Sally Beauty Holdings, Inc.

1. Basis of Presentation and Significant Accounting Policies

Description of Business

Sally Beauty Holdings, Inc. is a leading international specialty retailer and distributor of professional beauty supplies. We operatetwo business segments that offer beauty products in key categories, including hair care, hair color, styling tools, and nails.

The Sally Beauty (“Sally”) segment operates as an omni-channel retailer that offers professional-quality beauty supplies at attractive prices and provides education to retail consumers and salon professionals throughout North America, including Puerto Rico, South America, and Europe. Sally operates primarily through domestic and international retail stores (generally operating under the Sally Beauty banner) and digital platforms, including ourwww.sallybeauty.com website, a mobile commerce-based app, and third-party digital marketplaces.

The Beauty Systems Group (“BSG”) segment operates as a full-service omni-channel distributor that offers professional beauty supplies exclusively to salons and licensed beauty professionals throughout the U.S., including Puerto Rico, and Canada. BSG operates through company-operated stores (generally operating under the Cosmo Prof banner), franchised stores through its Armstrong McCall business, salon business consultants (“SBCs”), and digital platforms, including ourwww.cosmoprofbeauty.com website, a mobile commerce-based app, and chain portals.

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All significant intercompany accounts and transactions have been eliminated in consolidation.

Reclassifications

Certain prior period amounts have been reclassified or combined to conform to the current period presentation.

Fiscal Year

The Company operates on a fiscal year, which ends on September 30. Fiscal 2026 ended September 30, 2026; fiscal 2025 ended September 30, 2025, and fiscal 2024 ended September 30, 2024. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years.

Use of Estimates

In order to present our financial statements in conformity with GAAP, we are required to make certain estimates and assumptions that impact our financial statements and supplementary disclosures. These estimates may use forecasted financial information based on reasonable information available; however, they are subject to change in the future. Our significant estimates and assumptions include sales allowances, deferred revenue, vendor rebates and concessions, inventory valuation, amortization and depreciation, goodwill, other intangible assets, and other reserves. We believe our estimates and assumptions are reasonable; however, changes in facts and circumstances may result in actual results that differ materially from our estimates.

Cash and Cash Equivalents

Cash represents currency on hand, debit and credit card receivables, and third-party online payment system transactions, while cash equivalents consist of highly liquid investments with an original maturity of three months or less.

Trade Accounts Receivable and Accounts Receivable, Other

Trade accounts receivable consist of credit extended directly to certain customers who meet our credit requirements in the ordinary course of business and are stated at their carrying values, net of an allowance for doubtful accounts. Our allowance is determined by estimating expected credit losses based on historical trends. At September 30, 2026 and 2025, our allowance for doubtful accounts was $0.5 million and $0.8 million, respectively. Our allowance for doubtful accounts is regularly reviewed on the basis of our historical collection data and current customer information. Customer account balances are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote.

Other accounts receivable consist primarily of amounts due from vendors under various contractual agreements, including volume rebates and other promotional considerations and contingent lease incentives due from landlords. We estimate any lease incentives to be received when the amounts are reasonably certain to be incurred.

Inventory and Cost of Goods Sold

Inventory is stated at the lower of weighted average cost or net realizable value. Inventory cost reflects actual product cost, the cost of transportation to our distribution centers, buying costs, and certain shipping and handling costs, such as freight from the distribution centers to the stores and handling costs incurred at the distribution centers. When assessing the net realizable value of inventory, we consider several factors including estimates of future demand for our products, historical turnover rates, the age and sales history of the inventory, and historical and anticipated changes in stock keeping units.

Physical inventory counts are performed at substantially all stores and significant distribution centers at least annually. Upon completion of physical inventory counts, our consolidated financial statements are adjusted to reflect actual quantities on hand. Between physical counts, we estimate inventory shrinkage based on our historical experience. We have policies and processes in place that are intended to minimize inventory shrinkage.

Cost of goods sold includes actual product costs, the cost of transportation to our distribution centers, operating costs associated with our distribution centers (including employee compensation expense, depreciation and amortization, rent, and other occupancy-related expenses), vendor rebates and allowances, inventory shrinkage, and certain shipping and handling costs, such as freight from the distribution centers to the stores. All other shipping and handling costs are included in selling, general, and administrative (“SG&A”) expenses when incurred.

We deem cash consideration received from a supplier to be a reduction of the cost of inventory purchased, unless it is in exchange for an asset or service or a reimbursement of a specific, incremental, identifiable cost we incurred in selling the vendor’s products. The majority of cash consideration we receive is considered to be a reduction of inventory and a subsequent reduction in cost of goods sold as the related products are sold.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of the estimated useful lives of the assets or the term of the related lease, including renewals considered reasonably certain. Expenditures for maintenance and repairs are included in SG&A expenses when incurred, while expenditures for major renewals and improvements that substantially extend the useful life of an asset are capitalized.

The following table summarizes our property and equipment balances and their estimated useful lives (dollars in thousands):

Depreciation expense for 2026, 2025, and 2024 was $98.3 million, $96.5 million, and $106.6 million, respectively, and is included in SG&A expenses, except for amounts attributable to our distribution centers, which are included in cost of goods sold in our consolidated statements of earnings. No material impairments were recorded for the years presented.

