services, that specify minimum quantities to be purchased and with fixed or variable price provisions. Amounts shown do not reflect open purchase orders, mainly for merchandise, to be fulfilled within one year, which are generally cancellable or contracts that tend to be reoccurring in nature and similar in amount year over year.

Current wording

(b)Amounts reflect legally binding agreements to purchase goods or services that specify minimum quantities to be purchased and with fixed or variable price provisions. Amounts shown do not reflect open purchase orders, mainly for merchandise, to be fulfilled within one year, which are generally cancellable, or contracts that tend to be recurring in nature and similar in amount year over year.

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The table above does not include an estimated $9.5 million of unrecognized tax benefits due to uncertainty regarding the realization and timing of the related future cash flows, if any.

Current wording

(c)Principally represents obligations under our insurance and self-insurance programs. These obligations are included in accrued liabilities and other liabilities, as appropriate, in our consolidated balance sheets. Amount does not include an estimated $9.6 million of unrecognized tax benefits due to uncertainty regarding the realization and timing of the related future cash flows, if any.

Previous wording

The information contained in the table above with regards to our long-term debt obligations is based on the current terms of such debt obligations and does not reflect any assumptions about our ability or intent to refinance any of our debt either on or before their maturity. In the event we refinance some or all of the debt either on or before maturity, actual payments for some of the periods shown may differ materially from the amounts reported herein. In addition, other future events, including potential increases in interest rates, could cause actual payments to differ materially from these amounts.

Current wording

The long-term debt obligations in the table above are based on the current contractual terms of our outstanding indebtedness and do not reflect assumptions regarding our ability or intent to refinance any indebtedness prior to or at maturity. In the event we refinance some or all of the debt either on or before maturity, actual payments for some of the periods shown may differ materially from the amounts reported herein. In addition, other future events, including changes in interest rates, may cause actual payments to differ materially from these amounts.

Previous wording

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and disclosures. Actual results could differ from the estimates and assumptions used, which could have a material impact on financial statements. We believe the following are our most critical accounting estimates that require subjective judgments, estimates and assumptions:

Current wording

The preparation of our consolidated financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”) requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and disclosures. Actual results could differ from the estimates and assumptions used, which could have a material impact on financial statements. We believe the following accounting estimates are the most critical to our financial statements and require significant judgment and assumptions:

Previous wording

We deem cash consideration received from a vendor to be a reduction of the cost of goods sold unless it is in exchange for an asset or service, or a reimbursement of a specific, incremental, identifiable cost incurred by us in selling the vendor’s products. The majority of cash consideration we receive is considered to be a reduction of the cost of inventory and a subsequent reduction in cost of goods sold as the related products are sold. We consider the facts and circumstances of the various contractual agreements with vendors in order to determine the appropriate classification of amounts received in our consolidated statements of earnings. We record cash consideration expected to be received from vendors in accounts receivables, other when earned and at the amount we believe will be collected. These receivables could be significantly affected if the actual amounts subsequently collected differ from our expectations. Historically, adjustments between the amount recorded and the amount collected have not had a material impact on our results of operations.

Current wording

We deem cash consideration received from a vendor to be a reduction of cost of goods sold unless it is in exchange for an asset or service, or a reimbursement of a specific, incremental, identifiable cost that we incur in selling the vendor’s products. The majority of cash consideration we receive is considered to be a reduction of the cost of inventory and a subsequent reduction in cost of goods sold as the related products are sold. We consider the facts and circumstances of the various contractual agreements with vendors in order to determine the appropriate classification of amounts received in our consolidated statements of earnings. We record cash consideration expected to be received from vendors in accounts receivable, other, when earned and at the amount we believe will be collected. These receivables could be significantly affected if the actual amounts subsequently collected differ from our expectations. Historically, adjustments between the amount recorded and the amount collected have not had a material impact on our results of operations.