During 2025, we sold our former corporate headquarters in Denton, Texas and recognized a gain of approximately $26.6 million within SG&A expenses in our consolidated statements of earnings.

Definite-lived Intangible Assets

Definite-lived intangible assets are recognized and recorded at their acquisition date fair values. The principal identifiable definite-lived intangible assets acquired in past acquisitions are distribution rights, customer relationships, and other intangibles. Our definite-lived intangible assets are amortized on a straight-line basis over the period that we expect to receive an economic benefit, typically over periods ofthree toten years. The gross balance and accumulated amortization amounts are removed from definite-lived intangible assets balances following the full amortization of the related intangible asset.

Valuation of Long-lived Assets and Definite-lived Intangible Assets

Long-lived assets, including operating lease assets and property and equipment, and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets and definite-lived intangible assets is assessed by comparing the carrying amount of the applicable asset group to the estimated undiscounted future cash flows expected to be generated by that asset group. If the carrying amount of an asset exceeds its undiscounted future cash flows, an impairment charge may be recognized for the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset using a discounted cash flow approach.

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 reduce carrying value to fair value.

Goodwill

Goodwill represents the excess of the consideration transferred over the fair value of the identifiable net assets acquired in a business combination. We assign goodwill to the reporting unit which consolidates the acquisition. As of September 30, 2026 and 2025, our reporting units consisted of Sally and BSG. We perform an annual impairment assessment for goodwill as of January 31 each year, and whenever events or changes in circumstances indicate its carrying amount may be less than its recoverable amount. The Company considers potential triggering events each quarter, including fluctuations in our stock price and borrowing rates in the debt markets.

When assessing goodwill for impairment, we may first perform a qualitative assessment which evaluates macro-economic conditions, current and projected cash flows, and other events or changes in circumstances to determine whether or not it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If we determine it is more likely than not that the fair value of a reporting unit is less than its carrying amount, we complete a quantitative assessment. In 2026 and 2025, we performed qualitative assessments and determined a quantitative assessment was not needed. We havenot recorded any impairment charges related to goodwill in the current or prior fiscal years presented.

Other Indefinite-lived Intangible Assets

Other intangible assets with indefinite lives consists of trade names acquired in business combinations or asset purchases. Upon acquisition of these identifiable indefinite-lived intangible assets, we base our valuation on the information and assumptions available to us at the time of acquisition, using income and market approaches to determine fair value. These assets are evaluated for impairment annually, as of January 31, and whenever events or changes in circumstances indicate the asset’s recoverable amount may be less than its carrying amount, to determine whether or not it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. When assessing intangible assets with indefinite lives for impairment, we compare the fair value of each asset against its carrying value. Fair value is based on the relief-from-royalty method. During 2025, we determined certain trade names within the Sally reporting segment were fully impaired and recognized an impairment loss of $4.5 million within SG&A expenses. We didnot record any impairment charges related to other indefinite-lived intangible assets in 2026 or 2024.

Lease Accounting

Substantially all of our leases are operating leases and are for retail stores, with lease terms generally between five toten years, or for distribution facilities and office space, with typical initial lease terms of at leastten years, generally with five-year renewal periods. Some of our leases include options to extend the agreement, typically forfive years. The lease for our corporate headquarters commenced in July 2025 and runs through October 31, 2041, with an option to renew through October 31, 2051.

Operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We do not assume renewals unless we are reasonably certain that we will exercise an available option. The discount rate used is either the rate implicit in the lease, when known, or our estimated incremental borrowing rate. Our incremental borrowing rate for a lease is the rate of interest we would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because we do not generally borrow on a collateralized basis, we derive an appropriate incremental borrowing rate using the interest rate we pay on our non-collateralized borrowings, adjusted for the amount of the lease payments, the lease term and the effect of designating specific collateral with a value equal to the unpaid lease payments for that lease. We apply the incremental borrowing rate on a portfolio basis, since the impact of applying it on a lease-by-lease basis would be immaterial.

Operating lease assets are valued based on the initial operating lease liabilities adjusted for any prepayments, direct costs incurred by the Company in executing the leases, and lease incentives, including tenant improvement allowances and rent abatement. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease assets are tested for impairment in the same manner as our other long-lived assets. No material impairment losses were recorded during the years presented.

Self-Insurance

We self-insure the risks related to workers’ compensation, general liability, and certain employee-related healthcare benefits. We maintain third-party excess insurance coverage to limit our exposure per occurrence and aggregate cash outlay.

We record an estimated liability for the ultimate cost of claims incurred and unpaid as of each balance sheet date, which includes claims filed and estimated losses incurred but not yet reported. This estimate is based on an analysis of our historical data and actuarial estimates and is reviewed on a regular basis to ensure the recorded liability is adequate. The current and long-term portions of this liability are recorded at present value and included in accrued liabilities and other liabilities, respectively, in our consolidated balance sheets.

Deferred Financing Costs

Deferred financing costs reflect fees paid to lenders and third parties directly related to the issuance of debt. Debt discount and issuance costs related to term loans are reported as direct deductions to the outstanding debt and amortized over the term of the debt as an addition to interest expense. Deferred financing costs related to line-of-credit arrangements are included in other assets and subsequently amortized using the straight-line method over the term of the related revolving credit facility as additional interest expense.

When debt is repaid prior to its maturity date, the amortization of the remaining unamortized deferred financing costs, or pro-rata portion thereof, is recorded as a loss on extinguishment of debt within interest expense on the company’s consolidated statements of earnings.

Revenue Recognition

Substantially all of our revenue is derived through the sale of merchandise. Revenue is recognized net of estimated sales returns and sales taxes. We estimate sales returns based on historical data. Additionally, we have assessed all revenue streams for principal versus agent considerations and have concluded we are the principal for the vast majority of our transactions.

See Note 16, Segments and Disaggregated Revenue, for additional information regarding the disaggregation of our revenue.

Merchandise Revenues

We sell merchandise through our company-operated stores, digital platforms, to our franchisees, and by using SBCs. These sales generally have one single performance obligation, and revenue is recognized at the point of sale or upon shipment of the merchandise, which is when control of items sold transfers to the customer. Shipping fees charged through digital channels are considered a separate performance obligation and are recognized in net sales, while the related shipping cost is recognized in SG&A expenses.

We extend credit to certain customers who meet our credit requirements, generally with 30-day payment terms. Based on the nature of these receivables, no significant financing component exists.

Gift Cards

We recognize revenue associated with our gift cards when the gift card is redeemed for merchandise, which generally occurs within one year from the date the card is purchased. Our gift cards do not have expiration dates and are not subject to post-sale fees. Based on historical redemption patterns, a portion of our gift card balances is not expected to be redeemed (“gift card breakage”). Revenue attributable to estimated gift card breakage is recognized within net sales in the consolidated statements of earnings in proportion to the pattern of historical gift card redemptions.

Customer Loyalty Rewards

Our Sally Beauty Rewards Program in the U.S. and Canada enables customers to earn points based on their status for every dollar spent on qualifying Sally purchases. The program is free to join, and it provides our loyalty customers the ability to earn points on their Sally purchases that convert to Sally Beauty Rewards certificates when select thresholds are attained. Points expire after twelve months of inactivity and certificates issued expire 30 days after earned. Certificates generated from our rewards loyalty program provide a material right to customers and represent a separate performance obligation. As such, we defer revenue for future rewards on a standalone value per point, net of estimated breakage based on historical data, within accrued liabilities on our consolidated balance sheets.

Our performance-based contract liabilities were as follows (in thousands):

Changes to our performance-based contract liabilities during 2026 and 2025 were as follows (in thousands):

Private Label Rewards Credit Cards

We have a multi-year agreement with a third-party bank (the “Bank”) to provide our customers a private label credit card program in the U.S. Under the agreement, the Bank manages our customers’ credit approval and credit card accounts, while we facilitate credit applications and provide licensing to our brand and marketing services. The Bank accepts all customer default risks associated with these accounts. In connection with signing the agreement, we received a refundable payment from the Bank which is recorded as deferred revenue within other liabilities on our consolidated balance sheets and is being recognized on a straight-line basis, over the initial term of the agreement, into net sales in our consolidated statements of earnings.

Pursuant to the agreement, the Bank will contribute funding for the program marketing expenses, and such amounts are recognized in net sales in our consolidated statements of earnings. In addition, we earn other immaterial amounts from the Bank, including incentive payments for achieving performance targets and the activation of credit cards.

Advertising

Advertising costs relate mainly to digital and web advertising, in-store and traditional print advertisements, customer relationship management, trade shows, and product education for salon professionals. Advertising costs incurred in connection with print advertisements are expensed the first time the advertisement is run. Other advertising costs are expensed when incurred. Advertising expense was $70.4 million, $65.9 million, and $68.4 million for 2026, 2025, and 2024, respectively, and was included in SG&A expenses in our consolidated statements of earnings.

Fair Value Measurements

Our financial instruments consist of cash equivalents, trade and other accounts receivable, accounts payable, derivative instruments, including foreign exchange contracts and interest rate caps, and debt. The carrying amounts of cash equivalents, trade and other accounts receivable, accounts payable, and borrowings under our $500.0 million asset-based senior secured loan facility (the “ABL Facility”) approximate their respective fair values due to the short-term nature of these financial instruments.

We measure and disclose the fair value of our financial instruments on a recurring basis under the provisions of ASC Topic 820, Fair Value Measurement, as amended (“ASC 820”). We define “fair value” as the price that would be received to sell an asset or paid to transfer a liability (i.e., the exit price) in an orderly transaction between market participants at the measurement date. ASC 820 establishes a three-level hierarchy for measuring fair value and requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. This valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date.

The three levels of that hierarchy are defined as follows:

Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 - Unadjusted quoted prices in active markets for similar assets or liabilities; unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data; and

Level 3 - Unobservable inputs for the asset or liability.