Previous wording

Additionally, deferred income taxes are recognized for the future tax consequences attributable to differences between our financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are estimated to be recovered or settled. We believe it is more-likely-than-not that our results of operations in the future will generate sufficient taxable income to realize our deferred tax assets, net of the valuation allowance currently recorded. We have recorded a valuation allowance to account for uncertainties regarding the recoverability of certain deferred tax assets, primarily foreign loss carryforwards and tax credit carryforwards. In the future, if we determine certain deferred tax assets will not be realizable, the related adjustments could significantly affect our effective tax rate at that time. An estimated tax benefit related to an uncertain tax position is recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax position will withstand challenge, if any, from applicable taxing authorities.

Current wording

Additionally, deferred income taxes are recognized for the future tax consequences attributable to differences between our financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are estimated to be recovered or settled. We believe it is more likely than not that future taxable income will be sufficient to realize our deferred tax assets, net of the valuation allowance currently recorded. We have recorded a valuation allowance to account for uncertainties regarding the recoverability of certain deferred tax assets, primarily foreign loss carryforwards and tax credit carryforwards. In the future, if we determine certain deferred tax assets will not be realizable, the related adjustments could significantly affect our effective tax rate at that time. An estimated tax benefit related to an uncertain tax position is recorded in our consolidated financial statements only after determining a more-likely-than-not probability that the uncertain tax position will withstand challenge, if any, from applicable taxing authorities.

Previous wording

We review long-lived assets, including operating lease assets, for impairment whenever events or circumstances indicate the carrying amount of an asset may not be fully recoverable based on estimated undiscounted future cash flows. Long-lived assets are reviewed at the lowest level of identifiable cash flows, which typically is at the store level. In assessing for impairment, we determine the fair value of each individual store by discounting projected future cash flows. There are certain estimates and assumptions used to arrive at estimated future cash flows, including projected earnings and growth rates. The carrying amount of a long-lived asset or asset group is considered impaired

Current wording

We review long-lived assets, including operating lease assets, for impairment whenever events or circumstances indicate the carrying amount of an asset may not be fully recoverable based on estimated undiscounted future cash flows. Long-lived assets are reviewed at the lowest level of identifiable cash flows, which typically is at the store level. In assessing for impairment, we determine the fair value of each individual store by discounting projected future cash flows. There are certain estimates and assumptions used to arrive at estimated future cash flows, including projected earnings and growth rates. The carrying amount of a long-lived asset or asset group is considered impaired when the carrying value of the asset or asset group exceeds the expected future cash flows from the asset or asset group. The impairment loss recognized is the excess of the carrying value of the asset or asset group over its fair value.

Previous wording

When we commit to an exit plan of scale that we believe will result in the disposal of long-lived assets prior to the end of their useful lives, the approval of such plan may be considered a triggering event and therefore require a reassessment of asset carrying values for recoverability, based on projected cash flows. If the carrying values are not recoverable, write-downs or impairment charges may be required to bring carrying values of certain long-lived assets, including operating lease assets, to fair value. In connection with facility and store closures, we typically will also incur charges for employee severance, disposal costs and other expenses incurred with closures. These charges are accrued and estimated based on facts and circumstances at the time. Actual cash flows and expected payments could be significantly different from our estimates. No material impairment losses were recognized for fiscal year 2025, 2024 or 2023.

Current wording

When we commit to a significant exit plan that is expected to result in the disposal of long-lived assets before the end of their useful lives, approval of the plan may constitute an impairment triggering event and therefore require a reassessment of asset carrying values for recoverability based on projected cash flows. If the carrying values are not recoverable, write-downs or impairment charges may be required to bring carrying values of certain long-lived assets, including operating lease assets, to fair value. In connection with facility and store closures, we typically will also incur charges for employee severance, disposal costs, and other expenses incurred with closures. These charges are estimated and accrued based on facts and circumstances at the time. Actual cash flows and expected payments could be significantly different from our estimates. No material impairment losses were recognized for 2026, 2025, or 2024.

Previous wording

Assessment of Goodwill and Intangible Assets for Impairment

Current wording

Assessment of Goodwill and Indefinite-Lived Intangible Assets for Impairment