The fair value of each of our assets and liabilities that are measured and recorded at fair value on a recurring basis was measured using widely accepted valuation techniques, including discounted cash flow analyses and observable inputs, such as market interest rates and foreign exchange rates.

In August 2017, the Board authorized a share repurchase program pursuant to which we may repurchase up to $1.0 billion of our common stock, subject to certain limitations governed by our debt agreements (“Share Repurchase Program”). In 2021, the Board approved an extension of the program through September 2025. In May 2025, the Board extended the program through September 30, 2029. The extension did not increase the authorized repurchase amount and permits the Company to repurchase shares up to the remaining amount available under the original authorization.

Repurchases of our shares are accounted for at cost, which includes brokerage fees, and are included as a component of stockholders’ equity on the consolidated balance sheets. Repurchases are recorded as a reduction of common stock and additional paid-in capital; however, to the extent share repurchase amounts exceed the balance of additional paid-in capital prior to such repurchases, the excess is recorded in accumulated earnings. Share repurchases are typically funded from either cash from operations or borrowings under the ABL Facility, as appropriate.

Share-based Compensation

Share-based compensation cost is measured using the grant date fair value of the award and is predominantly recognized as compensation expense ratably over the vesting period. The impact of forfeitures is recognized when awards are forfeited. Share-based compensation expense is included in SG&A expenses in our consolidated statements of earnings.

Award types include restricted stock units (“RSU”), restricted stock awards (“RSA”), performance-based awards, market-based awards, and stock options.

RSUs and RSAs

The fair value of RSUs and RSAs that vest solely based on service is determined using the closing stock price on the date of grant. RSAs and RSUs issued to employees generally vest over three years, while RSUs issued to our independent directors vest overone year. Independent directors may elect, upon receipt of RSUs, to defer delivery of the shares of our common stock that would otherwise be issued on the vesting date. Expense for awards issued to retirement-eligible employees is accelerated.

Performance-based Awards

Our performance awards vest over three years subject to the level of achievement with respect to a mix of specified performance targets and satisfaction of the employee service condition as outlined in the grant agreements. For each performance award, a grantee may earn from 0% to 200% of the original awarded amount. The grant date fair value is determined using the closing stock price on the date of grant. During the performance period, expense is estimated and recognized based on projections of future performance and actual results. Expense for performance-based awards is adjusted to the actual amount of the award earned once the performance period is completed.

Market-based Awards

In 2026, 2025, and 2024, we issued market-based awards that vest over three years dependent on the level of achievement of relative total shareholder return against a group of peer companies measured over athree-year period. For each market-based award, a grantee may earn from 0% to 200% of the original awarded amount. The fair value of market-based awards is determined by using a Monte Carlo simulation model. Expense for market-based awards is recognized over the expected term of the award whether or not the market performance target is met, provided the employee renders the requisite service.

Stock Options

Stock option awards were valued using the Black-Scholes option pricing model to estimate the fair value of each stock option award on the date of grant. Stock options have aten-year life. No stock options were granted during the past three fiscal years.

Income Taxes

We recognize deferred income taxes for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing 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 anticipated to be recovered or settled. The effect on deferred taxes of a change in income tax rates is recognized in the consolidated statements of earnings in the period of enactment. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets to the amount expected to be realized unless it is more likely than not that such assets will be realized in full. The estimated tax benefit of 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.

Foreign Currency

The functional currency of each of our foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (“USD”), our reporting currency, at the rates of exchange in effect at the balance sheet date, while the results of operations and cash flows are generally translated using average exchange rates for the periods presented. Individually material transactions, if any, are translated using the actual rate of exchange on the transaction date. The resulting translation adjustments are recorded as a component of accumulated other comprehensive loss (“AOCL”) in our consolidated balance sheets.

Foreign currency transaction gains or losses, including changes in the fair value (i.e., mark-to-market adjustments) of certain foreign exchange contracts we hold, are included in SG&A expenses in our consolidated statements of earnings when incurred and were not significant in any of the periods presented in the accompanying consolidated financial statements.

2. Accounting Changes and Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

We adopted Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which expands disclosures in the income tax rate reconciliation table and the disaggregation of taxes paid in U.S. and foreign jurisdictions, as of September 30, 2026 on a prospective basis. The adoption of this standard only impacted income tax disclosures within the Company’s consolidated financial statements and did not impact amounts reported on the Company’s balance sheet, statement of earnings, or statement of cash flows. See Note 14, Income Taxes, for the enhanced tax disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40), which requires, among other things, more detailed disclosure about types of expenses in commonly presented expense captions such as cost of goods sold and SG&A expenses. The update is intended to improve disclosures by providing amounts related to inventory purchases, employee compensation, depreciation, and amortization. The amendments in this update are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted, but we currently do not expect to early adopt this standard. We are currently evaluating the impact of this update to our consolidated financial statements and disclosures.

3. Fair Value Measurements

Measured and Reported at Fair Value on a Recurring Basis

Consistent with the fair value hierarchy, our financial assets and liabilities were categorized as follows:

Fair Value of Debt Principal

4. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill during the past two years were as follows (in thousands):

(a)See Note 9, Acquisitions, for additional information regarding goodwill acquired.

(b)Measurement period adjustment of the prior year acquisition.

The following table details other intangible assets included on our consolidated balance sheets (in thousands):

For 2026, 2025, and 2024, amortization expense related to intangible assets totaled $2.6 million, $3.5 million, and $3.2 million, respectively, and was included within SG&A expenses on our consolidated statements of earnings.

As of September 30, 2026, the expected future amortization expense related to definite-lived intangible assets was as follows (in thousands):

5. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

6. Debt

Short-term Debt

Our ABL Facility provides us with a revolving commitment of $500.0 million that matures on December 11, 2029. The interest rate on the ABL Facility is variable and determined at our option as (i) prime plus 0.25% or 0.50% or (ii) Secured Overnight Financing Rate (“SOFR”) plus 1.25% or 1.50%. In addition, the terms of the ABL Facility contain a commitment fee of 0.25% on the unused portion of the facility. Borrowings under the ABL Facility are secured by a first-priority lien in and upon the accounts and inventory (and the proceeds thereof) of the Company and its guarantor subsidiaries. Furthermore, the ABL Facility is also secured by a second-priority lien in and upon the remaining assets of the Company and its guarantor subsidiaries.

At September 30, 2026 and 2025, there wereno outstanding borrowings under our ABL Facility. At September 30, 2026, we had $482.4 million available for borrowing thereunder, including our Canadian sub-facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

Long-term Debt

Long-term debt consisted of the following (dollars in thousands):

(a) Issued at par under the Fifth Supplemental Indenture, dated as of February 27, 2024 (“Indenture”) pursuant to a shelf registration statement on Form S-3 filed with the SEC on May 10, 2021. The resulting $594.0 million in cash proceeds, net of underwriter fees, were used in 2024 toward the repayment of the then-outstanding $680.0 million principal balance on 5.625% senior notes due 2026.

Maturities of our debt were as follows at September 30, 2026 (in thousands):

Term Loan B

We are party to a credit agreement for a term loan B due 2030 (“TLB”) that bears interest at a floating rate equal to, at our option, either the Adjusted Term SOFR Rate plus 1.75% or an adjusted base rate plus 0.75%; see below for additional information. Interest on the TLB is payable quarterly on the last day of each March, June, September, and December of each year. The TLB matures on February 28, 2030 (the “Maturity Date”), but may be prepaid without penalty or premium, other than customary breakage costs for prepayments that are made prior to the last date of an interest period. The principal of the TLB is repayable in $1.0 million quarterly installments, with the remaining outstanding principal amount due on the Maturity Date.

The TLB is secured by a first-priority lien in and upon substantially all of the assets of the Company and its domestic subsidiaries other than the accounts, inventory (and the proceeds thereof) and other assets that secure Sally Holdings’ existing ABL Facility on a first-priority basis (the “ABL Priority Collateral”). Additionally, the TLB is secured by a second-priority lien in and upon the ABL Priority Collateral. The TLB does not contain any financial maintenance covenants, but is subject to a covenant package that is substantially consistent with the covenant package governing our senior notes. The TLB is subject to customary asset sale mandatory prepayment provisions and excess cash flow mandatory prepayment provisions.

In addition to our mandatory quarterly payments, we voluntarily repaid outstanding TLB principal of $76.0 million in 2026 and $115.0 million in 2025. In connection with the repayments, we recognized loss on debt extinguishment within interest expense of $0.6 million in 2026 and $1.0 million in 2025.

Senior Notes

Our senior notes mature on March 1, 2032 and accrue 6.75% interest that is due each March 1 and September 1 during the term of the notes (“2032 Senior Notes”). The 2032 Senior Notes are prepayable, in whole or in part, at any time on or after March 1, 2027 at the redemption prices as a percentage of the outstanding principal specified in the Indenture plus accrued and unpaid interest. Redemption prices are 103.4% beginning March 1, 2027,101.7% beginning March 1, 2028, and at par beginning March 1, 2029. The 2032 Senior Notes are guaranteed on a senior unsecured basis by the guarantors who have guaranteed obligations under our ABL Facility and the TLB.

Covenants

The agreements governing our debt 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 and customary events of default, including customary cross-default and/or cross-acceleration provisions.

7. Leases

Our lease costs consisted of the following (in thousands):

(a)Certain supply chain-related amounts are included in cost of goods sold.

(b)Includes common area maintenance, real estate taxes, and insurance related to leases.

As of September 30, 2026, the approximate future lease payments under our leases were as follows (in thousands):

The table above does not include operating leases we have entered into of approximately $19.0 million that have not commenced, primarily related to future retail stores.

Other lease information is as follows (dollars in thousands):

8. Derivative Instruments

As of September 30, 2026, we didnot purchase or hold any derivative instruments for trading or speculative purposes. See Note 3 for the classification and fair value of our derivative instruments.

Designated Cash Flow Hedges

Foreign Currency Forwards

During 2026, we entered into foreign currency forwards to mitigate the exposure to exchange rate changes on inventory purchases in USD by our foreign subsidiaries. As of September 30, 2026, all of the foreign currency forwards designated as cash flow hedges had been exercised.

We record, net of income tax, the changes in fair value related to the foreign currency forwards in AOCL and recognize realized gain or loss in cost of goods sold based on inventory turns. During 2026, 2025, and 2024, we reclassified a net loss of $1.0 million, a net gain of $0.5 million, and a net loss of $2.9 million, respectively, into cost of goods sold. As of September 30, 2026, we will reclassify a net loss of $0.5 million into cost of goods sold over the next 12 months.

Interest Rate Swap

We had athree-year interest rate swap that matured in April 2026 with an initial notional amount of $200 million (the “swap”) to mitigate the exposure to higher interest rates in connection with our TLB 2030. The interest rate swap involved fixed monthly payments at the contract rate of 3.705%, and in return, we received floating interest payments based on the one-month Adjusted Term SOFR Rate. The interest rate swap matured in April 2026 and was designated as a cash flow hedge. Changes in the fair value of the interest rate swap were recorded quarterly, net of income tax, and included in AOCL. For 2026, 2025, and 2024, we recognized income of $0.1 million, $1.5 million, and $3.3 million, respectively, in interest expense on our consolidated statements of earnings related to this swap.

Non-Designated Cash Flow Hedges

We also use foreign exchange contracts to mitigate our exposure to exchange rate changes in connection with certain intercompany balances not permanently invested. At September 30, 2026, we held forwards, which expire on various dates during the first four months of fiscal year 2027, with a notional amount, based upon exchange rates at September 30, 2026, as follows (in thousands):

We record changes in fair value and realized gains or losses related to the foreign currency forwards into SG&A expenses. The effects of these foreign exchange contracts on our consolidated financial statements were a net loss of $0.2 million, a net gain of $0.1 million, and a net loss of $1.1 million for fiscal years 2026, 2025 and 2024, respectively.

9. Acquisitions

Flair Hair & Beauty Supply Limited

On July 1, 2025, we acquired certain assets and business operations from Flair Hair & Beauty Supply Limited (“Flair”), a regional distributor of professional beauty products based on the island of Ireland that provides products to Ireland and Northern Ireland, for approximately $2.5 million. Under the terms of the agreement, we acquired the operations offour stores, inventory, and exclusive product distribution rights. This acquisition increased the size and geographic scope of our Sally operations within Ireland.

This acquisition was accounted for using the acquisition method of accounting for business combinations and funded with cash from operations. The purchase price of the acquisition was allocated to all assets acquired based on their estimated fair values at the date of acquisition. We recorded $1.0 million in goodwill, which was allocated to Sally, $0.5 million in intangible assets subject to amortization, and $0.6 million of inventory. Subsequent to the acquisition date, all operating results were included in Sally and were not material to the consolidated results of operations; accordingly, pro forma information was not provided.

Exclusive Beauty Supply, Inc.

On September 20, 2024, we acquired certain assets and business operations from Exclusive Beauty Supply, Inc. (“Exclusive Beauty”), a distributor of professional beauty products operating in the state of Florida, for approximately $7.8 million. Under the terms of the agreement, we acquired the operations ofthree stores and a direct sales force, inventory, and non-exclusive product distribution rights. As part of BSG’s growth strategies, this acquisition complemented its existing lines of business and increased the size and geographic scope of operations.

This acquisition was accounted for using the acquisition method of accounting for business combinations and funded with cash from operations. As of September 30, 2024, the purchase price of the acquisition was allocated to all assets acquired based on their estimated fair values at the date of acquisition. We recorded $6.4 million in intangible assets subject to amortization, $0.8 million of inventory, and $0.7 million in goodwill, which was allocated to BSG and is expected to be deductible for tax purposes. Subsequent to the acquisition date, all operating results were included in BSG and were not material to the consolidated results of operations. Pro forma information was not provided as the effects were not material to our consolidated results of operations.

The purchase accounting for the Flair and Exclusive Beauty acquisitions was finalized during their respective one-year measurement periods, and no material adjustments were made.

10.401(k) and Profit Sharing Plan

We offer 401(k) plans to our U.S. and Puerto Rico employees who meet certain eligibility requirements. The U.S. 401(k) Plan allows employees to contribute immediately upon hire, while the Puerto Rico 401(k) Plan allows employees to contribute afterone year of employment. Under the terms of each 401(k) Plan, employees may contribute a percentage of their annual compensation up to certain maximums, as defined by each 401(k) Plan and by statutory limitations. We currently match a portion of employee contributions, as defined by each 401(k) Plan. We recognized expense of $7.9 million, $7.5 million, and $7.6 million in 2026, 2025, and 2024, respectively, related to such matching contributions and these amounts are included predominantly in SG&A expenses in our consolidated statements of earnings.

The 401(k) Plans also permit the Company to make discretionary profit sharing contributions to eligible participants’ accounts, as determined by the Compensation Committee of the Board. The Company didnot make any such contributions during 2026, 2025, and 2024.

11. Stockholders’ Equity

As of September 30, 2026, approximately $354.4 million remained available for future repurchases under the Share Repurchase Program. Shares repurchased and subsequently retired were as follows for the past three years (in thousands):

The amounts above do not include approximately 519,000,394,000, and 194,000 shares surrendered by grantees to satisfy personal income tax withholding obligations upon vesting of equity-based awards valued at $7.4 million, $5.3 million, and $1.8 million during 2026, 2025, and 2024, respectively.

Accumulated Other Comprehensive Loss

The change in AOCL was as follows (in thousands):

The tax impact for the changes in other comprehensive loss and the reclassification to net earnings were not material.

12. Share-Based Compensation

The Company has a stockholder-approved incentive plan (the “Equity Plan”) allowing for the issuance of up to 8.0 million shares (plus an additional number of shares outstanding as of the beginning of the Equity Plan that have been subsequently terminated, expired unexercised, cash-settled, cancelled, forfeited, or lapsed for any reason) to satisfy awards granted under the Equity Plan. Awards may be granted to employees and directors and include RSAs and RSUs, performance-based awards, market-based awards, and stock options.

Compensation expense for all share-based compensation arrangements and the related income tax benefits recognized in our consolidated statement of earnings (in thousands) was as follows:

Weighted-Average Grant-Date Fair Value

The weighted average grant date fair value per share for awards granted during each of the past three years was as follows:

RSUs

The following table presents a summary of the activity for our RSUs for the most recent fiscal year:

At September 30, 2026, approximately $14.4 million of total unrecognized compensation costs related to unvested RSUs are expected to be recognized over the weighted average period of 1.8 years.

Performance-Based Awards

In 2026, 2025, and 2024, we issued performance awards with a financial performance target based on the growth in adjusted consolidated operating income (“AOI”), as defined in the award document, for each of the next three years. The following table presents a summary of the activity for our performance awards assuming 100% payout where the performance has not yet been determined:

As of September 30, 2026, if we assume a 100% payout for unvested performance-based awards, we would expect to recognize $3.3 million in expense over a weighted-average period of 1.4 years.

Market-Based Awards

The following table presents a summary of the activity for our market awards:

As of September 30, 2026, approximately $5.4 million of total unrecognized compensation costs related to unvested market-based awards is expected to be recognized over the weighted average period of 1.8 years.

The assumptions used in the valuation of our market-based awards issued in 2026, 2025, and 2024 were as follows:

Stock Option Awards

The following is a summary of the activity for our stock option awards:

As of September 30, 2024, all stock options were fully vested. The aggregate fair value of stock options vesting during 2024 was $1.9 million.

The aggregate intrinsic value of options exercised during 2026, 2025, and 2024 was $0.4 million, $0.5 million, and $0.7 million, respectively. The total cash received during 2026, 2025, and 2024 from option exercises was $0.9 million, $1.5 million, and $1.8 million, respectively, and the tax benefit realized for the tax deductions from these option exercises was $0.1 million, $0.1 million, and $0.1 million, respectively.

13. Weighted-Average Shares

The following table sets forth the shares (in thousands) used in the earnings per share calculations:

At September 30, 2026, 2025, and 2024, options to purchase approximately 1.2 million,1.5 million, and 1.6 million shares, respectively, of our common stock were outstanding but not included in the computation of diluted earnings per share, because they were anti-dilutive. In addition, performance-based and market-based awards that had not yet met their performance target or market condition were excluded from the calculation of diluted shares.

14. Income Taxes

Earnings before the provision of income taxes consisted of the following for the past three years:

The provision for income taxes for the past three years consisted of the following:

The following table reconciles the U.S. federal statutory rate to our effective income tax rate on earnings before the provision for income taxes, presenting both dollar amounts and percentages in accordance with ASU 2023-09. This disclosure reflects the disaggregation of specific tax categories for the most recent reporting period:

(a) Primarily comprised of items, which individually do not require separate disclosure pursuant to guidance provided in ASU 2023-09.

(b) State and local income taxes in California, Florida, Pennsylvania, New York, Illinois, Texas, Minnesota, and Arizona accounted for more than 50% of the tax effect in this category.

Disclosures Required Before Adopting ASU 2023-09

The following table provides the disclosures required before adopting ASU 2023-09 and reconciles the U.S. federal income tax rate to our effective income tax rate:

During fiscal year 2025, the Company wrote off the investment of its wholly owned subsidiary, Sally Peru Holdings S.A.C. The loss on investment is deductible for tax purposes and is fully offset with a valuation allowance.

Upon adoption of ASU 2023-09, cash paid for income taxes, net of refunds, disaggregated by jurisdiction was as follows (in thousands):

Cash paid for income taxes totaled $94.3 million in fiscal 2025 and $36.0 million in fiscal 2024.

The tax effects of temporary differences that give rise to our deferred tax assets and liabilities are as follows (in thousands):

The deferred taxes noted above are classified as follows in the Company’s Consolidated Balance Sheets (in thousands):

We believe that it is more-likely-than-not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, net of the valuation allowance. During fiscal year 2026, existing valuation allowances increased by approximately $2.3 million, primarily for net operating loss carry-forwards of various members of the affiliated group in foreign jurisdictions. We continue to record a valuation allowance to account for uncertainties regarding recoverability of certain deferred tax assets, primarily foreign loss carry-forwards and tax credit carry-forwards.

Tax reserves are evaluated and adjusted as appropriate, while taking into account the progress of audits by various taxing jurisdictions and other changes in relevant facts and circumstances evident at each balance sheet date. We do not expect the outcome of current or future tax audits to have a material adverse effect on our consolidated financial condition, results of operations, or cash flow.

Applicable deferred tax liabilities have been provided for undistributed foreign earnings in excess of foreign working capital and cash requirements. As a result of U.S. Tax Reform, the repatriation of cash to the U.S. is generally no longer taxable for federal income tax purposes but could be subject to foreign withholding taxes and state income taxes. If undistributed earnings of our foreign operations were not considered permanently reinvested as of September 30, 2026, an immaterial amount of additional deferred taxes would have been provided.

At September 30, 2026 and 2025, we had total operating loss carry-forwards of $97.7 million and $89.8 million, respectively, of which $49.7 million and $40.4 million, respectively, are subject to a valuation allowance. At September 30, 2026, operating loss carry-forwards of $97.7 million have no expiration date. At September 30, 2026 and 2025, we had tax credit carry-forwards of $15.7 million and $15.5 million, respectively. This includes a U.S. foreign tax credit carry-forward of $14.0 million, primarily as a result of the deemed repatriation tax under U.S. Tax Reform, of which $11.3 million will expire in 2028 and $2.7 million will expire between 2029 and 2035. We do not believe the realization of the U.S. foreign tax credit is more likely than not, so a valuation allowance has been recorded against its full value. Of the remaining tax credit carry-forwards, at September 30, 2026, $0.2 million expire between 2027 and 2031, $0.1 million expire between 2036 and 2037 and $1.4 million have no expiration date. Total tax credit carry-forwards of $15.5 million and $15.2 million are subject to a valuation allowance at September 30, 2026 and 2025, respectively.

The changes in the amount of unrecognized tax benefits are as follows (in thousands):

If recognized, these positions would affect our effective tax rate.

We recognize interest and penalties, accrued in connection with unrecognized tax benefits, in provision for income taxes. Such accrued interest and penalties, in the aggregate, were $1.2 million and $0.9 million at September 30, 2026 and 2025, respectively.

Because existing tax positions will continue to generate increased liabilities for unrecognized tax benefits over the next 12 months and the fact that from time to time our tax returns are routinely under audit by various taxing authorities, it is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months. We do not expect the change, if any, to have a material effect on our consolidated financial condition or results of operations.

Our consolidated federal income tax return for the fiscal year 2025 is currently under IRS examination. Our statute of limitations remains open for the fiscal year ended September 30, 2023, forward. Our U.S. state income tax returns are impacted by various statutes of limitations and are generally open for the fiscal year ended September 30, 2023, and future years. Our foreign income tax returns are impacted by various statutes of limitations, which are generally open from 2021 forward.

In December of 2021, the Organization for Economic Cooperation and Development (OECD) established a framework, referred to as Pillar Two, designed to ensure large multinational enterprises pay a minimum 15% level of tax on the income arising in each jurisdiction in which they operate. The earliest effective date was for taxable years beginning after December 31, 2023, which for us was fiscal year 2025. Numerous jurisdictions in which Sally Beauty operates have enacted the OECD model rules or drafted legislation, including Belgium, Canada, France, Germany, Ireland, Italy, the Netherlands, and the United Kingdom. The United States is not subject to Pillar Two. The Company determined that OECD Pillar Two did not have a material impact in fiscal 2026. We will continue to monitor and evaluate pending and new legislation and guidance, which could change our current assessment.

15. Commitments and Contingencies

Letters of Credit

We had $17.6 million of outstanding letters of credit as of September 30, 2026 and 2025.

Legal Proceedings

From time to time, we are involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, results of operations or cash flows.

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources, are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. We have no significant liabilities for loss contingencies at September 30, 2026 and 2025.

16. Segments and Disaggregated Revenue

As discussed in Note 1, our business is organized intotwo reportable segments, Sally and BSG.

Our CODM, whom we have determined to be our Chief Executive Officer, regularly evaluates the performance of our reportable segments by comparing current segment operating earnings to comparable prior periods and forecasted amounts. Included within segment operating earnings, the significant expense categories below are regularly provided to the CODM.

Segment Operating Performance

The following tables summarize our results:

(a)There were no intersegment sales between our segments, nor did any single customer account for 10% or more of revenue.

(b)Unallocated expenses consist of corporate and shared costs and are included in SG&A expenses in our consolidated statements of earnings. Unallocated expenses included a $26.6 million gain in 2025 from the sale of our corporate headquarters.

Other Segment Disclosures

Geographic Area Information

Certain geographic data is as follows (in thousands):

Disaggregated Revenues

The following tables disaggregate our segment revenues by merchandise category.

The following table disaggregates our segment revenue by sales channels: