10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: SEPTEMBER 30, 2011
-OR-
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                      to

Commission File No. 1-33145

SALLY BEAUTY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	36-2257936 (I.R.S. Employer Identification No.)
3001 Colorado Boulevard Denton, Texas (Address of principal executive offices)	76210 (Zip Code)

Registrant's telephone number, including area code: (940) 898-7500

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined under Rule 405 of the Securities Act.    YES ý    NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    YES o    NO ý

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES ý    NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES ý    NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer o Non-accelerated filer o
(Do not check if a smaller
reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)    YES o    NO ý

The aggregate market value of registrant's common stock held by non-affiliates of the registrant, based upon the closing price of a share of the registrant's common stock on March 31, 2011 was approximately $1,333,335,000. At November 11, 2011, there were 184,775,543 shares of the registrant's common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement relating to the registrant's 2012 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated.

TABLE OF CONTENTS

		Page
	PART I
ITEM 1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	17
ITEM 1B.	UNRESOLVED STAFF COMMENTS	32
ITEM 2.	PROPERTIES	33
ITEM 3.	LEGAL PROCEEDINGS	34
ITEM 4.	REMOVED AND RESERVED	34
	PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	35
ITEM 6.	SELECTED FINANCIAL DATA	37
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	39
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	72
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	74
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	74
ITEM 9A.	CONTROLS AND PROCEDURES	74
ITEM 9B.	OTHER INFORMATION	75
	PART III
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	76
ITEM 11.	EXECUTIVE COMPENSATION	76
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	76
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE	77
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	77
	PART IV
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	78

i

In this Annual Report, references to "the Company," "Sally Beauty," "our company," "we," "our," "ours" and "us" refer to Sally Beauty Holdings, Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K and in the documents incorporated by reference herein which are not purely historical facts or which depend upon future events may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act. Words such as "anticipate," "believe," "estimate," "expect," "intend," "plan," "project," "target," "can," "could," "may," "should," "will," "would" or similar expressions may also identify such forward-looking statements.

Readers are cautioned not to place undue reliance on forward-looking statements as such statements speak only as of the date they were made. Any forward-looking statements involve risks and uncertainties that could cause actual events or results to differ materially from the events or results described in the forward-looking statements, including, but not limited to, risks and uncertainties related to:

•

the highly competitive nature of, and the increasing consolidation of, the beauty products distribution industry;

•

anticipating changes in consumer preferences and buying trends and managing our product lines and inventory;

•

potential fluctuation in our same store sales and quarterly financial performance;

•

our dependence upon manufacturers who may be unwilling or unable to continue to supply products to us;

•

the possibility of material interruptions in the supply of products by our manufacturers;

•

products sold by us being found to be defective in labeling or content;

•

compliance with laws and regulations or becoming subject to additional or more stringent laws and regulations;

•

product diversion to mass retailers or other unauthorized resellers;

•

the operational and financial performance of our Armstrong McCall, L.P. ("Armstrong McCall") franchise-based business;

•

the success of our internet-based businesses;

•

successfully identifying acquisition candidates and successfully completing desirable acquisitions;

•

integrating businesses acquired in the future;

•

opening and operating new stores profitably;

•

the impact of the health of the economy upon our business;

•

the success of our cost control plans;

•

protecting our intellectual property rights, particularly our trademarks;

•

conducting business outside the United States;

•

disruption in our information technology systems;

•

severe weather, natural disasters or acts of violence or terrorism;

ii

•

the preparedness of our accounting and other management systems to meet financial reporting and other requirements and the upgrade of our existing financial reporting system;

•

being a holding company, with no operations of our own, and depending on our subsidiaries for cash;

•

our substantial indebtedness;

•

the possibility that we may incur substantial additional debt in the future;

•

restrictions and limitations in the agreements and instruments governing our debt;

•

generating the significant amount of cash needed to service all of our debt and refinancing all or a portion of our indebtedness or obtaining additional financing;

•

changes in interest rates increasing the cost of servicing our debt or increasing our interest expense due to our interest rate swap agreements;

•

the potential impact on us if the financial institutions we deal with become impaired;

•

the costs and effects of litigation;

•

the representativeness of our historical consolidated financial information with respect to our future financial position, results of operations or cash flows;

•

the share distribution of Alberto-Culver Company ("Alberto-Culver") common stock in our separation from Alberto-Culver not constituting a tax-free distribution;

•

actions taken by certain large stockholders adversely affecting the tax-free nature of the share distribution of Alberto-Culver common stock;

•

the voting power of our largest stockholder discouraging third party acquisitions of us at a premium; and

•

the interests of our largest stockholder differing from the interests of other holders of our common stock.

The events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. As a result, our actual results may differ materially from the results contemplated by these forward-looking statements. We assume no obligation to publicly update or revise any forward-looking statements.

iii

PART I

ITEM 1. BUSINESS

Introduction

Sally Beauty Holdings, Inc. is an international specialty retailer and distributor of professional beauty supplies with operations primarily in North America, South America and Europe. We believe the Company is the largest distributor of professional beauty supplies in the U.S. based on store count. We operate primarily through two business units, Sally Beauty Supply and Beauty Systems Group, or BSG. Through Sally Beauty Supply and BSG we sell and distribute beauty products through 4,128 company-owned stores, 181 franchised stores and 1,116 professional distributor sales consultants. Sally Beauty Supply stores target retail consumers and salon professionals, while BSG exclusively targets salons and salon professionals. We have store locations in the United States (including Puerto Rico), Canada, the United Kingdom, Ireland, Belgium, France, Germany, Spain, Chile and Mexico. Within BSG, we also have one of the largest networks of professional distributor sales consultants in North America, with approximately 1,116 professional distributor sales consultants who sell directly to salons and salon professionals. We provide our customers with a wide variety of leading third-party branded and exclusive-label professional beauty supplies, including hair color products, hair care products, hair dryers and hair styling appliances, skin and nail care products and other beauty items. Approximately 82%, 82% and 84% of our consolidated net sales for the fiscal years ended September 30, 2011, 2010 and 2009, respectively, were from customers located in the U.S. For the fiscal year ended September 30, 2011, our consolidated net sales were $3,269.1 million.

Sally Beauty Supply began operations with a single store in New Orleans in 1964 and was acquired in 1969 by our former parent company, Alberto-Culver Company, which we refer to as Alberto-Culver. BSG became a subsidiary of Alberto-Culver in 1995. In November 2006, we separated from Alberto-Culver and became an independent company listed on the New York Stock Exchange. We refer to our separation from Alberto-Culver and its consumer products-focused business as the Separation Transactions. When we refer to Alberto-Culver, we mean Alberto-Culver Company prior to the Separation Transactions or the company from which we separated.

In connection with the Separation Transactions, CDRS Acquisition LLC, or CDRS, and CD&R Parallel Fund VII, L.P., which we refer to as the Parallel Fund and, together with CDRS, the CDR Investors, invested an aggregate of $575.0 million in cash equity in Sally Beauty. CDRS, which, together with the Parallel Fund, at November 11, 2011, owns approximately 35.5% of the outstanding shares of our common stock on an undiluted basis, is a Delaware limited liability company organized by Clayton, Dubilier & Rice Fund VII, L.P., a private investment fund managed by Clayton, Dubilier & Rice, Inc. Also in connection with the Separation Transactions, certain of our subsidiaries incurred approximately $1,850.0 million of indebtedness, as more fully described below. Please see "Risk Factors—Risks Relating to Our Substantial Indebtedness" in Item 1A below.

Professional Beauty Supply Industry Distribution Channels

The professional beauty supply industry serves end-users through four distribution channels: full-service/exclusive distribution, open-line distribution, direct and mega-salon stores.

Full-Service/Exclusive

This channel exclusively serves salons and salon professionals and distributes "professional-only" products for use in salons and resale to consumers in salons. Many brands are distributed through arrangements with suppliers by geographic territory. BSG is a leading full-service distributor in the U.S.

1

Open-Line

This channel serves retail consumers and salon professionals through retail stores and the internet. This channel is served by a large number of localized retailers and distributors, with only a few having a regional presence and significant channel share. We believe that Sally Beauty Supply is the only open-line distributor in the U.S. with a national network of retail stores. In addition, the Company's website (www.sallybeauty.com) and e-commerce platform provides access to product offerings and information beyond our retail stores.

Direct

This channel focuses on direct sales to salons and salon professionals by large manufacturers. This is the dominant form of distribution in Europe, but represents a smaller channel in the U.S. due to the highly fragmented nature of the U.S. salon industry, which makes direct distribution cost prohibitive for many manufacturers. In addition, we recently began to offer our BSG products for sale to salons and salon professionals through the Company's websites (www.cosmoprofbeauty.com and www.ebobdirect.com) and e-commerce platforms.

Mega-Salon Stores

In this channel, large-format salons are supplied directly by manufacturers due to their large scale.

Key Industry and Business Trends

We operate primarily within the large and growing U.S. professional beauty supply industry. Potential growth in the industry is expected to be driven by increases in consumer demand for hair color, hair loss prevention and hair styling products. We believe the following key industry and business trends and characteristics will influence our business and our financial results going forward:

•

High level of marketplace fragmentation.  The U.S. salon channel is highly fragmented with nearly 250,000 salons and barbershops. Given the fragmented and small-scale nature of the salon industry, we believe that salon operators will continue to depend on full-service/exclusive distributors and open-line channels for a majority of their beauty supply purchases.

•

Growth in booth renting and frequent stocking needs.  Salon professionals primarily rely on just-in-time inventory due to capital constraints and a lack of warehouse and shelf space at salons. In addition, booth renters, who comprise a significant percentage of total U.S. salon professionals, are often responsible for purchasing their own supplies. Historically, booth renters have significantly increased as a percentage of total salon professionals, and we expect this trend to continue. Given their smaller individual purchases and relative lack of financial resources, booth renters are likely to be dependent on frequent trips to professional beauty supply stores, like BSG and Sally Beauty Supply. We expect that these factors will continue to drive demand for conveniently located professional beauty supply stores.

•

Increasing use of exclusive-label products.  We offer a broad range of exclusive-label products. As our lines of exclusive-label products have matured and become better known in our retail stores, we have seen an increase in sales of these products. Generally, our exclusive-label products have higher gross margins for us than the leading third-party branded products and, accordingly, we believe that the growth in sales of these products will likely enhance our overall gross margins. Please see "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

•

Favorable demographic and consumer trends.  We expect the aging baby-boomer population to drive future growth in professional beauty supply sales through an increase in the usage of hair color and hair loss products. Additionally, continuously changing fashion-related trends that drive new hair

2

styles are expected to result in continued demand for hair styling products. Changes in consumer tastes and fashion trends can have an impact on our financial performance. Our continued success depends largely on our ability to anticipate, gauge and react in a timely and effective manner to changes in consumer spending patterns and preferences for beauty products. We continuously adapt our marketing and merchandising initiatives in an effort to expand our market reach or to respond to changing consumer preferences. If we are unable to anticipate and respond to trends in the marketplace for beauty products and changing consumer demands, our business could suffer. Please see "Risk Factors—We may be unable to anticipate changes in consumer preferences and buying trends or manage our product lines and inventory commensurate with consumer demand."

•

International growth strategies.  A key element of our growth strategy depends on our ability to capitalize on growth opportunities in the international marketplace and to grow our current level of non-U.S. operations. For example, in December 2009, we acquired Sinelco Group BVBA ("Sinelco"), a wholesale distributor of professional beauty products located in Belgium with sales throughout Europe and, in September 2009, we acquired Distribuidora Intersalon Limitada ("Intersalon"), a distributor of premier beauty supply products then with 16 stores located in Chile. These acquisitions furthered our expansion plans in Europe and Latin America, key targets of Sally Beauty Supply's international growth initiative. We intend to continue to identify and evaluate non-U.S. acquisition and/or organic international growth targets. Our ability to grow our non-U.S. operations, integrate our new non-U.S. acquisitions and successfully pursue additional non-U.S. acquisition and/or international organic growth targets may be affected by business, legal, regulatory and economic risks. Please see "Risk Factors—We may not be able to successfully identify acquisition candidates or successfully complete desirable acquisitions," "If we acquire any businesses in the future, they could prove difficult to integrate, disrupt our business or have an adverse effect on our results of operations" and "Our ability to conduct business in international marketplaces may be affected by legal, regulatory and economic risks."

•

Continuing consolidation.  There is continuing consolidation among professional beauty product distributors and professional beauty product manufacturers. We plan to continue to examine ways in which we can benefit from this trend, including the evaluation of opportunities to shift business from competitive distributors to the BSG network as well as seeking opportunistic, value-added acquisitions which complement our long-term growth strategy. We believe that suppliers are increasingly likely to focus on larger distributors and retailers with a broader scale and retail footprint. We also believe that we are well positioned to capitalize on this trend as well as participate in the ongoing consolidation at the distributor/retail level. However, changes often occur in our relationships with suppliers that may materially affect the net sales and operating earnings of our business segments. Consolidation among suppliers could exacerbate the effects of these relationship changes and could increase pricing pressures. For example, as we announced in the fiscal year 2007, one of our largest suppliers, L'Oreal, moved a material amount of revenue out of our BSG distribution network and into regional distribution networks that compete with BSG. More recently, L'Oreal acquired distributors that compete with BSG in the Midwest, Southeast and West Coast regions of the U.S. and, as a result, L'Oreal directly competes with BSG in certain geographic areas. If L'Oreal acquired other distributors or suppliers that conduct significant business with BSG, we could lose related revenue. There can be no assurance that BSG will not lose further revenue over time due to potential losses of additional products (both from L'Oreal and from other suppliers) as well as from the increased competition from L'Oreal-affiliated distribution networks. Please see "Risk Factors—The beauty products distribution industry is highly competitive and is consolidating" and "We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

•

Relationships with suppliers.  Sally Beauty Supply, BSG and their respective suppliers are dependent on each other for the distribution of beauty products. We do not manufacture the brand name or

3

exclusive-label products we sell. We purchase our products from a limited number of manufacturers. As is typical in distribution businesses (particularly in our industry), these relationships are subject to change from time to time (including the expansion or loss of distribution rights in various geographies and the addition or loss of product lines). Since we purchase products from many manufacturers on an at-will basis, under contracts which can generally be terminated without cause upon 90 days' notice or less or which expire without express rights of renewal, such manufacturers could discontinue sales to us at any time or upon the expiration of the distribution period. Some of our contracts with manufacturers may be terminated by such manufacturers if we fail to meet specified minimum purchase requirements. In such cases, we do not have contractual assurances of continued supply, pricing or access to new products and vendors may change the terms upon which they sell. Infrequently, a supplier will seek to terminate a distribution relationship through legal action. For example, in 2007 Farouk Systems, Inc. filed an action seeking a declaratory judgment that it was entitled to terminate a long-term distribution agreement with Armstrong McCall. In 2010 that matter was settled and BSG now sells Farouk products in many territories. Changes in our relationships with suppliers occur often and could positively or negatively impact our net sales and operating profits. Although we focus on developing new revenue and cost management initiatives to mitigate the negative effects resulting from unfavorable changes in our supplier relationships, there can be no assurance that our efforts will continue to completely offset the loss of these or other distribution rights. Please see "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

We expect to continue to expand our product line offerings and to gain additional distribution rights over time through either further negotiation with suppliers or by acquisitions of existing distributors. Although we are focused on developing new revenue and cost management initiatives, there can be no assurance that our efforts will partially or completely offset any potential loss of distribution rights in the future. Please see "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

•

High level of competition.  Sally Beauty Supply competes with other domestic and international beauty product wholesale and retail outlets, including local and regional open-line beauty supply stores, professional-only beauty supply stores, salons, mass merchandisers, drug stores and supermarkets, as well as sellers on the internet and salons retailing hair care items. BSG competes with other domestic and international beauty product wholesale and retail suppliers and manufacturers selling professional beauty products directly to salons and individual salon professionals. We also face competition from authorized and unauthorized retailers and internet sites offering professional salon-only products. The increasing availability of unauthorized professional salon products in large format retail stores such as drug stores, grocery stores and others could also have a negative impact on our business. Please see "Risk Factors—The beauty products distribution industry is highly competitive and is consolidating."

•

Economic conditions.  We appeal to a wide demographic consumer profile and offer a broad selection of professional beauty products sold directly to retail consumers, and salons and salon professionals. Historically, these factors have provided us with reduced exposure to downturns in economic conditions in the countries in which we operate. However, a downturn in the economy, especially for an extended period of time, could adversely impact consumer demand of discretionary items such as beauty products and salon services, particularly affecting our electrical products category and our full-service sales business. In addition, higher freight costs resulting from increases in the cost of fuel, especially for an extended period of time, may impact our expenses at levels that we cannot pass through to our customers. These factors could have a material adverse effect on our business, financial condition and results of operations. Please see "Risk Factors—The

4

health of the economy in the channels we serve may affect consumer purchases of discretionary items such as beauty products and salon services, which could have a material adverse effect on our business, financial condition and results of operations."

•

Controlling expenses.  Another important aspect of our business is our ability to control costs, especially in our BSG business segment, by right-sizing the business and maximizing the efficiency of our business structure. For example, we recently completed implementation of a $22.0 million capital spending program to consolidate warehouses and reduce administrative expenses related to BSG's distribution network which has resulted in annualized cost savings of at least $14.0 million beginning in the fiscal year 2010. Please see "Risk Factors—We are not certain that our ongoing cost control plans will continue to be successful."

•

Opening new stores.  Our future growth strategy depends in part on our ability to open and profitably operate new stores in existing and additional geographic areas. The capital requirements to open a U.S.-based Sally Beauty Supply or BSG store, excluding inventory, average approximately $70,000 and $80,000, respectively, with the capital requirements for international stores costing less or substantially more depending upon the marketplace. We may not be able to open all of the new stores we plan to open and any new stores we open may not be profitable, any of which could have a material adverse impact on our business, financial condition or results of operations. Please see "Risk Factors—If we are unable to profitably open and operate new stores, our business, financial condition and results of operations may be adversely affected."

•

Changes to our information technology systems.  As our operations grow in both size and scope, we will continuously need to improve and upgrade our information systems and infrastructure while maintaining the reliability and integrity of our systems and infrastructure. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources in advance of any increase in the volume of our business, with no assurance that the volume of business will increase. For example, we are in the process of designing and implementing a standardized enterprise resource planning ("ERP") system internationally, which we anticipate will be completed over the next few years. In addition, we are currently implementing a point-of-sale system upgrade program in a number of our divisions (primarily in our Sally Beauty Supply operations in the U.S.), which we anticipate will provide significant benefits, including enhanced tracking of customer sales and store inventory activity. These and any other required upgrades to our information systems and information technology (or new technology), now or in the future, will require that our management and resources be diverted from our core business to assist in completion of these projects. There can be no assurance that the time and resources our management will need to devote to these upgrades, service outages or delays due to the installation of any new or upgraded technology (and customer issues therewith), or the impact on the reliability of our data from any new or upgraded technology will not have a material adverse effect on our financial reporting, business, financial condition or results of operations. Please see "Risk Factors—We may be adversely affected by any disruption in our information technology systems."

Business Segments, Geographic Area Information and Seasonality

We operate two business segments: (i) Sally Beauty Supply, an open-line and exclusive-label distributor of professional beauty supplies offering professional beauty supplies to both retail consumers and salon professionals primarily in North America, Europe, Puerto Rico and South America, and (ii) BSG, including its franchise-based business Armstrong McCall, a full-service beauty supply distributor offering professional brands directly to salons and salon professionals through our own sales force and professional-only stores, many in exclusive geographical territories, in North America, Puerto Rico, the United Kingdom and certain other European countries. BSG operates stores under the CosmoProf service mark. BSG also franchises professional beauty supply outlets in the southwest portion of the U.S. and in Mexico, and supplies sub-distributors in Europe. Sally Beauty Supply accounted for approximately 62%,

5

63% and 64%; and BSG accounted for approximately 38%, 37% and 36% of the Company's consolidated net sales for the years ended September 30, 2011, 2010 and 2009, respectively.

Financial information about business segments and geographic area information is incorporated herein by reference to the "Business Segments and Geographic Area Information," Note 20 of the "Notes to Consolidated Financial Statements" in "Item 8—Financial Statements and Supplementary Data" contained elsewhere in this Annual Report.

Neither the sales nor the product assortment for Sally Beauty Supply or BSG are generally seasonal in nature.

Sally Beauty Supply

We believe Sally Beauty Supply is the largest open-line distributor of professional beauty supplies in the U.S. based on store count. As of September 30, 2011, Sally Beauty Supply operated 3,133 company-operated retail stores, 2,509 of which are located in the U.S., with the remaining 624 company-operated stores located in Puerto Rico, Canada, Mexico, Chile, the United Kingdom, Ireland, Belgium, France, Germany and Spain. Sally Beauty Supply also supplied 25 franchised stores located outside the U.S. Our Sally Beauty Supply stores carry an extensive selection of professional beauty supplies for both retail customers and salon professionals, with between 5,000 and 8,000 stock keeping units, or SKUs, (in the U.S. and Canada) of beauty products across product categories including hair color, hair care, skin and nail care, beauty sundries and electrical appliances. Sally Beauty Supply stores carry leading third-party brands such as Clairol®, Revlon® and Conair®, as well as an extensive selection of exclusive-label merchandise. Store formats, including average size and product selection, for Sally Beauty Supply outside the U.S. and Canada vary by marketplace. We believe that Sally Beauty Supply has differentiated itself from its competitors through its customer value proposition, attractive pricing, extensive selection of leading third-party branded and exclusive-label products, a broad ethnic product selection, knowledgeable sales associates and convenient store locations.

   Store Design and Operations

Sally Beauty Supply stores are designed to create an appealing shopping environment that embraces the retail consumer and salon professional and highlights its extensive product offering. Sally Beauty Supply's U.S. and Canadian stores average approximately 1,700 square feet in size and are located primarily in strip shopping centers. Generally, Sally Beauty Supply stores in the U.S. and Canada follow a consistent format, allowing customers familiarity between Sally Beauty Supply locations. Store formats for Sally Beauty Supply outside the U.S. and Canada vary by marketplace.

Sally Beauty Supply stores are segmented into distinctive areas arranged by product type with signs allowing its customers to easily navigate through its stores. Sally Beauty Supply seeks to stimulate cross-selling and impulse buying through strategic product placement and use of displays to highlight new products and key promotional items.

   Merchandise

Sally Beauty Supply stores carry a broad selection of branded and exclusive-label professional beauty supplies. Sally Beauty Supply manages each category by product and by SKU and uses centrally developed planoguides to maintain a consistent merchandise presentation across its store base (primarily in the U.S. and Canada). Through its information systems, Sally Beauty Supply actively monitors each store's performance by category, allowing it to maintain consistently high levels of in-stock merchandise. We believe Sally Beauty Supply's tailored merchandise strategy enables it to meet local demands and helps drive traffic in its stores. Additionally, its information systems enable it to track and automatically replenish inventory levels, generally on a weekly basis, primarily in the U.S.

6

In addition, Sally Beauty Supply offers a comprehensive ethnic product selection with specific appeal to African-American and Hispanic customers. Its ethnic product offerings are tailored by store based on market demographics and category performance. For example, sales of products targeted for these customers averaged approximately 9.0% of net sales in Sally Beauty Supply's U.S. stores during the past three years. We believe the wide selection of ethnic products available in Sally Beauty Supply stores is unique and differentiates its stores from its competition. Sally Beauty Supply also aims to position itself to be competitive in price, but not a discount leader.

Sally Beauty Supply's pricing strategy is differentiated by customer segment. Professional salon customers are generally entitled to a price lower than that received by retail customers. However, Sally Beauty Supply does offer discounts to retail customers through its customer loyalty program (please see Marketing and Advertising below).

   Leading Third-Party Branded Products

Sally Beauty Supply offers an extensive selection of hair care products, nail care products, beauty sundries and appliances from leading third-party brands such as Clairol®, Revlon® and Conair®, as well as an extensive selection of exclusive-label merchandise. We believe that carrying a broad selection of the latest premier branded merchandise is critical to maintaining long-term relationships with our customers. The merchandise Sally Beauty Supply carries includes products from one or more of the leading manufacturers in each category. Sally Beauty Supply's objective is not only to carry leading brands, but also to carry a full range of branded and exclusive-label products within each category. As hair trends continue to evolve, we expect to offer the changing professional beauty product assortment necessary to meet the needs of retail consumers and salon professionals.

   Exclusive-Label Products

Sally Beauty Supply offers a broad range of exclusive-label products. We believe exclusive-label products provide customers with an attractive alternative to higher-priced leading third-party brands. Exclusive-label products accounted for approximately 44% of Sally Beauty Supply's product sales in the U.S. during the 2011 fiscal year. Generally, the exclusive-label brands have higher gross margins than the leading third-party branded products, and we believe this area offers continued potential growth. Sally Beauty Supply maintains exclusive-label products in a number of categories including hair care, small electrical appliances and salon products. Sally Beauty Supply actively promotes its exclusive-label brands through in-store promotions, print advertising and direct shopping guides. We believe our customers perceive our exclusive-label products to be comparable in quality and name recognition to leading third-party branded products.

The following table sets forth the approximate percentage of Sally Beauty Supply's sales by merchandise category:

		Fiscal Year Ended September 30,
		2011			2010			2009
Hair color			22.5	%		22.7	%		22.8	%
Hair care			21.3	%		20.7	%		19.7	%
Skin and nail care			15.2	%		14.2	%		13.0	%
Brushes, cutlery and accessories			14.5	%		15.1	%		15.6	%
Electrical appliances			10.6	%		11.8	%		11.9	%
Ethnic products			7.9	%		8.1	%		8.7	%
Other beauty items			8.0	%		7.4	%		8.3	%
	Total		100.0	%		100.0	%		100.0	%

7

   Marketing and Advertising

Sally Beauty Supply's marketing program is designed to promote its extensive selection of brand name products at competitive prices. The program is currently centered on multi-page, color flyers highlighting promotional products. Separate flyers are created and tailored to Sally Beauty Supply's retail customers and salon professionals. These flyers, which are available in Sally Beauty Supply stores, are also mailed to loyalty program customers and salon professionals on a monthly basis and are supplemented by e-mail newsletters.

We continuously adapt our marketing and merchandising initiatives for Sally Beauty Supply in an effort to expand our market reach or to respond to changing consumer preferences.

Sally Beauty Supply's customer loyalty and marketing programs, primarily in the U.S. and Canada, allow Sally Beauty Supply to collect point-of-sale customer data and increase our understanding of customers' needs. The Sally "Beauty Club" is a loyalty program for customers who are not salon professionals. Beauty Club members, after paying a nominal annual fee, are eligible to receive a special, discounted price on almost every non-sale item. Members are also eligible to receive special Beauty Club e-mail newsletters and exclusive direct mail flyers that contain additional savings, beauty tips, new product information and coupons. In addition, the "ProCard" is a marketing program for licensed salon professionals. ProCard members are eligible to receive discounts on all beauty products sold at Sally Beauty Supply stores. We believe these programs are effective in developing and maintaining customer relationships. Outside the U.S. and Canada, our customer loyalty and marketing programs vary by marketplace.

   Store Locations

Sally Beauty Supply selects geographic areas and store sites on the basis of demographic information, the quality and nature of neighboring tenants, store visibility and location accessibility. Sally Beauty Supply seeks to locate stores primarily in strip malls, which are occupied by other high traffic retailers including grocery stores, mass merchants and home centers.

Sally Beauty Supply balances its store expansion between new and existing marketplaces. In its existing marketplaces, Sally Beauty Supply adds stores as necessary to provide additional coverage. In new marketplaces, Sally Beauty Supply generally seeks to expand in geographically contiguous areas to leverage its experience. We believe that Sally Beauty Supply's knowledge of local marketplaces is an important part of its success.

The following table provides a history of Sally Beauty Supply's store count (including franchised stores) during the last five fiscal years:

	Fiscal Year Ended September 30,
	2011		2010		2009		2008		2007
Stores open at beginning of period		3,032		2,923		2,844		2,694		2,511
Net store openings during period		126		108		60		110		83
Stores acquired during period		—		1		19		40		100
Stores open at end of period		3,158		3,032		2,923		2,844		2,694

Beauty Systems Group

We believe that BSG is the largest full-service distributor of professional beauty supplies in North America, exclusively targeting salons and salon professionals. As of September 30, 2011, BSG had 995 company-operated stores, supplied 156 franchised stores and had a sales force of approximately 1,116 professional distributor sales consultants selling exclusively to salons and salon professionals in all states in the U.S., in portions of Canada, and in Puerto Rico, Mexico and certain European countries. BSG carries

8

leading professional beauty product brands, intended for use in salons and for resale by the salon to consumers. BSG stores provide a comprehensive selection of between 5,000 and 10,000 beauty product SKUs that include hair color and care, skin and nail care, beauty sundries and electrical appliances. Certain BSG products are sold under exclusive distribution agreements with suppliers, whereby BSG is designated as the sole distributor for a product line within certain geographic territories. Through its large store base and sales force, BSG is able to access a significant portion of the highly fragmented U.S. salon channel.

   Store Design and Operations

BSG stores are designed to create a professional shopping environment that embraces the salon professional and highlights its extensive product offering. Company-operated BSG stores, which primarily operate under the CosmoProf banner, average approximately 2,700 square feet and are primarily located in secondary strip shopping centers. BSG store layouts are designed to provide optimal variety and options to the salon professional. Stores are segmented into distinctive areas arranged by product type with certain areas dedicated to leading third-party brands; such as Paul Mitchell®, Wella®, Sebastian®, Goldwell®, Joico® and TIGI®. The selection of these and other brands varies by territory.

   Professional Distributor Sales Consultants

BSG has a network of approximately 1,116 professional distributor sales consultants ("DSC" or "DSCs"), which exclusively serve salons and salon professionals. The following table sets forth the number of consultants in the BSG network during the last five fiscal years:

	Fiscal Year Ended September 30,
	2011		2010		2009		2008		2007
Professional distributor sales consultants(a)		1,116		1,051		1,022		984		1,002

(a)

Includes 411, 395, 300, 328 and 317 distributor sales consultants of our Armstrong McCall franchisees at September 30, 2011, 2010, 2009, 2008 and 2007, respectively.

The increase in the number of DSCs in the fiscal year 2011 reflects approximately 70 distributor sales consultants employed by Aerial Company, Inc. ("Aerial") prior to the Company's acquisition of Aerial in October 2010. The increase in the number of DSCs in the fiscal year 2009 reflects approximately 90 distributor sales consultants employed by Schoeneman Beauty Supply, Inc. ("Schoeneman") prior to the Company's acquisition of Schoeneman in September 2009.

In order to provide a knowledgeable sales consultant team, BSG actively recruits individuals with industry knowledge or sales experience, as we believe that new sales consultants with either broad knowledge about the products or direct sales experience will be more successful.

BSG provides training to new sales consultants beginning with a two-week training program, followed by a program of continuing media-based training, delivered through audio, video and web-based e-learning. The program is designed to develop product knowledge as well as techniques on how best to serve salon professionals. In addition to selling professional beauty products, these sales consultants offer in-salon training for professionals and owners in areas such as new styles, techniques and business practices.

An important component of sales consultants' compensation is sales commissions. BSG's commission system is designed to drive sales and focus consultants on selling products that are best suited to individual salons and salon professionals. We believe our emphasis on recruitment, training, and sales-based compensation results in a sales force that distinguishes itself from other full-service/exclusive-channel distributors.

9

The following table sets forth the approximate percentage of BSG sales attributable by distribution channel:

		Fiscal Year Ended September 30,
		2011			2010
Company-operated retail stores			62.9	%		61.5	%
Professional distributor sales consultants (full-service)			27.4	%		27.8	%
Franchise stores			9.7	%		10.7	%
	Total		100.0	%		100.0	%

   Merchandise

BSG stores carry a broad selection of third-party branded products, ranging between 5,000 and 10,000 SKUs of beauty products, including hair color and care, skin and nail care, beauty sundries and electrical appliances and other beauty items. Some products are available in bulk packaging for higher volume salon needs. Through BSG's information systems, each store's product performance is actively monitored, allowing maintenance of an optimal merchandise mix. Additionally, BSG's information systems track and automatically replenish inventory levels on a weekly basis, enabling BSG to maintain high levels of product in stock. Although BSG positions itself to be competitive on price, its primary focus is to provide a comprehensive selection of branded products to the salon professional. Certain BSG products are sold under exclusive arrangements with suppliers, whereby BSG is designated the sole distributor for a specific brand name within certain geographic territories. We believe that carrying a broad selection of branded merchandise is critical to maintaining relationships with our professional customers.

The following table sets forth the approximate percentage of BSG's sales attributable by merchandise category:

		Fiscal Year Ended September 30,
		2011			2010			2009
Hair care			37.0	%		37.1	%		38.5	%
Hair color			29.6	%		29.6	%		28.4	%
Promotional items(a)			12.9	%		13.2	%		12.5	%
Skin and nail care			9.7	%		8.1	%		7.7	%
Electrical appliances			4.3	%		4.5	%		4.9	%
Other beauty items			6.5	%		7.5	%		8.0	%
	Total		100.0	%		100.0	%		100.0	%

(a)

Promotional items consist of sales from other categories that are sold on a value-priced basis.

   Marketing and Advertising

BSG's marketing program is designed primarily to promote its extensive selection of brand name products at competitive prices. BSG distributes at its stores and mails to its salon and salon professional customers, multi-page color shopping guides that highlight promotional products. In addition, BSG communicates with its customers and distributes promotional material via e-mail, Facebook and Twitter. Some BSG stores also host monthly manufacturer-sponsored classes for customers. These classes are held at BSG stores and led by manufacturer-employed educators. Salon professionals, after paying a small fee to attend, are educated on new products and beauty trends. We believe these classes increase brand awareness and potentially drive sales in BSG stores.

10

   Store Locations

BSG stores are primarily located in secondary strip shopping centers. Although BSG stores are located in visible and convenient locations, salon professionals are generally less sensitive about store location than Sally Beauty Supply customers.

The following table provides a history of BSG's store count (including franchised stores) during the last five fiscal years:

	Fiscal Year Ended September 30,
	2011		2010		2009		2008		2007
Stores open at beginning of period		1,027		991		929		874		828
Net store openings during period		39		36		16		44		46
Stores acquired during period(a)		85		—		46		11		—
Stores open at end of period		1,151		1,027		991		929		874

(a)

Stores acquired in the fiscal year 2011 include 82 stores owned by Aerial prior to the Company's acquisition of Aerial in October 2010. Stores acquired in the fiscal year 2009 include 43 stores owned by Schoeneman prior to the Company's acquisition of Schoeneman in September 2009.

Competitive Strengths

We believe the following competitive strengths differentiate us from our competitors and contribute to our success:

The Largest Professional Beauty Supply Distributor in the U.S. with Multi-Channel Platform

We believe that Sally Beauty Supply and BSG together comprise the largest distributor of professional beauty products in the U.S. by store count. Our leading channel positions and multi-channel platform afford us several advantages, including strong positioning with suppliers, the ability to better service the highly fragmented beauty supply marketplace, economies of scale and the ability to capitalize on the ongoing consolidation in our sector. Through our multi-channel platform, we are able to generate and grow revenues across broad, diversified geographies, and customer segments using varying product assortments. In the U.S. and Puerto Rico, we offer up to 8,000 and 10,000 SKUs in Sally Beauty Supply (in our stores and online) and BSG stores, respectively, to a broad potential customer base that includes retail consumers, salons and barbershops in the U.S.

Differentiated Customer Value Proposition

We believe that our stores have a competitive advantage over those of our competitors due to our stores' convenient location, broad selection of professional beauty products (including leading third-party branded and exclusive-label merchandise), high levels of in-stock merchandise, knowledgeable salespeople and competitive pricing. Our merchandise mix includes a comprehensive ethnic product selection, which is tailored by store based on market demographics and category performance. We believe that the wide selection of these products at our stores further differentiates Sally Beauty Supply from its competitors. In addition, as discussed above, Sally Beauty Supply also offers a customer loyalty program called the Beauty Club, whereby members receive special, member discounts on products and are eligible for Beauty Club e-mail newsletters and exclusive direct mail flyers with additional promotional offerings, beauty tips and new product information for a nominal annual membership fee. Our BSG professional distributor sales consultants benefit from their customers having access to the BSG store systems as customers have the ability to pick up the products they need between sales visits from professional distributor sales

11

consultants. We believe that our differentiated customer value proposition and strong brands drive customer loyalty and high repeat traffic, contributing to our consistent historical financial performance.

Attractive Store Economics

We believe that our stores generate attractive returns on invested capital. The capital requirements to open a U.S.-based Sally Beauty Supply or BSG store, excluding inventory, average approximately $70,000 and $80,000, respectively, with the capital requirements for international stores costing less or substantially more depending on the local economic conditions. Sally Beauty Supply stores average approximately 1,700 square feet and BSG stores average approximately 2,700 square feet in size in the U.S. and Canada. In the U.S., our stores are typically located within strip shopping centers. Strong average sales per square foot combined with minimal staffing requirements, low rent expense and limited initial capital outlay typically result in positive contribution margins within a few months of opening, and cash payback on investment within approximately two years. Due to such attractive investment returns and relatively high operating profit contributions per store, during the past five fiscal years Sally Beauty Supply and BSG have opened an aggregate of 487 and 181 net new stores, respectively, excluding the effect of acquisitions. Outside the U.S. and Canada, our store format, sizes and capital requirements vary by marketplace, but we believe these stores also generate compelling unit economics.

Consistent Financial Performance

We have a proven track record of strong growth and consistent profitability due to superior operating performance, new store openings and strategic acquisitions. Over the past five fiscal years, our consolidated same store sales growth has been positive in each year and has averaged nearly 4.0%, as set forth in the following table:

		Fiscal Year Ended September 30,
Same store sales growth(a)		2011			2010			2009			2008			2007
Sally Beauty Supply			6.3	%		4.1	%		2.1	%		1.2	%		2.7	%
Beauty Systems Group			5.5	%		6.2	%		1.0	%		6.9	%		10.1	%
	Consolidated		6.1	%		4.6	%		1.8	%		2.6	%		4.5	%

(a)

Same stores are defined as company-operated stores that have been open for at least 14 months as of the last day of a month. Our same store sales are calculated in constant dollars and include internet-based sales (beginning in fiscal year 2009) and store expansions, if applicable, but do not generally include the sales from stores relocated until at least 14 months after the relocation. The sales from stores acquired are excluded from our same store sales calculation until at least 14 months after the acquisition.

Experienced Management Team with a Proven Track Record

Our senior management team led by our President and Chief Executive Officer Gary Winterhalter, averages 24 years of beauty industry experience and possesses a unique combination of management skills and experience in the beauty supply market. Our team also has a strong track record of successfully identifying and integrating acquisitions, which continues to be an important part of our overall strategy.

Our Strategy

We believe there are significant opportunities to increase our sales and profitability through the further implementation of our operating strategy and by growing our store base in existing and contiguous

12

marketplaces, both organically and through strategic acquisitions. Key elements of our growth strategy are to:

Increase Sales Productivity of Our Stores

We intend to grow same store sales by focusing on improving our merchandise mix and introducing new products. In addition, we plan to tailor our marketing, advertising and promotions to attract new customers and increase sales with existing customers. We plan to continue to enhance our customer loyalty programs, which allow us to collect point-of-sale customer data and increase our understanding of customers' needs. Our exclusive-label products are competitive with leading third-party branded merchandise, draw traffic to our stores and increase customer loyalty. In addition, we plan to tailor our marketing, advertising and promotions to attract new customers and increase sales with existing customers.

Expand Our Store Base

During the past five fiscal years, Sally Beauty Supply and BSG have opened an aggregate of 487 and 181 net new stores, respectively, excluding the effect of acquisitions. Because of the limited initial capital outlay, rapid payback, and attractive return on capital, we intend to continue to expand our store base. In the fiscal year 2011, we opened 126 and 39 Sally Beauty Supply stores and BSG stores, respectively, excluding the effect of acquisitions. We believe there are growth opportunities for additional stores in North America, Europe and Central and South America. We expect new store openings in existing and new areas to be an important aspect of our future growth opportunities, and intend to continue our annual organic store growth between 4% and 5% of our total stores for the foreseeable future.

Grow Internationally

International sales represent 21% of Sally Beauty Supply's net sales and we believe there is a significant opportunity for future growth in certain international geographic areas. As of September 30, 2011, we operated 679 international company-owned stores and 55 international franchise stores across nine countries outside the United States: Canada, the United Kingdom, Ireland, Belgium, France, Germany, Spain, Chile and Mexico. We believe our platform provides us with the foundation to continue to expand internationally. In particular, we are currently focused on growing our business in Europe and Central and South America.

Increase Operating Efficiency and Profitability

We believe there are opportunities to increase the profitability of operations by growing our exclusive-label brands, improving sourcing, shifting customer mix, continuing our cost-cutting initiatives, particularly at BSG, and by further expanding our internet channel. We continue to develop and promote our higher margin exclusive-label products and increase exclusive product sales, which increases our gross margins and operating results. Over the past few years, we have undertaken a full review of our merchandise procurement strategy. This initiative is intended to identify lower-cost alternative sources of supply in certain product categories from countries with lower manufacturing costs. We continue to focus on changing our customer mix by increasing the percentage of retail customers within our stores at Sally Beauty Supply. At BSG, we have completed numerous projects, including a re-branding initiative that repositioned the vast majority of our North American company-operated stores under a common name and store identity, CosmoProf, which we believe has improved brand consistency, saved on advertising and promotional costs and allowed for a more focused marketing strategy. Recently, we completed a $22.0 million capital spending program to consolidate warehouses and reduce administrative expenses related to BSG's distribution network.

We also offer between 5,000 and 8,000 SKUs of our Sally Beauty Supply products for sale through our website (www.sallybeauty.com) and have recently begun to offer between 10,000 and 12,000 SKUs of our

13

BSG products for sale principally through our websites (www.cosmoprofbeauty.com and www.ebobdirect.com). We expect electronic commerce, or e-commerce, will increasingly lead to additional higher margin sales for both business segments as a result of the incremental operating expenses (including rent and other occupancy expenses, payroll, and shipping and handling expenses) associated with traditional brick-and-mortar stores. Please see "Risk Factors—Our internet-based business may be unsuccessful or may cause internal channel conflict."

Pursue Strategic Acquisitions and New Territories for Organic Growth

We have completed more than 35 acquisitions during the last 10 years. We believe our experience in identifying attractive acquisition targets, our proven integration process and our highly scalable infrastructure have created a strong platform for potential future acquisitions. Recent acquisitions have included:

•

In October 2010, we acquired Aerial, an 82-store professional-only distributor of beauty products operating in 11 states in the midwestern United States.

•

In March 2010, we acquired certain assets and the business of a former exclusive distributor of John Paul Mitchell Systems beauty products with sales primarily in south Florida and certain islands in the Caribbean.

•

In December 2009, we acquired Sinelco, a wholesale distributor of professional beauty products located in Belgium with sales throughout Europe.

•

In September 2009, we acquired Schoeneman, a 43-store beauty supply chain located in the central northeast United States.

•

In September 2009, we acquired Intersalon, a leading distributor of premier beauty supply products with 16 stores located in Chile.

•

In May 2008, we acquired Pro-Duo NV ("Pro-Duo"), a cash and carry retailer of both professional and retail hair products with 40 stores located primarily in Belgium, France and Spain.

We intend to continue to identify and evaluate acquisition targets and organic growth targets both domestically and internationally, with a focus on expanding our exclusive BSG territories and allowing Sally Beauty Supply to enter new geographic areas principally outside the U.S. Please see "Risk Factors—We may not be able to successfully identify acquisition candidates or successfully complete desirable acquisitions."

Competition

Although there are a limited number of sizable direct competitors to our business, the beauty industry is highly competitive. In each geographic area in which we operate, we experience competition from domestic and international businesses often with more resources, including mass merchandisers, drug stores, supermarkets and other chains offering similar or substitute beauty products at comparable prices. Our business also faces competition from department stores. In addition, our business competes with local and regional open-line beauty supply stores and full-service distributors selling directly to salons and salon professionals through both professional distributor sales consultants and outlets open only to salons and salon professionals. Our business also faces increasing competition from certain manufacturers that use their own sales forces to distribute their professional beauty products directly or align themselves with our competitors. Some of these manufacturers are vertically integrating through the acquisition of distributors and stores. In addition, these manufacturers may acquire additional brands that we currently distribute and attempt to shift these products to their own distribution channels. Our business also faces competition from authorized and unauthorized retailers and internet sites offering professional salon-only products.

14

Please see "Risk Factors—The beauty products distribution industry is highly competitive and is consolidating" for additional information about our competition.

Customer Service

We strive to complement our extensive merchandise selection and innovative store design with superior customer service. We actively recruit individuals with cosmetology experience because we believe that such individuals are more knowledgeable about the products they sell. Additionally, Sally Beauty Supply recruits individuals with retail experience because we believe their general retail knowledge can be leveraged in the beauty supply industry. We believe that employees' knowledge of the products and ability to demonstrate and explain the advantages of the products increases sales and that their prompt, knowledgeable service fosters the confidence and loyalty of customers and differentiates our business from other professional beauty supply distributors.

We emphasize product knowledge during initial training as well as during ongoing training sessions, with programs intended to provide new associates and managers with significant training. The training programs encompass operational and product training and are designed to increase employee and store productivity. Store employees are also required to participate in training on an ongoing basis to keep up-to-date on products and operational practices.

Most of our stores are staffed with a store manager, and two or three full-time or part-time associates. BSG stores are generally also staffed with an assistant manager. The operations of each store are supervised by a district manager, who reports to a territory manager. A significant number of our store managers and assistant managers are licensed in the cosmetology field. Additionally, in certain geographic areas in the U.S., a significant number of our store personnel, including store managers and assistant managers, speak Spanish as a second language. We believe that these skills enhance our store personnel's ability to serve our customers.

Relationships with Suppliers

We purchase our merchandise directly from manufacturers through supply contracts and by purchase orders. For the fiscal year 2011, our five largest suppliers, The Procter & Gamble Company, or P&G, the Professional Products Division of L'Oreal USA S/D, Inc., or L'Oreal, Conair Corporation, John Paul Mitchell Systems and Shiseido Cosmetics (America) Limited, accounted for approximately 42% of our consolidated merchandise purchases. Products are purchased from these and many other manufacturers on an at-will basis or under contracts which can be terminated without cause upon 90 days notice or less or expire without express rights of renewal. Such manufacturers could discontinue sales to us at any time or upon short notice. If any of these suppliers discontinued selling or were unable to continue selling to us, there could be a material adverse effect on our business and results of operations.

As is typical in the distribution businesses, relationships with suppliers are subject to change from time to time (including the expansion or loss of distribution rights in various geographies and the addition or loss of product lines). Changes in our relationships with suppliers occur often, and could positively or negatively impact our net sales and operating profits. Please see "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us." However, we believe that we can be successful in mitigating negative effects resulting from unfavorable changes in the relationships between us and our suppliers through, among other things, the development of new or expanded supplier relationships.

Distribution

As of September 30, 2011, we operated mainly through 17 distribution centers, eight of which serviced Sally Beauty Supply and nine of which serviced BSG. We recently completed implementation of a comprehensive optimization program to consolidate warehouses and reduce administrative expenses

15

related to BSG's distribution network. Total capital expenditures for this program were approximately $22.0 million and certain related expenses were approximately $5.0 million. This program has resulted in annualized cost savings of at least $14.0 million beginning in the fiscal year 2010.

Our purchasing and distribution system is designed to minimize the delivered cost of merchandise and maximize the level of merchandise in-stock in stores. This distribution system also allows for monitoring of delivery times and maintenance of appropriate inventory levels. Product deliveries are typically made to our stores on a weekly basis. Each distribution center has a quality control department that monitors products received from suppliers. We utilize proprietary software systems to provide computerized warehouse locator and inventory support. Please see "Risk Factors—We are not certain that our ongoing cost control plans will continue to be successful."

Management Information Systems

Our management information systems provide order processing, accounting and management information for the marketing, distribution and store operations functions of our business. A significant portion of these systems have been developed internally. The information gathered by the management information systems supports automatic replenishment of in-store inventory and provides support for product purchase decisions. Please see "Risk Factors—We may be adversely affected by any disruption in our information technology systems."

Employees

In our domestic and foreign operations, we had approximately 24,615 employees as of September 30, 2011; consisting of approximately 7,040 salaried, 4,935 hourly and 12,640 part-time employees. We had approximately 22,900 employees as of September 30, 2010; consisting of approximately 6,730 salaried, 4,670 hourly and 11,500 part-time employees. Part-time employees are used to supplement schedules, particularly in North America.

Certain subsidiaries in Mexico have collective bargaining agreements covering warehouse and store personnel which expire at various times over the next several years. We believe that we have good relationships with our employees worldwide.

Management

For information concerning our directors and executive officers, please see "Directors and Executive Officers of the Registrant" in Item 10 of this Annual Report.

Regulation

We are subject to a wide variety of laws and regulations, which historically have not had a material effect on our business. For example, in the U.S., most of the products sold and the content and methods of advertising and marketing utilized are regulated by a host of federal agencies, including, in each case, one or more of the following: the Food and Drug Administration, or FDA, the Federal Trade Commission, or FTC, and the Consumer Products Safety Commission. The transportation and disposal of many of our products are also subject to federal regulation. State and local agencies regulate many aspects of our business. In marketplaces outside of the U.S., regulation is also comprehensive and focused upon product labeling and safety issues.

As of September 30, 2011, Sally Beauty Supply supplied 25 and BSG supplied 156 franchised stores located in the U.S., Mexico and certain countries in Europe. As a result of these franchisor-franchisee relationships, we are subject to regulation when offering and selling franchises in the applicable countries. The applicable laws and regulations affect our business practices, as franchisor, in a number of ways,

16

including restrictions placed upon the offering, renewal, termination and disapproval of assignment of franchises. To date, these laws and regulations have not had a material effect upon our operations.

Trademarks and Other Intellectual Property Rights

Our trademarks, certain of which are material to our business, are registered or legally protected in the U.S., Canada and other countries in which we operate. Together with our subsidiaries, we own over 280 trademark registrations in the U.S., and over 980 trademark registrations outside the U.S. We also rely upon trade secrets and know-how to develop and maintain our competitive position. We protect intellectual property rights through a variety of methods, including reliance upon trademark, patent and trade secret laws and confidentiality agreements with many vendors, employees, consultants and others who have access to our proprietary information. The duration of our trademark registrations is generally 10 or 15 years, depending on the country in which a mark is registered, and generally the registrations can be renewed. The scope and duration of intellectual property protection varies by jurisdiction and by individual product.

Access to Public Filings

Our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, and amendments to such reports are available, without charge, on our website, www.sallybeautyholdings.com, as soon as reasonably possible after they are filed electronically with the Securities and Exchange Commission, or SEC, under the Exchange Act. We will provide copies of such reports to any person, without charge, upon written request to our Investor Relations Department at 3001 Colorado Blvd, Denton, TX 76210. The information found on our website shall not be considered to be part of this or any other report filed with or furnished to the SEC.

In addition to our website, you may read and copy public reports we file with or furnish to the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains our reports, proxy and information statements, and other information that we file electronically with the SEC at www.sec.gov.

ITEM 1A. RISK FACTORS

The following describes risks that we believe to be material to our business. If any of the following risks or uncertainties actually occurs, our business, financial condition and operating results could be materially and adversely affected. This report also contains forward-looking statements and the following risks could cause our actual results to differ materially from those anticipated in such forward-looking statements.

Risks Relating to Our Business

The beauty products distribution industry is highly competitive and is consolidating.

The beauty products distribution industry is highly fragmented, and there are few significant barriers to entry into the marketplaces for most of the types of products and services we sell. Sally Beauty Supply competes with other domestic and international beauty product wholesale and retail outlets, including local and regional open line beauty supply stores, professional-only beauty supply stores, salons, mass merchandisers, drug stores and supermarkets. BSG competes with other domestic and international beauty product wholesale and retail suppliers and with manufacturers selling professional beauty products directly to salons and individual salon professionals. We also face competition from authorized and unauthorized retailers as well as e-commerce retailers offering professional salon-only and other products. The availability of diverted professional salon products in unauthorized large format retail stores such as drug stores, grocery stores and others could have a negative impact on our business. The primary competitive factors in the beauty products distribution industry are the price at which we purchase branded and

17

exclusive-label products from manufacturers, the quality, perceived value, consumer brand name recognition, packaging and mix of the products we sell, customer service, the efficiency of our distribution network, and the availability of desirable store locations. Competitive conditions may limit our ability to maintain prices or may require us to reduce prices in efforts to retain business or marketplace share. Some of our competitors have greater financial and other resources than we do and are less leveraged than our business, and may therefore be able to spend more aggressively on advertising and promotional activities and respond more effectively to changing business and economic conditions. We expect existing competitors, business partners and new entrants to the beauty products distribution industry to constantly revise or improve their business models in response to challenges from competing businesses, including ours. If these competitors introduce changes or developments that we cannot address in a timely or cost-effective manner, our business may be adversely affected.

In addition, our industry is consolidating, which may give our competitors increased negotiating leverage with suppliers and greater marketing resources, resulting in a more effective ability to compete with us. For instance, we may lose customers if those competitors which have broad geographic reach attract additional salons (individual and chain) that are currently BSG customers, or if professional beauty supply manufacturers align themselves with our competitors. For example, BSG's largest supplier, L'Oreal, has been able to shift a material amount of revenue out of the BSG nationwide distribution network and into its own competitive regional distribution networks. L'Oreal has also acquired one manufacturer (that does not currently do business with BSG) and distributors which compete directly with BSG in the southeastern U.S., the midwestern U.S. and the west coast of the U.S. As a result, L'Oreal directly competes with BSG and there can be no assurance that there will not be further revenue losses over time at BSG, due to potential losses of additional L'Oreal related products as well as from the increased competition from L'Oreal-affiliated distribution networks. If L'Oreal (or another direct competitor) were to acquire or otherwise merge with another manufacturer which conducts business with BSG, we could lose that revenue as well. Not only does consolidation in distribution pose risks from competing distributors, but it may also place more leverage in the hands of those manufacturers to negotiate smaller margins on products sold through our network.

If we are unable to compete effectively in our marketplace or if competitors divert our customers away from our networks, it would adversely impact our business, financial condition and results of operations.

We may be unable to anticipate changes in consumer preferences and buying trends or manage our product lines and inventory commensurate with consumer demand.

Our success depends in part on our ability to anticipate, gauge and react in a timely manner to changes in consumer spending patterns and preferences for specific beauty products. If we do not timely identify and properly respond to evolving trends and consumer demands in the marketplace for beauty products and changing consumer demands our sales may decline significantly and we may be required to mark down unsold inventory to prices which can be significantly lower than normal prices, which would adversely impact our margins and could adversely impact our business, financial condition and results of operations. In addition, we depend on our inventory management and information technology systems in order to replenish inventories and deliver products to store locations in response to customer demands. Any systems-related problems could result in difficulties satisfying the demands of customers which, in turn, could adversely affect our sales and profitability.

We expect the aging baby boomer population to drive future growth in professional beauty supply sales through an increase in the use of hair color and hair loss products. Additionally, we expect continuously changing fashion-related trends that drive new hair styles to result in continued demand for hair styling products. Changes in consumer tastes and fashion trends can have an impact on our financial performance. If we are unable to anticipate and respond to trends in the marketplace for beauty products and changing consumer demands, our business could suffer.

18

Our comparable store sales and quarterly financial performance may fluctuate for a variety of reasons.

Our comparable store sales and quarterly results of operations have fluctuated in the past, and we expect them to continue to fluctuate in the future. A variety of factors affect our comparable store sales and quarterly financial performance, including:

•

changes in our merchandising strategy or mix;

•

the performance of our new stores;

•

our ability to increase sales and meet forecasted levels of profitability at our existing stores;

•

the effectiveness of our inventory management;

•

the timing and concentration of new store openings, including additional human resource requirements and related pre-opening and other start-up costs;

•

levels of pre-opening expenses associated with new stores;

•

the effect of our integration of acquired businesses and stores over time;

•

the varying cost and profitability of new stores opened in the U.S. and in foreign countries;

•

a portion of a typical new store's sales (or sales we make over the internet channel) coming from customers who previously shopped at other existing stores;

•

expenditures on our distribution system;

•

the timing and effectiveness of our marketing activities, particularly our Sally Beauty Club and ProCard promotions;

•

seasonal fluctuations due to weather conditions;

•

the level of sales made through our internet channels;

•

actions by our existing or new competitors;

•

fluctuations over time in the cost to us of products we sell; and

•

worldwide economic conditions and, in particular, the retail sales environment in the U.S.

Accordingly, our results for any one fiscal quarter are not necessarily indicative of the results to be expected for any other quarter, and comparable store sales for any particular future period may not continue to increase at the same rates as we have recently experienced and may even decrease, which could have a material adverse effect on our business, financial condition and results of operations.

We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us.

We do not manufacture any products we sell, and instead purchase our products from recognized brand manufacturers and private label fillers. We depend on a limited number of manufacturers for a significant percentage of the products we sell. During the fiscal year 2011, our five largest suppliers were Procter & Gamble Co., or P&G, the Professional Products Division of L'Oreal USA S/D, Inc., or L'Oreal, Conair Corporation, John Paul Mitchell Systems and Shiseido Cosmetics (America) Limited and accounted for approximately 42% of our consolidated merchandise purchases. In addition, BSG's largest supplier, L'Oreal, represented approximately 16% of BSG's merchandise purchases during the fiscal year 2011.

Since we purchase products from many manufacturers and fillers under at-will contracts and contracts which can be terminated without cause upon 90 days notice or less, or which expire without express rights of renewal, manufacturers and fillers could discontinue sales to us immediately or upon short notice. Some of our contracts with manufacturers may be terminated if we fail to meet specified minimum purchase

19

requirements. If minimum purchase requirements are not met, we do not have contractual assurances of continued supply. In lieu of termination, a manufacturer may also change the terms upon which it sells, for example, by raising prices or broadening distribution to third parties. Infrequently, a supplier will seek to terminate a distribution relationship through legal action. For these and other reasons, we may not be able to acquire desired merchandise in sufficient quantities or on acceptable terms in the future.

Changes in Sally Beauty Supply's and BSG's relationships with suppliers occur often, and could positively or negatively impact the net sales and operating profits of both business segments. Some of our suppliers may seek to decrease their reliance on distribution intermediaries, including full-service/exclusive and open-line distributors like BSG and Sally Beauty Supply, by promoting their own distribution channels, as discussed above. These suppliers may offer advantages, such as lower prices, when their products are purchased from distribution channels they control. If our access to supplier-provided products were to diminish relative to our competitors or we were not able to purchase products at the same prices as our competitors, our business could be materially and adversely affected. Also, consolidation among suppliers may increase their negotiating leverage, thereby providing them with competitive advantages that may increase our costs and reduce our revenues, adversely affecting our business, financial condition and results of operations.

As discussed above, L'Oreal directly competes with BSG, and there can be no assurance that there will not be revenue losses over time at BSG, due to potential losses of additional L'Oreal related products as well as from the increased competition from L'Oreal-affiliated distribution networks. For example, L'Oreal could attempt to terminate our contracts to carry certain of their products in BSG stores, which accounted for approximately $108.0 million in U.S. sales for the fiscal year 2011 and expire in 2012. Therefore, there can be no assurance that the impact of these developments, if they were to occur, will not adversely impact revenue to a greater degree than we currently expect or that our efforts to mitigate the impact of these developments will be successful. If the impact of these developments is greater than we expect or our efforts to mitigate the impact of these developments are not successful, this could have a material adverse effect on our business, financial condition or results of operations.

Although we plan to mitigate the negative effects resulting from potential unfavorable changes in our relationships with suppliers, such as L'Oreal, there can be no assurance that our efforts will partially or completely offset the loss of these distribution rights.

Any significant interruption in the supply of products by manufacturers and fillers could disrupt our ability to deliver merchandise to our stores and customers in a timely manner, which could have a material adverse effect on our business, financial condition and results of operations.

Manufacturers and exclusive-label fillers of beauty supply products are subject to certain risks that could adversely impact their ability to provide us with their products on a timely basis, including inability to procure ingredients, industrial accidents, environmental events, strikes and other labor disputes, union organizing activity, disruptions in logistics or information systems, loss or impairment of key manufacturing sites, product quality control, safety, and licensing requirements and other regulatory issues, as well as natural disasters and other external factors over which neither they nor we have control. In addition, our operating results depend to some extent on the orderly operation of our receiving and distribution processes, which depend on manufacturers' adherence to shipping schedules and our effective management of our distribution facilities and capacity.

If a material interruption of supply occurs, or a significant manufacturer or filler ceases to supply us or materially decreases its supply to us, we may not be able to acquire products with similar quality and consumer brand name recognition as the products we currently sell or to acquire such products in sufficient quantities to meet our customers' demands or on favorable terms to our business, any of which could adversely impact our business, financial condition and results of operations.

20

If products sold by us are found to be defective in labeling or content, our credibility and that of the brands we sell may be harmed, marketplace acceptance of our products may decrease, and we may be exposed to liability in excess of our products liability insurance coverage and manufacturer indemnities.

We do not control the production process for the products we sell. We may not be able to identify a defect in a product we purchase from a manufacturer or exclusive-label filler before we offer such product for resale. In many cases, we rely on representations of manufacturers and fillers about the products we purchase for resale regarding whether such products have been manufactured in accordance with applicable governmental regulations. Our sale of certain products exposes us to potential product liability claims, recalls or other regulatory or enforcement actions initiated by federal, state or foreign regulatory authorities or through private causes of action. Such claims, recalls or actions could be based on allegations that, among other things, the products sold by us are misbranded, contain contaminants or impermissible ingredients, provide inadequate instructions regarding their use or misuse, or include inadequate warnings concerning flammability or interactions with other substances. Claims against us could also arise as a result of the misuse by purchasers of such products or as a result of their use in a manner different than the intended use. We may be required to pay for losses or injuries actually or allegedly caused by the products we sell and to recall any product we sell that is alleged to be or is found to be defective.

Any actual defects or allegations of defects in products sold by us could result in adverse publicity and harm our credibility or the credibility of the manufacturer, which could adversely affect our business, financial condition and results of operations. Although we may have indemnification rights against the manufacturers of many of the products we distribute and rights as an "additional insured" under the manufacturers' insurance policies, it is not certain that any manufacturer or insurer will be financially solvent and capable of making payment to any party suffering loss or injury caused by products sold by us. Further, some types of actions and penalties, including many actions or penalties imposed by governmental agencies and punitive damages awards, may not be remediable through reliance on indemnity agreements or insurance. Furthermore, potential product liability claims may exceed the amount of indemnity or insurance coverage or be excluded under the terms of an indemnity agreement or insurance policy and claims for indemnity or reimbursement by us may require us to expend significant resources and may take years to resolve. If we are forced to expend significant resources and time to resolve such claims or to pay material amounts to satisfy such claims, it could have an adverse effect on our business, financial condition and results of operations.

We could be adversely affected if we do not comply with laws and regulations or if we become subject to additional or more stringent laws and regulations.

We are subject to a number of federal, state and local laws and regulations in the U.S., as well as applicable laws and regulations in each foreign marketplace in which we do business. These laws and regulations govern the composition, packaging, labeling and safety of the products we sell, as well as the methods we use to sell and import these products. Non-compliance with applicable laws and regulations of governmental authorities, including the FDA and similar authorities in other jurisdictions, by us or the manufacturers and fillers of the products sold by us could result in fines, product recalls and enforcement actions, and otherwise restrict our ability to market certain products, which could adversely affect our business, financial condition and results of operations. The laws and regulations applicable to us or manufacturers of the products sold by us may become more stringent. Continued legal compliance could require the review and possible reformulation or relabeling of certain products, as well as the possible removal of some products from the marketplace. Legal compliance could also lead to considerably higher internal regulatory costs. Manufacturers may try to recover some or all of any increased costs of compliance by increasing the prices at which we purchase products, and we may not be able to recover some or all of such increased cost in our own prices to our customers. We are also subject to state and local laws and regulations that affect our franchisor-franchisee relationships. Increased compliance costs and the loss of sales of certain products due to more stringent or new laws and regulations could adversely affect our business, financial condition and results of operations.

21

Laws and regulations impact our business in many areas that have no direct relation to the products we sell. For example, as a public company, we are subject to a number of laws and regulations related to the disclosure of financial and other information about us, as well as the issuance and sale of our securities. Another area of intense regulation is that of the relationships we have with our employees, including compliance with many different wage and hour and nondiscrimination related regulatory schemes. Violation of any of the laws or regulations governing our business or the assertion of individual or class-wide claims could have an adverse effect on our business, financial condition and results of operations.

Product diversion could have an adverse impact on our revenues.

The majority of the products that BSG sells, including those sold by our Armstrong McCall franchisees, are meant to be used exclusively by salons and individual salon professionals or are meant to be sold exclusively by the purchasers, such as salons, to their retail consumers. However, despite our efforts to prevent diversion, incidents of product diversion occur, whereby our products are sold by these purchasers (and possibly by other bulk purchasers such as franchisees) to wholesalers and ultimately to general merchandise retailers, among others. These retailers, in turn, sell such products to consumers. The diverted product may be old, tainted or damaged and sold through unapproved outlets, all of which could diminish the value of the particular brand. In addition, such diversion may result in lower net sales for BSG should consumers choose to purchase diverted products from retailers rather than purchasing from our customers, or choose other products altogether because of the perceived loss of brand prestige.

In the BSG arena, product diversion is generally prohibited under our manufacturers' contracts, and we are often under a contractual obligation to stop selling to salons, salon professionals and other bulk purchasers which engage in product diversion. If we fail to comply with our anti-diversion obligations under these manufacturers' contracts, (including any known diversion of products sold through our Armstrong McCall franchisees), these contracts could be adversely affected or even terminated. In addition, our investigation and enforcement of our anti-diversion obligations may result in reduced sales to our customer base, thereby decreasing our revenues and profitability.

BSG's financial results are affected by the financial results of BSG's franchised-based business (Armstrong McCall).

BSG receives revenue from products purchased by Armstrong McCall franchisees. Accordingly, a portion of BSG's financial results is to an extent dependent upon the operational and financial success of these franchisees, including their implementation of BSG's strategic plans. If sales trends or economic conditions worsen for Armstrong McCall's franchisees, their financial results may worsen. Additionally, the failure of Armstrong McCall franchisees to renew their franchise agreements, any requirement that Armstrong McCall restructure its franchise agreements in connection with such renewals, or any failure of Armstrong McCall to meet its obligations under its franchise agreements, could result in decreased revenues for BSG or create legal issues with our franchisees or with manufacturers.

Our internet-based business may be unsuccessful or may cause internal channel conflict.

We offer many of our beauty products for sale through our websites in the U.S. (such as www.sallybeauty.com, www.cosmoprofbeauty.com and www.ebobdirect.com) and abroad. Therefore, we encounter risks and difficulties frequently experienced in internet-based businesses, including risks related to our ability to attract and retain customers on a cost-effective basis and our ability to operate, support, expand and develop our internet operations, websites and software and other related operational systems. In addition, our internet-based business may reduce the financial performance of our Sally Beauty Supply and other stores. For example, customers may choose to shop online rather than purchasing products from our Sally Beauty Supply stores. Although we believe that our participation in both e-commerce and physical store sales is a distinct advantage for us due to synergies and the potential for new customers, conflicts between these offerings could create issues that have the potential to adversely affect our results

22

of operations. For example, such conflict could cause some of our current or potential internet customers to consider competing distributors of beauty products. These events could have an adverse effect on our business, financial condition and results of operations.

We may not be able to successfully identify acquisition candidates or successfully complete desirable acquisitions.

In the past several years, we have completed multiple acquisitions and we intend to pursue additional acquisitions in the future. We actively review acquisition prospects which would complement our existing lines of business, increase the size and geographic scope of our operations or otherwise offer growth and operating efficiency opportunities. There can be no assurance that we will continue to identify suitable acquisition candidates.

If suitable candidates are identified, sufficient funds may not be available to make such acquisitions. We compete against many other companies, some of which are larger and have greater financial and other resources than we do. Increased competition for acquisition candidates could result in fewer acquisition opportunities and higher acquisition prices. In addition, we are highly leveraged and the agreements governing our indebtedness contain limits on our ability to incur additional debt to pay for acquisitions. Additionally, the amount of equity that we can issue to make acquisitions or raise additional capital is severely limited. We may be unable to finance acquisitions that would increase our growth or improve our financial and competitive position. To the extent that debt financing is available to finance acquisitions, our net indebtedness could increase as a result of any acquisitions.

If we acquire any businesses in the future, they could prove difficult to integrate, disrupt our business or have an adverse effect on our results of operations.

Any acquisitions that we do make may be difficult to integrate profitably into our business and may entail numerous risks, including:

•

difficulties in assimilating acquired operations, stores or products, including the loss of key employees from acquired businesses;

•

difficulties and costs associated with integrating and evaluating the distribution or information systems and/or internal control systems of acquired businesses;

•

expenses associated with the amortization of identifiable intangible assets;

•

problems retaining key technical, operational and administrative personnel;

•

diversion of management's attention from our core business, including loss of management focus on marketplace developments;

•

complying with foreign regulatory requirements, including multi-jurisdictional competition rules and restrictions on trade/imports;

•

enforcement of intellectual property rights in foreign countries;

•

adverse effects on existing business relationships with suppliers and customers, including the potential loss of suppliers of the acquired businesses;

•

operating inefficiencies and negative impact on profitability;

•

entering geographic areas or channels in which we have limited or no prior experience; and

•

those related to general economic and political conditions, including legal and other barriers to cross-border investment in general, or by U.S. companies in particular.

In addition, during the acquisition process, we may fail or be unable to discover some of the liabilities of businesses that we acquire. These liabilities may result from a prior owner's noncompliance with applicable laws and regulations. Acquired businesses may also not perform as we expect or we may not be able to obtain the expected financial improvements in the acquired businesses.

23

If we are unable to profitably open and operate new stores, our business, financial condition and results of operations may be adversely affected.

Our future growth strategy depends in part on our ability to open and profitably operate new stores in existing and additional geographic areas. The capital requirements to open a U.S.-based Sally Beauty Supply or BSG store, excluding inventory, average approximately $70,000 and $80,000, respectively, with the capital requirements for international stores costing less or substantially more depending upon the marketplace. Despite these relatively low opening costs, we may not be able to open all of the new stores we plan to open and any new stores we open may not be profitable, either of which could have a material adverse impact on our financial condition or results of operations. There are several factors that could affect our ability to open and profitably operate new stores, including:

•

the inability to identify and acquire suitable sites or to negotiate acceptable leases for such sites;

•

proximity to existing stores that may reduce the new store's sales or the sales of existing stores;

•

difficulties in adapting our distribution and other operational and management systems to an expanded network of stores;

•

the potential inability to obtain adequate financing to fund expansion because of our high leverage and limitations on our ability to issue equity under our credit agreements, among other things;

•

increased (and sometimes unanticipated) costs associated with opening stores in international locations;

•

difficulties in obtaining any governmental and third-party consents, permits and licenses;

•

limitations on capital expenditures which may be included in financing documents that we enter into; and

•

difficulties in adapting existing operational and management systems to the requirements of national or regional laws and local ordinances.

In addition, as we continue to open new stores, our management, as well as our financial, distribution and information systems, and other resources will be subject to greater demands. If our personnel and systems are unable to successfully manage this increased burden, our results of operations may be materially affected.

The health of the economy in the channels we serve may affect consumer purchases of discretionary items such as beauty products and salon services, which could have a material adverse effect on our business, financial condition and results of operations.

Our results of operations may be materially affected by conditions in the global capital markets and the economy generally, both in the U.S. and internationally. Concerns over inflation, employment, energy costs, geopolitical issues, terrorism, the availability and cost of credit, the mortgage market, sovereign and private banking systems, sovereign deficits and increasing debt burdens and the real estate and other financial markets in the U.S. and Europe have contributed to increased volatility and diminished expectations for the U.S. and certain foreign economies. We appeal to a wide demographic consumer profile and offer a broad selection of beauty products sold directly to retail consumers and salons and salon professionals. Continued uncertainty in the economy could adversely impact consumer purchases of discretionary items such as beauty products, as well as adversely impact the frequency of salon services performed by professionals using products purchased from us. Factors that could affect consumers' willingness to make such discretionary purchases include: general business conditions, levels of employment, interest rates, tax rates, the availability of consumer credit and consumer confidence in future economic conditions. In the event of a prolonged economic downturn or acute recession, consumer spending habits could be adversely affected and we could experience lower than expected net sales. In addition, a reduction in traffic to, or the closing of, the other destination retailers in the shopping areas where our stores are located could significantly reduce our sales and leave us with unsold inventory. The

24

economic climate could also adversely affect our vendors. The occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations.

We are not certain that our ongoing cost control plans will continue to be successful.

Our business strategy substantially depends on continuing to control or reduce operating expenses. In furtherance of this strategy, we have engaged in ongoing activities to reduce or control costs, some of which are complicated and require us to expend significant resources to implement. We cannot assure you that our efforts will result in the increased profitability, cost savings or other benefits that we expect, which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to protect our intellectual property rights, specifically our trademarks and service marks, our ability to compete could be negatively impacted.

The success of our business depends to a certain extent upon the value associated with our intellectual property rights. We own certain trademark and service mark rights used in connection with our business including, but not limited to, "Sally," "Sally Beauty," "Sally Beauty Supply," "Sally Beauty Club Card," "BSG," "CosmoProf," "Proclub," "Armstrong McCall," "ion," "Beyond the Zone" and "Salon Services." We protect our intellectual property rights through a variety of methods, including, but not limited to, applying for and obtaining trademark protection in the U.S., Canada and other countries throughout the world in which our business operates. We also rely on trade secret laws, in addition to confidentiality agreements with vendors, employees, consultants and others who have access to our proprietary information. While we intend to vigorously protect our trademarks against infringement, we may not be successful. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S. The costs required to protect our intellectual property rights and trademarks are expected to continue to be substantial.

Our ability to conduct business in international marketplaces may be affected by legal, regulatory and economic risks.

Our ability to capitalize on growth in new international marketplaces and to grow or maintain our current level of operations in our existing international marketplaces is subject to risks associated with our international operations. These risks include: unexpected changes in regulatory requirements, trade barriers to some international marketplaces, economic and foreign currency fluctuations, potential difficulties in enforcing contracts, increasing levels of violence or terrorism, an inability to properly protect assets (including intellectual property), an inability to collect receivables, potential tax liabilities associated with repatriating funds from foreign operations and difficulties and costs of staffing, managing and accounting for foreign operations.

We may be adversely affected by any disruption in our information technology systems.

Our operations are dependent upon our information technology systems, which encompass all of our major business functions. We rely upon such information technology systems to manage and replenish inventory, to fill and ship customer orders on a timely basis, to coordinate our sales activities across all of our products and services and to coordinate our administrative activities. A substantial disruption in our information technology systems for any prolonged time period (arising from, for example, system capacity limits from unexpected increases in our volume of business, outages or delays in our service) could result in delays in receiving inventory and supplies or filling customer orders and adversely affect our customer service and relationships. Our systems might be damaged or interrupted by natural or man-made events (caused by us, by our service providers or others) or by computer viruses, physical or electronic break-ins and similar disruptions affecting the internet. Such delays, problems or costs may have a material adverse effect on our business, financial condition and results of operations.

As our operations grow in both size and scope, we continuously need to improve and upgrade our systems and infrastructure while maintaining their reliability and integrity. The expansion of our systems and

25

infrastructure will require us to commit substantial financial, operational and technical resources before the volume of our business increases, with no assurance that the volume of business will increase. For example, we are in the process of designing and implementing a standardized ERP system internationally over the next few years. In addition, we are currently implementing new point-of-sale systems in a number of our divisions, which we anticipate will provide significant benefits, including enhanced tracking of customer sales. These and any other required upgrades to our systems and information technology, or new technology, now and in the future, will require that our management and resources be diverted from our core business to assist in meeting implementation objectives. Many of our systems are proprietary, and as a result our options are limited in seeking third-party help with the operation and upgrade of those systems. There can be no assurance that the time and resources our management will need to devote to operations and upgrades, any delays due to the installation of any upgrade (and customer issues therewith), any resulting service outages, or the impact on the reliability of our data from any upgrade or any legacy system, will not have a material adverse effect on our business, financial condition or results of operations.

The occurrence of natural disasters or acts of violence or terrorism could adversely affect our operations and financial performance.

The occurrence of natural disasters or acts of violence or terrorism could result in physical damage to our properties, the temporary closure of stores or distribution centers, the temporary lack of an adequate work force, the temporary or long-term disruption in the supply of products (or a substantial increase in the cost of those products) from domestic or foreign suppliers, the temporary disruption in the delivery of goods to our distribution centers (or a substantial increase in the cost of those deliveries), the temporary reduction in the availability of products in our stores, and/or the temporary reduction in visits to stores by customers.

If one or more natural disasters or acts of violence or terrorism were to impact our business, we could, among other things, incur significantly higher costs and longer lead times associated with distributing products. Furthermore, insurance costs associated with our business may rise significantly in the event of a large scale natural disaster or act of violence or terrorism.

Our accounting and other management systems, controls and resources may not be adequately prepared to meet the financial reporting and other requirements to which we are subject.

As a publicly-traded company, we are subject to reporting and other obligations under the Exchange Act and other federal securities regulations, such as the Dodd-Frank Wall Street Reform and Consumer Protection Act. These obligations place significant demands on our management, administrative and operational resources, including accounting resources. As a public company, we incur significant legal, accounting and other expenses. We also have significant compliance costs under SEC and New York Stock Exchange rules and regulations.

In addition, as a public company we are subject to rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, which require us to include in our Annual Report on Form 10-K our management's report on, and assessment of, the effectiveness of our internal controls over financial reporting. Furthermore, our independent registered public accounting firm must attest to and report on the effectiveness of such internal controls. If we fail to properly assess and/or achieve and maintain the adequacy of our internal controls, there is a risk that we will not comply with Section 404. Moreover, effective internal controls are necessary to help prevent financial fraud. Any adverse finding could result in a negative reaction in the financial marketplace due to loss of investor confidence in the reliability of our financial statements, which ultimately could harm our business and could negatively impact the market price of our securities.

To comply with these requirements, we are continuously upgrading our systems, including information technology systems, and implementing additional financial and management controls and disclosure processes, reporting systems and procedures. These and any other modifications to our financial and management controls and disclosure processes, reporting systems, information technology systems and procedures under the financial reporting requirements and other rules that apply to us, now and in the

26

future, will require that our management and resources be diverted from our core business to assist in compliance with the requirements. There can be no assurance that the time and resources our management will need to devote to the requirements, any delays due to the installation of any upgrade, any resulting service outages, and any impact on the reliability of our data from an upgrade will not have a material adverse effect on our business, financial condition or results of operations.

We are a holding company with no operations of our own, and we depend on our subsidiaries for cash.

We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. Our operations are conducted almost entirely through our subsidiaries, and our ability to generate cash to meet our obligations or to pay dividends is highly dependent on the earnings of, and receipt of funds from, our subsidiaries through dividends or intercompany loans. The ability of our subsidiaries to generate sufficient cash flow from operations to allow us and them to make scheduled payments on our obligations will depend on their future financial performance, which will be affected by a range of economic, competitive and business factors, many of which are outside of our control. We cannot assure you that the cash flow and earnings of our operating subsidiaries will be adequate for our subsidiaries to service their debt obligations. If our subsidiaries do not generate sufficient cash flow from operations to satisfy corporate obligations, we may have to: undertake alternative financing plans (such as refinancing), restructure debt, sell assets, reduce or delay capital investments, or seek to raise additional capital. We cannot assure you that any such alternative refinancing would be possible, that any assets could be sold, or, if sold, of the timing of the sales and the amount of proceeds realized from those sales, that additional financing could be obtained on acceptable terms, if at all, or that additional financing would be permitted under the terms of our various debt instruments then in effect. Our inability to generate sufficient cash flow to satisfy our obligations, or to refinance our obligations on commercially reasonable terms, would have an adverse effect on our business, financial condition and results of operations.

Furthermore, we and our subsidiaries may incur substantial additional indebtedness in the future that may severely restrict or prohibit our subsidiaries from making distributions, paying dividends or making loans to us.

Risks Relating to Our Substantial Indebtedness

We have substantial debt and may incur substantial additional debt, which could adversely affect our financial health, our ability to obtain financing in the future and our ability to react to changes in our business.

In connection with the Separation Transactions, certain of our subsidiaries, including Sally Holdings LLC, which we refer to as Sally Holdings, incurred approximately $1,850.0 million in debt. As of September 30, 2011, we had an aggregate principal amount of approximately $1,413.1 million, including capital lease obligations, of outstanding debt, and a total debt to equity ratio of -6.45:1.00.

Our substantial debt could have important consequences. For example, it could:

•

make it more difficult for us to satisfy our obligations to our lenders, resulting in possible defaults on and acceleration of such indebtedness;

•

limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, debt service requirements or general corporate purposes;

•

require us to dedicate a substantial portion of our cash flow from operations to the payment of principal and interest on our indebtedness, thereby reducing the availability of such cash flows to fund working capital, capital expenditures and other general corporate purposes;

•

restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us, which could limit our ability to conduct repurchases of our own equity securities or pay dividends to our stockholders, thereby limiting our ability to enhance stockholder value through such transactions;

27

•

increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations (because a portion of our borrowings are at variable rates of interest), including borrowings under our senior secured term loan facilities and our asset-backed senior secured loan facility, which we refer to collectively as the senior secured credit facilities;

•

place us at a competitive disadvantage compared to our competitors with proportionately less debt or comparable debt at more favorable interest rates and that, as a result, may be better positioned to withstand economic downturns;

•

limit our ability to refinance indebtedness or cause the associated costs of such refinancing to increase; and

•

limit our flexibility to adjust to changing market conditions and ability to withstand competitive pressures, or prevent us from carrying out capital spending that is necessary or important to our growth strategy and efforts to improve operating margins or our business.

Any of the foregoing impacts of our substantial indebtedness could have a material adverse effect on our business, financial condition and results of operations.

Despite our current indebtedness levels, we and our subsidiaries may be able to incur substantially more debt, including secured debt, which could further exacerbate the risks associated with our substantial indebtedness.

We and our subsidiaries may incur substantial additional indebtedness in the future. The terms of the instruments governing our indebtedness do not fully prohibit us or our subsidiaries from doing so. As of September 30, 2011, our senior credit facilities provided us commitments for additional borrowings of up to approximately $366.5 million under the asset-backed senior secured loan (or ABL) facility, subject to borrowing base limitations. If new debt is added to our current debt levels, the related risks that we face would increase, and we may not be able to meet all our debt obligations. In addition, the agreements governing our senior credit facilities as well as the indentures governing our senior notes and senior subordinated notes, which we refer to collectively as the Notes, do not prevent us from incurring obligations that do not constitute indebtedness.

The agreements and instruments governing our debt contain restrictions and limitations that could significantly impact our ability to operate our business.

The senior secured term loan facilities, which we refer to as the Term Loans, contain covenants that, among other things, restrict Sally Holdings and its subsidiaries' ability to:

•

dispose of assets;

•

incur additional indebtedness (including guarantees of additional indebtedness);

•

pay dividends, repurchase stock or make other distributions;

•

make voluntary prepayments on the Notes or make amendments to the terms thereof;

•

prepay certain other debt or amend specific debt agreements;

•

create liens on assets;

•

make investments (including joint ventures);

•

make acquisitions of all of the business or assets of, or stock representing beneficial ownership of, any person;

•

engage in mergers, consolidations or sales of all or substantially all of Sally Holdings' assets;

•

engage in certain transactions with affiliates; and

•

permit restrictions on Sally Holdings subsidiaries' ability to pay dividends to Sally Holdings.

28

The ABL credit facility contains covenants that, among other things, restrict Sally Holdings and its subsidiaries' ability to:

•

change their line of business;

•

engage in certain mergers, consolidations and transfers of all or substantially all of their assets;

•

make certain dividends, stock repurchases and other distributions;

•

make acquisitions of all of the business or assets of, or stock representing beneficial ownership of, any person;

•

dispose of certain assets;

•

make voluntary prepayments on the Notes or make amendments to the terms thereof;

•

prepay certain other debt or amend specific debt agreements;

•

change the fiscal year of Sally Holdings or its direct parent; and

•

create or incur negative pledges.

The Term Loans contain a requirement that Sally Holdings not exceed a maximum ratio of net senior secured debt to consolidated EBITDA (as those terms are defined in the relevant credit agreement). In addition, if Sally Holdings fails to maintain a specified minimum level of borrowing capacity under the ABL credit facility, it will then be obligated to maintain a specified fixed-charge coverage ratio. Our ability to comply with these covenants in future periods will depend on our ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond our control. Our ability to comply with these covenants in future periods will also depend substantially on the pricing of our products, our success at implementing cost reduction initiatives and our ability to successfully implement our overall business strategy.

The indentures governing the Notes also contain restrictive covenants that, among other things, limit our ability and the ability of Sally Holdings and its restricted subsidiaries to:

•

dispose of assets;

•

incur additional indebtedness (including guarantees of additional indebtedness);

•

pay dividends, repurchase stock or make other distributions;

•

prepay subordinated debt;

•

create liens on assets (which, in the case of the senior subordinated notes, would be limited in applicability to liens securing pari passu or subordinated indebtedness);

•

make investments (including joint ventures);

•

engage in mergers, consolidations or sales of all or substantially all of Sally Holdings' assets;

•

engage in certain transactions with affiliates; and

•

permit restrictions on Sally Holdings' subsidiaries' ability to pay dividends.

The restrictions in the indentures governing our Notes and the terms of our senior credit facilities may prevent us from taking actions that we believe would be in the best interest of our business and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. We cannot assure you that our subsidiaries, which are borrowers under these agreements, will be granted waivers or amendments to these agreements if they are unable to comply with these agreements, or that we will be able to refinance our debt on terms acceptable to us, or at all.

29

Our ability to comply with the covenants and restrictions contained in the senior credit facilities and the indentures for the Notes may be affected by economic, financial and industry conditions beyond our control. The breach of any of these covenants and restrictions could result in a default under either the senior credit facilities or the indentures that would permit the applicable lenders or note holders, as the case may be, to declare all amounts outstanding thereunder to be due and payable, together with accrued and unpaid interest. If we are unable to repay debt, lenders having secured obligations, such as the lenders under the senior credit facilities, could proceed against the collateral securing the debt. In any such case, our subsidiaries may be unable to borrow under the senior credit facilities and may not be able to repay the amounts due under the Term Loans and the Notes. This could have serious consequences to our financial condition and results of operations and could cause us to become bankrupt or insolvent.

Our ability to generate the significant amount of cash needed to service all of our debt and our ability to refinance all or a portion of our indebtedness or obtain additional financing depends on many factors beyond our control.

Our ability to make scheduled payments on, or to refinance our obligations under, our debt will depend on our financial and operating performance, which, in turn, will be subject to prevailing economic and competitive conditions and to the financial and business factors, many of which may be beyond our control, described under "—Risks Relating to Our Business" above.

If our cash flow and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek to obtain additional equity capital or restructure our debt. In the future, our cash flow and capital resources may not be sufficient for payments of interest on and principal of our debt, and such alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

We cannot assure you that we will be able to refinance any of our indebtedness or obtain additional financing, particularly because of our high levels of debt and the debt incurrence restrictions imposed by the agreements governing our debt, as well as prevailing market conditions. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our senior credit facilities and the indentures governing the Notes restrict our ability to dispose of assets and use the proceeds from any such dispositions. We cannot assure you we will be able to consummate those sales, or if we do, what the timing of the sales will be or whether the proceeds that we realize will be adequate to meet debt service obligations when due.

An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.

A significant portion of our outstanding debt, including under our senior credit facilities, bears interest at variable rates. As a result, an increase in interest rates, whether because of an increase in market interest rates or a decrease in our creditworthiness, would increase the cost of servicing our debt and could materially reduce our profitability and cash flows. The impact of such an increase would be more significant for us than it would be for some other companies because of our substantial debt.

The impairment of other financial institutions could adversely affect us.

We have exposure to different counterparties with regard to our interest rate swaps. These transactions expose us to credit risk in the event of default of our counterparty. We also have exposure to financial institutions used as depositories of our corporate cash balances. If our counterparties and financial institutions become impaired or insolvent, this could have serious consequences to our financial condition and results of operations.

30

Risks Relating to Our Separation from Alberto-Culver and Relating To Our Largest Stockholder

If the share distribution of Alberto-Culver common stock in the transactions separating us from Alberto-Culver did not constitute a tax-free distribution under Section 355 of the Internal Revenue Code of 1986, as amended, or the Code, or if we became liable for additional taxes owed by Alberto-Culver, then we may be responsible for payment of significant U.S. federal income taxes.

The following discussion describes the risk that the share distribution of Alberto-Culver common stock in the Separation Transactions may have triggered significant tax liabilities for us, which could result in a material adverse effect on us. In connection with the share distribution of Alberto-Culver common stock in the separation, we received: (i) a private letter ruling from the Internal Revenue Service, or IRS, and (ii) an opinion of Sidley Austin LLP, counsel to Alberto-Culver, in each case, to the effect that the transactions qualify as a reorganization under Section 368(a)(1)(D) of the Code and a distribution eligible for non-recognition under Sections 355(a) and 361(c) of the Code. The private letter ruling and the opinion of counsel were based, in part, on assumptions and representations as to factual matters made by, among others, Alberto-Culver, us and representatives of Mrs. Carol L. Bernick, Mr. Leonard H. Lavin and certain of our other stockholders whom we refer to as the Lavin family stockholders, as requested by the IRS or counsel, which, if incorrect, could jeopardize the conclusions reached by the IRS and counsel. The private letter ruling also did not address certain material legal issues that could affect its conclusions, and reserved the right of the IRS to raise such issues upon a subsequent audit. Opinions of counsel neither bind the IRS or any court, nor preclude the IRS from adopting a contrary position.

If the Alberto-Culver share distribution were not to qualify as a tax-free distribution under Section 355 of the Code, we would recognize taxable gain equal to the excess of the fair market value of the Alberto-Culver common stock distributed to our stockholders over our tax basis in such Alberto-Culver common stock.

Even if the Alberto-Culver share distribution otherwise qualified as a tax-free distribution under Section 355 of the Code, it would result in significant U.S. federal income tax liabilities to us if there was an acquisition of our stock or the stock of Alberto-Culver as part of a plan or series of related transactions that includes the Alberto-Culver share distribution and that results in an acquisition of 50% or more of Alberto-Culver's or our outstanding common stock.

In the event that we recognize a taxable gain in connection with the Alberto-Culver share distribution (either: (i) because the Alberto-Culver share distribution did not qualify as a tax-free distribution under Section 355 of the Code, or (ii) because of an acquisition by CDR Investors of 50% or more of Alberto-Culver or our outstanding common stock as part of a plan or series of related transactions that includes the Alberto-Culver share distribution), the taxable gain recognized by us would result in significant U.S. federal income tax liabilities to us. Under the Code, we would be jointly and severally liable for these taxes for which Alberto-Culver may be required to indemnify us under the tax allocation agreement, and there can be no assurance that Alberto-Culver would be able to fulfill its obligations under the tax allocation agreement if Alberto-Culver was determined to be responsible for the taxes thereunder.

The process for determining whether a prohibited change in control has occurred under the rules is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. If Alberto-Culver did not carefully monitor its, or we did not carefully monitor our, compliance with these rules, this might inadvertently cause or permit a prohibited change in the ownership of us or of Alberto-Culver to occur, thereby triggering Alberto-Culver's or our respective obligations to indemnify the other pursuant to the tax allocation agreement, which would have a material adverse effect on us.

If any of the above events occur, we will be jointly and severally liable for these taxes, and there can be no assurance that Alberto-Culver would be able to fulfill its indemnification obligations to us under the tax allocation agreement if Alberto-Culver was determined to be responsible for these taxes thereunder. In addition, these mutual indemnity obligations could discourage or prevent a third party from making a proposal to acquire us.

31

Actions taken by the Lavin family stockholders or by the CDR investors could adversely affect the tax-free nature of the share distribution of Alberto-Culver common stock in connection with the transactions separating us from Alberto-Culver.

Sales and/or acquisitions by the Lavin family stockholders of our common stock or Alberto-Culver's common stock may adversely affect the tax-free nature of the share distribution of Alberto-Culver's common stock in the Separation Transactions. First, with certain exceptions, sales by the Lavin family stockholders of our common stock or Alberto-Culver's common stock at any time after the Separation Transactions might be considered evidence that the share distribution was used principally as a device for the distribution of earnings and profits, particularly if the selling stockholder was found to have an intent to effect such sale at the time of the share distribution. If the IRS successfully asserted that the share distribution was used principally as such a device, the share distribution would not qualify as a tax-free distribution, and thus would be taxable to us. Second, with certain exceptions, if any of the Lavin family stockholders had sold an amount of our common stock that it received in connection with the Separation Transactions (or acquired additional shares of our common stock) within the two year period following completion of the Alberto-Culver share distribution, and that amount of stock, if added to the common stock that was acquired by CDR Investors were to equal or exceed 50% of our outstanding common stock, as determined under the Code and applicable Treasury regulations, a deemed acquisition of control of us in connection with the Alberto-Culver share distribution would be presumed. If this presumption were not rebutted, we would be subject to significant U.S. federal income tax liabilities, which, if not reimbursed by Alberto-Culver, would have a material adverse effect on us.

The CDR Investors own a significant percentage of our common stock which may discourage third party acquisitions of us at a premium, and the interests of the CDR Investors may differ from the interests of other holders of our common stock.

The CDR Investors currently own approximately 35.5%, in the aggregate on an undiluted basis, of the outstanding shares of our common stock. Pursuant to the stockholders agreement entered into by us, the CDR Investors and certain other stockholders, which we refer to as the Stockholders Agreement, CDRS currently has the right to designate four of our eleven directors. CDRS' right to nominate a certain number of directors will continue so long as it owns specified percentages of our common stock. So long as the CDR Investors continue to have influence over the election of our directors or directly or indirectly own a significant percentage of the outstanding shares of our common stock, the CDR Investors will continue to be able to strongly influence our decisions. The CDR Investors' ownership of our common stock and their ability to influence our decisions may have the effect of discouraging offers to acquire control of us and may preclude holders of our common stock from receiving any premium above market price for their shares that may otherwise be offered in connection with any attempt to acquire control of us. Furthermore, the interests of the CDR Investors may differ from those of other holders of our common stock in material respects. For example, the CDR Investors may have an interest in pursuing acquisitions, divestitures, financings, re-financings, stockholder dividends or other transactions that, in their judgment, could enhance their overall equity portfolio or the short-term value of their investment in us, even though such transactions might involve substantial risks to other holders of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

32

ITEM 2. PROPERTIES

Substantially all of our store and warehouse locations are leased and our corporate headquarters and five warehouses/distribution centers are owned. The average store lease is for a term of five years with customary renewal options. The following table provides the number of stores in the U.S. and globally, as of September 30, 2011:

			Sally Beauty Supply		Beauty Systems Group
Location			Company-Operated	Franchise	Company-Operated	Franchise
United States (excluding Puerto Rico)			2,509	—	896	126
Puerto Rico			41	—	3	—
International:
	United Kingdom		242	5	—	—
	Belgium		32	6	—	—
	Canada		70	—	96	—
	Chile		28	—	—	—
	France		35	2	—	—
	Germany		30	—	—	—
	Mexico		133	—	—	30
	Other		13	12	—	—
		Total International	583	25	96	30
Total Store Count			3,133	25	995	156

The following table provides locations for our significant offices and warehouses and corporate headquarters, as of September 30, 2011:

Location		Type of Facility	Sq. Feet		Business Segment
Company-Owned Properties:
	Denton, Texas	Corporate Headquarters		N/A	(1)(2)
	Reno, Nevada	Warehouse		253,000	(1)
	Columbus, Ohio	Warehouse		246,000	(1)
	Jacksonville, Florida	Warehouse		237,000	(1)
	Denton, Texas	Office, Warehouse		114,000	(1)(2)
	Marinette, Wisconsin	Office, Warehouse		99,000	(2)
Leased Properties:
	Greenville, Ohio	Office, Warehouse		246,000	(2)
	Fresno, California	Warehouse		200,000	(2)
	Pottsville, Pennsylvania	Office, Warehouse		140,000	(2)
	Clackamas, Oregon	Warehouse		104,000	(2)
	Spartanburg, South Carolina	Warehouse		100,000	(2)
	Thornliebank, Scotland	Office, Warehouse		94,000	(1)
	Ronse, Belgium	Office, Warehouse		91,000	(1)
	Gent, Belgium	Office, Warehouse		83,000	(1)
	Calgary, Alberta, Canada	Warehouse		62,000	(2)
	Mississauga, Ontario, Canada	Office, Warehouse		60,000	(2)
	Lincoln, Nebraska	Warehouse		54,000	(2)
	Guadalupe, Nuevo Leon, Mexico	Warehouse		40,000	(1)(2)

(1)

Sally Beauty Supply

(2)

BSG

33

ITEM 3. LEGAL PROCEEDINGS

There were no material legal proceedings pending against us or our subsidiaries as of September 30, 2011. We are involved in various claims and lawsuits incidental to the conduct of our business in the ordinary course. We carry insurance coverage in such amounts in excess of our self-insured retention as we believe to be reasonable under the circumstances and that may or may not cover any or all of our liabilities in respect of claims and lawsuits. We do not believe that the ultimate resolution of these matters will have a material adverse impact on our consolidated financial position, cash flows or results of operations.

We are subject to a number of U.S., federal, state and local laws and regulations, as well as the laws and regulations applicable in each foreign country or jurisdiction in which we do business. These laws and regulations govern, among other things, the composition, packaging, labeling and safety of the products we sell, the methods we use to sell these products and the methods we use to import these products. We believe that we are in material compliance with such laws and regulations, although no assurance can be provided that this will remain true going forward.

ITEM 4. REMOVED AND RESERVED

34

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is listed on the New York Stock Exchange, Inc., or the NYSE, under the symbol "SBH." Prior to the Separation Transactions, there was no established public trading market for our common stock. The following table sets forth the high and low sales prices of our common stock, as reported by the NYSE, during the fiscal years ended September 30, 2011 and 2010.

Quarter Ended		High		Low
Fiscal Year 2011:
	September 30, 2011	$	18.62	$	14.88
	June 30, 2011	$	17.80	$	13.16
	March 31, 2011	$	15.31	$	12.49
	December 31, 2010	$	15.09	$	10.85
Fiscal Year 2010:
	September 30, 2010	$	11.72	$	7.99
	June 30, 2010	$	10.77	$	7.52
	March 31, 2010	$	9.10	$	7.65
	December 31, 2009	$	7.96	$	6.60

As of November 11, 2011, there were 1,301 stockholders of record of our common stock, and the closing price of our common stock as reported by the NYSE was $20.44.

Dividends

We have not declared or paid dividends at any time during the two fiscal years prior to the date of this Annual Report.

We currently anticipate that we will retain future earnings to support our growth strategy or to repay outstanding debt. We do not anticipate paying regular cash dividends on our common stock in the foreseeable future. Any payment of future cash dividends will be at the discretion of our Board of Directors and will depend upon, among other things, future earnings, operations, capital requirements, our general financial condition, contractual restrictions (including those present in our credit agreements) and general business conditions. We depend on our subsidiaries for cash and unless we receive dividends, distributions, advances, transfers of funds or other cash payments from our subsidiaries, we will be unable to pay any cash dividends on our common stock in the future. However, none of our subsidiaries are obligated to make funds available to us for payment of dividends. Further, the terms of our subsidiaries' debt agreements significantly restrict the ability of our subsidiaries to pay dividends or otherwise transfer assets to us. Finally, we and our subsidiaries may incur substantial additional indebtedness in the future that may severely restrict or prohibit our subsidiaries from making distributions, paying dividends or making loans to us. Please see "Risk Factors—Risks Relating to Our Substantial Indebtedness" and Note 14 of the "Notes to Consolidated Financial Statements" in "Item 8—Financial Statements and Supplementary Data."

35

Performance Graph

The following illustrates the comparative total return among Sally Beauty, the Dow Jones U.S. Specialty Retailers Index and the S&P 500 Index assuming that $100 was invested on November 17, 2006, the date regular-way trading of our common stock commenced and that dividends, if any, were reinvested for the fiscal year included in the data:

The Dow Jones U.S. Specialty Retailers Index (NYSE: DJUSRS) is a comprehensive view of entities which are primarily in the retail sector in the U.S. Sally Beauty is one of the issuers included in this index.

	11/06		3/07		9/07		3/08		9/08		3/09		9/09		3/10		9/10		3/11		9/11
Sally Beauty Holdings, Inc.		100.00		116.92		107.51		87.79		109.41		72.26		90.46		113.49		142.49		178.24		211.20
S&P 500		100.00		103.99		112.77		98.71		87.98		61.11		81.91		91.53		90.23		105.85		91.26
Dow Jones US Specialty Retailers TSM		100.00		102.44		97.61		82.54		75.66		65.48		81.97		94.99		102.72		115.69		106.27

This data assumes that $100 was invested on November 17, 2006 in the Company's common stock and in each of the indexes shown and that all dividends are reinvested. The Company did not declare dividends during the period covered by this table. Stockholder returns shown should not be considered indicative of future stockholder returns.

36

ITEM 6. SELECTED FINANCIAL DATA

Sally Beauty was formed in June of 2006 and became the accounting successor to Sally Holdings, Inc. (which was, until November 2006, a wholly-owned subsidiary of Alberto-Culver) upon completion of the Separation Transactions. On November 17, 2006, the Company commenced regular-way trading on the NYSE as an independent company under the symbol "SBH." The following table presents selected financial data of Sally Beauty for the each of the years in the five-year period ended September 30, 2011 (dollars in thousands, except per share data):

			Fiscal Year Ended September 30,
			2011			2010			2009			2008			2007
Results of operations information:
Net sales			$	3,269,131		$	2,916,090		$	2,636,600		$	2,648,191		$	2,513,772
Cost of products sold and distribution expenses				1,674,526			1,511,716			1,393,283			1,413,597			1,360,025
Gross profit				1,594,605			1,404,374			1,243,317			1,234,594			1,153,747
Selling, general and administrative expenses(a)				1,086,414			1,012,321			899,415			903,146			857,276
Depreciation and amortization				59,722			51,123			47,066			48,533			42,605
Sales-based service fee charged by Alberto-Culver				—			—			—			—			3,779
Transaction expenses(b)				—			—			—			—			21,502
Operating earnings				448,469			340,930			296,836			282,915			228,585
Interest expense(c)				112,530			112,982			132,022			159,116			145,972
Earnings before provision for income taxes				335,939			227,948			164,814			123,799			82,613
Provision for income taxes				122,214			84,120			65,697			46,222			38,121
Net earnings			$	213,725		$	143,828		$	99,117		$	77,577		$	44,492
Earnings per share(d)
	Basic		$	1.17		$	0.79		$	0.55		$	0.43		$	0.25
	Diluted		$	1.14		$	0.78		$	0.54		$	0.42		$	0.24
Weighted average shares, basic				183,020			181,985			181,691			181,189			180,392
Weighted average shares, diluted				188,093			184,088			183,306			182,704			182,375
Operating data:
Number of stores (at end of period):
	Sally Beauty Supply			3,158			3,032			2,923			2,844			2,694
	Beauty Systems Group			1,151			1,027			991			929			874
		Consolidated		4,309			4,059			3,914			3,773			3,568
Professional distributor sales consultants (at end of period)				1,116			1,051			1,022			984			1,002
Same store sales growth(e):
	Sally Beauty Supply			6.3	%		4.1	%		2.1	%		1.2	%		2.7	%
	Beauty Systems Group			5.5	%		6.2	%		1.0	%		6.9	%		10.1	%
		Consolidated		6.1	%		4.6	%		1.8	%		2.6	%		4.5	%
Financial condition information (at end of period):
Working capital			$	419,142		$	387,123		$	341,733		$	367,198		$	354,185
Cash, cash equivalents and short-term investments				63,481			59,494			54,447			99,788			38,272
Property, plant and equipment, net				182,489			168,119			151,252			156,260			154,068
Total assets				1,728,600			1,589,412			1,490,732			1,527,023			1,404,503
Long-term debt, excluding current maturities(c)				1,410,111			1,559,591			1,653,013			1,724,684			1,758,594
Stockholders' deficit			$	(218,982	)	$	(461,272	)	$	(615,451	)	$	(702,960	)	$	(767,710	)

(a)

Selling, general and administrative expenses for the fiscal years 2011, 2010, 2009, 2008 and 2007 include share-based compensation expenses of $15.6 million, $12.8 million, $8.6 million, $10.2 million and $13.1 million, respectively. In the fiscal year 2011, selling, general and administrative expenses reflect a one-time net favorable

37

impact of $21.3 million, including a $27.0 million credit from a litigation settlement and certain non-recurring charges of $5.7 million.

(b)

The fiscal year 2007 includes one-time charges associated with the Separation Transactions. Please see Note 1 of the "Notes to Consolidated Financial Statements" in "Item 8—Financial Statements and Supplementary Data" for additional information about the Separation Transactions.

(c)

Long-term debt primarily represents debt incurred in connection with the Separation Transactions and interest expense is related mainly to such indebtedness.

(d)

Weighted average shares for the fiscal year 2007 were calculated from November 17, 2006 through September 30, 2007, which represents the actual number of days that shares of the Company's common stock were publicly traded.

(e)

Same stores are defined as company-operated stores that have been open for at least 14 months as of the last day of a month. Our same store sales are calculated in constant dollars and include internet-based sales (beginning in fiscal year 2009) and store expansions, if applicable, but do not generally include the sales from stores relocated until at least 14 months after the relocation. The sales from stores acquired are excluded from our same store sales calculation until at least 14 months after the acquisition.

We have not declared or paid dividends at any time during the last two fiscal years prior to the date of this Annual Report. We do not currently anticipate paying regular cash dividends on our common stock. We currently anticipate that we will retain future earnings to support our growth strategy or to repay outstanding debt.

38

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

The following section discusses management's view of the financial condition as of September 30, 2011 and 2010, and the results of operations and cash flows for the fiscal years ended September 30, 2011, 2010 and 2009, of Sally Beauty. This section should be read in conjunction with the audited consolidated financial statements of Sally Beauty and the related notes included elsewhere in this Annual Report. This Management's Discussion and Analysis of Financial Condition and Results of Operations section contains forward-looking statements. Please see "Cautionary Notice Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements that could cause actual results to differ materially from those reflected in such forward-looking statements.

Highlights of the Fiscal Year Ended September 30, 2011:

•

Our consolidated sales from company-operated stores that have been open for at least 14 months as of the last day of a month, which we refer to as same store sales, increased 6.1% for the fiscal year ended September 30, 2011;

•

Our consolidated net sales for the fiscal year ended September 30, 2011 increased by $353.0 million, or 12.1%, to $3,269.1 million compared to the fiscal year ended September 30, 2010. Net sales for the fiscal year ended September 30, 2011 reflect approximately $23.3 million, or 0.8%, in net positive impact from changes in foreign currency exchange rates;

•

Our consolidated gross profit for the fiscal year ended September 30, 2011 increased by $190.2 million, or 13.5%, to $1,594.6 million compared to the fiscal year ended September 30, 2010. As a percentage of net sales, gross profit increased to 48.8% for the fiscal year ended September 30, 2011, compared to 48.2% for the fiscal year ended September 30, 2010;

•

Our consolidated operating earnings for the fiscal year ended September 30, 2011 increased by $107.5 million, or 31.5%, to $448.5 million compared to the fiscal year ended September 30, 2010. As a percentage of net sales, operating earnings increased to 13.7% for the fiscal year ended September 30, 2011, compared to 11.7% for the fiscal year ended September 30, 2010;

•

For the fiscal year ended September 30, 2011, unallocated corporate expenses increased by 3.0% to $81.6 million compared to the fiscal year ended September 30, 2010. As a percentage of net sales, unallocated corporate expenses decreased to 2.5% for the fiscal year ended September 30, 2011, compared to 2.7% for the fiscal year ended September 30, 2010;

•

Sally Beauty Supply and BSG each opened or acquired 127 net new stores during the fiscal year ended September 30, 2011, excluding franchised stores;

•

Cash provided by operations increased by $74.6 million, or 34.3%, to $291.8 million for the fiscal year ended September 30, 2011, compared to $217.2 million for the fiscal year ended September 30, 2010;

•

In October 2010, we acquired Aerial Company, Inc. ("Aerial"), an 82-store professional-only distributor of beauty products operating in 11 states in the midwestern United States, for approximately $81.8 million; and

•

During fiscal year ended September 30, 2011, we made optional prepayments on our senior term loan B facility in the aggregate amount of $147.0 million.

39

Overview

Description of Business

We operate primarily through two business units, Sally Beauty Supply and Beauty Systems Group, or BSG. Through Sally Beauty Supply and BSG, we operated a multi-channel platform of 4,128 company-operated stores and supplied 181 franchised stores, primarily in North America, South America and selected European countries, as of September 30, 2011. We are the largest distributor of professional beauty supplies in the U.S. based on store count. Within BSG, we also have one of the largest networks of professional distributor sales consultants in North America. We provide our customers with a wide variety of leading third-party branded and exclusive-label professional beauty supplies, including hair color products, hair care products, styling appliances, skin and nail care products and other beauty items. Sally Beauty Supply stores target retail consumers and salon professionals, while BSG exclusively targets salons and salon professionals. For the year ended September 30, 2011, our consolidated net sales and operating earnings were $3,269.1 million and $448.5 million, respectively.

We believe Sally Beauty Supply is the largest open-line distributor of professional beauty supplies in the U.S. based on store count. As of September 30, 2011, Sally Beauty Supply operated 3,133 company-operated retail stores, 2,509 of which are located in the U.S., with the remaining 624 company-operated stores located in Puerto Rico, Canada, Mexico, Chile, the United Kingdom, Ireland, Belgium, France, Germany and Spain. Sally Beauty Supply also supplied 25 franchised stores located outside the U.S. In the U.S. and Canada, our Sally Beauty Supply stores average approximately 1,700 square feet in size and are located primarily in strip shopping centers. Our Sally Beauty Supply stores carry an extensive selection of professional beauty supplies for both retail customers and salon professionals, with between 5,000 and 8,000 SKUs of beauty products across product categories including hair color, hair care, skin and nail care, beauty sundries and electrical appliances. Sally Beauty Supply stores carry leading third-party brands such as Clairol®, Revlon® and Conair®, as well as an extensive selection of exclusive-label merchandise. Store formats, including average size and product selection, for Sally Beauty Supply outside the U.S. and Canada vary by marketplace. For the year ended September 30, 2011, Sally Beauty Supply's net sales and segment operating profit were $2,012.4 million and $381.0 million, respectively, representing 62% and 70% of our consolidated net sales and consolidated operating profit before unallocated corporate expenses, respectively.

We believe BSG is the largest full-service distributor of professional beauty supplies in North America, exclusively targeting salons and salon professionals. As of September 30, 2011, BSG had 995 company-operated stores, supplied 156 franchised stores and had a sales force of approximately 1,116 professional distributor sales consultants selling exclusively to salons and salon professionals in all states in the U.S., in portions of Canada, and in Puerto Rico, Mexico and certain European countries. Company-operated BSG stores, which primarily operate under the CosmoProf banner, average approximately 2,700 square feet in size and are primarily located in secondary strip shopping centers. BSG stores provide a comprehensive selection of between 5,000 and 10,000 beauty product SKUs that include hair color and care, skin and nail care, beauty sundries and electrical appliances. Through BSG's large store base and sales force, BSG is able to access a significant portion of the highly fragmented U.S. salon channel. BSG stores carry leading third-party brands such as Paul Mitchell®, Wella®, Sebastian®, Goldwell®, Joico® and TIGI®, intended for use in salons and for resale by the salons to consumers. Certain BSG products are sold under exclusive distribution agreements with suppliers, whereby BSG is designated as the sole distributor for a product line within certain geographic territories. For the year ended September 30, 2011, BSG's net sales and segment operating profit were $1,256.7 million and $164.7 million, respectively, representing 38% and 30% of our consolidated net sales and consolidated operating profit before unallocated corporate expenses, respectively.

40

Industry and Business Trends

We operate primarily within the large and growing U.S. professional beauty supply industry. Potential growth in the industry is expected to be driven by increases in consumer demand for hair color, hair loss prevention and hair styling products. We believe the following key industry and business trends and characteristics will influence our business and our financial results going forward:

•

High level of marketplace fragmentation.  The U.S. salon channel is highly fragmented with nearly 250,000 salons and barbershops. Given the fragmented and small-scale nature of the salon industry, we believe that salon operators will continue to depend on full-service/exclusive distributors and open-line channels for a majority of their beauty supply purchases.

•

Growth in booth renting and frequent stocking needs.  Salon professionals primarily rely on just-in-time inventory due to capital constraints and a lack of warehouse and shelf space at salons. In addition, booth renters, who comprise a significant percentage of total U.S. salon professionals, are often responsible for purchasing their own supplies. Historically, booth renters have significantly increased as a percentage of total salon professionals, and we expect this trend to continue. Given their smaller individual purchases and relative lack of financial resources, booth renters are likely to be dependent on frequent trips to professional beauty supply stores, like BSG and Sally Beauty Supply. We expect that these factors will continue to drive demand for conveniently located professional beauty supply stores.

•

Increasing use of exclusive-label products.  We offer a broad range of exclusive-label products. As our lines of exclusive-label products have matured and become better known in our retail stores, we have seen an increase in sales of these products. Generally, our exclusive-label products have higher gross margins for us than the leading third-party branded products and, accordingly, we believe that the growth in sales of these products will likely enhance our overall gross margins. Please see "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

•

Favorable demographic and consumer trends.  We expect the aging baby-boomer population to drive future growth in professional beauty supply sales through an increase in the usage of hair color and hair loss products. Additionally, continuously changing fashion-related trends that drive new hair styles are expected to result in continued demand for hair styling products. Changes in consumer tastes and fashion trends can have an impact on our financial performance. Our continued success depends largely on our ability to anticipate, gauge and react in a timely and effective manner to changes in consumer spending patterns and preferences for beauty products. We continuously adapt our marketing and merchandising initiatives in an effort to expand our market reach or to respond to changing consumer preferences. If we are unable to anticipate and respond to trends in the marketplace for beauty products and changing consumer demands, our business could suffer. Please see "Risk Factors—We may be unable to anticipate changes in consumer preferences and buying trends or manage our product lines and inventory commensurate with consumer demand."

•

International growth strategies.  A key element of our growth strategy depends on our ability to capitalize on growth opportunities in the international marketplace and to grow our current level of non-U.S. operations. For example, in December 2009, we acquired Sinelco, a wholesale distributor of professional beauty products located in Belgium with sales throughout Europe and, in September 2009, we acquired Intersalon, a distributor of premier beauty supply products then with 16 stores located in Chile. These acquisitions furthered our expansion plans in Europe and Latin America, key targets of the Company's international growth initiative. We intend to continue to identify and evaluate non-U.S. acquisition and/or organic international growth targets. Our ability to grow our non-U.S. operations, integrate our new non-U.S. acquisitions and successfully pursue additional non-U.S. acquisition and/or organic international growth targets may be affected by business, legal, regulatory and economic risks. Please see "Risk Factors—We may not be able to successfully

41

identify acquisition candidates or successfully complete desirable acquisitions," "If we acquire any businesses in the future, they could prove difficult to integrate, disrupt our business or have an adverse effect on our results of operations" and "Our ability to conduct business in international marketplaces may be affected by legal, regulatory and economic risks."

•

Continuing consolidation.  There is continuing consolidation among professional beauty product distributors and professional beauty product manufacturers. We plan to continue to examine ways in which we can benefit from this trend, including the evaluation of opportunities to shift business from competitive distributors to the BSG network as well as seeking opportunistic, value-added acquisitions which complement our long-term growth strategy. We believe that suppliers are increasingly likely to focus on larger distributors and retailers with a broader scale and retail footprint. We also believe that we are well positioned to capitalize on this trend as well as participate in the ongoing consolidation at the distributor/retail level. However, changes often occur in our relationships with suppliers that may materially affect the net sales and operating earnings of our business segments. Consolidation among suppliers could exacerbate the effects of these relationship changes and could increase pricing pressures. For example, as we announced in the fiscal year 2007, one of our largest suppliers, L'Oreal, moved a material amount of revenue out of our BSG distribution network and into regional distribution networks that compete with BSG. More recently, L'Oreal acquired distributors that compete with BSG in the Midwest, Southeast and West Coast regions of the U.S. and, as a result, L'Oreal directly competes with BSG in certain geographic areas. If L'Oreal acquired other distributors or suppliers that conduct significant business with BSG, we could lose related revenue. There can be no assurance that BSG will not lose further revenue over time (including within its franchise-based business) due to potential losses of additional products (both from L'Oreal and from other suppliers) as well as from the increased competition from L'Oreal-affiliated distribution networks. Please see "Risk Factors—The beauty products distribution industry is highly competitive and is consolidating" and "We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

•

Relationships with suppliers.  Sally Beauty Supply/BSG and their respective suppliers are dependent on each other for the distribution of beauty products. We do not manufacture the brand name or exclusive-label products we sell. We purchase our products from a limited number of manufacturers. As is typical in distribution businesses (particularly in our industry), these relationships are subject to change from time to time (including the expansion or loss of distribution rights in various geographies and the addition or loss of product lines). Since we purchase products from many manufacturers on an at-will basis, under contracts which can generally be terminated without cause upon 90 days' notice or less or which expire without express rights of renewal, such manufacturers could discontinue sales to us at any time or upon the expiration of the distribution period. Some of our contracts with manufacturers may be terminated by such manufacturers if we fail to meet specified minimum purchase requirements. In such cases, we do not have contractual assurances of continued supply, pricing or access to new products and vendors may change the terms upon which they sell. Infrequently, a supplier will seek to terminate a distribution relationship through legal action. For example, in 2007 Farouk Systems, Inc. filed an action seeking a declaratory judgment that it was entitled to terminate a long-term distribution agreement with Armstrong McCall. In 2010 that matter was settled and BSG now sells Farouk products in many territories. Changes in our relationships with suppliers occur often and could positively or negatively impact our net sales and operating profits. Although we focus on developing new revenue and cost management initiatives to mitigate the negative effects resulting from unfavorable changes in our supplier relationships, there can be no assurance that our efforts will continue to completely offset the loss of these or other distribution rights. Please see "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

42

We expect to continue to expand our product line offerings and to gain additional distribution rights over time through either further negotiation with suppliers or by acquisitions of existing distributors. Although we are focused on developing new revenue and cost management initiatives, there can be no assurance that our efforts will partially or completely offset any potential loss of distribution rights in the future. Please see "Risk Factors—We depend upon manufacturers who may be unable to provide products of adequate quality or who may be unwilling to continue to supply products to us."

•

High level of competition.  Sally Beauty Supply competes with other domestic and international beauty product wholesale and retail outlets, including local and regional open-line beauty supply stores, professional-only beauty supply stores, salons, mass merchandisers, drug stores and supermarkets, as well as sellers on the internet and salons retailing hair care items. BSG competes with other domestic and international beauty product wholesale and retail suppliers and manufacturers selling professional beauty products directly to salons and individual salon professionals. We also face competition from authorized and unauthorized retailers and internet sites offering professional salon-only products. The increasing availability of unauthorized professional salon products in large format retail stores such as drug stores, grocery stores and others could also have a negative impact on our business. Please see "Risk Factors—The beauty products distribution industry is highly competitive and is consolidating."

•

Economic conditions.  We appeal to a wide demographic consumer profile and offer a broad selection of professional beauty products sold directly to retail consumers, and salons and salon professionals. Historically, these factors have provided us with reduced exposure to downturns in economic conditions in the countries in which we operate. However, a downturn in the economy, especially for an extended period of time, could adversely impact consumer demand of discretionary items such as beauty products and salon services, particularly affecting our electrical products category and our full-service sales business. In addition, higher freight costs resulting from increases in the cost of fuel, especially for an extended period of time, may impact our expenses at levels that we cannot pass through to our customers. These factors could have a material adverse effect on our business, financial condition and results of operations. Please see "Risk Factors—The health of the economy in the channels we serve may affect consumer purchases of discretionary items such as beauty products and salon services, which could have a material adverse effect on our business, financial condition and results of operations."

•

Controlling expenses.  Another important aspect of our business is our ability to control costs, especially in our BSG business segment, by right-sizing the business and maximizing the efficiency of our business structure. For example, we recently completed implementation of a $22.0 million capital spending program to consolidate warehouses and reduce administrative expenses related to BSG's distribution network which has resulted in annualized cost savings of at least $14.0 million beginning in the fiscal year 2010. Please see "Risk Factors—We are not certain that our ongoing cost control plans will continue to be successful."

•

Opening new stores.  Our future growth strategy depends in part on our ability to open and profitably operate new stores in existing and additional geographic areas. The capital requirements to open a U.S.-based Sally Beauty Supply or BSG store, excluding inventory, average approximately $70,000 and $80,000, respectively, with the capital requirements for international stores costing less or substantially more depending upon the marketplace. We may not be able to open all of the new stores we plan to open and any new stores we open may not be profitable, any of which could have a material adverse impact on our business, financial condition or results of operations. Please see "Risk Factors—If we are unable to profitably open and operate new stores, our business, financial condition and results of operations may be adversely affected."

•

Changes to our information technology systems.  As our operations grow in both size and scope, we will continuously need to improve and upgrade our information systems and infrastructure while

43

maintaining the reliability and integrity of our systems and infrastructure. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources in advance of any increase in the volume of our business, with no assurance that the volume of business will increase. For example, we are in the process of designing and implementing a standardized enterprise resource planning ("ERP") system internationally, which we anticipate will be completed over the next few years. In addition, we are currently implementing a point-of-sale system upgrade program in a number of our divisions (primarily in our Sally Beauty Supply operations in the U.S.), which we anticipate will provide significant benefits, including enhanced tracking of customer sales and store inventory activity. These and any other required upgrades to our information systems and information technology (or new technology), now or in the future, will require that our management and resources be diverted from our core business to assist in completion of these projects. Many of our systems are proprietary, and as a result our options are limited in seeking third-party help with the operation and upgrade of those systems. There can be no assurance that the time and resources our management will need to devote to these upgrades, service outages or delays due to the installation of any new or upgraded technology (and customer issues therewith), or the impact on the reliability of our data from any new or upgraded technology will not have a material adverse effect on our financial reporting, business, financial condition or results of operations. Please see "Risk Factors—We may be adversely affected by any disruption in our information technology systems."

Significant Recent Acquisitions

On November 1, 2011, the Company acquired Kappersservice Floral B.V. and two related companies (the "Floral Group") for approximately €22.5 million (approximately $30.8 million), subject to certain adjustments. The Floral Group is a 19-store distributor of professional beauty products based in Eindhoven, the Netherlands. The acquisition will be accounted for using the purchase method of accounting and, accordingly, the results of operations of the Floral Group will be included in the Company's consolidated financial statements subsequent to the acquisition date. The acquisition was funded with cash from operations and with borrowings on our ABL credit facility in the amount of approximately $17.0 million.

On October 1, 2010, we acquired Aerial, an 82-store professional-only distributor of beauty products operating in 11 states in the midwestern United States, for approximately $81.8 million. The acquisition was accounted for using the purchase method of accounting and the results of operations of Aerial are included in our consolidated financial statements subsequent to the acquisition date. The assets acquired and liabilities assumed, including intangible assets subject to amortization of $34.7 million, were recorded at their respective fair values at the acquisition date and goodwill of $25.3 million (which is expected to be deductible for tax purposes) was recorded as a result of this acquisition. The acquisition of Aerial was funded with borrowings in the amount of $78.0 million under the prior ABL credit facility (which have since been paid in full) and with cash from operations. In addition, during the fiscal year 2011, we completed several other individually immaterial acquisitions at an aggregate cost of approximately $5.0 million and recorded additional goodwill in the amount of $4.3 million (the majority of which is expected to be deductible for tax purposes) in connection with such acquisitions. Generally, we funded these acquisitions with cash from operations. The valuation of the assets acquired and liabilities assumed in connection with these acquisitions was based on their fair values at the acquisition date.

During the fiscal year 2010, we acquired Sinelco, a wholesale distributor of professional beauty products based in Ronse, Belgium, for approximately €25.2 million (approximately $36.6 million). We also assumed €4.0 million (approximately $5.8 million) of pre-acquisition debt, excluding capital lease obligations, of Sinelco in connection with the acquisition. Sinelco serves over 1,500 customers through a product catalog and website and has sales throughout Europe. Goodwill of $5.2 million (which is not expected to be deductible for tax purposes) was recorded as a result of this acquisition. In addition, during the fiscal year

44

2010, we completed several other individually immaterial acquisitions at an aggregate cost of $9.0 million and recorded additional goodwill in the amount of $5.4 million (the majority of which is not expected to be deductible for tax purposes) in connection with such acquisitions. The valuation of the assets acquired and liabilities assumed in connection with all the acquisitions completed during the fiscal year 2010 was based on their fair values at the acquisition date. We funded these acquisitions generally with cash from operations as well as borrowings under our ABL credit facility.

The purchase prices of certain acquisitions completed during the fiscal year 2009 (including the acquisition of Schoeneman on September 30, 2009) were initially allocated to assets acquired and liabilities assumed based on their preliminary estimated fair values at the date of acquisition. The final valuations of the assets acquired and liabilities assumed were completed during the fiscal year 2010. Accordingly, in the fiscal year 2010, we recorded intangible assets subject to amortization of $24.9 million and intangible assets with indefinite lives of $0.8 million in connection with certain of the acquisitions completed during the fiscal year 2009. These amounts were previously reported in Goodwill pending the valuation of the assets acquired.

During the fiscal year 2009, we acquired Schoeneman, a 43-store beauty supply chain located in the central northeastern United States, at a cost of approximately $71.0 million, subject to certain adjustments. We currently expect to realize approximately $10 million in present value of future tax savings as a result of anticipated incremental depreciation and amortization tax deductions relating to the assets acquired in this transaction. In the fiscal year 2009, goodwill of approximately $61.0 million (which is expected to be deductible for tax purposes) was initially recorded as a result of this acquisition. In addition, during the fiscal year 2009, we completed several other individually immaterial acquisitions at an aggregate cost of $11.3 million of which a significant portion was allocated to goodwill (the majority of which is expected to be deductible for tax purposes). Generally, we funded these acquisitions with cash from operations.

Our Separation from Alberto-Culver

Prior to 2006, Sally Holdings, Inc. was a wholly-owned subsidiary of Alberto-Culver. In November 2006, Sally Holdings, Inc. was converted to a Delaware limited liability company, was renamed "Sally Holdings LLC," which we refer to as Sally Holdings, and became an indirect wholly-owned subsidiary of Sally Beauty in connection with our separation from Alberto-Culver. We refer to our separation from Alberto-Culver as the Separation Transactions. Sally Beauty is a Delaware corporation formed in June 2006 and became the accounting successor company to Sally Holdings, Inc. upon the completion of the Separation Transactions. Sally Beauty is a holding company and does not have any material assets or operations other than its ownership of equity interests of its subsidiaries.

In connection with the Separation Transactions, the CDR Investors invested an aggregate of $575.0 million in Sally Beauty. Currently, the CDR Investors own an aggregate equity interest representing approximately 35.5% of the outstanding common stock of the Company on an undiluted basis. Also in connection with the Separation Transactions, the Company, through subsidiaries Sally Investment Holdings LLC ("Sally Investment") and Sally Holdings incurred approximately $1,850.0 million of indebtedness. Please see Note 14 of the "Notes to Consolidated Financial Statements" in "Item 8—Financial Statements and Supplementary Data" contained elsewhere in this Annual Report.

Credit Facilities

Borrowings under the term loan facilities and the ABL credit facility are secured by substantially all of our assets, those of Sally Investment, those of our domestic subsidiaries and, in the case of the ABL credit facility, those of our Canadian subsidiaries and a pledge of certain intercompany notes. Borrowings under the term loan A facility were paid in full in the fiscal year 2010. Borrowings under the term loan B facility may be prepaid at our option at any time without premium or penalty and are subject to mandatory repayment in an amount equal to 50% of excess cash flow (as defined in the agreement governing the term

45

loan facilities) for any fiscal year unless a specified leverage ratio is met. Amounts paid pursuant to said provision may be applied, at the option of the Company, against minimum loan repayments otherwise required of us over the twelve-month period following any such payment under the terms of the loan agreement. Additionally, borrowings under the term loan facility are subject to mandatory repayment in an amount equal to 100% of the proceeds of specified asset sales that are not reinvested in the business or applied to repay borrowings under the ABL credit facility. No mandatory repayments of any kind were made or required to be made in the fiscal year 2011. Please see "Liquidity and Capital Resources" for additional information about our borrowings under the term loan facilities and optional prepayments thereof.

Our Notes are unsecured obligations of Sally Holdings and its co-issuer and are guaranteed on a senior basis (in the case of the senior notes) and on a senior subordinated basis (in the case of the senior subordinated notes) by each material domestic subsidiary of Sally Holdings (other than the co-issuer). Interest on the Notes is payable semi-annually. The senior notes carry optional redemption features whereby the Company has the option to redeem the notes prior to maturity after November 2010 at par plus a premium declining ratably to par, plus accrued and unpaid interest. The senior subordinated notes carry optional redemption features whereby the Company, at September 30, 2011, has the option to redeem the notes before November 15, 2011 at par plus a premium, plus accrued and unpaid interest; and on or after November 15, 2011 at par plus a premium declining ratably to par, plus accrued and unpaid interest. Please see Note 21 of the "Notes to Consolidated Financial Statements" in Item 8—"Financial Statements and Supplementary Data" contained elsewhere in this Annual Report.

Details of long-term debt (excluding capitalized leases) as of September 30, 2011 are as follows (dollars in thousands):

		Amount		Maturity Dates		Interest Rates
ABL facility		$	—		Nov. 2015	(i) Prime plus (1.25% to 1.75%) or;
						(ii) LIBOR(a) plus (2.25% to 2.75%)
Term loan B			696,856		Nov. 2013	(i) Prime plus (1.25% to 1.50%) or;
						(ii) LIBOR plus (2.25% to 2.50%)(b)
Other(c)			4,774		2012-2015	4.05% to 7.00%
	Total	$	701,630
Senior notes		$	430,000		Nov. 2014	9.25%
Senior subordinated notes			275,000		Nov. 2016	10.50%
	Total	$	705,000

(a)

London Interbank Offered Rate ("LIBOR").

(b)

At September 30, 2011, the contractual interest rate for the term loan B was 2.49%. The interest rate on $300.0 million of this loan is fixed by interest rate swaps which expire in May 2012.

(c)

Represents pre-acquisition debt of Pro-Duo NV and Sinelco.

Other Significant Items

   Derivative Instruments

As a multinational corporation, we are subject to certain market risks including changes in market interest rates and foreign currency fluctuations. We may consider a variety of practices in the ordinary course of

46

business to manage these market risks, including, when deemed appropriate, the use of derivative instruments such as interest rate swaps and foreign currency options, collars and forwards.

   Interest Rate Swap Agreements

The Company is exposed to a wide variety of economic risks, including risks arising from changing market interest rates. The Company manages its exposure to certain economic risks (including liquidity, credit risk and changes in interest rates) primarily (a) by closely managing its cash flows from operating and investing activities and the amounts and sources of its debt obligations; (b) by assessing periodically the creditworthiness of its business partners; and (c) through the use of interest rate swaps by Sally Holdings. The Company uses interest rate swaps, as part of its overall economic risk management strategy, to add stability to the interest payments due in connection with its senior term loan obligations. Interest payments related to our senior term loans are impacted by changes in LIBOR. The Company's interest rate swap agreements involve the periodic receipt by Sally Holdings of amounts based on a variable rate in exchange for Sally Holdings making payments based on a fixed rate over the term of the interest rate swap agreements, without exchange of the underlying notional amount.

In November 2006, Sally Holdings entered into certain interest rate swap agreements with an aggregate notional amount of $500 million. These interest rate swap agreements expired on or before November 2009 and were not designated as effective hedges. Accordingly, the changes in fair value of these interest rate swap agreements (which were adjusted quarterly) were recorded in interest expense in our consolidated statements of earnings.

Additionally, in May 2008, Sally Holdings entered into certain interest rate swap agreements with an aggregate notional amount of $300 million. These agreements expire in May 2012 and are designated and qualify as effective cash flow hedges. Accordingly, changes in the fair value of these derivative instruments (which are adjusted quarterly) are recorded, net of income tax, in accumulated other comprehensive (loss) income until the hedged obligation is settled or the swap agreements expire, whichever is earlier. Any hedge ineffectiveness is recognized in interest expense in the Company's consolidated statements of earnings. Please see "Item 7A—Quantitative and Qualitative Disclosures about Market Risk—Interest rate risk" and Note 16 of the "Notes to Consolidated Financial Statements" in Item 8—"Financial Statements and Supplementary Data" contained elsewhere in this Annual Report.

   Foreign Currency Option, Collar and Forward Contracts

The Company is exposed to potential gains or losses from foreign currency fluctuations affecting its net investments in subsidiaries (including intercompany notes not permanently invested) and earnings denominated in foreign currencies. The Company's primary exposures are to changes in the exchange rates for the U.S. dollar versus the Euro, the British pound sterling, the Canadian dollar, the Chilean peso, and the Mexican peso. The Company's foreign currency exposures at times offset each other, providing a natural hedge against its foreign currency risk. In connection with the remaining foreign currency risk, the Company from time to time uses foreign currency options, collars and forwards to effectively fix the foreign currency exchange rate applicable to specific anticipated foreign currency-denominated cash flows, thus limiting the potential fluctuations in such cash flows resulting from foreign currency market movements.

The Company uses foreign currency options and collars, including, at September 30, 2011, collars with an aggregate notional amount of $12.5 million to manage the exposure to the U.S. dollar resulting from our Sinelco Group subsidiaries' purchases of merchandise from third-party suppliers. Sinelco's functional currency is the Euro. The foreign currency collar agreements held by the Company at September 30, 2011 have contractual Euro to U.S. dollar exchange rates between 1.4000 and 1.4612 and expire in varying amounts monthly through September 2012. In addition, the Company uses foreign currency forwards to mitigate its exposure to changes in foreign currency exchange rates in connection with certain

47

intercompany balances not permanently invested. At September 30, 2011, we held a foreign currency forward which enabled us to sell approximately €19.9 million ($26.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.3610, a foreign currency forward which enabled us to buy approximately $18.3 million Canadian dollars ($17.5 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.01855, and a foreign currency forward which enabled us to buy approximately £5.6 million ($8.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.5630. All the foreign currency forwards held by the Company at September 30, 2011 expired in October 2011.

The Company's foreign currency option, collar and forward agreements are not designated as hedges and do not currently meet the requirements for hedge accounting. Accordingly, the changes in the fair value (i.e., marked-to-market adjustments) of these derivative instruments (which are adjusted quarterly) are recorded in selling, general and administrative expenses in our consolidated statements of earnings. During the fiscal year ended September 30, 2011, selling general and administrative expenses included $0.2 million in net gains from all of the Company's foreign currency option, collar and forward agreements. Please see "Item 7A—Quantitative and Qualitative Disclosures about Market Risk—Foreign currency exchange rate risk" and Note 16 of the "Notes to Consolidated Financial Statements" in Item 8—"Financial Statements and Supplementary Data" contained elsewhere in this Annual Report.

   Share-Based Compensation Plans

For the fiscal years 2011, 2010 and 2009, total share-based compensation cost charged against earnings was $15.6 million, $12.8 million and $8.6 million, respectively, and resulted in an increase in additional paid-in capital by the same amounts. Share-based compensation for the fiscal years 2011, 2010 and 2009 included $5.0 million, $2.5 million and $2.0 million, respectively, of accelerated expense related to certain retirement eligible employees who are eligible to continue vesting awards upon retirement under the terms of the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan (the "2010 Plan") and certain predecessor plans, such as the Sally Beauty Holdings 2007 Omnibus Incentive Plan. For the fiscal years 2011, 2010 and 2009, the total income tax benefit recognized in the consolidated statements of earnings from all share-based compensation plans in which our employees participate or participated was $6.0 million, $5.0 million and $3.0 million, respectively, and resulted in the recognition of deferred tax assets by the same amount. Our consolidated statements of cash flows reflect, for the fiscal years 2011 and 2010, excess tax benefits of $3.7 million and $0.2 million, respectively, and, for the fiscal year 2009, an excess tax shortfall of $0.2 million, from employee exercises of stock options as financing cash flows. As of September 30, 2011, we had $11.3 million of unrecognized compensation expense related to non-vested stock option awards that is expected to be charged to expense over the weighted average period of 2.6 years, and $2.3 million of unrecognized compensation expense related to non-vested restricted stock awards that is expected to be charged to expense over the weighted average period of 3.1 years.

48

Results of Operations

The following table shows the condensed results of operations of our business for the fiscal years ended September 30, 2011, 2010 and 2009 (in millions):

		Fiscal Year Ended September 30,
		2011		2010		2009
Net sales		$	3,269.1	$	2,916.1	$	2,636.6
Cost of products sold and distribution expenses			1,674.5		1,511.7		1,393.3
	Gross profit		1,594.6		1,404.4		1,243.3
Total other operating costs and expenses			1,146.1		1,063.5		946.5
	Operating earnings		448.5		340.9		296.8
Interest expense			112.6		113.0		132.0
	Earnings before provision for income taxes		335.9		227.9		164.8
Provision for income taxes			122.2		84.1		65.7
	Net earnings	$	213.7	$	143.8	$	99.1

The following table shows the condensed results of operations of our business for the fiscal years ended September 30, 2011, 2010 and 2009, expressed as a percentage of net sales for the respective periods:

		Fiscal Year Ended September 30,
		2011			2010			2009
Net sales			100.0	%		100.0	%		100.0	%
Cost of products sold and distribution expenses			51.2	%		51.8	%		52.8	%
	Gross profit		48.8	%		48.2	%		47.2	%
Total other costs and expenses			35.1	%		36.5	%		35.9	%
	Operating earnings		13.7	%		11.7	%		11.3	%
Interest expense			3.4	%		3.9	%		5.0	%
	Earnings before provision for income taxes		10.3	%		7.8	%		6.3	%
Provision for income taxes			3.8	%		2.9	%		2.5	%
	Net earnings		6.5	%		4.9	%		3.8	%

49

Key Operating Metrics

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

			Fiscal Year Ended September 30,
			2011			2010			2009
Net sales:
	Sally Beauty Supply		$	2,012,407		$	1,834,631		$	1,695,652
	BSG			1,256,724			1,081,459			940,948
			$	3,269,131		$	2,916,090		$	2,636,600
Gross Profit			$	1,594,605		$	1,404,374		$	1,243,317
Gross profit margin				48.8	%		48.2	%		47.2	%
Selling, general and administrative expenses			$	1,086,414		$	1,012,321		$	899,415
Depreciation and amortization			$	59,722		$	51,123		$	47,066
Earnings before provision for income taxes:
	Segment operating profit:
		Sally Beauty Supply	$	380,963		$	320,456		$	283,872
		BSG(a)		164,660			112,495			91,604
		Segment operating profit		545,623			432,951			375,476
Unallocated expenses(a)(b)				(81,594	)		(79,203	)		(70,022	)
Share-based compensation expense				(15,560	)		(12,818	)		(8,618	)
	Operating earnings			448,469			340,930			296,836
Interest expense				(112,530	)		(112,982	)		(132,022	)
	Earnings before provision for income taxes		$	335,939		$	227,948		$	164,814
Segment operating profit margin:
	Sally Beauty Supply			18.9	%		17.5	%		16.7	%
	BSG			13.1	%		10.4	%		9.7	%
Consolidated operating profit margin				13.7	%		11.7	%		11.3	%
Number of stores at end-of-period (including franchises):
	Sally Beauty Supply			3,158			3,032			2,923
	BSG			1,151			1,027			991
				4,309			4,059			3,914
Same store sales growth(c)
	Sally Beauty Supply			6.3	%		4.1	%		2.1	%
	BSG			5.5	%		6.2	%		1.0	%
Consolidated				6.1	%		4.6	%		1.8	%

(a)

For the fiscal year 2011, consolidated operating earnings reflect a net favorable impact of $21.3 million, including a $27.0 million credit from a litigation settlement and certain non-recurring charges of $5.7 million. This net benefit of $21.3 million is reflected in the BSG segment and in unallocated expenses in the amount of $19.0 million and $2.3 million, respectively.

(b)

Unallocated expenses consist of corporate and shared costs.

(c)

Same stores are defined as company-operated stores that have been open for at least 14 months as of the last day of a month. Our same store sales are calculated in constant dollars and include internet-based sales and the effect of store expansions, if applicable, but do not generally include the sales from stores relocated until at least 14 months after the relocation. The sales from stores

50

acquired are excluded from our same store sales calculation until at least 14 months after the acquisition.

Description of Net Sales and Expenses

Net Sales.    Our net sales consist primarily of the following:

•

Sally Beauty Supply.  Sally Beauty Supply generates net sales primarily by selling products through its stores to both retail customers and salon professionals. Sally Beauty Supply sells products for hair color and care, skin and nail care, beauty sundries and electrical appliances. Because approximately 44% of our Sally Beauty Supply product sales come from exclusive-label brands, most of these same products are generally not available in most other retail stores or in our BSG business segment. Various factors influence Sally Beauty Supply's net sales including local competition, product assortment and availability, price, hours of operation and marketing and promotional activity. Sally Beauty Supply's product assortment and sales are generally not seasonal in nature.

•

Beauty Systems Group.  BSG generates net sales by selling products to salons and salon professionals through company-operated and franchised stores as well as through its network of professional distributor sales consultants. BSG sells products for hair color and care, skin and nail care, beauty sundries and electrical appliances. These products are not sold directly to the general public and are generally not the same products as those sold in our Sally Beauty Supply stores. Various factors influence BSG's net sales, including product features and availability, competitive activity, relationships with suppliers, new product introductions and price. BSG's product assortment and sales are generally not seasonal in nature.

Cost of Products Sold and Distribution Expenses.    Cost of products sold and distribution expenses consist of the cost to purchase merchandise from suppliers, less vendor rebates and allowances, and certain overhead expenses including purchasing costs, freight from distribution centers to stores and merchandise handling costs in the distribution centers. Cost of products sold and distribution expenses are also affected by store inventory shrinkage, which represents products that are lost, stolen or damaged at the store level.

Selling, General and Administrative Expenses.    Selling, general and administrative expenses consist primarily of personnel costs, commissions paid to professional distributor sales consultants, benefits, utilities, property maintenance, advertising, rent, insurance, freight and distribution expenses for delivery to customers, administrative costs and costs associated with our corporate support center.

Interest Expense.    Interest expense includes the amortization of deferred debt issuance costs and is stated net of interest income. Interest expense is primarily associated with debt incurred in connection with the Separation Transactions.

51

The Fiscal Year Ended September 30, 2011 compared to the Fiscal Year Ended September 30, 2010

The table below presents net sales, gross profit and gross profit margin data for each reportable segment (dollars in thousands).

		Fiscal Year Ended September 30,
		2011			2010			Increase
Net sales:
	Sally Beauty Supply	$	2,012,407		$	1,834,631		$	177,776		9.7	%
	BSG		1,256,724			1,081,459			175,265		16.2	%
	Consolidated net sales	$	3,269,131		$	2,916,090		$	353,041		12.1	%
Gross profit:
	Sally Beauty Supply	$	1,087,698		$	976,377		$	111,321		11.4	%
	BSG		506,907			427,997			78,910		18.4	%
	Consolidated gross profit	$	1,594,605		$	1,404,374		$	190,231		13.5	%
Gross profit margin:
	Sally Beauty Supply		54.0	%		53.2	%		0.8	%
	BSG		40.3	%		39.6	%		0.7	%
	Consolidated gross profit margin		48.8	%		48.2	%		0.6	%

   Net Sales

Consolidated net sales increased by $353.0 million, or 12.1%, for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. Company-operated Sally Beauty Supply and BSG stores that have been open for at least 14 months contributed an increase of approximately $252.6 million, or 8.7%, sales through our BSG distributor sales consultants contributed an increase of approximately $41.7 million, or 1.4%, and our Sally Beauty Supply non-store sales channels contributed an increase of approximately $43.6 million, or 1.5%. Other sales channels (including sales through our BSG franchise-based businesses and from stores that have been open for less than 14 months) and sales from businesses acquired in the preceding 12 months, in the aggregate, contributed an increase of $15.1 million, or 0.5%, compared to the fiscal year ended September 30, 2010. Consolidated net sales for the fiscal year ended September 30, 2011, are inclusive of approximately $23.3 million in positive impact from changes in foreign currency exchange rates.

Sally Beauty Supply.    Net sales for Sally Beauty Supply increased by $177.8 million, or 9.7%, for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. In the Sally Beauty Supply segment, company-operated stores that have been open for at least 14 months contributed an increase of approximately $157.3 million, or 8.6%, and our non-store sales channels (which, after December 16, 2010, include the catalog and internet sales of our Sinelco Group subsidiaries) contributed an increase of approximately $43.6 million, or 2.4%. In addition, sales from businesses acquired in the preceding 12 months contributed approximately $29.4 million, or 1.6%, less to net sales for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. Other sales channels (including sales from stores that have been open for less than 14 months) experienced a minor increase in sales compared to the fiscal year ended September 30, 2010. Net sales for Sally Beauty Supply for the fiscal year ended September 30, 2011, are inclusive of approximately $15.8 million in positive impact from changes in foreign currency exchange rates.

Beauty Systems Group.    Net sales for BSG increased by $175.3 million, or 16.2%, for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. Company-operated stores that have been open for at least 14 months contributed an increase of approximately $95.3 million, or 8.8%, and sales through our distributor sales consultants contributed an increase of approximately $41.7 million, or

52

3.9%. In addition, sales from businesses acquired in the preceding 12 months contributed approximately $24.5 million, or 2.3%, more to net sales for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. Other sales channels (including sales through our Armstrong McCall franchise-based business and sales from stores that have been open for less than 14 months), in the aggregate, contributed an increase of $13.8 million, or 1.2%, compared to the fiscal year ended September 30, 2010. Net sales for BSG for the fiscal year ended September 30, 2011, are inclusive of approximately $7.5 million in positive impact from changes in foreign currency exchange rates, primarily in connection with our Canadian operations.

   Gross Profit

Consolidated gross profit increased by $190.2 million, or 13.5%, for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010, principally due to higher sales volume and improved gross margins in both business segments as more fully described below. Consolidated gross profit as a percentage of net sales, or consolidated gross margin, increased to 48.8% for the fiscal year ended September 30, 2011, compared to 48.2% for the fiscal year ended September 30, 2010.

Sally Beauty Supply.    Sally Beauty Supply's gross profit increased by $111.3 million, or 11.4%, for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010, principally as a result of higher sales volume and improved gross margins. Sally Beauty Supply's gross profit as a percentage of net sales increased to 54.0% for the fiscal year ended September 30, 2011, compared to 53.2% for the fiscal year ended September 30, 2010. This increase was the result of a shift in product and customer mix (including a year-over-year increase in sales of exclusive-label and other higher-margin products) and continued benefits from low-cost sourcing initiatives. This increase also reflects a $7.4 million net positive impact from changes in foreign currency exchange rates.

Beauty Systems Group.    BSG's gross profit increased by $78.9 million, or 18.4%, for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010, principally as a result of higher sales volume and improved gross margins. BSG's gross profit as a percentage of net sales increased to 40.3% for the fiscal year ended September 30, 2011, compared to 39.6% for the fiscal year ended September 30, 2010. This increase was principally the result of a favorable change in the sales mix across the business, product cost reduction initiatives and synergies from businesses acquired during the last 12 months. This increase also reflects a $3.4 million net positive impact from changes in foreign currency exchange rates.

   Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses increased by $74.1 million, or 7.3%, to $1,086.4 million for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. This increase was attributable to incremental expenses (including employee compensation, rent and other occupancy-related expenses) resulting from stores opened and from businesses acquired in the preceding 12 months (including 254 additional company-operated stores since the fiscal year 2010, a 6.6% increase), as well as higher share-based compensation expense of $2.7 million, higher freight and distribution expenses of $10.9 million, higher advertising expenses in the Sally Beauty Supply segment of $5.5 million, higher credit card fees of $5.6 million and certain non-recurring charges ($5.7 million) in the fiscal year ended September 30, 2011 that include costs related to the closure of a BSG warehouse. This increase was partially offset by a credit resulting from a litigation settlement ($27.0 million) in the fiscal year ended September 30, 2011. Selling, general and administrative expenses, as a percentage of net sales, decreased to 33.2% for the fiscal year ended September 30, 2011, compared to 34.7% for the fiscal year ended September 30, 2010. In addition to the impact of the credit from the litigation settlement, this decrease is a result of the growth in consolidated net sales described above and synergies from recent business acquisitions.

53

   Depreciation and Amortization

Consolidated depreciation and amortization increased to $59.7 million for the fiscal year ended September 30, 2011, compared to $51.1 million for the fiscal year ended September 30, 2010. This increase reflects the incremental depreciation and amortization expenses associated with businesses acquired in the last 12 months and with capital expenditures made in the fiscal year 2011 (mainly in connection with store openings in both operating segments and with ongoing information technology upgrades), partially offset by the impact of assets that became fully depreciated in the preceding 12 months.

   Operating Earnings

The following table sets forth, for the periods indicated, information concerning our operating earnings for each reportable segment (dollars in thousands):

			Fiscal Year Ended September 30,
			2011			2010			Increase
Operating Earnings:
	Segment operating profit:
		Sally Beauty Supply	$	380,963		$	320,456		$	60,507	18.9	%
		BSG		164,660			112,495			52,165	46.4	%
		Segment operating profit		545,623			432,951			112,672	26.0	%
Unallocated expenses				(81,594	)		(79,203	)		2,391	3.0	%
Share-based compensation expense				(15,560	)		(12,818	)		2,742	21.4	%
	Operating earnings		$	448,469		$	340,930		$	107,539	31.5	%

Consolidated operating earnings increased by $107.5 million, or 31.5%, to $448.5 million for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. The increase in consolidated operating earnings was due primarily to an increase in the operating profits of both segments, partially offset by slightly higher unallocated corporate expenses and higher share-based compensation expense, as more fully discussed below. In addition, for the fiscal year ended September 30, 2011, consolidated operating earnings reflect a credit resulting from a litigation settlement ($27.0 million), partially offset by certain non-recurring charges ($5.7 million) that include costs related to the closure of a BSG warehouse. The credit resulting from the litigation settlement is reflected in the BSG segment's results and in unallocated expenses in the amount of $24.7 million and $2.3 million, respectively. Operating earnings, as a percentage of net sales, increased to 13.7% for the fiscal year ended September 30, 2011, compared to 11.7% for the fiscal year ended September 30, 2010. This increase reflects the growth in consolidated gross margin described above, as well as a lower growth rate in consolidated operating expenses compared to the growth rate in consolidated gross profit.

Sally Beauty Supply.    Sally Beauty Supply's segment operating earnings increased by $60.5 million, or 18.9%, to $381.0 million for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. The increase in Sally Beauty Supply's operating earnings was primarily a result of increased sales volume and improved gross margins, partially offset by higher advertising costs of approximately $5.5 million and the incremental costs related to approximately 127 net additional company-operated stores (stores opened or acquired during the past 12 months) operating during the fiscal year ended September 30, 2011. Segment operating earnings, as a percentage of net sales, increased to 18.9% for the fiscal year ended September 30, 2011, compared to 17.5% for the fiscal year ended September 30, 2010. This increase reflects the growth in the segment's gross margin described above, as well as a lower growth rate in the segment's operating expenses compared to the growth rate in the segment's gross profit.

54

Beauty Systems Group.    BSG's segment operating earnings increased by $52.2 million, or 46.4%, to $164.7 million for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. The increase in BSG's operating earnings was primarily a result of improved gross margins, the incremental operating earnings of businesses acquired and stores opened during the past 12 months (BSG had an additional 127 company-operated stores at the end of the fiscal year 2011, including 82 stores resulting from the October 2010 acquisition of Aerial), and to ongoing cost reduction initiatives. In addition, for the fiscal year ended September 30, 2011, BSG's operating earnings reflect a credit resulting from a litigation settlement (approximately $24.7 million), partially offset by certain non-recurring charges ($5.7 million) that include costs related to the closure of a warehouse. Segment operating earnings, as a percentage of net sales, increased to 13.1% for the fiscal year ended September 30, 2011, compared to 10.4% for the fiscal year ended September 30, 2010. In addition to the impact of the credit from the litigation settlement, this increase reflects the growth in the segment's gross margin described above, as well as a lower growth rate in the segment's operating expenses compared to the growth rate in the segment's gross profit.

Unallocated expenses.    Unallocated expenses, which represent corporate costs (such as payroll, employee benefits and travel expenses for corporate staff, certain professional fees and corporate governance expenses) that have not been charged to our operating segments, increased by $2.4 million, or 3.0%, to $81.6 million for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. This increase was due to higher corporate expenses related primarily to on-going upgrades to our information technology systems ($2.7 million). During the fiscal year ended September 30, 2011, $2.3 million of the benefit from a litigation settlement offset corporate expenses incurred in connection with the litigation.

Share-based Compensation Expense.    Total compensation cost charged against income for share-based compensation arrangements increased by $2.7 million to $15.6 million for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. This increase was due to the incremental expenses related to, as well as the higher fair value at the grant date of, share-based awards during the fiscal year ended September 30, 2011, compared to share-based awards during the fiscal year ended September 30, 2010, partially offset by the impact of share-based awards that became fully vested during the fiscal year ended September 30, 2011.

   Interest Expense

Interest expense decreased by $0.5 million, to $112.5 million for the fiscal year ended September 30, 2011, compared to the fiscal year ended September 30, 2010. Interest expense is net of interest income of $0.3 million and $0.2 million for the fiscal year ended September 30, 2011 and 2010, respectively. The decrease in interest expense was primarily attributable to lower outstanding principal balances on our senior term loans ($3.0 million) and to lower interest-rate differential charges incurred in connection with interest rate swaps ($2.3 million), partially offset by unamortized deferred financing costs expensed in the fiscal year 2011 ($2.8 million) in connection with: (a) prepayments of long-term debt and (b) our November 2010 termination of our prior ABL credit facility. The decrease also reflects non-cash income ($2.4 million) in the fiscal year 2010 of marked-to-market adjustments for certain interest rate swaps which expired in November 2009 with no comparable amount in the fiscal year 2011 (please see Note 16 of the Notes to Consolidated Financial Statements in Item 8—"Financial Statements and Supplementary Data" contained elsewhere in this Annual Report for additional information about the Company's interest rate swaps and "Liquidity and Capital Resources" below for additional information about our credit facilities).

   Provision for Income Taxes

Provision for income taxes was $122.2 million during the fiscal year ended September 30, 2011, compared to $84.1 million for the fiscal year ended September 30, 2010. The effective tax rate is 36.4% for fiscal year 2011, compared to 36.9% for fiscal year 2010. The decrease in the annual effective tax rate was primarily

55

due to tax benefits resulting from certain intercompany transactions that resulted in the release of valuation allowances during the fiscal year 2011, compared to the fiscal year 2010.

   Net Earnings

As a result of the foregoing, consolidated net earnings increased by $69.9 million, or 48.6%, to $213.7 million for the fiscal year ended September 30, 2011, compared to $143.8 million for the fiscal year ended September 30, 2010. Net earnings, as a percentage of net sales, were 6.5% for the fiscal year ended September 30, 2011, compared to 4.9% for the fiscal year ended September 30, 2010.

The Fiscal Year Ended September 30, 2010 compared to the Fiscal Year Ended September 30, 2009

The table below presents net sales, gross profit and gross profit margin data for each reportable segment (dollars in thousands).

		Fiscal Year Ended September 30,
		2010			2009			Increase
Net sales:
	Sally Beauty Supply	$	1,834,631		$	1,695,652		$	138,979		8.2	%
	BSG		1,081,459			940,948			140,511		14.9	%
	Consolidated net sales	$	2,916,090		$	2,636,600		$	279,490		10.6	%
Gross profit:
	Sally Beauty Supply	$	976,377		$	878,738		$	97,639		11.1	%
	BSG		427,997			364,579			63,418		17.4	%
	Consolidated gross profit	$	1,404,374		$	1,243,317		$	161,057		13.0	%
Gross profit margin:
	Sally Beauty Supply		53.2	%		51.8	%		1.4	%
	BSG		39.6	%		38.7	%		0.9	%
	Consolidated gross profit margin		48.2	%		47.2	%		1.0	%

   Net Sales

Consolidated net sales increased by $279.5 million, or 10.6%, for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. Company-operated stores that have been open for at least 14 months contributed an increase of approximately $179.1 million, or 6.8%, and sales from businesses acquired in the preceding 12 months contributed approximately $94.1 million, or 3.6%, more to consolidated net sales for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. Other sales channels (including sales through our BSG distributor sales consultants and our BSG franchise-based businesses and from stores that have been open for less than 14 months), in the aggregate, contributed an increase of $6.3 million, or 0.2%, compared to the fiscal year ended September 30, 2009. Consolidated net sales for the fiscal year ended September 30, 2010, are inclusive of approximately $17.2 million in positive impact from changes in foreign currency exchange rates.

Sally Beauty Supply.    Net sales for Sally Beauty Supply increased by $139.0 million, or 8.2%, for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. In the Sally Beauty Supply segment, company-operated stores that have been open for at least 14 months contributed an increase of approximately $127.3 million, or 7.5%, and sales from businesses acquired in the preceding 12 months contributed approximately $13.2 million, or 0.8%, more to net sales for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. Other sales channels (including sales from stores that have been open for less than 14 months and non-store sales), in the aggregate, experienced a minor decline in sales compared to the fiscal year ended September 30, 2009. Net

56

sales for Sally Beauty Supply for the fiscal year ended September 30, 2010, are inclusive of approximately $4.5 million in positive impact from changes in foreign currency exchange rates.

Beauty Systems Group.    Net sales for BSG increased by $140.5 million, or 14.9%, for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. Company-operated stores that have been open for at least 14 months contributed an increase of approximately $51.8 million, or 5.5%, sales from stores that have been open for less than 14 months contributed an increase of approximately $6.3 million, or 0.7%, and sales from businesses acquired in the preceding 12 months contributed approximately $80.9 million, or 8.6%, more to net sales for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. Other sales channels (including sales through our distributor sales consultants and our franchise-based businesses), in the aggregate, experienced a minor increase in sales compared to the fiscal year ended September 30, 2009. Net sales for BSG for the fiscal year ended September 30, 2010, are inclusive of approximately $12.7 million in positive impact from changes in foreign currency exchange rates, primarily in connection with our Canadian operations.

   Gross Profit

Consolidated gross profit increased by $161.1 million, or 13.0%, for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009, principally due to higher sales volume and improved gross margins in both business segments as more fully described below.

Sally Beauty Supply.    Sally Beauty Supply's gross profit increased by $97.6 million, or 11.1%, for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009, principally as a result of higher sales volume and improved gross margins. Sally Beauty Supply's gross profit as a percentage of net sales increased to 53.2% for the fiscal year ended September 30, 2010, compared to 51.8% for the fiscal year ended September 30, 2009. This increase was the result of a shift in product and customer mix (including a year-over-year increase in sales of exclusive-label and other higher-margin products), continued benefits from low-cost sourcing initiatives and overall margin improvements in certain of our Sally Beauty Supply international businesses. This increase also reflects a $2.7 million positive impact from changes in foreign currency exchange rates.

Beauty Systems Group.    BSG's gross profit increased by $63.4 million, or 17.4%, for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009, principally as a result of higher sales volume and improved gross margins. BSG's gross profit as a percentage of net sales increased to 39.6% for the fiscal year ended September 30, 2010, compared to 38.7% for the fiscal year ended September 30, 2009. This increase was principally the result of a favorable change in the sales and product mix across the business, previously anticipated savings realized from the recently completed warehouse optimization program and synergies from businesses acquired during the last 12 months. This increase also reflects a $5.5 million positive impact from changes in foreign currency exchange rates.

   Selling, General and Administrative Expenses

Consolidated selling, general and administrative expenses increased by $112.9 million, or 12.6%, to $1,012.3 million for the fiscal year ended September 30, 2010, compared to $899.4 million for the fiscal year ended September 30, 2009. This increase was attributable to incremental expenses (including employee compensation, rent and other occupancy-related expenses) resulting from stores opened and from businesses acquired in the preceding 12 months (including an increase of 145 stores, or 3.7%, over the fiscal year 2009), as well as higher share-based compensation expense of $4.2 million, higher advertising expenses in the Sally Beauty Supply segment of $7.1 million and acquisition-related expenses of $0.7 million. Please see "Recent Accounting Pronouncements" below for more information about the Company's treatment of acquisition-related expenses. Selling, general and administrative expenses, as a percentage of net sales, were 34.7% for the fiscal year ended September 30, 2010, compared to 34.1% for the fiscal year ended September 30, 2009.

57

   Depreciation and Amortization

Consolidated depreciation and amortization increased to $51.1 million for the fiscal year ended September 30, 2010, compared to $47.1 million for the fiscal year ended September 30, 2009, due to the incremental expenses associated with businesses acquired in the last 12 months and depreciation related to capital expenditures mainly in connection with store openings in both operating segments, partially offset by the impact of assets that became fully depreciated in the preceding 12 months.

   Operating Earnings

The following table sets forth, for the periods indicated, information concerning our operating earnings for each reportable segment (dollars in thousands):

			Fiscal Year Ended September 30,
			2010			2009			Increase
Operating Earnings:
	Segment operating profit:
		Sally Beauty Supply	$	320,456		$	283,872		$	36,584	12.9	%
		BSG		112,495			91,604			20,891	22.8	%
		Segment operating profit		432,951			375,476			57,475	15.3	%
Unallocated expenses				(79,203	)		(70,022	)		9,181	13.1	%
Share-based compensation expense				(12,818	)		(8,618	)		4,200	48.7	%
	Operating earnings		$	340,930		$	296,836		$	44,094	14.9	%

Consolidated operating earnings increased by $44.1 million, or 14.9%, to $340.9 million for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. The increase in consolidated operating earnings was due primarily to an increase in the operating profits of both segments, partially offset by higher unallocated corporate expenses and share-based compensation expense, as discussed below. Operating earnings, as a percentage of net sales, increased to 11.7% for the fiscal year ended September 30, 2010, compared to 11.3% for the fiscal year ended September 30, 2009.

Sally Beauty Supply.    Sally Beauty Supply's segment operating earnings increased by $36.6 million, or 12.9%, to $320.5 million for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. The increase in Sally Beauty Supply's segment operating earnings was primarily a result of increased sales volume and improved gross margins, partially offset by higher advertising costs of approximately $7.1 million and the incremental costs related to approximately 108 net additional company-operated stores (stores opened or acquired during the past 12 months) operating during the fiscal year ended September 30, 2010. Segment operating earnings, as a percentage of net sales, increased to 17.5% for the fiscal year ended September 30, 2010, compared to 16.7% for the fiscal year ended September 30, 2009. The increase in Sally Beauty Supply's operating earnings, as a percentage of segment net sales, was primarily a result of gross margin improvements.

Beauty Systems Group.    BSG's segment operating earnings increased by $20.9 million, or 22.8%, to $112.5 million for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. Segment operating earnings, as a percentage of net sales, increased to 10.4% for the fiscal year ended September 30, 2010, compared to 9.7% for the fiscal year ended September 30, 2009. The increase in BSG operating earnings was primarily a result of gross margin improvements, the incremental operating earnings of businesses acquired and stores opened during the past 12 months, and to ongoing cost reduction initiatives (including cost savings realized from the warehouse optimization program that began in the fiscal year 2007).

58

Unallocated expenses.    Unallocated expenses, which represent corporate costs (such as payroll, employee benefits and travel expenses for corporate staff, certain professional fees and corporate governance expenses) that have not been charged to our operating segments, increased by $9.2 million, or 13.1%, to $79.2 million for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. This increase was due primarily to higher employee compensation and compensation-related expenses of approximately $3.7 million, an unfavorable change in foreign currency transactions of approximately $2.3 million resulting principally from intercompany loans not permanently invested, other corporate expenses of approximately $2.5 million related primarily to recent upgrades to our information technology and communication systems, and acquisition—related expenses of approximately $0.7 million (representing legal fees and expenses, professional fees and other expenses).

Share-based Compensation Expense.    Total compensation cost charged against income for share-based compensation arrangements increased by $4.2 million to $12.8 million for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. This increase was due to the higher fair value at the grant date of stock option awards during the fiscal year ended September 30, 2010, compared to stock option awards during the fiscal year ended September 30, 2009, and the incremental annual expenses resulting from such fiscal year 2010 stock option awards.

   Interest Expense

Interest expense decreased by $19.0 million, to $113.0 million for the fiscal year ended September 30, 2010, compared to the fiscal year ended September 30, 2009. Interest expense is net of interest income of $0.2 million and $0.3 million for the fiscal year ended September 30, 2010 and 2009, respectively. The decrease in interest expense was primarily attributable to lower outstanding principal balances on our ABL credit facility and senior term loans and to lower prevailing LIBOR interest rates, partially offset by a $2.9 million net unfavorable change in the fair value of certain interest rate swaps (Please see Note 16 of the Notes to Consolidated Financial Statements in Item 8—"Financial Statements and Supplementary Data" contained elsewhere in this Annual Report for additional information about the Company's interest rate swap agreements).

   Provision for Income Taxes

Provision for income taxes was $84.1 million during the fiscal year ended September 30, 2010, compared to $65.7 million for the fiscal year ended September 30, 2009. The effective tax rate is 36.9% for fiscal year 2010, compared to 39.9% for fiscal year 2009. The decrease in the annual effective tax rate primarily relates to an increase in earnings in certain low tax jurisdictions, the release of certain valuation allowances and a reduction in unfavorable permanent items.

   Net Earnings

As a result of the foregoing, consolidated net earnings increased by $44.7 million, or 45.1%, to $143.8 million for the fiscal year ended September 30, 2010, compared to $99.1 million for the fiscal year ended September 30, 2009. Net earnings, as a percentage of net sales, were 4.9% for the fiscal year ended September 30, 2010, compared to 3.8% for the fiscal year ended September 30, 2009.

Financial Condition

September 30, 2011 Compared to September 30, 2010

Working capital (current assets less current liabilities) increased by $32.0 million to $419.1 million at September 30, 2011, compared to $387.1 million at September 30, 2010. The ratio of current assets to current liabilities was 1.91 to 1.00 at September 30, 2011, compared to 1.95 to 1.00 at September 30, 2010. The increase in working capital reflects an increase of $84.4 million in current assets and an increase of $52.4 million in current liabilities. The increase in current assets as of September 30, 2011 includes an

59

increase of $60.9 million in inventory, an increase of $7.0 million in trade accounts receivable, an increase of $5.6 million in deferred income tax assets, an increase of $4.0 million in cash and cash equivalents and an increase of $4.0 million in accounts receivable, other. The increase in current liabilities as of September 30, 2011 includes an increase of $55.2 million in accounts payable and accrued liabilities and a decrease of $2.8 million in income taxes payable, as further described below.

Cash and cash equivalents increased by $4.0 million to $63.5 million at September 30, 2011, compared to $59.5 million at September 30, 2010 due primarily to cash provided by operating activities during the fiscal year ended September 30, 2011, partially offset by cash used by investing and financing activities (please see "Liquidity and Capital Resources" below). Trade accounts receivable increased by $7.0 million to $62.0 million at September 30, 2011, compared to $55.0 million at September 30, 2010 due primarily to the increase in sales activity and to accounts receivable of businesses acquired. Accounts receivable, other, increased by $4.0 million to $33.5 million at September 30, 2011, compared to $29.5 million at September 30, 2010 due primarily to vendor rebates accrued. Inventory increased by $60.9 million to $665.2 million at September 30, 2011, compared to $604.4 million at September 30, 2010 due primarily to the effect of stores opened and to the inventory of businesses acquired in the preceding 12 months, and to the effect of foreign currency translation adjustments of approximately $3.6 million. Deferred income tax assets, net, increased by $5.6 million to $28.5 million at September 30, 2011, compared to $22.9 million at September 30, 2010 primarily due to the timing of differences between accrued expenses included for tax purposes versus accrued expenses included in our consolidated statements of earnings.

Accounts payable increased by $37.2 million to $262.1 million at September 30, 2011, compared to $224.9 million at September 30, 2010 due primarily to the accounts payable of businesses acquired and the timing of payments to suppliers mainly in connection with recent purchases of merchandise inventory. Accrued liabilities increased by $18.0 million to $185.5 million at September 30, 2011, compared to $167.5 million at September 30, 2010 due primarily to the interest rate swaps which mature in May 2012 ($6.5 million), the timing of payments of employee compensation and compensation-related expenses ($4.4 million), an increase in deferred revenue ($3.9 million), and to accrued liabilities of businesses acquired. Income taxes payable decreased by $2.8 million to $9.4 million at September 30, 2011, compared to $12.2 million at September 30, 2010 due primarily to estimated income tax payments made in the fiscal year 2011, partially offset by the effect of increased earnings and to income taxes payable of businesses acquired.

Net property and equipment increased by $14.4 million to $182.5 million at September 30, 2011, compared to $168.1 million at September 30, 2010, primarily due to capital expenditures, the property and equipment of businesses acquired and the effect of foreign currency translation adjustments, partially offset by the fiscal year 2011 depreciation expense.

Goodwill increased by $27.6 million to $505.9 million at September 30, 2011, compared to $478.2 million at September 30, 2010, primarily due to goodwill recorded in connection with businesses acquired during the fiscal year 2011 (including the October 2010 acquisition of Aerial).

Intangible assets, excluding goodwill, increased by $20.3 million to $129.7 million at September 30, 2011, compared to $109.4 million at September 30, 2010, primarily due to intangible assets recorded in connection with businesses acquired during the fiscal year 2011 (including the October 2010 acquisition of Aerial) and the effect of foreign currency translation adjustments, partially offset by the fiscal year 2011 amortization expense.

Long-term debt, including current portion, decreased by $149.5 million to $1,413.1 million at September 30, 2011, compared to $1,562.6 million at September 30, 2010 due primarily to optional prepayments of $147.0 million on our senior term loan facilities (please see "Liquidity and Capital Resources" below).

60

Other liabilities decreased by $14.5 million to $26.2 million at September 30, 2011, compared to $40.7 million at September 30, 2010, primarily due to the fiscal year 2011 classification, in accrued liabilities, of the interest rate swaps which mature in May 2012. Prior to the fiscal year 2011, these interest swaps were classified in other liabilities in our consolidated balance sheets.

Deferred income tax liabilities, net, increased by $9.5 million to $51.3 million at September 30, 2011, compared to $41.8 million at September 30, 2010 primarily due to the timing of differences between depreciation and amortization included for tax purposes versus depreciation and amortization included in our consolidated statements of earnings.

Total stockholders' deficit decreased by $242.3 million to $219.0 million at September 30, 2011 compared to September 30, 2010. This decrease was primarily as a result of net earnings of $213.7 million and an increase in additional paid-in capital of $30.9 million, partially offset by an increase in cumulative translation adjustments and deferred losses on interest rate swaps, net of tax, as described below.

Additional paid-in capital increased by $30.9 million to $681.3 million at September 30, 2011, as a result of share-based compensation expense, the exercise of stock options and the exercise or cancelation of certain stock options subject to redemption. Accumulated other comprehensive loss increased by $2.4 million, to $22.7 million at September 30, 2011, due to foreign currency translation adjustments of $8.0 million, partially offset by a reduction in deferred losses on hedged interest rate swaps of $5.6 million, net of income tax.

Liquidity and Capital Resources

We broadly define liquidity as our ability to generate sufficient cash flow from operating activities to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate debt and equity financing and to convert into cash those assets that are no longer required to meet existing strategic and financial objectives. Therefore, liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service commitments.

We are highly leveraged and a substantial portion of our liquidity needs will arise from debt service on indebtedness incurred primarily in connection with the Separation Transactions and from funding the costs of operations, working capital and capital expenditures. As a holding company, we depend on our subsidiaries, including Sally Holdings, to distribute funds to us so that we may pay our obligations and expenses. The ability of our subsidiaries to make such distributions will be subject to their operating results, cash requirements and financial condition and their compliance with covenants and financial ratios related to their existing or future indebtedness, including covenants restricting Sally Holdings' ability to pay dividends to us. In addition, under Delaware law, the ability of each of Sally Holdings and its subsidiaries to make distributions to us will be limited to the extent: (i) of its surplus, or if there is no surplus, of its net earnings for the fiscal year in which the distribution is declared and/or the preceding fiscal year, if such subsidiary is a corporation; or (ii) the fair value of its assets exceeds its liabilities, in the case of Sally Holdings or such subsidiary that is a limited liability company. If, as a consequence of these limitations, we cannot receive sufficient distributions from our subsidiaries, we may not be able to meet our obligations to fund general corporate expenses. Please see "Risk Factors—Risks Relating to Our Business," and "—Risks Relating to Our Substantial Indebtedness."

We may from time to time repurchase or otherwise retire or refinance our debt (through our subsidiaries or otherwise) and take other steps to reduce or refinance our debt or otherwise improve our balance sheet. These actions may include open market repurchases of our notes, prepayments of our term loans or other retirements of outstanding debt. The amount of debt that may be repurchased, refinanced or otherwise retired, if any, would be decided upon at the sole discretion of our Board of Directors and will depend on market conditions, trading levels of the Company's debt from time to time, the Company's cash position and other considerations.

61

Borrowings under the senior term loan facilities may be prepaid at the option of Sally Holdings at any time without premium or penalty and are subject to mandatory repayment in an amount equal to 50% of excess cash flow (as defined in the agreement governing the term loan facilities) for any fiscal year unless a specified leverage ratio is met. Amounts paid pursuant to said provision may be applied, at the option of Sally Holdings, against minimum loan repayments otherwise required of it over the twelve-month period following any such payment under the terms of the loan agreement. The Company was not required to make and did not make mandatory repayments pursuant to such excess cash flow provision in the fiscal year ended September 30, 2011.

In the fiscal year ended September 30, 2011, the Company made optional prepayments in the aggregate amount of $147.0 million on its senior term loan B facility. In connection with such optional prepayments, the Company recorded losses on extinguishment of debt in the aggregate amount of $1.2 million, which are included in interest expense in the Company's consolidated statements of earnings.

Based upon the current level of operations and anticipated growth, we anticipate that existing cash balances, funds expected to be generated by operations, and funds available under the ABL credit facility will be sufficient to meet our working capital requirements and to finance anticipated capital expenditures over the next 12 months.

There can be no assurance that our business will generate sufficient cash flows from operations, that anticipated net sales and operating improvements will be realized, or that future borrowings will be available under our ABL credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs. In addition, our ability to meet our debt service obligations and liquidity needs are subject to certain risks, which include, but are not limited to, increases in competitive activity, the loss of key suppliers, rising interest rates, the loss of key personnel, the ability to execute our business strategy and general economic conditions. Please see "Risk Factors."

We utilize our ABL credit facility for the issuance of letters of credit, as well as to manage normal fluctuations in our operational cash flow. In that regard, we may from time to time draw funds under the revolving credit facility for general corporate purposes including funding of capital expenditures, acquisitions and interest payments due on our indebtedness. The funds drawn on individual occasions during the fiscal year ended September 30, 2011 have varied in amounts of up to $78.0 million, with total amounts outstanding ranging from zero up to $102.5 million. The amounts drawn are generally paid down with cash provided by our operating activities. During the fiscal year ended September 30, 2011, the weighted average interest rate on our borrowings under the ABL credit facility was 3.3%.

As of September 30, 2011, Sally Holdings had $366.5 million available for additional borrowings under our ABL credit facility, subject to borrowing base limitations, as reduced by outstanding letters of credit. Availability under the ABL credit facility is a function of a customary borrowing base of receivables and inventory levels. The ABL credit facility has a 5-year maturity and pricing levels at market rates.

We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. The agreements and instruments governing the debt of Sally Holdings and its subsidiaries contain material limitations on their ability to pay dividends and other restricted payments to us which, in turn, constitute material limitations on our ability to pay dividends and other payments to our stockholders.

Under the agreements and indentures governing the term loan facilities and the notes, Sally Holdings may not make certain restricted payments to us if a default then exists under the credit agreement or the indentures or if its consolidated interest coverage ratio is less than 2.0 to 1.0 at the time of the making of such restricted payment. As of September 30, 2011, its consolidated interest coverage ratio exceeded 2.0 to 1.0. Further, the aggregate amount of restricted payments it is able to make is limited pursuant to various baskets as calculated pursuant to the credit agreement and indentures.

62

Under its ABL credit facility, Sally Holdings may pay dividends and make other equity distributions to us if availability under the facility exceeds certain thresholds. For dividends and distributions up to $30.0 million during each fiscal year, borrowing availability must exceed the lesser of $80.0 million or 20% of the borrowing base for 45 days prior to such dividend and distribution. For dividends in excess of that amount, Sally Holdings must maintain that same availability and its fixed-charge coverage ratio must exceed 1.10 to 1.00. The fixed-charge coverage ratio is defined as the ratio of (A) EBITDA (as defined in the agreement underlying the ABL credit facility, or Credit Agreement EBITDA) less unfinanced capital expenditures to (B) fixed charges (as included in the definition of the fixed-charge coverage ratio in the agreement governing the ABL credit facility). As of September 30, 2011, Sally Holdings met all of these conditions. As of September 30, 2011, the net assets of our consolidated subsidiaries that were unrestricted from transfer under our credit arrangements totaled $483.2 million, subject to certain adjustments. The ABL credit facility and the senior term loan facilities, as well as the Company's 9.25% Senior Notes indenture and its 10.5% Senior Subordinated Notes indenture contain customary cross-default and/or cross-acceleration provisions.

During the fiscal year 2011, we completed several acquisitions at an aggregate cost of $86.8 million. In general, we funded these acquisitions with cash from operations and borrowings under the ABL credit facility. For example, on October 1, 2010, we acquired Aerial, an 82-store professional-only distributor of beauty products operating in 11 states in the midwestern United States, for approximately $81.8 million. In connection with the Aerial acquisition we borrowed $78.0 million under our ABL credit facility (which we have since paid in full). In addition, during the fiscal year 2010, we completed several acquisitions at an aggregate cost of $45.6 million. In general, we funded these acquisitions with cash from operations and borrowings under the ABL credit facility. For example, on December 16, 2009, we acquired Sinelco, a wholesale distributor of professional beauty products based in Ronse, Belgium, for approximately €25.2 million (approximately $36.6 million). We also assumed €4.0 million (approximately $5.8 million) of pre-acquisition debt of Sinelco in connection with the acquisition.

Historical Cash Flows

For the fiscal years 2011, 2010 and 2009, our primary source of cash has been funds provided by operating activities and, when necessary, short-term borrowings. The primary uses of cash during the past three years were for repayments of long-term debt, acquisitions and capital expenditures.

The following table shows our sources and uses of funds for the fiscal years ended September 30, 2011, 2010 and 2009 (in thousands):

	Fiscal Year Ended September 30,
	2011			2010			Change			2010			2009			Change
Cash provided by operating activities	$	291,841		$	217,246		$	74,595		$	217,246		$	223,333		$	(6,087	)
Cash used by investing activities		(146,735	)		(85,022	)		(61,713	)		(85,022	)		(118,562	)		33,540
Cash used by financing activities		(140,049	)		(126,511	)		(13,538	)		(126,511	)		(149,262	)		22,751
Effect of foreign currency exchange rate changes on cash and cash equivalents		(1,070	)		(666	)		(404	)		(666	)		(850	)		184
Net increase (decrease) in cash and cash equivalents	$	3,987		$	5,047		$	(1,060	)	$	5,047		$	(45,341	)	$	50,388

63

   Cash Provided by Operating Activities

Net cash provided by operating activities during the fiscal year ended September 30, 2011, which excludes cash used for acquisitions completed during the period, increased by $74.6 million to $291.8 million compared to $217.2 million during the fiscal year ended September 30, 2010. The increase was primarily due to an improvement in earnings of approximately $69.9 million for the fiscal year 2011 (including proceeds from a litigation settlement of $27.0 million), compared to the fiscal year 2010.

Net cash provided by operating activities during the fiscal year ended September 30, 2010, which excludes cash used for acquisitions completed during the period, decreased by $6.1 million to $217.2 million compared to $223.3 million during the fiscal year ended September 30, 2009. The decrease was primarily due to changes in inventory levels of approximately $80.5 million (resulting from increases in inventory levels in the fiscal year ended September 30, 2010 and reductions in inventory levels in the fiscal year ended September 30, 2009) and deferred income taxes of $8.8 million, partially offset by changes in accounts payable and accrued liabilities of approximately $19.5 million and income taxes payable of $18.6 million and by an improvement in earnings of approximately $44.7 million for the fiscal year 2010, compared to the fiscal year 2009.

   Cash Used by Investing Activities

Net cash used by investing activities during the fiscal year ended September 30, 2011 increased by $61.7 million to $146.7 million compared to $85.0 million during the fiscal year ended September 30, 2010. This increase was primarily due to an increase of $50.7 million in cash used for acquisitions, net of cash acquired, and an increase of $11.3 million in capital expenditures, including 21 more store openings during the fiscal year 2011, compared to the fiscal year 2010, and the incremental capital expenditures of Aerial in the fiscal year 2011.

Net cash used by investing activities during the fiscal year ended September 30, 2010 decreased by $33.5 million to $85.0 million compared to $118.6 million during the fiscal year ended September 30, 2009. This decrease was primarily due to $45.0 million less in cash used for acquisitions, net of cash acquired, partially offset by higher capital expenditures primarily as a result of more store openings during the fiscal year 2010, compared to the fiscal year 2009.

   Cash Used by Financing Activities

Net cash used by financing activities during the fiscal year ended September 30, 2011 increased by $13.5 million to $140.0 million compared to $126.5 million during the fiscal year ended September 30, 2010. This increase was primarily due to net repayments of debt of $149.3 million during the fiscal year ended September 30, 2011, compared to net repayments of debt of $127.6 million during the fiscal year ended September 30, 2010. This increase also reflects debt issuance costs of $5.4 million incurred and paid during the fiscal year 2011 in connection with the new ABL credit facility, and an increase in proceeds from exercises of stock options of $10.1 million in the fiscal year 2011, compared to the fiscal year 2010.

Net cash used by financing activities during the fiscal year ended September 30, 2010 decreased by $22.8 million to $126.5 million compared to $149.3 million during the fiscal year ended September 30, 2009. This decrease was primarily due to net repayments of debt of $127.6 million (including the prepayment in full of our term loan A and including a mandatory repayment in the amount of $22.3 million on our senior term loan facilities) during the fiscal year ended September 30, 2010, compared to net repayments of debt of $148.1 million during the fiscal year ended September 30, 2009.

Credit Facilities

In November 2006, we, through our subsidiaries: (i) entered into two term loan facilities (term loans A and B) in an aggregate amount of $1,070.0 million; (ii) issued senior notes in an aggregate amount of

64

$430.0 million and senior subordinated notes in an aggregate amount of $280.0 million, which we collectively refer to as the Notes; and (iii) entered into the $400.0 million ABL credit facility, subject to borrowing base limitations, of which approximately $70.0 million was drawn at closing, which resulted in the incurrence of aggregate indebtedness in connection with the Separation Transactions of approximately $1,850.0 million. Please see "Risk Factors—Risks Relating to Our Substantial Indebtedness."

During the fiscal year 2010, the Company prepaid in full its borrowings under the term loan A facility. As of September 30, 2011, there were outstanding borrowings of $696.9 million under the term loan B facility, at a contractual interest rate of 2.49%, and outstanding borrowings of $705.0 million under the Notes, at a weighted average interest rate of 9.75%. As of September 30, 2011, there were no borrowings outstanding under our ABL credit facility and we had $366.5 million available for borrowing under our ABL credit facility, subject to borrowing base limitations, as reduced by outstanding letters of credit.

Please see Note 21 of the "Notes to Consolidated Financial Statements" in "Item 8—Financial Statements and Supplementary Data" contained elsewhere in this Annual Report.

The agreements and instruments governing our debt contain restrictions and limitations that could significantly impact our ability to operate our business. These restrictions and limitations relate to:

•       disposal of assets •       incurrence of additional indebtedness (including guarantees of additional indebtedness) •       stock repurchase and distributions •       certain debt prepayments and modifications •       liens on assets •       making investments (including joint ventures) •       mergers, consolidations or sales of subsidiaries' assets •       ability of subsidiaries to pay dividends •       making acquisitions of all of the business or assets of or stock representing beneficial ownership of, any person

Borrowings under the term loan facilities and the ABL credit facility are secured by substantially all of our assets, those of Sally Investment Holdings LLC, those of our domestic subsidiaries and, in the case of the ABL credit facility, those of our Canadian subsidiaries and a pledge of certain intercompany notes. During the fiscal year 2010, the Company prepaid in full its borrowings under the Term Loan A facility. Borrowings under the term loan B facility may be prepaid at our option at any time without premium or penalty and is subject to mandatory prepayment in an amount equal to 50% of excess cash flow (as defined in the agreement governing the term loan facilities) for any fiscal year unless a specified leverage ratio is met. Additionally, the term loan B facility is subject to mandatory prepayment in an amount equal to 100% of the proceeds of specified asset sales that are not reinvested in the business or applied to repay borrowings under the ABL credit facility. No mandatory repayments of any kind were made or required to be made in the fiscal year ended September 30, 2011.

The term loan facilities contain a covenant requiring Sally Holdings and its subsidiaries to meet certain maximum consolidated secured leverage ratio levels, which decline over time. The consolidated secured leverage ratio is a ratio of (A) net consolidated secured debt to (B) Consolidated EBITDA as defined in the agreement underlying the term loan facilities. Compliance with the consolidated secured leverage ratio is tested quarterly, with a maximum ratio of 3.50 as of September 30, 2011. Failure to comply with the consolidated secured leverage ratio covenant under the term loan facilities would result in a default under such facilities.

The ABL credit facility contains a covenant requiring Sally Holdings and its subsidiaries to maintain a fixed-charge coverage ratio of at least 1.0 to 1.0 in the event that availability under the ABL credit facility falls below certain thresholds. Sally Holdings must comply with the ratio in the event availability is less than the greater of: (a) the lesser of $60.0 million or 15% of the then current borrowing base and (b) $40.0 million. The fixed-charge coverage ratio is defined as the ratio of (A) EBITDA (as defined in the

65

agreement underlying the ABL credit facility, or Credit Agreement EBITDA) less unfinanced capital expenditures to (B) fixed charges (as included in the definition of the fixed-charge coverage ratio in the agreement governing the ABL credit facility).

For purposes of calculating either the consolidated secured leverage ratio or the fixed-charge coverage ratio, Consolidated EBITDA and Credit Agreement EBITDA are measured on a last-four-quarters basis. Accordingly, the calculation can be disproportionately affected by a particularly strong or weak quarter and may not be comparable to the measure for any previous or subsequent four-quarter period.

Failure to comply with the fixed-charge coverage ratio covenant (if and when applicable) under the ABL credit facility would result in a default under such facility. A default could also result in a default under the other facility or facilities, as the case may be, and the Notes. Absent a waiver or an amendment from our lenders and note holders, such defaults could permit the acceleration of all indebtedness under the ABL credit facility, the term loan facilities and the Notes, which would have a material adverse effect on our results of operations, financial position and cash flows.

Consolidated EBITDA and Credit Agreement EBITDA are not recognized measurements under accounting principles generally accepted in the United States of America, or GAAP, and should not be considered as a substitute for financial performance and liquidity measures determined in accordance with GAAP, such as net earnings, operating income or operating cash flow. In addition, because other companies may calculate EBITDA differently, Consolidated EBITDA and Credit Agreement EBITDA likely will not be comparable to EBITDA or similarly titled measures reported by other companies or reported by us in our quarterly earnings releases.

We believe that we are currently in compliance with the agreements and instruments governing our debt, including our financial covenants. Our ability to comply with these covenants in future periods will depend on our ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond our control. Further, our ability to comply with these covenants in future periods will also depend substantially on the pricing of our products, our success at implementing cost reduction initiatives and our ability to successfully implement our overall business strategy. Please see "Risk Factors—Risks Relating to Our Substantial Indebtedness."

Capital Requirements

During the fiscal year 2011, we had total capital expenditures of approximately $60.0 million which were primarily to fund the addition of new stores; the remodel, expansion or relocation of existing stores in the ordinary course of our business; and corporate projects. For the fiscal year 2012, we anticipate capital expenditures in the range of approximately $65.0 million to $70.0 million, excluding acquisitions. Capital expenditures will be primarily for the addition of new stores; the remodel, expansion or relocation of existing stores in the ordinary course of our business; and corporate projects.

66

Contractual Obligations

The following table is a summary of our contractual cash obligations and commitments outstanding by future payment dates at September 30, 2011 (in thousands):

	Payments Due by Period
	Less than 1 year		1-3 years		3-5 years		More than 5 years		Total
Long-term debt obligations, including interest obligations(a)	$	89,140	$	857,747	$	494,371	$	281,122	$	1,722,380
Obligations under operating leases(b)		141,422		202,977		101,104		50,199		495,702
Purchase obligations(c)		18,349		29,428		47,893		36,641		132,311
Other long-term obligations(d)(e)		17,134		13,378		4,362		8,414		43,288
Total	$	266,045	$	1,103,530	$	647,730	$	376,376	$	2,393,681

(a)

Long-term debt includes capital leases and future interest payments on debt facilities, based upon outstanding principal amounts and interest rates as of September 30, 2011.

(b)

In accordance with GAAP, these obligations are not reflected in the accompanying consolidated balance sheets. The amounts reported for operating leases do not include executory costs.

(c)

Purchase obligations reflect legally binding agreements entered into by us to purchase goods or services, that specify minimum quantities to be purchased and with fixed or variable price provisions. In accordance with GAAP, these obligations are not reflected in the accompanying consolidated balance sheets. Amounts shown do not, however, reflect open purchase orders, mainly for merchandise, to be fulfilled within one year, which are generally cancellable.

(d)

Other long-term obligations principally represent obligations under insurance and self-insurance programs, certain liabilities related to uncertain income tax benefits and commitments under various acquisition-related agreements including non-compete, consulting and severance agreements and deferred compensation arrangements. These obligations are included in accrued liabilities and other liabilities in the accompanying consolidated balance sheets.

(e)

The table above does not include $10.8 million of unrecognized tax benefits due to uncertainty regarding the realization and timing of the related future cash flows, if any.

The table above excludes amounts included in current liabilities (other than the current portion of long-term debt) as these items will be paid within one year and long-term liabilities not requiring cash payments.

Our assumptions with respect to the interest rates applicable to the term loan facilities and the ABL credit facility are subject to changes that may be material. In addition, other future events could cause actual payments to differ materially from these amounts. Please see Note 16 of the "Notes to Consolidated Financial Statements" in "Item 8—Financial Statements and Supplementary Data" of this Annual Report and "Item 7A—Quantitative and Qualitative Disclosures about Market Risk—Interest rate risk" for information about our interest rate swap agreements.

The majority of our operating leases are for Sally Beauty Supply and BSG stores, which typically are located in strip shopping centers. The use of operating leases allows us to expand our business to new locations without making significant up-front cash outlays for the purchase of land and buildings.

67

Off-Balance Sheet Financing Arrangements

At September 30, 2011 and 2010, we had no off-balance sheet financing arrangements other than operating leases incurred in the ordinary course of business, interest rate swaps, as well as outstanding letters of credit related to inventory purchases and self insurance programs, which totaled $16.0 million and $14.5 million, respectively.

Inflation

Inflation has not had a material effect on our results of operations during each of the last three fiscal years.

Critical Accounting Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities in the financial statements. Actual results may differ from these estimates. We believe these estimates and assumptions are reasonable. We consider accounting policies to be critical when they require us to make assumptions about matters that are highly uncertain at the time the accounting estimate is made and when different estimates that our management reasonably could have used have a material effect on the presentation of our financial condition, changes in financial condition or results of operations.

Our critical accounting estimates include but are not limited to the valuation of inventory, vendor concessions, retention of risk, income taxes, assessment of long-lived assets and intangible assets with definite lives for impairment and share-based payments.

Valuation of Inventory

Inventory is stated at the lower of cost, determined using the first-in, first-out ("FIFO") method, or market (net realizable value). When necessary, the Company adjusts the carrying value of inventory to the lower of cost or market, including disposal costs, and for estimated inventory shrinkage. Estimates of the future demand for the Company's products, historical turn-over rates, the age and sales history of the inventory, and historic as well as anticipated changes in stock keeping units ("SKUs") are some of the key factors used by management in assessing the net realizable value of inventory. We estimate inventory shrinkage between physical counts based upon our historical experience. Actual results differing from these estimates could significantly affect our inventory and cost of products sold and distribution expenses. Inventory shrinkage expense averaged approximately 1.0% of consolidated net sales in fiscal years 2011, 2010 and 2009. A 10% increase or decrease in our estimate of inventory shrinkage at September 30, 2011, would impact net earnings by approximately $1.6 million, net of income tax.

Vendor Rebates and Concessions

The Company deems a cash consideration received from a supplier to be a reduction of the cost of products sold unless it is in exchange for an asset or service or a reimbursement of a specific, incremental, identifiable cost incurred by the Company in selling the vendor's products. The majority of cash consideration received by the Company is considered to be a reduction of the cost of the related products and is reflected in cost of products sold and distribution expenses in our consolidated statements of earnings as the related products are sold. Any portion of such cash consideration received that is attributable to inventory on hand is reflected as a reduction of inventory. We consider the facts and circumstances of the various contractual agreements with vendors in order to determine the appropriate classification of amounts received in the consolidated statements of earnings. We record cash consideration expected to be received from vendors in other receivables at the amount we believe will be collected. These receivables could be significantly affected if actual results differ from management's expectations. A 10% increase or decrease in these receivables at September 30, 2011, would impact net earnings by approximately $1.5 million, net of income tax.

68

Retention of Risk

   Employee Health Insurance Liability

We maintain a largely self-funded program for healthcare benefits for employees who meet certain eligibility requirements. We cover the majority of expenses associated with these benefits, other than payroll deductions and out-of pocket expenses paid by the employees. Payments for healthcare benefits below specified amounts (currently $350,000 per individual per year) are self-insured by us. We base our estimate of ultimate liability on trends in claim payment history, historical trends in claims incurred but not yet reported, and other components such as expected increases in medical costs, projected premium costs and the number of plan participants. We review our liability on a regular basis and adjust our accruals accordingly. As of September 30, 2011 and 2010, we accrued an estimated liability relating to employee health insurance of $6.3 million and $6.0 million, respectively.

Changes in facts and circumstances may lead to a change in the estimated liability due to revisions of the estimated ultimate costs of our employee healthcare benefits. Estimates of medical costs and trends in claims are some of the key factors used by our management in determining our employee health insurance liability. This liability could be significantly affected if actual results differ from management's expectations. A 10% increase or decrease in our employee health insurance liability at September 30, 2011 would impact net earnings by approximately $0.4 million, net of income tax.

   Workers' Compensation Liability, General Liability and Automobile and Property Liability

We maintain a large deductible insurance plan for workers' compensation liability, general liability and automobile and property liability loss exposures. We base our estimates of the ultimate liability on an actuarial analysis performed by an independent third-party actuary. We review our liability on a regular basis and adjust our accruals accordingly. As of September 30, 2011 and 2010, our balance sheet included an estimated liability related to the deductible and retention limits of approximately $26.2 million and $22.8 million, respectively.

Changes in facts and circumstances may lead to a change in the estimated liability due to revisions of the estimated ultimate costs that affect our workers' compensation, general liability and automobile and property liability insurance coverage. Changes in estimates occur over time due to such factors as claims incidence and severity of injury or damages. Our liabilities could be significantly affected if actual results differ from management's expectations or actuarial analyses. A 10% increase or decrease in our workers' compensation liability, general liability and automobile and property liability at September 30, 2011 would impact net earnings by approximately $1.7 million, net of income tax.

The change in the self-insurance liability was as follows (in thousands):

	Fiscal Year Ended September 30,
	2011			2010
Balance at beginning of period	$	30,286		$	26,920
Self-insurance expense		64,001			62,440
Self-insurance liability of businesses acquired		532			—
Payments, net of employee contributions		(60,731	)		(59,074	)
Balance at end of period	$	34,088		$	30,286

Income Taxes

We record income tax provisions in our consolidated financial statements based on an estimation of current income tax liabilities. The development of these provisions requires judgments about tax issues, potential outcomes and timing. If we prevail in tax matters for which provisions have been established or

69

are required to settle matters in excess of established provisions, our effective tax rate for a particular period could be significantly affected.

For the fiscal years ended September 30, 2011, 2010 and 2009, the effective income tax rates were 36.4%, 36.9% and 39.9%, respectively. The decrease in the fiscal year 2011 annual effective tax rate was primarily due to tax benefits resulting from certain intercompany transactions that resulted in the release of valuation allowances during the fiscal year 2011, compared to the fiscal year 2010. The decrease in the fiscal year 2010 annual effective tax rate primarily relates to an increase in earnings in certain low tax jurisdictions, the release of certain valuation allowances and a reduction in unfavorable permanent items. The annual effective tax rate in future years is expected to return to a normalized rate in the range of 37% to 38%.

Deferred income taxes are recognized for the future tax consequences attributable to differences between the 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 that 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. In the future, if we determine that certain deferred tax assets will not be realizable, the related adjustments could significantly affect our effective tax rate at that time. The estimated tax benefit of an uncertain tax position is recorded in our 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.

Assessment of Long-Lived Assets and Intangible Assets for Impairment

Long-lived assets, such as property and equipment, including store equipment, and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets and intangible assets subject to amortization is assessed by comparing the net carrying amount of each asset to its total estimated undiscounted future cash flows ("estimated fair value") expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated fair value, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset.

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually, and whenever events or changes in circumstances indicate it is more likely than not that the value of the asset may be impaired. When assessing goodwill and intangible assets with indefinite lives for potential impairment, management compares the carrying amount of the asset to its fair value. In addition, management considers whether there has been a permanent impairment to the value of the asset by evaluating if various factors (including current operating results, anticipated future results and cash flows, and relevant market and economic conditions) indicate a possible impairment. Based on the reviews performed, after taking into account the economic downturn experienced during the past few years in certain geographic areas in which we operate, there were no material asset impairments recognized in the current or prior fiscal years presented.

Share-Based Payments

We recognize compensation expense on a straight-line basis over the vesting period or to the date a participant becomes eligible for retirement, if earlier. For fiscal years 2011, 2010 and 2009, total compensation cost charged against income and included in selling, general and administrative expenses for share-based compensation arrangements was $15.6 million, $12.8 million and $8.6 million, respectively.

70

The amount of stock option expense is determined based on the fair value of each stock option grant, which is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: expected life, volatility, risk-free interest rate and dividend yield. The expected life of stock options represents the period of time that the stock options granted are expected to be outstanding. We estimate the expected life based on historical exercise trends. During each of the past five years, we have estimated expected volatility by using the average volatility of both the Company and similar companies (based on industry sector) since it has not been practicable to estimate the Company's expected volatility on a stand-alone basis due to a lack of sufficient trading history. The risk-free interest rate is based on the zero-coupon U.S. Treasury issue at the date of the grant for the expected life of the stock options. The dividend yield represents our anticipated cash dividend over the expected life of the stock options. The amount of stock option expense recorded is significantly affected by these estimates. In addition, we record stock option expense based on an estimate of the total number of stock options expected to vest, which requires us to estimate future forfeitures. We use historical forfeiture experience as a basis for this estimate. Actual forfeitures differing from these estimates could significantly affect the timing of the recognition of stock option expense. We have based all these estimates on our assumptions as of September 30, 2011. Our estimates for future periods may be based on different assumptions and accordingly may differ.

We believe that our share-based compensation expense is based on reasonable estimates and assumptions. However, if actual results are not consistent with our estimate or assumptions, we may be exposed to changes in share-based compensation expense that could be material. A 10% change in our share-based compensation expense for the year ended September 30, 2011 would affect earnings by approximately $1.0 million, net of income tax.

Recent Accounting Pronouncements

We have not yet adopted and are currently assessing any potential effect of the following pronouncements on our consolidated financial statements:

In December 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-28 which amended Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other. This amendment modifies the goodwill impairment test for reporting units with a zero or negative carrying amount, by requiring that Step 2 of the goodwill impairment test be performed for such reporting units if it is more likely than not that an impairment of goodwill exists. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early application is not permitted.

In December 2010, the FASB issued ASU No. 2010-29 which amended ASC Topic 805, Business Combinations ("ASC 805"). This amendment requires that a public company that enters into business combinations that are material on an individual or aggregate basis disclose certain pro forma information for the current and the immediately preceding fiscal year. This amendment also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to such business combination or business combinations. This amendment is effective prospectively for business combinations consummated on or after the first annual reporting period beginning on or after December 15, 2010. Early application is permitted.

In May 2011, the FASB issued ASU No. 2011-04 which amended ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). When effective, this amendment will change the title of ASC 820 to "Fair Value Measurement" and will adopt fair value measurement and disclosure guidance that is generally consistent with the corresponding International Financial Reporting Standards ("IFRS") guidance. More specifically, this amendment will change certain requirements for measuring fair value or for disclosing information about fair value measurements or, alternatively, clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements. For public companies, this

71

amendment is effective for interim periods and fiscal years beginning after December 15, 2011. Early application by public companies is not permitted.

In June 2011, the FASB issued ASU No. 2011-05 which amended ASC Topic 220, Comprehensive Income. This amendment, which must be applied retrospectively, will allow an entity the option to present the components of net income, as well as total comprehensive income and the components of other comprehensive income, either in a single continuous statement of comprehensive income or in two separate consecutive statements. This amendment also eliminates the option to present the components of other comprehensive income in the statement of stockholders' equity but does not change the items that must be reported. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. Early application is permitted.

In September 2011, the FASB issued ASU No. 2011-08 which amended ASC Topic 350, Intangibles-Goodwill and Other. This amendment will allow an entity to first assess relevant qualitative factors in order to determine whether it is necessary to perform the two-step quantitative goodwill impairment test under ASC 350. In effect, the amendment eliminates the need to calculate the fair value of a reporting unit in connection with the goodwill impairment test unless the entity determines, based on the qualitative assessment, that it is more likely than not that the reporting unit's fair value is less than its carrying amount. This amendment is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Early application is permitted.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a multinational corporation, we are subject to certain market risks including foreign currency fluctuations, interest rates and credit risk. We may consider a variety of practices in the ordinary course of business to manage these market risks, including, when deemed appropriate, the use of derivative financial instruments.

Foreign currency exchange rate risk

We are exposed to potential gains or losses from foreign currency fluctuations affecting net investments and earnings denominated in foreign currencies. Our primary exposures are to changes in exchange rates for the U.S. dollar versus the Euro, the British pound sterling, the Canadian dollar, the Chilean peso, and the Mexican peso. Our various foreign currency exposures at times offset each other, sometimes providing a natural hedge against foreign currency risk. For the fiscal years 2011, 2010 and 2009, approximately 18%, 18% and 16%, respectively, of our consolidated net sales were made in currencies other than the U.S. dollar. Consolidated net sales for the fiscal year ended September 30, 2011, are inclusive of approximately $23.3 million in positive impact from changes in foreign currency exchange rates and other comprehensive income reflects $8.0 million in foreign currency translation adjustments. For the fiscal years 2011, 2010 and 2009, fluctuations in the U.S. dollar exchange rates did not otherwise have a material effect on our consolidated financial condition and consolidated results of operations.

A 10% increase or decrease in the exchange rates for the U.S. dollar versus the foreign currencies to which we have exposure, would have impacted our consolidated net sales by approximately 1.8% in the fiscal year 2011, and would have impacted our consolidated net assets by approximately 2.5% at September 30, 2011.

The Company uses foreign currency options and collars, including, at September 30, 2011, collars with an aggregate notional amount of $12.5 million to manage the exposure to the U.S. dollar resulting from our Sinelco Group subsidiaries' purchases of merchandise from third-party suppliers. Sinelco's functional currency is the Euro. The foreign currency collar agreements held by the Company at September 30, 2011 have contractual Euro to U.S. dollar exchange rates between 1.4000 and 1.4612 and expire in varying amounts monthly through September 2012. In addition, the Company uses foreign currency forwards to mitigate its exposure to changes in foreign currency exchange rates in connection with certain intercompany balances not permanently invested. As such, at September 30, 2011, we held a foreign currency forward which enabled us to sell approximately €19.9 million ($26.7 million, at the September 30,

72

2011 exchange rate) at the contractual exchange rate of 1.3610, a foreign currency forward which enabled us to buy approximately $18.3 million Canadian dollars ($17.5 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.01855 and a foreign currency forward which enabled us to buy approximately £5.6 million ($8.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.5630. All the foreign currency forwards held by the Company at September 30, 2011 expired in October 2011.

The Company's foreign currency option and forward agreements are not designated as hedges and do not currently meet the requirements for hedge accounting. Accordingly, the changes in the fair value (i.e., marked-to-market adjustments) of these derivative instruments (which are adjusted quarterly) are recorded in selling, general and administrative expenses in our consolidated statements of earnings. During the fiscal year ended September 30, 2011, these derivative instruments did not have a material impact in our consolidated results of operations or consolidated cash flows.

Interest rate risk

As a result of the debt financing incurred in connection with the Separation Transactions, we are subject to interest rate market risk in connection with our long-term debt. The principal interest rate exposure relates to amounts borrowed under the term loan B and the ABL facilities. Based on the approximately $696.9 million of borrowings under the term loan B facility and the ABL credit facility as of September 30, 2011, a change in the estimated applicable interest rate up or down by ¹/8% will increase or decrease earnings, before provision for income taxes, by approximately $0.9 million on an annual basis, without considering the effect of any interest rate swap agreements we may have from time to time.

We and certain of our subsidiaries are sensitive to interest rate fluctuations. In order to enhance our ability to manage risk relating to cash flow and interest rate exposure, we and/or our other subsidiaries who are borrowers under the ABL credit facility may from time to time enter into and maintain derivative instruments, such as interest rate swap agreements, for periods consistent with the related underlying exposures. In addition, pursuant to the agreement underlying our term loan facilities we and/or certain of our other subsidiaries hedge a portion of our floating interest rate exposure for a specified period as more fully described below. We do not purchase or hold any derivative instruments for speculative or trading purposes.

In November 2006, Sally Holdings entered into certain interest rate swap agreements with an aggregate notional amount of $500 million. These interest rate swap agreements expired on or before November 2009 and were not designated as hedges and, accordingly, the changes in fair value of these interest rate swap agreements (which were adjusted quarterly) were recorded in interest expense in our consolidated statements of earnings.

In the fiscal year 2008, the Company entered into interest rate swap agreements with an aggregate notional amount of $300.0 million. These agreements expire in May 2012 and enable the Company to convert a portion of its variable-interest rate obligations to fixed-interest rate obligations in connection with the term loan facilities, with interest ranging from 5.818% to 6.090%. Interest payments related to our term loans are impacted by changes in LIBOR. These agreements are designated as effective cash flow hedges. Accordingly, the changes in the fair value of these derivative instruments are recorded quarterly, net of income tax, in accumulated other comprehensive (loss) income ("OCI") until the hedged obligation is settled or the swap agreements expire, whichever is earlier. Any hedge ineffectiveness is recognized in interest expense in our consolidated statements of earnings.

Credit risk

We are exposed to credit risk on certain assets, primarily cash equivalents, short-term investments and accounts receivable. We believe that the credit risk associated with cash equivalents and short-term investments, if any, is largely mitigated by our policy of investing in a diversified portfolio of securities with high credit ratings.

73

We provide credit to customers in the ordinary course of business and perform ongoing credit evaluations. We believe that our exposure to concentrations of credit risk with respect to trade receivables is largely mitigated by our broad customer base. We believe our allowance for doubtful accounts is sufficient to cover customer credit risks.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Please see "Index to Financial Statements" which is located on page 88 of this Annual Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Background.    Attached as exhibits to this Annual Report on Form 10-K are certifications of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), which are required in accordance with Rule 13a-14 of the Exchange Act. This "Controls and Procedures" section includes information concerning the controls and controls evaluation referred to in the certifications. Part II, Item 8—Financial Statements and Supplementary Data of this Annual Report on Form 10-K sets forth the attestation report of KPMG LLP, our independent registered public accounting firm, regarding its audit of our internal control over financial reporting. This section should be read in conjunction with the certifications and the KPMG attestation report for a more complete understanding of the topics presented.

Controls Evaluation and Related CEO and CFO Certifications.    Our management, with the participation of our CEO and CFO, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report. The controls evaluation was conducted by our Disclosure Committee, comprised of senior representatives from our finance, accounting, internal audit, and legal departments under the supervision of our CEO and CFO.

Certifications of our CEO and our CFO, which are required in accordance with Rule 13a-14 of the Exchange Act, are attached as exhibits to this Annual Report. This "Controls and Procedures" section includes the information concerning the controls evaluation referred to in the certifications, and it should be read in conjunction with the certifications for a more complete understanding of the topics presented.

Limitations on the Effectiveness of Controls.    We do not expect that our disclosure controls and procedures will prevent all errors and all fraud. A system of controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Because of the limitations in all such systems, no evaluation can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Furthermore, the design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how unlikely. Because of these inherent limitations in a cost-effective system of controls and procedures, misstatements or omissions due to error or fraud may occur and not be detected.

Scope of the Controls Evaluation.    The evaluation of our disclosure controls and procedures included a review of their objectives and design, our implementation of the controls and procedures and the effect of the controls and procedures on the information generated for use in this Annual Report. In the course of the evaluation, we sought to identify whether we had any data errors, control problems or acts of fraud and to confirm that appropriate corrective action, including process improvements, was being undertaken if needed. This type of evaluation is performed on a quarterly basis so that conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our Quarterly Reports on Form 10-Q and our Annual Reports on Form 10-K. Many of the components of our disclosure controls

74

and procedures are also evaluated by our internal audit department, by our legal department and by personnel in our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls and procedures on an ongoing basis, and to maintain them as dynamic systems that change as conditions warrant.

Conclusions regarding Disclosure Controls.    Based on the required evaluation of our disclosure controls and procedures, our CEO and CFO have concluded that, as of September 30, 2011, we maintain disclosure controls and procedures that are effective in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

   Management's Annual Report on Internal Control over Financial Reporting.

Management of the Company, including the CEO and CFO, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control system was designed to provide reasonable assurance to management and our Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. A system of internal controls may become inadequate over time because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of our internal control over financial reporting as of September 30, 2011 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control-Integrated Framework. Based on this assessment, management has concluded that, as of September 30, 2011 our internal control over financial reporting was effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles based on such criteria.

Report of Independent Registered Public Accounting Firm.    Please refer to KPMG's Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting on page 88 of the financial statements, which begin on page 71 of this Annual Report.

Changes in Internal Control over Financial Reporting.    During our last fiscal quarter, there have been no changes in our internal control over financial reporting identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

75

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by Item 10 of this Annual Report on Form 10-K is incorporated by reference from our Proxy Statement related to the 2012 Annual Meeting of Stockholders under the headings "Proposal 1—Election of Directors," "Executive Officers of the Registrant," "Information Regarding Corporate Governance, the Board, and Its Committees," "Section 16(a) Beneficial Ownership Reporting Compliance" and "Report of the Audit Committee."

The Board of Directors has adopted: (i) Corporate Governance Guidelines and a (ii) Code of Business Conduct and Ethics that apply to directors, officers and employees. Copies of these documents and the committee charters are available on our website at www.sallybeautyholdings.com and are available in print to any person, without charge, upon written request to our Vice President of Investor Relations. We intend to disclose on our website at www.sallybeautyholdings.com any substantive amendment to, or waiver from, a provision of the Code of Business Conduct and Ethics that applies to these individuals or persons performing similar functions.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 of this Annual Report on Form 10-K is incorporated by reference from our Proxy Statement related to the 2012 Annual Meeting of Stockholders under the headings "Information on the Compensation of Directors," "Compensation Discussion and Analysis," "Compensation Committee Report," "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 of this Annual Report on Form 10-K is incorporated by reference from our Proxy Statement related to the 2012 Annual Meeting of Stockholders under the heading "Ownership of Securities."

EQUITY COMPENSATION PLAN INFORMATION

The following table gives information as of September 30, 2011, about our common stock that may be issued under all of our existing equity compensation plans:

Plan Category		Number of securities to be issued upon exercise of outstanding options, warrants and rights(1) (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(2) (c)
Equity compensation plans approved by security holders			14,537,125	$	8.50		13,158,497
Equity compensation plans not approved by security holders			N/A		N/A		N/A
	Total		14,537,125	$	8.50		13,158,497

76

(1)

Includes options issued and available for exercise and shares available for issuance in connection with past awards under the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan ("the 2010 Plan") and predecessor share-based plans. We currently grant awards only under the 2010 Plan.

(2)

Represents shares that are available for issuance pursuant to restricted stock or other full value awards under the 2010 Plan and predecessor share-based plans.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 of this Annual Report on Form 10-K is incorporated by reference from our Proxy Statement related to the 2012 Annual Meeting of Stockholders under the headings "Information Regarding Corporate Governance, the Board, and Its Committees," "Compensation Committee Interlocks and Insider Participation" and "Certain Relationships and Related Transactions."

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by Item 14 of this Annual Report on Form 10-K is incorporated by reference from our Proxy Statement related to the 2012 Annual Meeting of Stockholders under the heading "Proposal 2—Ratification of Selection of Auditors."

77

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Documents filed as part of this Annual Report:

(a)   Financial Statements and Financial Statement Schedules

Please see "Index to Financial Statements" which is located on page 88 of this Annual Report.

(b)   Exhibits Required by Securities and Exchange Commission Regulation S-K

The following exhibits are filed as part of this Annual Report or are incorporated herein by reference:

Exhibits

Exhibit No.	Description
2.1	Investment Agreement, dated as of June 19, 2006, among Alberto-Culver Company, New Aristotle Company, Sally Holdings, Inc., New Sally Holdings, Inc. and CDRS Acquisition LLC, which is incorporated herein by reference from Exhibit 2.1 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006†
2.2	First Amendment to the Investment Agreement, dated as of October 3, 2006, among Alberto-Culver Company, New Aristotle Company, Sally Holdings, Inc., New Sally Holdings, Inc. and CDRS Acquisition LLC, which is incorporated herein by reference from Exhibit 2.2 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006†
2.3	Second Amendment to the Investment Agreement, dated as of October 26, 2006, among Alberto-Culver Company, New Aristotle Company, Sally Holdings, Inc., New Sally Holdings, Inc. and CDRS Acquisition LLC, which is incorporated herein by reference from Exhibit 2.02 to the Company's Current Report on Form 8-K filed on October 30, 2006†
2.4	Separation Agreement, dated as of June 19, 2006, among Alberto-Culver Company, Sally Holdings, Inc., New Sally Holdings, Inc. and New Aristotle Holdings, Inc., which is incorporated herein by reference from Exhibit 2.3 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006†
2.5	First Amendment to the Separation Agreement, dated as of October 3, 2006, among Alberto-Culver Company, Sally Holdings, Inc., New Sally Holdings, Inc. and New Aristotle Holdings, Inc., which is incorporated herein by reference from Exhibit 2.4 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006†
2.6	Second Amendment to the Separation Agreement, dated as of October 26, 2006, among Alberto-Culver Company, Sally Holdings, Inc., New Sally Holdings, Inc. and New Aristotle Holdings, Inc., which is incorporated herein by reference from Exhibit 2.01 to the Company's Current Report on Form 8-K filed on October 30, 2006†

78

2.7	Agreement and Plan of Merger by and among Beauty Systems Group LLC, Lady Lynn Enterprises, Inc., Schoeneman Beauty Supply, Inc., the Shareholders and F. Dale Schoeneman, dated September 30, 2009, which is incorporated herein by reference from Exhibit 10.27 to the Company's Annual Report on Form 10-K filed on November 19, 2009†
2.8	Stock Purchase Agreement entered into on October 1, 2010 by and among Beauty Systems Group LLC, Aerial Company, Inc. and the stockholders named therein, which is incorporated herein by reference from Exhibit 2.7 to the Company's Quarterly Report on Form 10-Q filed on February 3, 2011†
3.1	Amended and Restated Certificate of Incorporation of Sally Beauty Holdings, Inc., dated November 16, 2006, which is incorporated herein by reference from Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed on November 20, 2006
3.2	Third Amended and Restated Bylaws of Sally Beauty Holdings, Inc., dated October 23, 2008, which is incorporated herein by reference from Exhibit 3.1 to the Company's Current Report on Form 8-K filed on October 23, 2008.
4.1	Stockholders Agreement, dated as of November 16, 2006, by and among the Company, CDRS Acquisition LLC, CD&R Parallel Fund VII, L.P. and the other stockholders party thereto, which is incorporated herein by reference from Exhibit 4.8 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.2	First Amendment to the Stockholders Agreement, dated as of December 13, 2006, between the Company and CDRS Acquisition LLC and Carol L. Bernick, as representative of the other stockholders, which is incorporated herein by reference from Exhibit 4.2 to the Company's Annual Report on Form 10-K filed on December 22, 2006
4.3	Indenture, dated as of November 16, 2006, by and among Sally Holdings LLC and Sally Capital Inc., as Co-Issuers, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as Trustee, governing the 9.25% Senior Notes due 2014, which is incorporated herein by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.4	First Supplemental Indenture, dated as of May 30, 2007, by and among Sally Holdings LLC and Sally Capital Inc., as co-Issuers, the Subsidiary Guarantors named therein, and Wells Fargo Bank, National Association, as trustee, governing the 9.25% Senior Notes due 2014, which is incorporated herein by reference from Exhibit 4.2 from the Registration Statement on Form S-4 (File No. 333-144427) of Sally Holdings LLC and Sally Capital Inc. filed on July 9, 2007
4.5	Indenture, dated as of November 16, 2006, by and among Sally Holdings LLC and Sally Capital Inc., as Co-Issuers, the Subsidiary Guarantors from time to time parties thereto, and Wells Fargo Bank, National Association, as Trustee, governing the 10.5% Senior Subordinated Notes due 2016, which is incorporated herein by reference from Exhibit 4.2 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.6	First Supplemental Indenture, dated as of May 30, 2007, by and among Sally Holdings LLC and Sally Capital Inc., as co-Issuers, the Subsidiary Guarantors named therein, and Wells Fargo Bank, National Association, as trustee, governing the 10.5% Senior Subordinated Notes due 2016, which is incorporated herein by reference from Exhibit 4.4 from the Registration Statement on Form S-4 (File No. 333-144427) of Sally Holdings LLC and Sally Capital Inc. filed on July 9, 2007

79

4.7	Exchange and Registration Rights Agreement, dated as of November 16, 2006, by and among Sally Holdings LLC, Sally Capital Inc., the Subsidiary Guarantors parties thereto, Merrill Lynch, Pierce, Fenner & Smith, Incorporated and the other financial institutions named therein, relating to the 9.25% Senior Notes due 2014, which is incorporated herein by reference from Exhibit 4.3 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.8	Exchange and Registration Rights Agreement, dated as of November 16, 2006, by and among Sally Holdings LLC, Sally Capital Inc., the Subsidiary Guarantors parties thereto, Merrill Lynch, Pierce, Fenner & Smith, Incorporated and the other financial institutions named therein, relating to the 10.5% Senior Subordinated Notes due 2016, which is incorporated herein by reference from Exhibit 4.4 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.9	Credit Agreement, dated November 16, 2006, with respect to a Term Loan Facility, by and among Sally Holdings LLC, the several lenders from time to time parties thereto, and Merrill Lynch Capital Corporation, as Administrative Agent and Collateral Agent, which is incorporated herein by reference from Exhibit 4.5.1 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.10	Guarantee and Collateral Agreement, dated as of November 16, 2006, made by Sally Investment Holdings LLC, Sally Holdings LLC and certain subsidiaries of Sally Holdings LLC in favor of Merrill Lynch Capital Corporation, as Administrative Agent and Collateral Agent, which is incorporated herein by reference from Exhibit 4.5.2 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.11	Credit Agreement, dated November 16, 2006, with respect to an Asset-Based Loan Facility, among Sally Holdings LLC, Beauty Systems Group LLC, Sally Beauty Supply LLC, any Canadian Borrower from time to time party thereto, certain subsidiaries of Sally Holdings LLC, the several lenders from time to time parties thereto, Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent and Collateral Agent, and Merrill Lynch Capital Canada Inc., as Canadian Agent and Canadian Collateral Agent, which is incorporated herein by reference from Exhibit 4.6.1 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.12	U.S. Guarantee and Collateral Agreement, dated as of November 16, 2006, made by Sally Investment Holdings LLC, Sally Holdings LLC and certain subsidiaries of Sally Holdings LLC in favor of Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent and Collateral Agent, which is incorporated herein by reference from Exhibit 4.6.2 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.13	Canadian Guarantee and Collateral Agreement, dated as of November 16, 2006, made by Sally Beauty (Canada) Corporation, Beauty Systems Group (Canada), Inc., Sally Beauty Canada Holdings Inc. and certain of their respective subsidiaries in favor of Merrill Lynch Capital Canada Inc., as Canadian Agent and Canadian Collateral Agent, which is incorporated herein by reference from Exhibit 4.6.3 to the Company's Current Report on Form 8-K filed on November 22, 2006

80

4.14	Intercreditor Agreement, dated as of November 16, 2006, by and between Merrill Lynch Capital Corporation, as Administrative Agent and Collateral Agent under the Term Loan Facility, and Merrill Lynch Capital, a division of Merrill Lynch Business Financial Services Inc., as Administrative Agent and Collateral Agent under the Asset-Based Loan Facility, which is incorporated herein by reference from Exhibit 4.7 to the Company's Current Report on Form 8-K filed on November 22, 2006
4.15	Assignment and Acceptance of that certain Credit Agreement, dated as of November 16, 2006, among Sally Holdings LLC, Beauty Systems Group LLC, Sally Beauty Supply LLC, the Canadian Borrowers (as defined in the Credit Agreement), the several banks and other financial institutions from time to time parties thereto, Merrill Lynch Capital, a division of' Merrill Lynch Business Financial Services Inc., as administrative agent and collateral agent for the Lenders and Merrill Lynch Capital Canada, Inc., as Canadian agent and Canadian collateral agent for the Lenders, which is incorporated herein by reference from Exhibit 4.15 to the Company's Annual Report on Form 10-K filed on November 19, 2009
4.16	Credit Agreement dated as of November 12, 2010 among Sally Holdings LLC, Beauty Systems Group LLC, Sally Beauty Supply LLC, as domestic borrowers, Beauty Systems Group (Canada), Inc., as Canadian borrower, SBH Finance B.V., as foreign borrower, the guarantors from time to time party hereto, Bank of America, N.A., as administrative agent and collateral agent, Bank of America, N.A. (acting through its Canada branch), as Canadian agent, the other lenders party hereto, JPMorgan Chase Bank, N.A., as documentation agent, Wells Fargo Capital Finance, LLC, as syndication agent, Banc of America Securities LLC, Wells Fargo Capital Finance, LLC, as joint lead arrangers and joint book managers, which is incorporated herein by reference from Exhibit 4.13 to the Company's Quarterly Report on Form 10-Q filed on February 3, 2011
4.17	Security Agreement by Sally Holdings LLC, Beauty Systems Group LLC, Sally Beauty Supply LLC, as the domestic borrowers and the other domestic borrowers and domestic guarantors party hereto from time to time and Bank of America, N.A. as collateral agent dated as of November 12, 2010, which is incorporated herein by reference from Exhibit 4.14 to the Company's Quarterly Report on Form 10-Q filed on February 3, 2011
4.18	Security Agreement by Beauty Systems Group (Canada), Inc., as the Canadian borrower and Bank of America, N.A., (acting through its Canada branch), as Canadian agent dated as of November 12, 2010, which is incorporated herein by reference from Exhibit 4.15 to the Company's Quarterly Report on Form 10-Q filed on February 3, 2011
4.19	Indenture, dated as of November 8, 2011, by and among Sally Holdings LLC, Sally Capital Inc., the guarantors listed therein and Wells Fargo Bank, National Association (including the form of Note attached as an exhibit thereto), which is incorporated herein by reference from Exhibit 4.1 to the Company's Current Report on Form 8-K filed on November 9, 2011
4.20	Registration Rights Agreement, dated as of November 8, 2011, by and among Sally Holdings LLC, Sally Capital Inc., the guarantors listed therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC, which is incorporated herein by reference from Exhibit 4.2 to the Company's Current Report on Form 8-K filed on November 9, 2011

81

10.1	Tax Allocation Agreement, dated as of June 19, 2006, among Alberto-Culver Company, New Aristotle Holdings, Inc., New Sally Holdings, Inc. and Sally Holdings, Inc., which is incorporated herein by reference from Exhibit 10.1 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006
10.2	First Amendment to the Tax Allocation Agreement, dated as of October 3, 2006, among Alberto-Culver Company, New Aristotle Holdings, Inc., New Sally Holdings, Inc. and Sally Holdings, Inc., which is incorporated herein by reference from Exhibit 10.2 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006
10.3	Second Amendment to the Tax Allocation Agreement, dated as of October 26, 2006, among Alberto-Culver Company, New Aristotle Holdings, Inc., New Sally Holdings, Inc. and Sally Holdings, Inc., which is incorporated herein by reference from Exhibit 10.01 to the Company's Current Report on Form 8-K filed on October 30, 2006
10.4	Employee Matters Agreement, dated as of June 19, 2006, among Alberto-Culver Company, New Aristotle Holdings, Inc., New Sally Holdings, Inc. and Sally Holdings, Inc., which is incorporated herein by reference from Exhibit 10.3 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006
10.5	First Amendment to the Employee Matters Agreement, dated October 3, 2006, among Alberto-Culver Company, New Aristotle Holdings, Inc., New Sally Holdings, Inc. and Sally Holdings, Inc., which is incorporated herein by reference from Exhibit 10.4 to Amendment No. 3 to the Company's Registration Statement on Form S-4 (File No. 333-136259) filed on October 10, 2006
10.6	Second Amendment to the Employee Matters Agreement, dated as of October 26, 2006, among Alberto-Culver Company, New Aristotle Holdings, Inc., New Sally Holdings, Inc. and Sally Holdings, Inc., which is incorporated herein by reference from Exhibit 10.02 to the Company's Current Report on Form 8-K filed on October 30, 2006
10.7	Termination Agreement, dated as of June 18, 2006, among Alberto-Culver Company, Sally Holdings, Inc. and Gary G. Winterhalter, which is incorporated herein by reference from Exhibit 10.9 to the Current Report on Form 8-K filed by Alberto-Culver Company on June 22, 2006
10.8	Form of First Amendment to the Termination Agreement with Gary G. Winterhalter, which is incorporated herein by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on January 29, 2007
10.9	Sally Beauty Holdings, Inc. Independent Director Compensation Policy, which is incorporated herein by reference from Exhibit 10.12 to the Company's Annual Report on Form 10-K filed on November 19, 2009
10.10	Alberto-Culver Company 2003 Stock Option Plan for Non-Employee Directors, which is incorporated herein by reference from Exhibit 10.17 to the Registration Statement on Form S-4 (File No. 333-144427) of Sally Holdings LLC and Sally Capital Inc. filed on July 9, 2007

82

10.11	Alberto-Culver Company 2003 Restricted Stock Plan, which is incorporated herein by reference from Exhibit 10.18 to the Registration Statement on Form S-4 (File No. 333-144427) of Sally Holdings LLC and Sally Capital Inc. filed on July 9, 2007
10.12	Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 4.4 to the Company's Registration Statement on Form S-8 filed on May 3, 2007
10.13	Form of Stock Option Agreement for Independent Directors pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 27, 2007
10.14	2007 Form of Stock Option Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.2 to the Company's Current Report on Form 8-K filed April 27, 2007
10.15	2007 Form of Restricted Stock Unit Agreement for Independent Directors pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.3 to the Company's Current Report on Form 8-K filed on April 27, 2007
10.16	2007 Form of Restricted Stock Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.4 to the Company's Current Report on Form 8-K filed on April 27, 2007
10.17	2009 Form of Stock Option Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.23 to the Company's Annual Report on Form 10-K filed on November 20, 2008
10.18	2009 Form of Restricted Stock Unit Agreement for Independent Directors pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.24 to the Company's Annual Report on Form 10-K filed on November 20, 2008
10.19	2009 Form of Restricted Stock Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.25 to the Company's Annual Report on Form 10-K filed on November 20, 2008
10.20	Tax Sharing Agreement, dated as of November 16, 2006, made and entered into by and among Sally Beauty Holdings, Inc., Sally Investment Holdings LLC and Sally Holdings LLC, which is incorporated herein by reference from Exhibit 10.14 of the Quarterly Report on Form 10-Q of Sally Holdings LLC and Sally Capital Inc. filed on August 29, 2007
10.21	Form of Option Exercise Period Extension Agreement for Retired Executives, which is incorporated herein by reference from Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on May 6, 2009
10.22	Amendment and Restated Alberto-Culver Company Employee Stock Option Plan of 2003, which is incorporated herein by reference from Exhibit 10.28 to the Company's Annual Report on Form 10-K filed on November 19, 2009

83

10.23	2010 Form of Restricted Stock Unit Agreement for Independent Directors pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.29 to the Company's Annual Report on Form 10-K filed on November 19, 2009
10.24	2010 Form of Restricted Stock Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.30 to the Company's Annual Report on Form 10-K filed on November 19, 2009
10.25	2010 Form of Stock Option Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.31 to the Company's Annual Report on Form 10-K filed on November 19, 2009
10.26	2010 Form of Stock Option Agreement for Employees pursuant to the Alberto-Culver Company Employee Stock Option Plan of 2003, which is incorporated herein by reference from Exhibit 10.32 to the Company's Annual Report on Form 10-K filed on November 19, 2009
10.27	Form of Amended and Restated Indemnification Agreement with Directors, which is incorporated herein by reference from Exhibit 10.33 to the Company's Annual Report on Form 10-K filed on November 19, 2009
10.28	Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan, which is incorporated herein by reference from Appendix A to the Company's Definitive Proxy Statement on Schedule 14A filed on December 11, 2009
10.29	Amended and Restated Letter Agreement between Clayton, Dubilier & Rice, LLC ("CD&R") and the Company with respect to the provision of services by CD&R to the Company's Board of Directors dated as of February 24, 2010, which is incorporated herein by reference from Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 4, 2010
10.30	2011 Form of Restricted Stock Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.33 to the Company's Annual Report on Form 10-K filed on November 18, 2010
10.31	2011 Form of Stock Option Agreement for Employees pursuant to the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.34 to the Company's Annual Report on Form 10-K filed on November 18, 2010
10.32	2011 Form of Restricted Stock Unit Agreement for Independent Directors pursuant to the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan, which is incorporated herein by reference from Exhibit 10.35 to the Company's Annual Report on Form 10-K filed on November 18, 2010
10.33	Purchase Agreement, dated as of November 3, 2011, by and among Sally Holdings LLC, Sally Capital Inc., the guarantors listed therein and Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC and Wells Fargo Securities, LLC, which is incorporated herein by reference from Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 9, 2011

84

10.34	Form of Sally Beauty Holdings, Inc. 2012 Annual Incentive Plan*
21.1	List of Subsidiaries of Sally Beauty Holdings, Inc.*
23.1	Consent of KPMG*
31.1	Rule 13(a)-14(a)/15(d)-14(a) Certification of Gary G. Winterhalter*
31.2	Rule 13(a)-14(a)/15(d)-14(a) Certification of Mark J. Flaherty*
32.1	Section 1350 Certification of Gary G. Winterhalter*
32.2	Section 1350 Certification of Mark J. Flaherty*
101	Pursuant to Rule 406T of Regulation S-T, the following financial information from our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language) and furnished electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Earnings; (iii) the Consolidated Statements of Cash Flows; and (iv) the Notes to Consolidated Financial Statements.

*

Included herewith

†

Certain schedules and exhibits have been omitted pursuant to Item 601(b) (2) of Regulation S-K. The Registrant agrees to furnish supplementally to the Securities and Exchange Commission a copy of any omitted schedule or exhibit upon request.

85

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 16th day of November, 2011.

SALLY BEAUTY HOLDINGS, INC.
By:	/s/ GARY G. WINTERHALTER Gary G. Winterhalter President, Chief Executive Officer and Director
By:	/s/ MARK J. FLAHERTY Mark J. Flaherty Senior Vice President and Chief Financial Officer
By:	/s/ JANNA S. MINTON Janna S. Minton Vice President, Chief Accounting Officer and Controller

86

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ GARY G. WINTERHALTER Gary G. Winterhalter	President, Chief Executive Officer and Director (Principal Executive Officer)	November 16, 2011
/s/ MARK J. FLAHERTY Mark J. Flaherty	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	November 16, 2011
/s/ JANNA S. MINTON Janna S. Minton	Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)	November 16, 2011
/s/ JAMES G. BERGES James G. Berges	Chairman of the Board and Director	November 16, 2011
/s/ KATHLEEN J. AFFELDT Kathleen J. Affeldt	Director	November 16, 2011
/s/ MARSHALL E. EISENBERG Marshall E. Eisenberg	Director	November 16, 2011
/s/ KENNETH A. GIURICEO Kenneth A. Giuriceo	Director	November 16, 2011
/s/ ROBERT R. MCMASTER Robert R. McMaster	Director	November 16, 2011
/s/ WALTER L. METCALFE JR. Walter L. Metcalfe Jr.	Director	November 16, 2011
/s/ JOHN A. MILLER John A. Miller	Director	November 16, 2011
/s/ MARTHA J. MILLER Martha J. Miller	Director	November 16, 2011
/s/ EDWARD W. RABIN Edward W. Rabin	Director	November 16, 2011
/s/ RICHARD J. SCHNALL Richard J. Schnall	Director	November 16, 2011

87

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Financial Statements
Years ended September 30, 2011, 2010 and 2009

INDEX TO FINANCIAL STATEMENTS

		Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Financial Statements:		F-3
	Consolidated Balance Sheets as of September 30, 2011 and 2010	F-4
	Consolidated Statements of Earnings for the years ended September 30, 2011, 2010 and 2009	F-5
	Consolidated Statements of Cash Flows for the years ended September 30, 2011, 2010 and 2009	F-6
	Consolidated Statements of Stockholders' Equity (Deficit) for the years ended September 30, 2011, 2010 and 2009	F-7
Notes to Consolidated Financial Statements for the years ended September 30, 2011, 2010 and 2009		F-8

88

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Sally Beauty Holdings, Inc.:

We have audited Sally Beauty Holdings, Inc.'s (the Company) internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Sally Beauty Holdings, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Sally Beauty Holdings, Inc. and subsidiaries as of September 30, 2011 and 2010, and the related consolidated statements of earnings, cash flows and stockholders' equity (deficit) for each of the years in the three-year period ended September 30, 2011, and our report dated November 15, 2011 expressed an unqualified opinion on those consolidated financial statements.

/s/ KPMG LLP

KPMG LLP
Dallas, Texas
November 15, 2011

F-1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
Sally Beauty Holdings, Inc.:

We have audited the accompanying consolidated balance sheets of Sally Beauty Holdings, Inc. (the Company) and subsidiaries as of September 30, 2011 and 2010, and the related consolidated statements of earnings, cash flows, and stockholders' equity (deficit) for each of the years in the three-year period ended September 30, 2011. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sally Beauty Holdings, Inc. and subsidiaries as of September 30, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 2011, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of September 30, 2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 15, 2011 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

/s/ KPMG LLP

KPMG LLP
Dallas, Texas
November 15, 2011

F-2

Consolidated Financial Statements

The following consolidated balance sheets as of September 30, 2011 and 2010 and the related consolidated statements of earnings, cash flows, and stockholders' equity (deficit) for each of the fiscal years in the three-year period ended September 30, 2011 are those of Sally Beauty Holdings, Inc. and its consolidated subsidiaries.

F-3

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 2011 and 2010
(In thousands, except par value data)

			2011			2010
Assets
Current assets:
	Cash and cash equivalents		$	63,481		$	59,494
	Trade accounts receivable, less allowance for doubtful accounts of $2,086 and $2,756 at September 30, 2011 and 2010, respectively			61,996			54,989
	Accounts receivable, other			33,530			29,510
	Inventory			665,246			604,357
	Prepaid expenses			26,360			23,486
	Deferred income tax assets, net			28,535			22,939
		Total current assets		879,148			794,775
Property and equipment, net of accumulated depreciation of $317,677 and $291,186 at September 30, 2011 and 2010, respectively				182,489			168,119
Goodwill				505,873			478,240
Intangible assets, excluding goodwill, net of accumulated amortization of $45,467 and $33,031 at September 30, 2011 and 2010, respectively				129,658			109,352
Other assets				31,432			38,926
		Total assets	$	1,728,600		$	1,589,412
Liabilities and Stockholders' Deficit
Current liabilities:
	Current maturities of long-term debt		$	3,004		$	3,045
	Accounts payable			262,114			224,931
	Accrued liabilities			185,509			167,496
	Income taxes payable			9,379			12,180
		Total current liabilities		460,006			407,652
Long-term debt				1,410,111			1,559,591
Other liabilities				26,154			40,692
Deferred income tax liabilities, net				51,311			41,803
		Total liabilities		1,947,582			2,049,738
Stock options subject to redemption				—			946
Stockholders' deficit:
	Common stock, $0.01 par value. Authorized 500,000 shares; 184,502 and 182,592 shares issued and 184,057 and 182,230 shares outstanding at September 30, 2011 and 2010, respectively			1,841			1,822
	Preferred stock, $0.01 par value, Authorized 50,000 shares, none issued			—			—
	Additional paid-in capital			681,256			650,315
	Accumulated deficit			(879,305	)		(1,093,030	)
	Treasury stock, 15 shares at September 30, 2011 and 2010, respectively, at cost			(103	)		(103	)
	Accumulated other comprehensive loss, net of tax			(22,671	)		(20,276	)
		Total stockholders' deficit		(218,982	)		(461,272	)
		Total liabilities and stockholders' deficit	$	1,728,600		$	1,589,412

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

F-4

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Fiscal Years ended September 30, 2011, 2010 and 2009
(In thousands, except per share data)

		2011		2010		2009
Net sales		$	3,269,131	$	2,916,090	$	2,636,600
Cost of products sold and distribution expenses			1,674,526		1,511,716		1,393,283
	Gross profit		1,594,605		1,404,374		1,243,317
Selling, general and administrative expenses			1,086,414		1,012,321		899,415
Depreciation and amortization			59,722		51,123		47,066
	Operating earnings		448,469		340,930		296,836
Interest expense			112,530		112,982		132,022
	Earnings before provision for income taxes		335,939		227,948		164,814
Provision for income taxes			122,214		84,120		65,697
	Net earnings	$	213,725	$	143,828	$	99,117
	Basic earnings per share	$	1.17	$	0.79	$	0.55
	Diluted earnings per share	$	1.14	$	0.78	$	0.54
Weighted average shares:
	Basic		183,020		181,985		181,691
	Diluted		188,093		184,088		183,306

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

F-5

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal Years ended September 30, 2011, 2010 and 2009
(In thousands)

				2011			2010			2009
Cash Flows from Operating Activities:
Net earnings				$	213,725		$	143,828		$	99,117
Adjustments to reconcile net earnings to net cash provided by operating activities:
	Depreciation and amortization				59,722			51,123			47,066
	Share-based compensation expense				15,560			12,818			8,618
	Amortization of deferred financing costs				6,846			7,775			8,319
	Excess tax (benefit) shortfall from share-based compensation				(3,712	)		(248	)		194
	Net loss (gain) on disposal of property and equipment				327			(41	)		(56	)
	Net loss on extinguishment of debt				2,765			985			1,017
	Deferred income tax expense (benefit)				459			(662	)		8,129
	Changes in (exclusive of effects of acquisitions):
		Trade accounts receivable			(4,163	)		(17	)		3,708
		Accounts receivable, other			(3,971	)		(4,520	)		9
		Inventory			(47,930	)		(34,247	)		46,208
		Prepaid expenses			(3,262	)		(4,369	)		832
		Other assets			2,145			3,565			558
		Accounts payable and accrued liabilities			51,332			37,443			17,946
		Income taxes payable			1,041			7,020			(11,628	)
		Other liabilities			957			(3,207	)		(6,704	)
			Net cash provided by operating activities		291,841			217,246			223,333
Cash Flows from Investing Activities:
Capital expenditures					(59,955	)		(48,702	)		(37,320	)
Proceeds from sale of property and equipment					384			143			217
Acquisitions, net of cash acquired					(87,164	)		(36,463	)		(81,459	)
			Net cash used by investing activities		(146,735	)		(85,022	)		(118,562	)
Cash Flows from Financing Activities:
Change in book cash overdraft					—			—			(1,633	)
Proceeds from issuance of long-term debt					428,605			334,000			95,577
Repayments of long-term debt					(577,911	)		(461,567	)		(243,666	)
Debt issuance costs					(5,397	)		—			—
Proceeds from exercises of stock options					10,942			878			687
Excess tax benefit (shortfall) from share-based compensation					3,712			248			(194	)
Purchases of treasury stock					—			(70	)		(33	)
			Net cash used by financing activities		(140,049	)		(126,511	)		(149,262	)
Effect of foreign currency exchange rate changes on cash and cash equivalents					(1,070	)		(666	)		(850	)
			Net increase (decrease) in cash and cash equivalents		3,987			5,047			(45,341	)
Cash and cash equivalents, beginning of year					59,494			54,447			99,788
Cash and cash equivalents, end of year				$	63,481		$	59,494		$	54,447
Supplemental Cash Flow Information:
	Interest paid			$	102,059		$	108,733		$	130,204
	Income taxes paid, net			$	121,226		$	81,668		$	67,463

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

F-6

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Fiscal Years ended September 30, 2011, 2010 and 2009
(In thousands)

			Common Stock												Accumulated Other Comprehensive Income (Loss)
							Additional Paid-in Capital		Accumulated Deficit			Treasury Stock						Total Stockholders' Deficit
			Shares		Amount
Balance at September 30, 2008				181,516	$	1,815	$	622,511	$	(1,335,975	)	$	—		$	8,689		$	(702,960	)
	Net earnings			—		—		—		99,117			—			—			99,117
	Deferred losses on interest rate swaps, net of income taxes of $6,471			—		—		—		—			—			(10,196	)		(10,196	)
	Foreign currency translation			—		—		—		—			—			(14,391	)		(14,391	)
		Total comprehensive income																	74,530
	Stock options subject to redemption			—		—		4,083		—			—			—			4,083
	Share-based compensation			67		1		8,617		—			—			—			8,618
	Purchases of treasury stock			—		—		—		—			(33	)		—			(33	)
	Stock issued for stock options			275		3		308		—			—			—			311
Balance at September 30, 2009				181,858		1,819		635,519		(1,236,858	)		(33	)		(15,898	)		(615,451	)
	Net earnings			—		—		—		143,828			—			—			143,828
	Deferred losses on interest rate swaps, net of income taxes of $64			—		—		—		—			—			(101	)		(101	)
	Foreign currency translation			—		—		—		—			—			(4,277	)		(4,277	)
		Total comprehensive income																	139,450
	Stock options subject to redemption			—		—		854		—			—			—			854
	Share-based compensation			88		1		12,817		—			—			—			12,818
	Purchases of treasury stock			—		—		—		—			(70	)		—			(70	)
	Stock issued for stock options			284		2		1,125		—			—			—			1,127
Balance at September 30, 2010				182,230		1,822		650,315		(1,093,030	)		(103	)		(20,276	)		(461,272	)
	Net earnings			—		—		—		213,725			—			—			213,725
	Deferred gains on interest rate swaps, net of income taxes of $3,523			—		—		—		—			—			5,557			5,557
	Foreign currency translation			—		—		—		—			—			(7,952	)		(7,952	)
		Total comprehensive income																	211,330
	Stock options subject to redemption			—		—		946		—			—			—			946
	Share-based compensation			96		1		15,559		—			—			—			15,560
	Stock issued for stock options			1,731		18		14,436		—			—			—			14,454
Balance at September 30, 2011				184,057	$	1,841	$	681,256	$	(879,305	)	$	(103	)	$	(22,671	)	$	(218,982	)

The accompanying notes to consolidated financial statements are an integral part of these financial statements.

F-7

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Fiscal Years ended September 30, 2011, 2010 and 2009

1. Description of Business and Basis of Presentation

Description of Business

Sally Beauty Holdings, Inc. and its consolidated subsidiaries ("Sally Beauty" or "the Company") sell professional beauty supplies, primarily through its Sally Beauty Supply retail stores in the U.S., Puerto Rico, Canada, Mexico, Chile, the United Kingdom, Ireland, Belgium, France, Germany and Spain. Additionally, the Company distributes professional beauty products to salons and professional cosmetologists through its Beauty Systems Group ("BSG") store operations and a commissioned direct sales force that calls on salons primarily in the U.S., Puerto Rico, Canada, the United Kingdom and certain other countries in Europe, and to franchises in the southern and southwestern regions of the U.S., and in Mexico through the operations of its subsidiary Armstrong McCall, L.P. ("Armstrong McCall"). Certain beauty products sold by BSG and Armstrong McCall are sold under exclusive territory agreements with the manufacturers of the products.

Sally Beauty Holdings, Inc. was formed in June of 2006 in connection with our November 2006 separation from the Alberto-Culver Company ("Alberto-Culver"). In these financial statements and elsewhere in this Annual Report on Form 10-K, we refer to the transactions related to our separation from Alberto-Culver as the Separation Transactions. In connection with the Separation Transactions, CDRS Acquisition LLC ("CDRS"), a limited liability company organized by Clayton, Dubilier & Rice Fund VII, L.P., invested $575.0 million in exchange for an equity ownership of approximately 48% of the outstanding common stock of the Company on an undiluted basis. At September 30, 2011, CDRS owned approximately 47% of our outstanding common stock on an undiluted basis. In addition, the Company incurred approximately $1,850.0 million of new long-term debt in connection with the Separation Transactions.

Basis of Presentation

The consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These consolidated financial statements include the operations of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Certain amounts for prior fiscal years have been reclassified to conform to the current year's presentation.

All references in these notes to "management" are to the management of Sally Beauty.

2. Significant Accounting Policies

The preparation of financial statements in conformity with GAAP requires us to interpret and apply accounting standards and to develop and follow accounting policies consistent with such standards. The following is a summary of the significant accounting policies used in preparing the Company's consolidated financial statements.

   Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent liabilities in the financial statements. Our most significant estimates relate to: the valuation of inventory, vendor concessions, retention of risk, income taxes, the assessment of long-lived assets and intangible assets for impairment, and share-based payments. The level of uncertainty in

F-8

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results may differ from these estimates in amounts that may be material to the financial statements. Management believes that the estimates and assumptions used in the preparation of the Company's consolidated financial statements are reasonable.

   Cash and Cash Equivalents

All highly liquid investments purchased by the Company from time to time which have an original maturity of three months or less are considered to be cash equivalents. These investments are stated at cost, which approximates fair value. Also included in cash equivalents are proceeds due from customer credit and debit card transactions, which generally settle within one to three days, and were $10.3 million and $8.4 million at September 30, 2011 and 2010, respectively.

   Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of investments in cash equivalents, accounts receivable and derivative instruments.

The Company invests from time to time in securities of financial institutions with high credit quality. Accounts receivable are deemed by the Company to be highly diversified due to the high number of entities comprising the Company's customer base and their dispersion across diverse geographical regions. The counterparties to all our derivative instruments are deemed by the Company to be of substantial resources and strong creditworthiness. The Company believes that no significant concentration of credit risk exists with respect to its investments in cash equivalents, its accounts receivable and its derivative instruments at September 30, 2011 and 2010.

   Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the values invoiced to customers and do not bear interest. Trade accounts receivable are stated net of the allowance for doubtful accounts. The allowance for doubtful accounts requires management to estimate the future collectability of amounts receivable at the balance sheet date. Management records allowances for doubtful accounts based on 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. In the Company's consolidated statements of earnings, bad debt expense is included in selling, general and administrative expenses. The Company's exposure to credit risk with respect to trade receivables is mitigated by the Company's broad customer base and their dispersion across diverse geographical regions.

   Accounts Receivable, Other

Accounts receivable, other, consist primarily of amounts expected to be received from vendors under various contractual agreements and are recorded at the amount management estimates will be collected.

   Inventory

Inventory consists primarily of beauty supplies and related accessories, and salon equipment for sale in the normal course of our business. Inventory is stated at the lower of cost, determined using the first-in, first-out ("FIFO") method, or market (net realizable value). Inventory cost reflects actual product costs, the cost of transportation to the Company's distribution centers, and certain shipping and handling costs,

F-9

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

such as freight from the distribution centers to the stores and handling costs incurred at the distribution centers. When necessary, the Company adjusts the carrying value of inventory to the lower of cost or market, including disposal costs, and for estimated inventory shrinkage. Estimates of the future demand for the Company's products, historical turn-over rates, the age and sales history of the inventory, and historic as well as anticipated changes in stock keeping units ("SKUs") are some of the key factors used by management in assessing the net realizable value of inventory.

The Company estimates inventory shrinkage between physical counts based on its historical experience. Physical inventory counts are performed at substantially all stores and significant distribution centers at least annually, and sooner when management has reason to believe that the risk of inventory shrinkage at a particular location is heightened. Upon completion of physical inventory counts, the Company's consolidated financial statements are adjusted to reflect actual quantities on hand. The Company has policies and processes in place that are intended to minimize inventory shrinkage. Inventory shrinkage expense has averaged approximately 1% of our consolidated net sales during each of the past three fiscal years.

   Lease Accounting

The Company's lease agreements for office space, retail stores and warehouse/distribution facilities are generally accounted for as operating leases, consistent with applicable GAAP. Rent expense (including any rent abatements or escalation charges) is recognized on a straight-line basis from the date the Company takes possession of the property to begin preparation of the site for occupancy, to the end of the lease term, including renewal options determined to be reasonably assured. Certain lease agreements to which the Company is a party provide for contingent rents that are determined as a percentage of revenues in excess of specified levels. The Company records a contingent rent liability, along with the corresponding rent expense, when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.

Certain lease agreements to which the Company is a party provide for tenant improvement allowances. Such allowances are recorded as deferred lease credits, included in accrued liabilities and other liabilities, as appropriate, on our consolidated balance sheets, and amortized on a straight-line basis over the lease term (including renewal options determined to be reasonably assured) as a reduction of rent expense. The amortization period used for deferred lease credits is generally consistent with the amortization period used for the constructed leasehold improvement asset for a given location.

   Valuation of Long-Lived Assets and Intangible Assets with Definite Lives

Long-lived assets, such as property and equipment, including store equipment, and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets and intangible assets subject to amortization is assessed by comparing the net carrying amount of each asset to its total estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. There were no significant impairment losses recognized in our financial statements in the current or prior fiscal years presented.

Intangible assets subject to amortization include customer relationships, certain distribution rights and non-competition agreements, and are amortized, on a straight-line basis, over periods of one to twelve

F-10

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

years. Such amortization periods are based on the estimated useful lives of the assets and take into account the terms of any underlying agreements, but do not generally reflect all renewal terms contractually available to the Company.

   Goodwill and Intangible Assets with Indefinite Lives

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Intangible assets with indefinite lives include trade names and certain distribution rights acquired in a business combination. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually, during our second fiscal quarter, and whenever events or changes in circumstances indicate it is more likely than not that the value of the asset may be impaired. When assessing goodwill and intangible assets with indefinite lives for potential impairment, management compares the carrying amount of the asset to its fair value. In addition, management considers whether there has been an impairment to the value of the asset by evaluating if various factors (including current operating results, anticipated future results and cash flows, and relevant market and economic conditions) indicate a possible impairment. Based on the reviews performed, after taking into account the economic downturn experienced during the past couple of years in certain geographic areas in which we operate, there was no impairment of goodwill or intangible assets with indefinite lives recognized in our financial statements in the current or prior fiscal years presented.

   Deferred Financing Costs

Certain costs incurred in connection with the issuance of debt are capitalized when incurred and are amortized over the estimated term of the related debt agreements generally using the effective interest method. Such capitalized costs are included in other assets in our consolidated balance sheets. Unamortized deferred financing costs are expensed proportionally when certain debt is prepaid.

   Insurance/Self-Insurance Programs

The Company retains a substantial portion of the risk related to certain of its workers' compensation, general and auto liability and property damage insurable loss exposure. Predetermined loss limits have been arranged with insurance companies to limit the Company's exposure per occurrence and aggregate cash outlay. Certain of our employees and their dependents are also covered by a self-insurance program for healthcare benefit purposes. Currently these self-insurance costs, less amounts recovered through payroll deductions and certain out-of-pocket amounts incurred in connection with the employee healthcare program, are funded by the Company. The Company maintains an annual stop-loss insurance policy for the healthcare benefits plan.

The Company records an estimated liability for the ultimate cost of claims incurred and unpaid as of the balance sheet date, which includes both claims filed and estimated losses incurred but not yet reported. The Company estimates the ultimate cost based on an analysis of historical data and actuarial estimates. Workers' compensation, general and auto liability and property damage insurable loss liabilities are recorded at the estimate of their net present value, while healthcare plan liabilities are not discounted. These estimates are reviewed on a regular basis to ensure that the recorded liability is adequate. The Company believes the amounts accrued at September 30, 2011 and 2010 are adequate.

F-11

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

   Revenue Recognition

The Company recognizes sales revenue when a customer consummates a point-of-sale transaction at a store. The cost of sales incentive programs, including customer and consumer coupons, is recognized as a reduction of revenue at the time of sale. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis and are excluded from revenue. The Company also recognizes revenue on merchandise shipped to customers when title and risk of loss pass to the customer (generally upon shipment). Appropriate provisions for sales returns and cash discounts are made at the time the sales are recognized. Sales returns and allowances averaged approximately 2.0% of net sales during each of the past three fiscal years.

   Cost of Products Sold and Distribution Expenses

Cost of products sold and distribution expenses include actual product costs, the cost of transportation to the Company's distribution centers, and certain shipping and handling costs, such as freight from the distribution centers to the stores and handling costs incurred at the distribution centers. All other shipping and handling costs are included in selling, general and administrative expenses when incurred.

   Shipping and Handling

Shipping and handling costs (including freight and distribution expenses) related to delivery to customers are included in selling, general and administrative expenses in our consolidated statements of earnings when incurred and amounted to $41.2 million, $36.0 million and $30.3 million for the fiscal years 2011, 2010 and 2009, respectively.

   Advertising Costs

Advertising costs relate mainly to print advertisements, digital marketing, 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 costs of $70.9 million, $64.6 million and $55.2 million for the fiscal years 2011, 2010 and 2009, respectively, are included in selling, general and administrative expenses in our consolidated statements of earnings.

   Vendor Rebates and Concessions

The Company deems a cash consideration received from a supplier to be a reduction of the cost of products sold unless it is in exchange for an asset or service or a reimbursement of a specific, incremental, identifiable cost incurred by the Company in selling the vendor's products. The majority of cash consideration received by the Company is considered to be a reduction of the cost of the related products and is reflected in cost of products sold and distribution expenses in our consolidated statements of earnings as the related products are sold. Any portion of such cash consideration received that is attributable to inventory on hand is reflected as a reduction of inventory.

   Income Taxes

The Company recognizes 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

F-12

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

expected to apply to taxable income in the years in which temporary differences are estimated to be recovered or settled. The effect on deferred taxes of a change in 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 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 the Company's foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (the Company's reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations are translated using the average exchange rates during the period presented. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income in our consolidated balance sheets. Foreign currency transaction gains or losses are included in our consolidated statements of earnings when incurred and were not significant in any of the periods presented in the accompanying financial statements.

   Share-Based Compensation

Prior to November 2006, the Company was a subsidiary of Alberto-Culver and had no share-based compensation plans of its own, however, Alberto-Culver had granted to Company employees certain stock options with a cash settlement provision contingent upon the occurrence of certain change in control events, pursuant to its stock option plans. As such, the contingent cash settlement of these stock options as a result of such events would not be solely in the control of the Company. Accordingly, as of September 30, 2010, the Company reported $0.9 million in "Stock options subject to redemption" outside of accumulated stockholders' equity (deficit) on its consolidated balance sheets and this amount was reclassified back into additional paid-in capital as the related stock options were exercised or canceled or otherwise terminated.

3. Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

   Comprehensive Income

Comprehensive income reflects changes in accumulated stockholders' equity (deficit) from sources other than transactions with stockholders and, as such, includes net earnings and certain other specified components. The Company's only components of comprehensive income, other than net earnings, are foreign currency translation adjustments and deferred gains (losses) on certain interest rate swap agreements, net of income tax.

F-13

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

   Accumulated Other Comprehensive (Loss) Income

The components of accumulated other comprehensive (loss) income at September 30, 2011 and 2010, are as follows (in thousands):

	As of September 30,
	2011			2010
Cumulative foreign currency translation adjustments(a)	$	(18,724	)	$	(10,772	)
Deferred (losses) on interest rate swaps, net of tax(b)		(3,947	)		(9,504	)
Total accumulated other comprehensive (loss) income, net of tax	$	(22,671	)	$	(20,276	)

(a)

There were no income tax amounts related to foreign currency translation adjustments at September 30, 2011 and 2010.

(b)

Amounts are net of income tax of $2.5 million and $6.0 million at September 30, 2011 and 2010, respectively. Please see Note 16 for more information about the Company's interest rate swaps.

4. Recent Accounting Pronouncements and Accounting Changes

Recent Accounting Pronouncements

We have not yet adopted and are currently assessing any potential effect of the following recent pronouncements on our consolidated financial statements:

In December 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-28 which amended Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other. This amendment modifies the goodwill impairment test for reporting units with a zero or negative carrying amount, by requiring that Step 2 of the goodwill impairment test be performed for such reporting units if it is more likely than not that an impairment of goodwill exists. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early application is not permitted.

In December 2010, the FASB issued ASU No. 2010-29 which amended ASC Topic 805, Business Combinations ("ASC 805"). This amendment requires that a public company that enters into business combinations that are material on an individual or aggregate basis disclose certain pro forma information for the current and the immediately preceding fiscal year. This amendment also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to such business combination or business combinations. This amendment is effective prospectively for business combinations consummated on or after the first annual reporting period beginning on or after December 15, 2010. Early application is permitted.

In May 2011, the FASB issued ASU No. 2011-04 which amended ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). When effective, this amendment will change the title of ASC 820 to "Fair Value Measurement" and will adopt fair value measurement and disclosure guidance that is generally consistent with the corresponding International Financial Reporting Standards ("IFRS") guidance. More specifically, this amendment will change certain requirements for measuring fair value or for disclosing information about fair value measurements or, alternatively, clarify the FASB's intent about the

F-14

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

application of existing fair value measurement and disclosure requirements. For public companies, this amendment is effective for interim periods and fiscal years beginning after December 15, 2011. Early application by public companies is not permitted.

In June 2011, the FASB issued ASU No. 2011-05 which amended ASC Topic 220, Comprehensive Income. This amendment, which must be applied retrospectively, will allow an entity the option to present the components of net income, as well as total comprehensive income and the components of other comprehensive income, either in a single continuous statement of comprehensive income or in two separate consecutive statements. This amendment also eliminates the option to present the components of other comprehensive income in the statement of stockholders' equity but does not change the items that must be reported. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. Early application is permitted.

In September 2011, the FASB issued ASU No. 2011-08 which amended ASC Topic 350, Intangibles-Goodwill and Other. This amendment will allow an entity to first assess relevant qualitative factors in order to determine whether it is necessary to perform the two-step quantitative goodwill impairment test under ASC 350. In effect, the amendment eliminates the need to calculate the fair value of a reporting unit in connection with the goodwill impairment test unless the entity determines, based on the qualitative assessment, that it is more likely than not that the reporting unit's fair value is less than its carrying amount. This amendment is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Early application is permitted.

Accounting Changes

The Company made no accounting changes during the fiscal year 2011.

5. Fair Value Measurements

The Company's financial instruments consist of cash and cash equivalents, trade and other accounts receivable, accounts payable, interest rate swap agreements, foreign currency option, collar and forward agreements and debt. The carrying amounts of cash and cash equivalents, trade and other accounts receivable and accounts payable approximate fair value due to the short-term nature of these financial instruments.

The Company measures on a recurring basis and discloses its financial instruments under the provisions of ASC 820, as amended. The Company defines "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; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or 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

F-15

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

Level 3— Unobservable inputs for the asset or liability.

Consistent with this hierarchy, the Company categorized certain of its financial assets and liabilities as follows at September 30, 2011 and 2010 (in thousands):

		As of September 30, 2011
		Total		Level 1		Level 2		Level 3
Assets
	Foreign currency forwards(a)	$	424		—	$	424		—
	Foreign currency collars(a)		680		—		680		—
Total assets		$	1,104			$	1,104
Liabilities
	Long-term debt(b)	$	1,420,337	$	725,288	$	695,049		—
	Hedged interest rate swaps(a)		6,450		—		6,450		—
	Foreign currency forwards(a)		528		—		528		—
Total liabilities		$	1,427,315	$	725,288	$	702,027

		As of September 30, 2010
		Total		Level 1		Level 2		Level 3
Assets
	Foreign currency forwards(a)	$	20		—	$	20		—
	Foreign currency options(a)		99		—		99		—
Total assets		$	119			$	119
Liabilities
	Long-term debt(b)	$	1,596,228	$	751,250	$	844,978		—
	Hedged interest rate swaps(a)		15,530		—		15,530		—
	Foreign currency forwards(a)		328		—		328		—
Total liabilities		$	1,612,086	$	751,250	$	860,836

(a)

Foreign currency options, collars and forwards, and interest rate swaps are valued for purposes of this disclosure using widely accepted valuation techniques, such as discounted cash flow analyses, and reasonable estimates, such as projected market interest rates and projected foreign currency exchange rates, as appropriate. Please see Note 16 for more information about the Company's foreign currency options, collars and forwards, and interest rate swaps.

(b)

Long-term debt, which is carried at amortized cost in the Company's consolidated financial statements, is generally valued for purposes of this disclosure using widely accepted valuation techniques, such as discounted cash flow analyses, and observable inputs, such as market interest rates, except for the senior and senior subordinated notes. The senior and senior subordinated notes are valued using unadjusted quoted market prices for such debt securities.

F-16

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

6. Accumulated Stockholders' Equity (Deficit)

The Company is authorized to issue up to 500.0 million shares of common stock with a par value of $0.01 per share and up to 50.0 million shares of preferred stock with a par value of $0.01 per share. Prior to 2006, the Company was a wholly-owned subsidiary of Alberto-Culver. In November 2006, the Company had approximately 180.1 million shares of common stock issued and outstanding and commenced regular-way trading on the New York Stock Exchange as an independent company under the symbol "SBH," in connection with the Separation Transactions. As of September 30, 2011, the Company had approximately 184.5 million shares issued and approximately 184.1 million shares outstanding. There have been no shares of the Company's preferred stock issued. Please see the Note 1 for additional information about the Separation Transactions.

7. Earnings Per Share

Basic earnings per share ("EPS"), is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated similarly but includes potential dilution from the exercise of all outstanding stock options and stock awards, except when the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

		Year ended September 30,
		2011		2010		2009
Net earnings		$	213,725	$	143,828	$	99,117
Weighted average basic shares			183,020		181,985		181,691
Adjustments for assumed dilution—stock options and stock awards			5,073		2,103		1,615
Weighted average diluted shares			188,093		184,088		183,306
Earnings per share:
	Basic	$	1.17	$	0.79	$	0.55
	Diluted	$	1.14	$	0.78	$	0.54

At September 30, 2011, all outstanding options to purchase shares of the Company's common stock were dilutive. At September 30, 2010 and 2009, options to purchase 6,286,491 shares and 6,431,741 shares, respectively, of the Company's common stock were outstanding but not included in the computation of diluted earnings per share, since these options were anti-dilutive. Anti-dilutive options are: (a) out-of-the-money options (options the exercise price of which is greater than the average price per share of the Company's common stock during the period) and (b) in-the-money options (options the exercise price of which is less than the average price per share of the Company's common stock during the period) for which the sum of assumed proceeds, including unrecognized compensation expense, exceeds the average price per share for the period.

F-17

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

8. Share-Based Payments

In January 2010, the Company adopted the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan (the "2010 Plan"), a stockholder-approved share-based compensation plan which allows for the issuance of up to 29.8 million shares of the Company's common stock. During the fiscal years 2011, 2010 and 2009, the Company granted to its employees and consultants approximately 3.0 million, 2.9 million and 2.7 million stock options and approximately 199,000, 118,000 and 123,000 restricted share awards, respectively, under either the 2010 Plan or a predecessor share-based compensation plan, the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan (the "2007 Plan"). Additionally, during the fiscal years 2011, 2010 and 2009, the Company granted 43,015, 66,038 and 93,500 restricted stock units ("RSUs"), respectively, to its non-employee directors under either the 2010 Plan or the 2007 Plan. After the adoption of the 2010 Plan, the Company's equity awards have been made under the 2010 Plan and all future awards are currently expected to be made under such plan.

The Company measures the cost of services received from employees, directors and consultants in exchange for an award of equity instruments based on the fair value of the award on the date of grant, and recognizes compensation expense on a straight-line basis over the vesting period or up to the date a participant becomes eligible for retirement, if earlier. For the fiscal years 2011, 2010 and 2009, total compensation cost charged against income and included in selling, general and administrative expenses in the Company's consolidated statements of earnings for all share-based compensation arrangements was $15.6 million, $12.8 million and $8.6 million, respectively, and resulted in an increase in additional paid-in capital by the same amounts. These amounts included, for the fiscal years 2011, 2010 and 2009, $5.0 million, $2.5 million and $2.0 million, respectively, of accelerated expense related to certain retirement eligible employees who continue vesting awards upon retirement, under the provisions of the 2010 Plan and certain predecessor share-based plans such as the 2007 Plan. For fiscal years 2011, 2010 and 2009, the total income tax benefit recognized in our consolidated statements of earnings from these plans was $6.0 million, $5.0 million and $3.0 million, respectively.

Prior to the Separation Transactions, we were a wholly-owned subsidiary of Alberto-Culver and had no share-based compensation plans of our own; however, certain of our employees had been granted stock options and restricted stock awards under share-based compensation plans of Alberto-Culver. Upon completion of the Separation Transactions, all outstanding Alberto-Culver stock options held by our employees became options to purchase shares of our common stock.

Stock Options

Each option entitles the holder to acquire one share of the Company's common stock, has an exercise price that equals 100% of the market price per share of the Company's common stock on the date of grant and generally has a maximum term of 10 years. Options generally vest ratably over a four year period and are generally subject to forfeiture until the vesting period is complete, subject to certain retirement provisions contained in the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

F-18

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The following table presents a summary of the activity for the Company's stock option plans for the fiscal year ended September 30, 2011:

		Number of Outstanding Options (in Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Outstanding at September 30, 2010			12,738		$	7.53		7.3	$	46,789
	Granted		3,009			11.39
	Exercised		(1,731	)		6.32
	Forfeited or expired		(238	)		8.68
Outstanding at September 30, 2011			13,778		$	8.50		6.8	$	111,571
Exercisable at September 30, 2011			6,999		$	8.17		5.5	$	59,026

The following table summarizes information about stock options under the Company's option plans at September 30, 2011:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding at September 30, 2011 (in Thousands)		Weighted Average Remaining Contractual Term (in Years)		Weighted Average Exercise Price		Number Exercisable at September 30, 2011 (in Thousands)		Weighted Average Exercise Price
$2.00 - $5.24			2,623		6.2	$	4.70		1,381	$	4.22
$7.42 - $11.39			11,155		6.9		9.40		5,618		9.14
	Total		13,778		6.8	$	8.50		6,999	$	8.17

The Company uses the Black-Scholes option pricing model to value the Company's stock options for each stock option award. Using this option pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company's stock option awards is expensed on a straight-line basis over the vesting period (generally four years) of the stock options or to the date a participant becomes eligible for retirement, if earlier.

The weighted average assumptions relating to the valuation of the Company's stock options are as follows:

	Year Ended September 30,
	2011		2010		2009
Expected lives (in years)		5.0		5.0		5.0
Expected volatility		59.0%		64.4%		47.9%
Risk-free interest rate		1.1%		2.4%		2.6%
Dividend yield		0.0%		0.0%		0.0%

The expected life of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience of employees of the Company who have been granted

F-19

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

stock options, including grants under stock option plans of Alberto-Culver prior to the Separation Transactions. Expected volatility is derived using the average volatility of both the Company and similar companies (based on industry sector) since it is not practicable to estimate the Company's expected volatility on a stand-alone basis due to a lack of sufficient trading history. The risk-free interest rate is based on the zero-coupon U.S. Treasury issue as of the date of the grant. Since the Company does not currently expect to pay dividends, the dividend yield is 0%.

The weighted average fair value per option at the date of grant, of the stock options issued to the Company's grantees during the fiscal years 2011, 2010 and 2009 was $5.74, $4.15 and $2.33, respectively. The total fair value of stock options issued to the Company's grantees that vested during the fiscal years 2011, 2010 and 2009 was $8.5 million, $7.6 million and $6.2 million, respectively.

The total intrinsic value of options exercised during the fiscal years 2011, 2010 and 2009 was $15.9 million, $1.8 million and $1.0 million, and the tax benefit realized for the tax deductions from these option exercises was $6.2 million, $0.5 million and $0.4 million, respectively. The total cash received during the fiscal years 2011, 2010 and 2009 from these option exercises was $10.9 million, $0.9 million and $0.7 million, respectively.

At September 30, 2011, approximately $11.3 million of unrecognized compensation costs related to unvested stock option awards are expected to be recognized over the weighted average period of 2.6 years.

Stock Awards

Restricted Stock Awards

The Company from time to time grants restricted stock awards to employees and consultants under the 2010 Plan. A restricted stock award is an award of shares of the Company's common stock (which have full voting and dividend rights but are restricted with regard to sale or transfer) the restrictions over which lapse ratably over a specified period of time (generally five years). Restricted stock awards are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to these restrictions lapsing, subject to certain retirement provisions of the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

The Company expenses the cost of the restricted stock awards, which is determined to equal the fair value of the restricted stock award at the date of grant, on a straight-line basis over the period (the "vesting period") in which the restrictions on these stock awards lapse ("vesting") or to the date a participant becomes eligible for retirement, if earlier. For these purposes, the fair value of the restricted stock award is determined based on the closing price of the Company's common stock on the date of grant.

F-20

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The following table presents a summary of the activity for the Company's restricted stock awards for the fiscal year ended September 30, 2011:

Restricted Stock Awards		Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2010			362		$	7.38		3.2
	Granted		199			11.39
	Vested		(111	)		7.63
	Forfeited or expired		(5	)		6.58
Unvested at September 30, 2011			445		$	9.12		3.1

At September 30, 2011, approximately $2.3 million of unrecognized compensation costs related to unvested restricted stock awards are expected to be recognized over the weighted average period of 3.1 years.

Restricted Stock Units

The Company from time to time grants RSUs which generally vest within one year from the date of grant pursuant to the 2010 Plan. To date, the Company has only granted RSU awards to its non-employee directors. RSUs represent an unsecured promise of the Company to issue shares of common stock of the Company. Upon vesting, such RSUs are generally retained by the Company as deferred stock units that are not distributed until six months after the independent director's service as a director terminates. RSUs are independent of stock option grants and are generally subject to forfeiture if service terminates prior to the vesting of the units. Participants have no voting rights with respect to unvested RSUs. Under the 2010 Plan, the Company may settle the vested deferred stock units with shares of the Company's common stock or in cash.

The Company expenses the cost of services received in exchange of RSUs (which is determined to equal the fair value of the RSUs at the date of grant) on a straight-line basis over the vesting period (generally one year). For these purposes, the fair value of the RSU is determined based on the closing price of the Company's common stock on the date of grant.

The following table presents a summary of the activity for the Company's RSUs for the fiscal year ended September 30, 2011:

Restricted Stock Units	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (In Years)
Unvested at September 30, 2010		—		$	—		—
Granted		43			11.39
Vested		(43	)		11.39
Forfeited		—			—
Unvested at September 30, 2011		—			—		—

F-21

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

During fiscal year 2011, all RSUs vested. Therefore, there are no remaining unrecognized compensation costs to be expensed as of September 30, 2011.

9. Allowance for Doubtful Accounts

The change in the allowance for doubtful accounts was as follows (in thousands):

	Year Ended September 30,
	2011			2010			2009
Balance at beginning of period	$	2,756		$	2,266		$	2,702
Bad debt expense		1,631			1,578			1,859
Uncollected accounts written off, net of recoveries		(2,423	)		(1,431	)		(2,648	)
Allowance for doubtful accounts of acquired companies		122			343			353
Balance at end of period	$	2,086		$	2,756		$	2,266

10. Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

		September 30,
		2011			2010
Land		$	11,187		$	11,124
Buildings and building improvements			59,248			58,594
Leasehold improvements			171,916			155,476
Furniture, fixtures and equipment			257,815			234,111
	Total property and equipment, gross		500,166			459,305
Less accumulated depreciation and amortization			(317,677	)		(291,186	)
	Total property and equipment, net	$	182,489		$	168,119

Depreciation expense for the fiscal years 2011, 2010 and 2009 was $47.3 million, $42.4 million and $40.9 million, respectively. As further described in Note 14, borrowings under the term loan facilities and the ABL credit facility are secured by substantially all of our assets, those of Sally Investment, a wholly-owned subsidiary of Sally Beauty and the direct parent of Sally Holdings, those of our domestic subsidiaries and, in the case of the ABL credit facility, those of our Canadian subsidiaries and a pledge of certain intercompany notes.

Depreciation of property and equipment is calculated using the straight-line method based on the estimated useful lives of the respective classes of assets and is reflected in depreciation and amortization expense in our consolidated statements of earnings. Buildings and building improvements are depreciated over periods ranging from five to 40 years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the term of the related lease, including renewals determined to be reasonably assured. Furniture, fixtures and equipment are depreciated over periods ranging from three to ten years. Expenditures for maintenance and repairs are expensed as incurred, while expenditures for major renewals and improvements are capitalized.

F-22

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

11. Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill by operating segment for the fiscal years 2010 and 2011 are as follows (in thousands):

	Sally Beauty Supply			Beauty Systems Group			Total
Balance at September 30, 2009	$	73,208		$	420,927		$	494,135
Acquisitions and purchase price adjustments		8,092			2,568			10,660
Reclassifications		(2,780	)		(22,920	)		(25,700	)
Foreign currency translation		(2,221	)		1,366			(855	)
Balance at September 30, 2010		76,299			401,941			478,240
Acquisitions and purchase price adjustments		333			29,321			29,654
Foreign currency translation		(1,096	)		(925	)		(2,021	)
Balance at September 30, 2011	$	75,536		$	430,337		$	505,873

As described in Note 19, during the fiscal year 2010, $5.2 million of the increase in Sally Beauty Supply's goodwill was attributable to the acquisition of Sinelco Group NV ("Sinelco") in December 2009. The remaining increase in Sally Beauty Supply's goodwill in the amount of $2.9 million and the $2.6 million increase in BSG's goodwill during the fiscal year 2010 were attributable to other acquisitions which were not individually material and to net purchase price adjustments. During the fiscal year 2010, intangible assets subject to amortization in the amount of $24.9 million were also recorded in connection with certain 2009 acquisitions, including the September 2009 acquisition of Schoeneman Beauty Supply, Inc. ("Schoeneman"), and intangible assets with indefinite lives in the amount of $0.8 million were recorded in connection with such 2009 acquisitions. These amounts were previously reported in Goodwill pending completion of the final valuations of the assets acquired and liabilities assumed.

As described in Note 19, during the fiscal year 2011, $25.3 million of the increase in BSG's goodwill was attributable to the acquisition of Aerial Company, Inc. ("Aerial") on October 1, 2010. The remaining increase in BSG's goodwill in the amount of $4.0 million and the increase in Sally Beauty Supply's goodwill in the amount of $0.3 million during the fiscal year 2011 was attributable to acquisitions which were not individually material and/or to net purchase price adjustments.

F-23

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The following table provides the carrying value for intangible assets with indefinite lives, excluding goodwill, and the gross carrying value and accumulated amortization for intangible assets subject to amortization by operating segment at September 30, 2011 and 2010 (in thousands):

				Sally Beauty Supply			Beauty Systems Group			Total
Balance at September 30, 2011:
Intangible assets with indefinite lives:
	Trade names			$	27,344		$	33,722		$	61,066
		Total			27,344			33,722			61,066
Intangible assets subject to amortization:
	Gross carrying amount				14,491			99,568			114,059
	Accumulated amortization				(6,622	)		(38,845	)		(45,467	)
		Net value			7,869			60,723			68,592
			Total intangible assets, excluding goodwill, net	$	35,213		$	94,445		$	129,658
Balance at September 30, 2010:
Intangible assets with indefinite lives:
	Trade names			$	28,046		$	33,752		$	61,798
	Other				—			5,700			5,700
		Total			28,046			39,452			67,498
Intangible assets subject to amortization:
	Gross carrying amount				14,399			60,486			74,885
	Accumulated amortization				(4,301	)		(28,730	)		(33,031	)
		Net value			10,098			31,756			41,854
			Total intangible assets, excluding goodwill, net	$	38,144		$	71,208		$	109,352

Amortization expense totaled $12.4 million, $8.7 million and $6.2 million for the fiscal years 2011, 2010 and 2009, respectively. As of September 30, 2011, future amortization expense related to intangible assets subject to amortization is estimated to be as follows (in thousands):

Fiscal Year:
2012	$	11,325
2013		9,514
2014		9,226
2015		8,791
2016		7,638
Thereafter		22,098
	$	68,592

The weighted average amortization period for intangible assets subject to amortization is approximately 8 years.

F-24

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

12. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

		September 30,
		2011		2010
Compensation and benefits		$	78,796	$	74,446
Interest payable			27,274		26,518
Deferred revenue			16,987		13,099
Rental obligations			12,403		11,531
Property and other taxes			4,764		4,511
Insurance reserves			8,114		8,428
Interest rate swaps(a)			6,450		—
Operating accruals and other			30,721		28,963
	Total accrued liabilities	$	185,509	$	167,496

(a)

Prior to the fiscal year ended September 30, 2011, interest rate swaps had a maturity in excess of one year and, accordingly, were classified in other assets or other liabilities, as appropriate, in the Company's consolidated balance sheets.

13. Commitments and Contingencies

Lease Commitments

The Company's principal leases relate to retail stores and warehousing properties. At September 30, 2011, future minimum payments under non-cancelable operating leases, net of sublease income, are as follows (in thousands):

Fiscal Year:
2012	$	141,422
2013		115,781
2014		87,196
2015		61,634
2016		39,470
Thereafter		50,199
	$	495,702

Certain of the Company's leases require the Company to pay a portion of real estate taxes, insurance, maintenance and special assessments assessed by the lessor. Also, certain of the Company's leases include renewal options and escalation clauses.

Total rental expense for operating leases amounted to $192.6 million, $178.5 million and $166.3 million for the fiscal years 2011, 2010 and 2009, respectively, and is included in selling, general and administrative expenses in our consolidated statements of earnings. These amounts include $0.7 million, $0.5 million and $0.4 million for contingent rents for the fiscal years 2011, 2010 and 2009, respectively.

F-25

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

Contingencies

Legal Proceedings

There were no material legal proceedings pending against the Company or its subsidiaries, as of September 30, 2011. The Company is involved in various claims and lawsuits incidental to the conduct of its business in the ordinary course. The Company does not believe that the ultimate resolution of these matters will have a material adverse impact on its consolidated financial position, statements of earnings or cash flows.

On June 2, 2011, we disclosed in a Current Report on Form 8-K that the Company's BSG and Armstrong McCall subsidiaries, certain franchisees of Armstrong McCall, certain other individual defendants and L'Oreal USA S/D, Inc. (along with L'Oreal's subsidiary Maly's West) ("L'Oreal"), executed an agreement (the "Settlement Agreement") settling the litigation initially brought by L'Oreal on February 21, 2008 against certain Armstrong McCall franchisees alleging breach of contract and other claims related to the distribution agreement between Armstrong McCall and L'Oreal concerning Matrix branded products. Armstrong McCall and Michael Voticky were added as defendants by L'Oreal on July 27, 2009.

Pursuant to the Settlement Agreement, the Company and L'Oreal have agreed a) to terminate their existing agreement to distribute Matrix branded products through Armstrong McCall and its franchisees; b) to enter into a new five-year agreement to distribute Matrix branded products through Armstrong McCall and its franchisees; and c) to an exchange of financial and other consideration. In connection with the settlement, the litigation was dismissed with prejudice and the parties entered into a mutual release of all claims asserted in the litigation.

Other Contingencies

The Company provides healthcare benefits to most of its full-time employees. The Company is largely self-funded for the cost of the healthcare plan (including healthcare claims), other than certain fees and out-of-pocket amounts paid by the employees. In addition, the Company retains a substantial portion of the risk related to certain workers' compensation, general liability, and automobile and property insurance. The Company records an estimated liability for the ultimate cost of claims incurred and unpaid as of the balance sheet date. The estimated liability is included in accrued liabilities (current portion) and other liabilities (long-term portion) in our consolidated balance sheets. The Company carries insurance coverage in such amounts in excess of its self-insured retention which management believes to be reasonable.

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. The Company has no significant liabilities for loss contingencies at September 30, 2011 and 2010.

F-26

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

14. Short-term Borrowings and Long-Term Debt

Details of long-term debt are as follows (in thousands):

		September 30, 2011			Maturity Dates		Interest Rates
ABL facility		$	—			Nov. 2015	(i) Prime plus (1.25% to 1.75%) or;
							(ii) LIBOR(a) plus (2.25% to 2.75%)
Term loan B			696,856			Nov. 2013	(i) Prime plus (1.25% to 1.50%) or;
							(ii) LIBOR(a) plus (2.25% to 2.50%)(b)
Other(c)			4,774			2012-2015	4.05% to 7.00%
	Total	$	701,630
Senior notes		$	430,000			Nov. 2014	9.25%
Senior subordinated notes			275,000			Nov. 2016	10.50%
	Total	$	705,000
Capitalized lease obligations		$	6,485
Less: current portion			(3,004	)
	Total long-term debt	$	1,410,111

(a)

London Interbank Offered Rate ("LIBOR").

(b)

At September 30, 2011, the contractual interest rate for the term loan B facility was 2.49%. The interest rate on $300.0 million of principal outstanding under this loan is fixed by interest rate swaps which expire in May 2012.

(c)

Represents pre-acquisition debt of Pro-Duo NV and Sinelco.

In connection with the Separation Transactions in November 2006, the Company, through its subsidiaries (Sally Investment Holdings LLC and Sally Holdings) incurred $1,850.0 million of indebtedness by: (i) drawing on a $400.0 million revolving, asset-based lending ("ABL") facility in the amount of $70.0 million; (ii) entering into two senior term loan facilities (term loans A and B) in an aggregate amount of $1,070.0 million; and (iii) together (jointly and severally) with another of the Company's indirect subsidiaries, Sally Capital Inc., issuing senior notes in an aggregate amount of $430.0 million and senior subordinated notes in an aggregate amount of $280.0 million. The Company incurred approximately $58.5 million in costs related to the issuance of the debt, which were capitalized and are being amortized to interest expense over the life of the related debt obligations. Borrowings under the term loan A facility were paid in full in the fiscal year 2010.

In November 2010, the Company entered into a new $400 million, five-year revolving credit facility (the "new ABL credit facility" or the "ABL credit facility") and replaced its prior ABL credit facility (the "prior ABL credit facility"). The ABL credit facility provides for senior secured revolving loans up to a maximum aggregate principal amount of $400.0 million, subject to borrowing base limitations. The availability of funds under the ABL credit facility is subject to a borrowing base calculation, which is based on specified percentages of the value of eligible inventory and eligible accounts receivables, subject to certain reserves and other adjustments and reduced by certain outstanding letters of credit. At September 30, 2011, the Company had $366.5 million available for borrowing under the ABL credit facility. The terms of the new ABL credit facility contain a commitment fee of 0.50% on the unused portion of the facility. In connection

F-27

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

with the Company's termination of the prior ABL credit facility, the Company expensed approximately $1.6 million in unamortized deferred financing costs, which is included in interest expense in the Company's consolidated statements of earnings.

Principal and interest on the senior term loan B facility is payable quarterly. The senior term loan facilities contain a covenant requiring Sally Holdings and its subsidiaries to meet certain maximum consolidated secured leverage ratio levels, which decline over time. The consolidated secured leverage ratio is a ratio of (A) net consolidated secured debt to (B) consolidated EBITDA as defined in the agreement underlying the senior term loan facilities. Compliance with the consolidated secured leverage ratio is tested quarterly, with a maximum ratio of 3.50 as of September 30, 2011. Failure to comply with the consolidated secured leverage ratio covenant under the senior term loan facilities would result in a default under such facilities.

Borrowing under the senior term loan facilities and the ABL credit facility are secured by substantially all of our assets, those of Sally Investment Holdings LLC, a wholly-owned subsidiary of Sally Beauty and the direct parent of Sally Holdings, those of our domestic subsidiaries and, in the case of the ABL credit facility, those of our Canadian subsidiaries and a pledge of certain intercompany notes. Borrowings under the senior term loan facilities may be prepaid at the option of Sally Holdings at any time without premium or penalty and are subject to mandatory repayment in an amount equal to 50% of excess cash flow (as defined in the agreement governing the senior term loan facilities) for any fiscal year unless a specified leverage ratio is met. Amounts prepaid pursuant to said provision may be applied, at the option of Sally Holdings, against minimum loan repayments otherwise required of it over the twelve-month period following any such payment under the terms of the loan agreements. Additionally, borrowings under the senior term loan facilities would be subject to mandatory repayment in an amount equal to 100% of the proceeds of specified asset sales that are not reinvested in the business or applied to repay borrowings under the ABL credit facility. No mandatory repayments of any kind were made or required to be made in the fiscal year 2011. We believe that the Company is currently in compliance with the agreements and instruments governing our debt, including our financial covenants.

During the fiscal year 2011, the Company made optional prepayments in the aggregate amount of $147.0 million on its senior term loan B facility. In connection with such optional prepayments, the Company recorded losses on extinguishment of debt in the aggregate amount of $1.2 million, which are included in interest expense in the Company's consolidated statements of earnings.

The Company uses interest rate swaps, as part of its overall economic risk management strategy, to add stability to the interest payments due in connection with its senior term loan obligations. In the fiscal year 2008, the Company entered into interest rate swap agreements with an aggregate notional amount of $300.0 million. These agreements expire in May 2012 and enable the Company to convert a portion of its variable-interest rate obligations to fixed-interest rate obligations in connection with the term loan facilities, with interest ranging from 5.818% to 6.090%. Interest payments related to our term loans are impacted by changes in LIBOR. Please see Note 16 for additional information about the Company's interest rate swap agreements.

The senior notes and senior subordinated notes are unsecured obligations of the issuers and are jointly and severally guaranteed on a senior basis (in the case of the senior notes) and on a senior subordinated basis (in the case of the senior subordinated notes) by each material domestic subsidiary of the Company. Interest on the senior notes and senior subordinated notes is payable semi-annually. The senior notes carry optional redemption features whereby the Company has the option to redeem the notes prior to maturity on or after November 15, 2010 at par plus a premium declining ratably to par, plus accrued and unpaid interest. The senior subordinated notes carry optional redemption features whereby the Company has the

F-28

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

option to redeem the notes before November 15, 2011 at par plus a premium, plus accrued and unpaid interest; and on or after November 15, 2011 at par plus a premium declining ratably to par, plus accrued and unpaid interest. Furthermore, the agreements underlying the Company's credit facilities contain terms which significantly restrict the ability of Sally Beauty's subsidiaries to pay dividends or otherwise transfer assets to Sally Beauty.

Maturities of the Company's long-term debt are as follows at September 30, 2011 (in thousands):

Fiscal Year:
	2012	$	2,240
	2013		8,652
	2014		690,638
	2015		430,100
	2016		—
	Thereafter		275,000
		$	1,406,630
Capital lease obligations			6,485
Less: current portion			(3,004	)
	Total	$	1,410,111

We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. The agreements and instruments governing the debt of Sally Holdings and its subsidiaries contain material limitations on our subsidiaries' ability to pay dividends and other restricted payments to us which, in turn, constitute material limitations on our ability to pay dividends and other payments to our stockholders.

Under the agreements and indentures governing the term loan facilities and the notes, Sally Holdings may not make certain restricted payments to us if a default then exists under the credit agreement or the indentures or if its consolidated interest coverage ratio is less than 2.0 to 1.0 at the time of the making of such restricted payment. As of September 30, 2011, its consolidated interest coverage ratio exceeded 2.0 to 1.0. Further, the aggregate amount of restricted payments Sally Holdings is able to make is limited pursuant to various baskets as calculated pursuant to the credit agreement and indentures. Under the terms of our new ABL credit facility, Sally Holdings may pay dividends and make other equity distributions to us if availability under the ABL credit facility exceeds certain thresholds. For dividends and distributions up to $30.0 million during each fiscal year, borrowing availability must exceed the lesser of $80.0 million or 20% of the borrowing base for the 45-day period immediately prior to such dividend and distribution. For dividends in excess of that amount, Sally Holdings must maintain that same availability and its fixed-charge coverage ratio must exceed 1.10 to 1.00. The fixed-charge coverage ratio is defined as the ratio of EBITDA (as defined in the agreement underlying the ABL credit facility) less unfinanced capital expenditures to fixed charges (as included in the definition of the fixed-charge coverage ratio in the agreement governing the ABL credit facility). As of September 30, 2011, Sally Holdings met all of these conditions. In addition, as of September 30, 2011, the net assets of our consolidated subsidiaries that were unrestricted from transfer under our credit arrangements totaled $483.2 million, subject to certain adjustments. The ABL credit facility and the senior term loan facilities, as well as the Company's 9.25% Senior Notes indenture and its 10.5% Senior Subordinated Notes indenture contain customary cross-default and/or cross-acceleration provisions.

F-29

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

At September 30, 2011 and 2010, the Company had no off-balance sheet financing arrangements other than operating leases incurred in the ordinary course of business as disclosed in Note 13, and outstanding letters of credit related to inventory purchases and self-insurance programs which totaled $16.0 million and $14.5 million at September 30, 2011 and 2010, respectively.

15. Sally Beauty Holdings, Inc. Stand-Alone Financial Information

Sally Beauty Holdings, Inc. is a holding company and has no material assets or operations other than its ownership interests in its subsidiaries. The Company's operations are conducted almost entirely through its subsidiaries. As such, Sally Beauty depends on its subsidiaries for cash to meet its obligations or to pay dividends.

F-30

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

Sally Investment Holdings LLC, which is a wholly-owned subsidiary of Sally Beauty and the direct parent of Sally Holdings, does not have any assets or operations of any kind. Summary financial data for Sally Beauty Holdings, Inc. on a stand-alone basis as of and for each of the fiscal years ended September 30, 2011 and 2010 is as follows (in thousands):

			2011			2010
Balance Sheet
Assets:
	Deferred income tax assets		$	1,274		$	1,071
	Income taxes receivable			1,679			—
	Due from subsidiaries and other			60,483			41,479
	Investment in subsidiaries			(281,690	)		(497,888	)
		Total assets	$	(218,254	)	$	(455,338	)
Liabilities:
	Deferred income tax liabilities		$	346		$	330
	Income taxes payable			—			5,368
	Other			382			236
		Total liabilities		728			5,934
Stockholders' deficit:				(218,982	)		(461,272	)
		Total liabilities and stockholders' deficit	$	(218,254	)	$	(455,338	)
Statement of Earnings
Operating loss			$	(7,813	)	$	(7,662	)
Interest expense				—			(29	)
		Loss before provision for income taxes		(7,813	)		(7,691	)
Benefit from income taxes				(2,945	)		(2,890	)
		Net loss	$	(4,868	)	$	(4,801	)
Statement of Cash Flows
Net cash used by operating activities			$	(10,942	)	$	(808	)
Net cash used by investing activities:
	Capital expenditures			—			—
		Net cash used by investing activities		—			—
Net cash provided by financing activities:
	Proceeds from exercise of stock options			10,942			878
	Purchases of treasury stock			—			(70	)
		Net cash provided by financing activities		10,942			808
Net change in cash				—			—
Cash and cash equivalents, beginning of year				—			—
Cash and cash equivalents, end of year			$	—		$	—

F-31

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

16. Derivative Instruments and Hedging Activities

Risk Management Objectives of Using Derivative Instruments

The Company is exposed to a wide variety of risks, including risks arising from changing economic conditions, including changing interest rates, and foreign currency risks. The Company manages its exposure to certain economic risks (including liquidity, credit risk, and changes in interest rates and in foreign currency exchange rates) primarily: (a) by closely managing its cash flows from operating and investing activities and the amounts and sources of its debt obligations; (b) by assessing periodically the creditworthiness of its business partners; and (c) through the use of derivative instruments (including interest rate swaps, and foreign currency options, collars and forwards) by Sally Holdings.

The Company uses interest rate swaps, as part of its overall economic risk management strategy, to add stability to the interest payments due in connection with its senior term loan obligations. Interest payments related to our senior term loans are impacted by changes in LIBOR. The Company's interest rate swap agreements involve the periodic receipt by Sally Holdings of amounts based on a variable rate in exchange for Sally Holdings making payments based on a fixed rate over the term of the interest rate swap agreements, without exchange of the underlying notional amount.

The Company uses foreign currency options, collars and forwards, as part of its overall economic risk management strategy, to fix the amount of certain foreign assets and obligations relative to its functional and reporting currency (the U.S. dollar) or to add stability to cash flows resulting from its net investments (including intercompany notes not permanently invested) and earnings denominated in foreign currencies. Such cash flows may be materially affected (favorably or unfavorably) by changes in the exchange rates for the U.S. dollar versus the Euro, the British pound sterling, the Canadian dollar, the Chilean peso, and the Mexican peso. The Company's foreign currency exposures at times offset each other, providing a natural hedge against its foreign currency risk. In connection the remaining foreign currency risk, the Company uses foreign currency options, collars and forwards to effectively fix the foreign currency exchange rate applicable to specific anticipated foreign currency-denominated cash flows, thus limiting the potential fluctuations in such cash flows resulting from foreign currency market movements.

At September 30, 2011, the Company did not purchase or hold any derivative instruments for speculative or trading purposes.

Designated Cash Flow Hedges

In the fiscal year 2008, Sally Holdings entered into certain interest rate swap agreements with an aggregate notional amount of $300 million. These agreements expire in May 2012 and are designated and qualify as effective cash flow hedges, in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). Accordingly, changes in the fair value of these derivative instruments (which are adjusted quarterly) are recorded, net of income tax, in accumulated other comprehensive (loss) income ("OCI") until the hedged obligation is settled or the swap agreements expire, whichever is earlier. Any hedge ineffectiveness, as this term is used in ASC 815, is recognized in interest expense in our consolidated statements of earnings. No hedge ineffectiveness on cash flow hedges was recognized during each of the last three fiscal years.

Amounts reported in OCI related to interest rate swaps are reclassified into interest expense, as a yield adjustment, in the same period in which interest on the Company's variable-rate debt obligations affect earnings. During the fiscal years 2011, 2010 and 2009, interest expense resulting from such reclassifications was $10.2 million, $10.1 million and $7.9 million, respectively. During the twelve-month period ending

F-32

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

September 30, 2012, the entire amount reported in OCI ($6.5 million, before income tax) will be reclassified into interest expense.

Non-designated Cash Flow Hedges

The Company may use from time to time derivative instruments (such as interest rate swaps, and foreign currency options, collars and forwards) not designated as hedges or that do not meet the requirements for hedge accounting, to manage its exposure to interest rate or foreign currency exchange rate movements.

In November 2006, Sally Holdings entered into certain interest rate swap agreements with an aggregate notional amount of $500 million. These interest rate swap agreements expired on or before November 2009 and were not designated as hedges and, accordingly, the changes in fair value of these interest rate swap agreements (which were adjusted quarterly) were recorded in interest expense in our consolidated statements of earnings. In the fiscal year 2009, interest expense, including marked-to-market adjustments, resulting from these interest rate swap agreements was $7.5 million. In the fiscal year 2010, interest expense, including marked-to-market adjustments, resulting from these interest rate swap agreements was less than $0.1 million.

The Company uses foreign currency options and collars, including, at September 30, 2011, collars with an aggregate notional amount of $12.5 million to manage the exposure to the U.S. dollar resulting from our Sinelco Group subsidiaries' purchases of merchandise from third-party suppliers. Sinelco's functional currency is the Euro. The foreign currency collar agreements held by the Company at September 30, 2011 have contractual Euro to U.S. dollar exchange rates between 1.4000 and 1.4612 and expire in varying amounts monthly through September 2012.

In addition, the Company uses foreign currency forwards to mitigate its exposure to changes in foreign currency exchange rates in connection with certain intercompany balances not permanently invested. At September 30, 2011, we held a foreign currency forward which enabled us to sell approximately €19.9 million ($26.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.3610, a foreign currency forward which enabled us to buy approximately $18.3 million Canadian dollars ($17.5 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.01855 and a foreign currency forward which enabled us to buy approximately £5.6 million ($8.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.5630. All the foreign currency forwards held by the Company at September 30, 2011 expired in October 2011.

The Company's foreign currency option, collar and forward agreements are not designated as hedges and do not currently meet the requirements for hedge accounting. Accordingly, the changes in the fair value (i.e., marked-to-market adjustments) of these derivative instruments (which are adjusted quarterly) are recorded in selling, general and administrative expenses in our consolidated statements of earnings. During each of the fiscal years ended September 30, 2011 and 2010, selling general and administrative expenses included $0.2 million in net gains, including marked-to-market adjustments, from all of the Company's foreign currency option, collar and forward agreements.

F-33

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The tables below present the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheet as of September 30, 2011 and 2010 (in thousands):

Tabular Disclosure of Fair Values of Derivative Instruments

		Asset Derivatives As of September 30, 2011			Liability Derivatives As of September 30, 2011
		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
	Interest Rate Swaps	Other assets	$	—	Accrued liabilities	$	6,450
Total derivatives designated as hedging instruments			$	—		$	6,450
Derivatives not designated as hedging instruments:
	Foreign Currency Collars and Forwards	Prepaid expenses	$	1,104	Accrued liabilities	$	528
Total derivatives not designated as hedging instruments			$	1,104		$	528

Tabular Disclosure of Fair Values of Derivative Instruments

		Asset Derivatives As of September 30, 2010			Liability Derivatives As of September 30, 2010
		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
	Interest Rate Swaps	Other assets	$	—	Other liabilities	$	15,530
Total derivatives designated as hedging instruments			$	—		$	15,530
Derivatives not designated as hedging instruments:
	Foreign Currency Options and Forwards	Prepaid expenses	$	119	Accrued liabilities	$	328
Total derivatives not designated as hedging instruments			$	119		$	328

F-34

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of earnings for the fiscal year ended September 30, 2011 (in thousands):

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2011
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	5,557	Interest expense	$	(10,174	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Foreign Currency Options, Collars and Forwards	Selling, general and administrative expenses	$	194
Interest Rate Swaps	Interest expense		—
Total derivatives not designated as hedging instruments		$	194

F-35

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of earnings for the fiscal year ended September 30, 2010 (in thousands):

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2010
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	(101	)	Interest expense	$	(10,067	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Foreign Currency Options and Forwards	Selling, general and administrative expenses	$	203
Interest Rate Swaps	Interest expense		(24	)
Total derivatives not designated as hedging instruments		$	179

F-36

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of earnings for the fiscal year ended September 30, 2009 (in thousands):

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2009
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	(10,196	)	Interest expense	$	(7,935	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Interest Rate Swaps	Interest expense	$	(7,488	)

Credit-risk-related Contingent Features

The agreements governing the Company's interest rate swaps contain provisions pursuant to which the Company could be declared in default on its interest rate swap obligations in the event the Company defaulted under certain terms of the loan documents governing the Company's ABL credit facility. As of September 30, 2011, the fair value of our interest rate swaps in a liability position related to these agreements was $6.5 million and the Company was under no obligation to post and had not posted any collateral related to these agreements. If the Company breached any of these provisions, it would be required to settle its obligations under the swap agreements at their termination value of $6.5 million, as of September 30, 2011, including accrued interest and other termination costs.

At September 30, 2011, the aggregate fair value of all foreign currency option, collar and forward agreements held was a net asset of $0.6 million, consisting of derivative instruments in an asset position of $1.1 million and derivative instruments in a liability position of $0.5 million. The Company was under no obligation to post and had not posted any collateral related to the agreements in a liability position.

The counterparties to all our derivative instruments are deemed by the Company to be of substantial resources and strong creditworthiness. However, these transactions result in exposure to credit risk in the event of default by a counterparty. The financial crisis affecting the world financial markets in recent years has resulted in many well-known financial institutions becoming less creditworthy or having diminished liquidity, which could expose us to an increased level of counterparty risk. In the event that a counterparty defaults in its obligation under our interest rate swaps and/or foreign currency derivative instruments, we could incur substantial financial losses. However, at the present time, no such losses are deemed probable.

F-37

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

17. 401(k) and Profit Sharing Plan

The Company sponsors the Sally Beauty 401(k) and Profit Sharing Plan (the "401k Plan"), which is a qualified defined contribution plan. The 401k Plan covers employees of the Company who meet certain eligibility requirements and who are not members of a collective bargaining unit. Under the terms of the 401k Plan, employees may contribute a percentage of their annual compensation to the 401k Plan up to certain maximums, as defined by the 401k Plan and by the U.S. Internal Revenue Code. The Company currently matches a portion of employee contributions to the plan. The Company recognized expense of $5.9 million, $4.7 million and $4.0 million in the fiscal years 2011, 2010 and 2009, respectively, related to such employer matching contributions under the plan. These amounts are included in selling, general and administrative expenses.

In addition, pursuant to the 401k Plan, the Company may make profit sharing contributions to the accounts of employees who meet certain eligibility requirements and who are not members of a collective bargaining unit. The Company's profit sharing contributions to the 401k Plan are determined by the Compensation Committee of the Company's Board of Directors. The Company recognized expense of $3.1 million, $2.7 million and $2.4 million in the fiscal years 2011, 2010 and 2009, respectively, related to such profit sharing contributions under the 401k Plan. These amounts are included in selling, general and administrative expenses.

18. Income Taxes

The Company and its subsidiaries file consolidated income tax returns in the U.S. federal jurisdiction and most state jurisdictions as well as in various foreign jurisdictions.

The provision for income taxes for the fiscal years 2011, 2010 and 2009 consists of the following (in thousands):

			Year Ended September 30,
			2011			2010			2009
Current:
	Federal		$	97,172		$	69,112		$	48,335
	Foreign			11,081			4,432			4,276
	State			13,629			11,197			5,507
		Total current portion		121,882			84,741			58,118
Deferred:
	Federal			2,615			2,896			8,204
	Foreign			(2,525	)		(2,814	)		(1,676	)
	State			242			(703	)		1,051
		Total deferred portion		332			(621	)		7,579
		Total provision for income tax	$	122,214		$	84,120		$	65,697

F-38

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The difference between the U.S. statutory federal income tax rate and the effective income tax rate is summarized below:

		Year Ended September 30,
		2011			2010			2009
Statutory tax rate			35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit			2.8			2.9			2.8
Effect of foreign operations			(1.3	)		(1.2	)		0.8
Other, net			(0.1	)		0.2			1.3
	Effective tax rate		36.4	%		36.9	%		39.9	%

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

			September 30,
			2011			2010
Deferred tax assets attributable to:
	Share-based compensation expense		$	19,683		$	16,471
	Accrued liabilities			28,711			22,829
	Inventory adjustments			3,432			3,303
	Foreign loss carryforwards			18,315			16,675
	Unrecognized tax benefits			651			577
	Interest rate swaps			2,503			6,026
	Other			2,673			2,579
		Total deferred tax assets		75,968			68,460
Valuation allowance				(17,100	)		(16,552	)
		Total deferred tax assets, net		58,868			51,908
Deferred tax liabilities attributable to:
	Depreciation and amortization			81,644			70,772
		Total deferred tax liabilities		81,644			70,772
		Net deferred tax liability	$	22,776		$	18,864

Management believes 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. The Company has recorded a valuation allowance to account for uncertainties regarding recoverability of certain deferred tax assets, primarily foreign loss carryforwards.

Domestic earnings before provision for income taxes were $300.1 million, $215.9 million and $165.1 million in the fiscal years 2011, 2010 and 2009, respectively. Foreign operations had earnings (losses) before provision for income taxes of $35.8 million, $12.0 million and $(0.3) million in the fiscal years 2011, 2010 and 2009, respectively.

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

F-39

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

sheet date. Management does not expect the outcome of tax audits to have a material adverse effect on the Company's financial condition, results of operations or cash flow.

At September 30, 2011, undistributed earnings of the Company's foreign operations are intended to remain permanently invested to finance anticipated future growth and expansion. Accordingly, federal and state income taxes have not been provided on accumulated but undistributed earnings of $110.6 million and $76.5 million as of September 30, 2011 and 2010, respectively, as such earnings have been permanently reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.

At September 30, 2011 and 2010, the Company had total operating loss carry-forwards of $62.5 million and $53.3 million, respectively, of which $50.1 million and $46.1 million, respectively, are subject to a valuation allowance. At September 30, 2011, operating loss carry-forwards of $23.6 million expire between 2013 and 2026 and operating loss carry-forwards of $38.9 million have no expiration date. At September 30, 2011 and 2010, the Company had tax credit carryforwards of $1.1 million and $0.8 million, respectively, which have no expiration date and of which $0.5 million and $0.4 million, respectively, are subject to a valuation allowance.

The transactions separating us from Alberto-Culver were intended to qualify as a reorganization under Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code") and a distribution eligible for non-recognition under Sections 355(a) and 361(c) of the Code. In connection with the share distribution of Alberto-Culver common stock in the Separation Transactions, we received: (i) a private letter ruling from the IRS; and (ii) an opinion of Sidley Austin LLP, counsel to Alberto-Culver, in each case, to the effect that the transactions qualify as a reorganization under Section 368(a)(1)(D) of the Code and a distribution eligible for non-recognition under Sections 355(a) and 361(c) of the Code.

Certain internal restructurings also occurred at or immediately prior to the Separation Transactions. As a result of the internal restructurings and Separation Transactions, the Company inherited the federal tax identification number of the old Alberto-Culver parent for U.S. federal income tax purposes. In addition, as the successor entity to Alberto-Culver after the Separation Transactions, the Company relies upon the prior year federal income tax returns of Alberto-Culver, and accounting methods established therein, for certain calculations that affect our current U.S. federal income tax liability.

The Company and Alberto-Culver entered into a tax allocation agreement as part of the Separation Transactions. The agreement provides generally that the Company is responsible for its pre-separation income tax liabilities, calculated on a stand-alone basis, and Alberto-Culver is responsible for the remainder. In the event additional U.S federal income tax liability related to the period prior to the Separation Transactions was determined, the Company will be jointly and severally liable for these taxes, and there can be no assurance that Alberto-Culver would be able to fulfill its indemnification obligations to the Company under the tax allocation agreement if Alberto-Culver was determined to be responsible for these taxes thereunder.

F-40

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The changes in the amount of unrecognized tax benefits for the fiscal year ended September 30, 2011 and 2010 are as follows (in thousands):

	2011			2010
Balance at beginning of the fiscal year	$	13,647		$	14,378
Increases related to prior year tax positions		166			1,895
Decreases related to prior year tax positions		(15	)		—
Increases related to current year tax positions		208			620
Settlements		(71	)		(1,131	)
Lapse of statute		(3,099	)		(2,115	)
Balance at end of fiscal year	$	10,836		$	13,647

If recognized, these positions would affect the Company's effective tax rate.

The Company classifies and recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The total amount of accrued interest and penalties as of September 30, 2011 and 2010 was $4.2 million and $4.6 million, respectively.

Because existing tax positions will continue to generate increased liabilities for unrecognized tax benefits over the next 12 months, and the fact that we 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. An estimate of the amount or range of such change cannot be made at this time. However, we do not expect the change, if any, to have a material effect on our consolidated financial condition or results of operations within the next 12 months.

The IRS is currently conducting an examination of the Company's consolidated federal income tax returns for the fiscal years ended September 30, 2008 and 2007 in the ordinary course. The IRS had previously audited the Company's consolidated federal income tax returns through the tax year ended September 30, 2006, thus our statute remains open from the year ended September 30, 2007 forward. Our foreign subsidiaries are impacted by various statutes of limitations, which are generally open from 2004 forward. Generally, states' statutes in the United States are open for tax reviews from 2005 forward.

19. Acquisitions

On October 1, 2010, the Company acquired Aerial, an 82-store professional-only distributor of beauty products operating in 11 states in the midwestern United States, for approximately $81.8 million. The assets acquired and liabilities assumed, including intangible assets subject to amortization of $34.7 million, were recorded at their respective fair values at the acquisition date. In addition, goodwill of $25.3 million (which is expected to be deductible for tax purposes) was recorded as a result of this acquisition. The acquisition of Aerial was funded with borrowings in the amount of $78.0 million under the prior ABL credit facility (which have since been paid in full) and with cash from operations. In addition, during the fiscal year 2011, the Company completed several other individually immaterial acquisitions at an aggregate cost of approximately $5.0 million and recorded additional goodwill in the amount of $4.3 million (the majority of which is expected to be deductible for tax purposes) in connection with such acquisitions. Generally, we funded these acquisitions with cash from operations. The valuation of the assets acquired and liabilities assumed in connection with these acquisitions was based on their fair values at the acquisition date.

F-41

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

In December 2009, the Company acquired Sinelco, a wholesale distributor of professional beauty products based in Ronse, Belgium, for approximately €25.2 million (approximately $36.6 million). We also assumed €4.0 million (approximately $5.8 million) of pre-acquisition debt, excluding capital lease obligations, of Sinelco in connection with the acquisition. Sinelco serves over 1,500 customers through a product catalog and website and has sales throughout Europe. Goodwill of $5.2 million (which is not expected to be deductible for tax purposes) and other intangible assets of $14.0 million, including intangible assets subject to amortization of $5.8 million, were recorded as a result of this acquisition. In addition, during the fiscal year 2010, the Company completed several other individually immaterial acquisitions at an aggregate cost of $9.0 million and recorded additional goodwill in the amount of $5.4 million (the majority of which is not expected to be deductible for tax purposes) in connection with such acquisitions. The assets acquired and liabilities assumed in connection with all acquisitions completed during the fiscal year 2010 were recorded at fair values at the acquisition date in accordance with ASC 805. We funded these acquisitions with cash from operations and borrowings on our ABL credit facility. In addition, during the fiscal year 2010, the Company recorded intangible assets subject to amortization in the amount of $24.9 million and intangible assets with indefinite lives in the amount of $0.8 million in connection with certain 2009 acquisitions, including the acquisition of Schoeneman. These amounts were previously reported in Goodwill pending completion of the final valuations of the assets acquired and liabilities assumed, as discussed in the following paragraph.

In September 2009, the Company acquired Schoeneman, a 43-store beauty supply chain located in the central northeast United States, at a cost of approximately $71.0 million, subject to certain adjustments. The Company currently expects to realize approximately $10 million in present value of future tax savings as a result of anticipated incremental depreciation and amortization tax deductions relating to the assets acquired in this transaction. In the fiscal year 2009, goodwill of approximately $61.0 million (which is expected to be deductible for tax purposes) was initially recorded as a result of this acquisition. In addition, during the fiscal year 2009, the Company completed several other individually immaterial acquisitions at an aggregate cost of $11.3 million of which a significant portion was allocated to goodwill (the majority of which is not expected to be deductible for tax purposes). The purchase prices of certain acquisitions completed during the fiscal year 2009 (including the acquisition of Schoeneman) were initially allocated to assets acquired and liabilities assumed based on their preliminary estimated fair values at the date of acquisition. The final valuations of the assets acquired and liabilities assumed were completed during the fiscal year 2010. Generally, we funded these acquisitions with cash from operations.

These business combinations have been accounted for using the purchase method of accounting and, accordingly, the results of operations of the entities acquired have been included in the Company's consolidated financial statements since their respective dates of acquisition.

20. Business Segments and Geographic Area Information

The Company's business is organized into two separate segments: (i) Sally Beauty Supply, a domestic and international chain of cash and carry retail stores which offers professional beauty supplies to both salon professionals and retail customers in North America and parts of South America and Europe and (ii) BSG (including its franchise-based business, Armstrong McCall), a full service beauty supply distributor which offers professional brands of beauty products directly to salons through its own sales force and professional only stores (including franchise stores) in generally exclusive geographic territories in North America and parts of Europe.

F-42

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

The accounting policies of both of our business segments are the same as described in the summary of significant accounting policies contained in Note 2. Sales between segments, which were eliminated in consolidation, were not material for the fiscal years ended September 30, 2011, 2010 and 2009.

Business Segments Information

Segment data for the fiscal years ended September 30, 2011, 2010 and 2009 is as follows (in thousands):

			Year Ended September 30,
			2011			2010			2009
Net sales:
	Sally Beauty Supply		$	2,012,407		$	1,834,631		$	1,695,652
	BSG			1,256,724			1,081,459			940,948
		Total	$	3,269,131		$	2,916,090		$	2,636,600
Earnings before provision for income taxes:
	Segment operating profit:
		Sally Beauty Supply	$	380,963		$	320,456		$	283,872
		BSG(a)		164,660			112,495			91,604
		Segment operating profit		545,623			432,951			375,476
	Unallocated expenses(a)(b)			(81,594	)		(79,203	)		(70,022	)
	Share-based compensation expense			(15,560	)		(12,818	)		(8,618	)
	Interest expense			(112,530	)		(112,982	)		(132,022	)
		Total	$	335,939		$	227,948		$	164,814
Identifiable assets:
	Sally Beauty Supply		$	766,896		$	729,380		$	652,184
	BSG			908,093			808,842			792,879
		Sub-total		1,674,989			1,538,222			1,445,063
	Shared services			53,611			51,190			45,669
		Total	$	1,728,600		$	1,589,412		$	1,490,732
Depreciation and amortization:
	Sally Beauty Supply		$	28,763		$	26,426		$	24,175
	BSG			25,099			20,081			18,735
	Corporate			5,860			4,616			4,156
		Total	$	59,722		$	51,123		$	47,066
Capital expenditures:
	Sally Beauty Supply		$	34,946		$	30,366		$	23,203
	BSG			14,145			11,252			8,470
	Corporate			10,864			7,084			5,647
		Total	$	59,955		$	48,702		$	37,320

(a)

For the fiscal year ended September 30, 2011, consolidated operating earnings reflect a net favorable impact of $21.3 million; including a $27.0 million credit from a litigation settlement and certain non-recurring charges of $5.7 million. This net benefit of $21.3 million is reflected in the BSG segment and in unallocated expenses in the amount of $19.0 million and $2.3 million, respectively.

(b)

Unallocated expenses consist of corporate and shared costs.

F-43

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

Geographic Area Information

Geographic data for the fiscal years ended September 30, 2011, 2010 and 2009 is as follows (in thousands):

			Year Ended September 30,
			2011		2010		2009
Net sales:(a)
	United States		$	2,688,062	$	2,402,085	$	2,202,218
	Foreign			581,069		514,005		434,382
		Total	$	3,269,131	$	2,916,090	$	2,636,600
Identifiable assets:
	United States		$	1,240,894	$	1,133,652	$	1,105,026
	Foreign			434,095		404,570		340,037
	Shared services			53,611		51,190		45,669
		Total	$	1,728,600	$	1,589,412	$	1,490,732

(a)

Net sales are attributable to individual countries based on the location of the customer.

21. Subsequent Events

On November 1, 2011, the Company acquired Kappersservice Floral B.V. and two related companies (the "Floral Group") for approximately €22.5 million (approximately $30.8 million), subject to certain adjustments. The Floral Group is a 19-store distributor of professional beauty products based in Eindhoven, the Netherlands. The acquisition will be accounted for using the purchase method of accounting and, accordingly, the results of operations of the Floral Group will be included in the Company's consolidated financial statements subsequent to the acquisition date. The acquisition was funded with cash from operations and with borrowings on our ABL credit facility in the amount of approximately $17.0 million.

On November 3, 2011, Sally Holdings LLC ("Sally Holdings") and Sally Capital, Inc. (together with Sally Holdings, the "Issuers"), both wholly-owned subsidiaries of the Company, the Company and certain of its domestic subsidiaries entered into a purchase agreement pursuant to which the Issuers sold in a private placement $750.0 million aggregate principal amount of the Issuers' 6.875% Senior Notes due 2019 (the "Senior Notes"). The Senior Notes bear interest at an annual rate of 6.875%, were issued at 98.5% of par, and are guaranteed by certain of the Company's domestic subsidiaries who have guaranteed obligations under Sally Holdings LLC's senior credit facilities, existing notes and other indebtedness outstanding prior to this issuance.

The Company intends to use the net proceeds from the Senior Notes (approximately $737.0 million) to redeem $430.0 million aggregate principal amount of the Issuers' outstanding 9.25% senior notes due 2014 (the "2014 Notes"), to redeem $275.0 million aggregate principal amount of the Issuers' outstanding 10.50% senior subordinated notes due 2016 (the "2016 Notes"), pursuant to the terms of the indentures governing the 2014 Notes and the 2016 Notes, as well as to pay accrued and unpaid interest thereof, and fees and expenses incurred in connection with issuance of the Senior Notes and redemption of the 2014 Notes and the 2016 Notes. The Company expects to complete the redemptions on or about December 5, 2011, subject to certain conditions.

F-44

Sally Beauty Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fiscal Years ended September 30, 2011, 2010 and 2009

22. Quarterly Financial Data (Unaudited)

Certain unaudited quarterly consolidated statement of earnings information for the fiscal years ended September 30, 2011 and 2010 is summarized below (in thousands, except per share data):

Fiscal Year			1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
2011:
	Net sales		$	793,564	$	801,805	$	836,576	$	837,186
	Gross profit		$	379,391	$	391,814	$	410,532	$	412,868
	Net earnings		$	40,949	$	49,278	$	69,143	$	54,355
	Earnings per common share(a)
		Basic	$	0.22	$	0.27	$	0.38	$	0.30
		Diluted	$	0.22	$	0.26	$	0.37	$	0.29
2010:
	Net sales		$	704,851	$	720,467	$	742,975	$	747,797
	Gross profit		$	333,214	$	344,284	$	360,859	$	366,017
	Net earnings		$	26,126	$	34,560	$	41,116	$	42,026
	Earnings per common share(a)
		Basic	$	0.14	$	0.19	$	0.23	$	0.23
		Diluted	$	0.14	$	0.19	$	0.22	$	0.23

(a)

The sum of the quarterly earnings per share may not equal the full year amount, as the computations of the weighted average number of common shares outstanding for each quarter and for the full year are performed independently.

F-45

EX-10.34

Exhibit 10.34

SALLY BEAUTY HOLDINGS, INC.

ANNUAL INCENTIVE PLAN

TABLE OF CONTENTS

ARTICLE 1 ESTABLISHMENT OF PLAN		1
1.1	Background	1
1.2	Purpose	1
1.3	Effective Date	1
ARTICLE 2 DEFINITIONS		2
2.1	Definitions	2
ARTICLE 3 ADMINISTRATION		3
3.1	Committee	3
3.2	Authority of Committee	3
3.3	Decisions Binding	4
ARTICLE 4 ELIGIBILITY		4
4.1	Designation of Participants	4
4.2	Partial Year Participation	4
4.3	Demotions	4
ARTICLE 5 OPERATION OF THE PLAN		4
5.1	Plan Structure	4
5.2	Establishment of Target Awards	5
5.3	Company Performance Objectives	5
5.4	Individual Performance Objectives	5
5.5	Threshold Performance Goal and Individual Award Limits	5
5.6	Payout Form and Timing	6
5.7	Terminations of Employment	6
ARTICLE 6 AMENDMENT, MODIFICATION AND TERMINATION		7
6.1	Amendment, Modification and Termination	7
6.2	Termination After or During Plan Year	7
ARTICLE 7 GENERAL PROVISIONS		7
7.1	No Right to Participate	7
7.2	No Right to Employment	7
7.3	Withholding	7
7.4	Funding	7
7.5	Expenses	8
7.6	Titles and Headings	8
7.7	Gender and Number	8
7.8	Governing Law	8
7.9	2010 Omnibus Incentive Plan Controls	8

SALLY BEAUTY HOLDINGS, INC.

ANNUAL INCENTIVE PLAN

ARTICLE 1

ESTABLISHMENT OF PLAN

1.1BACKGROUND.  This Annual Incentive Plan (the “Annual Incentive Plan” or “Plan”) is a subplan of the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan (“2010 Omnibus Incentive Plan”) or any successor plan thereto, consisting of a program for the grant of annual cash-based performance awards under Article VII of the 2010 Omnibus Incentive Plan.  This Plan has been established and approved, and will be administered by, the Committee pursuant to the terms of the 2010 Omnibus Incentive Plan.  It is intended that the annual performance awards earned under this Plan shall be Qualified Performance-Based Awards under Section 7.2 of the 2010 Omnibus Incentive Plan with respect to Participants who are Covered Employees, with the intent that the Annual Incentive Awards will be fully deductible by the Company without regard to the limitations of Code Section 162(m).  The applicable Award limits of Section 4.3 of the 2010 Omnibus Incentive Plan shall apply with respect to this Plan.  As of the Effective Date, Section 4.3 of the 2010 Omnibus Incentive Plan provides that the maximum aggregate amount that may be earned and paid with respect to a cash-based Award under the 2010 Omnibus Incentive Plan to any one Participant in any one calendar year is $7,000,000.

1.2.PURPOSE.  The purpose of this Plan is to provide for the payment of annual cash incentive awards to eligible employees of the Company, the payment of which will be based on the achievement of one or more Performance Objectives during a Plan Year.  The Plan shall remain in effect for successive Plan Years unless and until terminated by the Committee pursuant to Article 6.  Unless otherwise specified by the Committee, the Performance Objectives include Company Performance Objectives, Individual Performance Objectives and the Threshold Performance Objective.  Company Performance Objectives are designed to focus on overall corporate or business unit financial or operational results that drive shareholder value.  Individual Performance Objectives are intended to measure individual goals and competencies and to motivate and reward outstanding individual performance.  The Threshold Performance Objective, which applies only to Covered Employees, requires that the Company achieve positive Operating Income before any incentive awards will be payable to any Covered Employees under the Plan.

1.3.EFFECTIVE DATE.  This Plan was approved by the Committee on October 26, 2011, to be effective as of the beginning of the fiscal year of the Company ending September 30, 2012.

ARTICLE 2

DEFINITIONS

2.1.DEFINITIONS.  Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the 2010 Omnibus Incentive Plan.  In addition, the following terms shall have the following meanings for purposes of this Plan, unless the context in which they are used clearly indicates that some other meaning is intended.

Annual Incentive Award.  The cash incentive award payable to a Participant under this Plan calculated by reference to the achievement of applicable Performance Objectives, as determined in accordance with Article 5.

Annual Incentive Plan or Plan.  This Sally Beauty Holdings, Inc. Annual Incentive Plan, a subplan of the 2010 Omnibus Incentive Plan, as set forth in this document together with any subsequent amendments hereto.

Company Performance Objectives.  The Company Performance Objectives established by the Committee for a Plan Year, as provided in Article 5.

Effective Date.  October 1, 2011 (the beginning of fiscal year 2012).

Individual Award Limit.  Has the meaning described in Section 5.5.

Individual Performance Objectives.  The Individual Performance Objectives established by the Committee for a Plan Year, as provided in Article 5.

Operating Income.  Shall mean, for each Plan Year, the operating income of the Company as reported in the Company’s audited consolidated financial statements for such Plan Year, with such adjustment as the Committee may provide for prior to the commencement thereof, or at such later time as may be permitted by applicable provisions of the Code (which adjustments may include effects of charges for restructurings, discontinued operations, extraordinary items, other unusual or non-recurring items, and the cumulative effect of tax or accounting changes, each as determined in accordance with generally accepted accounting principles and identified in the financial statements, notes to the financial statements or management’s discussion and analysis).

Participant.  A person who, as an employee of the Company or any Affiliate, has been granted an Annual Incentive Award opportunity under the Plan.

Performance Objectives.  Collectively, with respect to a Participant, the Threshold Performance Objective (which only applies to Covered Employees) and any Company Performance Objectives and Individual Performance Objectives applicable to the Participant, as provided in Article 5.

2

Plan Year.  October 1 to September 30 of each year (the fiscal year of the Company).

Target Award.  Has the meaning described in Section 5.2.

Threshold Performance Objective.  Has the meaning given such term in Section 5.5.

2010 Omnibus Incentive Plan.  The Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan, as amended form time to time.

ARTICLE 3

ADMINISTRATION

3.1.COMMITTEE.  This Plan shall be administered by the Committee.

3.2.AUTHORITY OF COMMITTEE.  Without limiting its authority under Article 3 of the 2010 Omnibus Incentive Plan, the Committee has the exclusive power, authority and discretion to:

(a)Designate Participants for each Plan Year (by individual or employee class);

(b)Establish and review Individual Performance Objectives and weightings for different Individual Performance Objectives for each Plan Year;

(c)Establish and review Company Performance Objectives and weightings for different Company Performance Objectives for each Plan Year;

(d)Establish Target Awards for Participants for each Plan Year;

(e)Determine whether and to what extent Performance Objectives were achieved for each Plan Year;

(f)Increase (subject to the Individual Award Limit) or decrease the Annual Incentive Award otherwise payable to any Participant resulting from the achievement of Company Performance Objectives and Individual Performance Objectives in any Plan Year, based on such objective or subjective factors as the Committee shall deem relevant;

(g)Establish, adopt or revise any rules and regulations as it may deem necessary or advisable to administer this Plan;

3

(h)Make all other decisions and determinations that may be required under this Plan or as the Committee deems necessary or advisable to administer this Plan; and

(i)Amend this Plan as provided herein.

3.3.DECISIONS BINDING.  The Committee’s interpretation of this Plan and all decisions and determinations by the Committee with respect to this Plan are final, binding, and conclusive on all parties.

ARTICLE 4

ELIGIBILITY

4.1.DESIGNATION OF PARTICIPANTS.  Exhibit A hereto lists the individuals who are designated as Participants in this Plan for the 2012 Plan Year.  The Committee, in its discretion, may determine whether other positions may qualify for participation in all or any portion of this Plan for any subsequent Plan Year or change Target Awards of existing Participants, subject to the terms of any employment agreement with the Participant.  On or before November 30 of each Plan Year, the Committee shall approve and substitute a new Exhibit A indicating the Participants and their Target Awards for that Plan Year.  The Committee will notify or cause Participants to be notified of their eligibility to participate, and the terms thereof, in writing.

4.2.PARTIAL YEAR PARTICIPATION.  If a Participant begins employment or is promoted to an eligible position after the beginning of a Plan Year, the Committee, in its discretion, may determine whether such employee may participate in this Plan and if so, the terms of such participation, which will be prorated based on the number of days such person participated in this Plan during the Plan Year, unless the Committee determines otherwise.  If a Participant takes a leave of absence during the Plan Year for any reason, the Participant will receive a pro rata share of an Annual Incentive Award, if any, for such Plan Year, unless the Committee decides otherwise.

4.3.DEMOTIONS.  If a Participant is demoted during the Plan Year, the Committee will determine whether Plan participation ends at that time, or is continued, perhaps at a reduced level.

ARTICLE 5

OPERATION OF THE PLAN

5.1.PLAN STRUCTURE.  Each Participant shall be eligible to receive an Annual Incentive Award for the Plan Year if the Company meets or exceeds certain Performance Objectives set by the Committee.  Each Plan Year, the Committee shall establish or approve Performance Objectives and their respective weightings and Target Awards as provided in Sections 5.2, 5.3 and 5.4.  In establishing Performance Objectives, the Committee may take into account such factors as it deems appropriate, including,

4

without limitation, prior year results, planned business results, anticipated business trends, performance relative to peer companies and macroeconomic conditions.

5.2.ESTABLISHMENT OF TARGET AWARDS.  Exhibit A sets forth the percentage of each Participant’s base salary that will be awarded to the Participant for that Plan Year if, with respect to Covered Employees only, the Threshold Performance Objective is achieved, and if, with respect to all Participants, the other established Performance Objectives are achieved at the target level (the “Target Award”).  Each Participant’s Target Award percentage will be communicated in writing to the Participant upon such Participant’s initial participation in the Plan, and shall remain in effect until any change thereto is communicated to the Participant in writing.  The actual Annual Incentive Award to a Participant may be greater or less than his or her Target Award, depending on the level of achievement of Company Performance Objectives and Individual Performance Objectives.

5.3.COMPANY PERFORMANCE OBJECTIVES.  On or before November 30 of each Plan Year, the Committee shall approve Company Performance Objectives for that Plan Year, which shall be communicated in writing to the Participants.  The Company Performance Objectives shall include a formula or performance grid that the Committee will consider in determining a Participant’s Annual Incentive Award (at a level below the Individual Award Limit, with respect to Covered Employees).  Such Company Performance Objectives shall be set forth in Schedule I attached to this Plan document, as changed from year to year.

5.4.INDIVIDUAL PERFORMANCE OBJECTIVES.  Individual Performance Objectives should be designed to promote accountability for personal performance regarding areas under the Participant’s responsibility.  On or before November 30 of each Plan Year, the Committee may approve Individual Performance Objectives for the Chief Executive Officer, and the Chief Executive Officer or other appropriate officers may approve Individual Performance Objectives for other Participants.  Any such Individual Performance Objectives will be communicated to Participants in writing.  The Committee shall consider the degree of achievement of Individual Performance Objectives in determining a Participant’s Annual Incentive Award (at a level below the Individual Award Limit, with respect to Covered Employees).  In addition, the Committee reserves the right to increase or decrease a Participant’s Annual Incentive Award based on a subjective assessment of the Participant’s overall performance during the Plan Year.

5.5THRESHOLD PERFORMANCE GOAL AND INDIVIDUAL AWARD LIMITS.  With respect to Covered Employees only, pursuant to Section 7.3 of the 2010 Omnibus Incentive Plan, by adopting this Annual Incentive Plan, the Committee has established for each Plan Year beginning with Plan Year 2012, a threshold performance goal under the Plan based on achieving positive Operating Income, which is one of the Qualified Business Criteria approved by the shareholders under Section 7.3 of the 2010 Omnibus Incentive Plan (“Threshold Performance Objective”).  Unless waived by the Committee in the case of the death or Disability of a Participant or the occurrence of a Change in Control, no incentive awards shall be payable under the Plan for any Plan Year

5

to Participants who are Covered Employees unless the Threshold Performance Objective has been achieved.

In any Plan Year in which the Threshold Performance Objective is achieved, the Annual Incentive Award payable to each Covered Employee under the Plan for such Plan Year shall be: (A) 1.0% of Operating Income, with respect to the Company’s Chief Executive Officer, or 0.5% of Operating Income, with respect to the Company’s Covered Employees other than the Company’s Chief Executive Officer, but in no event to exceed $7,000,000 per Participant (the “Individual Award Limit”), or (B) any lesser amount determined by the Committee based on the level of actual performance with respect to Company Performance Objectives and/or Individual Performance Objectives.  As described herein, it is anticipated that the Committee will exercise discretion such that the Annual Incentive Award paid to a Covered Employee for a Plan Year would represent the amount that would be payable pursuant to the applicable Company Performance Objectives and/or Individual Performance Objectives, rather than the full Individual Award Limit.

5.6.PAYOUT FORM AND TIMING.  Annual Incentive Awards will be paid within thirty (30) days after the Committee determines whether and to what extent Performance Objectives were achieved, but no later than December 15 following the end of the Plan Year for which the Annual Incentive Awards, if any, were earned.

5.7.TERMINATION OF EMPLOYMENT.  Unless otherwise determined by the Committee in its discretion, and subject to any contrary provision in an individual employment, key position, severance or similar agreement with a Participant, a Participant must be actively employed and in good standing or on approved leave of absence as of the last day of the Plan Year in order to be eligible to receive an Annual Incentive Award for such Plan Year, and Participants whose employment terminates for any reason prior to the end of the Plan Year shall forfeit their right to receive an Annual Incentive Award for such Plan Year.  If a Participant who has been an active employee for at least six months of the Plan Year is terminated during the Plan Year due to Disability, the Participant shall be eligible to receive a pro rata Annual Incentive Award, based on the number of days in the Plan Year prior to such termination. For terminations after the end of the Plan Year, but before payout from this Plan, payout will be made as though the termination had not occurred.  Any amounts paid on behalf of a deceased Participant will be paid to the Participant’s Beneficiary.

6

ARTICLE 6

AMENDMENT, MODIFICATION AND TERMINATION

6.1.AMENDMENT, MODIFICATION AND TERMINATION.  The Committee may, at any time and from time to time, amend, modify or terminate this Plan.  The Committee may condition any amendment or modification on the approval of shareholders of the Company if such approval is necessary or deemed advisable with respect to tax, securities or other applicable laws, policies or regulations, including without limitation Code Section 162(m).

6.2.TERMINATION AFTER OR DURING PLAN YEAR.  Termination of this Plan after a Plan Year but before Annual Incentive Awards are paid for that Plan Year will not reduce Participants’ rights to receive Annual Incentive Awards for the Plan Year.  Termination or amendment of this Plan during a Plan Year may be retroactive to the beginning of the Plan Year, at the discretion of the Committee.  If a Change in Control occurs, no amendment or termination may adversely affect amounts payable to a Participant without the consent of the Participant.

ARTICLE 7

GENERAL PROVISIONS

7.1.NO RIGHT TO PARTICIPATE.  No officer or employee shall have any right to be selected to participate in this Plan.

7.2.NO RIGHT TO EMPLOYMENT.  Nothing in this Plan shall interfere with or limit in any way the right of the Company or any Affiliate to terminate any Participant’s employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Affiliate.

7.3.WITHHOLDING.  The Company or any Affiliate shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes (including the Participant’s FICA obligation) required by law to be withheld with respect to any taxable event arising as a result of this Plan.

7.4.FUNDING.  Benefits payable under this Plan to a Participant or to a Beneficiary will be paid by the Company from its general assets.  The Company is not required to segregate on its books or otherwise establish any funding procedure for any amount to be used for the payment of benefits under this Plan.  The Company may, however, in its sole discretion, set funds aside in investments to meet its anticipated obligations under this Plan.  Any such action or set-aside may not be deemed to create a trust of any kind between the Company and any Participant or beneficiary or to constitute the funding of any Plan benefits.  Consequently, any person entitled to a payment under this Plan will have no rights greater than the rights of any other unsecured creditor of the Company.

7

7.5.EXPENSES.  The expenses of administering this Plan shall be borne by the Company and its Subsidiaries.

7.6.TITLES AND HEADINGS.  The titles and headings of the Sections in this Plan are for convenience of reference only, and in the event of any conflict, the text of this Plan, rather than such titles or headings, shall control.

7.7.GENDER AND NUMBER.  Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural.

7.8.GOVERNING LAW.  To the extent not governed by federal law, this Plan shall be construed in accordance with and governed by the laws of the State of Delaware.

7.92010 OMNIBUS INCENTIVE PLAN CONTROLS.  This Plan is adopted pursuant to and shall be governed by and construed in accordance with the 2010 Omnibus Incentive Plan.  In the event of any actual or alleged conflict between the provisions of the 2010 Omnibus Incentive Plan and the provisions of this Plan, the provisions of the 2010 Omnibus Incentive Plan shall be controlling and determinative.

The foregoing is hereby acknowledged as being the Sally Beauty Holdings, Inc. Annual Incentive Plan as adopted by the Committee on October 26, 2011, to be effective as of October 1, 2011.

SALLY BEAUTY HOLDINGS, INC.

 /s/ Matthew Haltom

Matthew Haltom, Deputy General Counsel

8

EXHIBIT A

PARTICIPANTS AND INCENTIVE AWARD PERCENTAGES

EFFECTIVE OCTOBER 1, 2011

UNDER THE ANNUAL INCENTIVE PLAN

	% of Base Salary Payable at Target Achievement of Performance Objectives*
Name		Target

*Subject to the achievement of Threshold Operating Income Performance for Covered Employees

9

EX-21.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 21.1

SALLY BEAUTY HOLDINGS, INC.
LIST OF SUBSIDIARIES

Sally Investment Holdings LLC (Delaware)
    Sally Holdings LLC (Delaware)
        Beauty Systems Group LLC (Delaware)(1)
            Armstrong McCall Holdings, Inc. (Texas)
                Arnolds, Inc. (Arkansas)
                Armstrong McCall Holdings, L.L.C. (Delaware)
            Armstrong McCall Management, L.C. (Texas)
                    Armstrong McCall, L.P. (Texas)
            Innovations-Successful Salon Services (California)(2)
            Procare Laboratories, Inc. (Delaware)
            Neka Salon Supply, Inc. (New Hampshire)
            Salon Success International, LLC (Florida)
            Aerial Company, Inc. (Wisconsin) (1)
        Sally Beauty Supply LLC (Delaware)
            Diorama Services Company, LLC (Delaware)
        Sally Capital Inc. (Delaware)
        Sally Beauty Distribution LLC (Delaware)
            Sally Beauty International Finance LLC (Delaware)
                Beauty Holding LLC (Delaware)
                    Beyond the Zone, Inc. (Delaware)
                    Silk Elements, Inc. (Delaware)
                    High Intensity Products, Inc. (Delaware)
                    Nail Life, Inc. (Delaware)
                    Sexy U Products, Inc. (Delaware)
                    For Perms Only, Inc. (Delaware)
                    Energy of Beauty, Inc. (Delaware)
                    Miracle Lane, Inc. (Delaware)
                    Tanwise, Inc. (Delaware)
                    Satin Strands, Inc. (Delaware)
                    Brentwood Beauty Laboratories International, Inc. (Texas)
                    Ion Professional Products, Inc. (Delaware)
                    New Image Professional Products, Inc. (Delaware)
                    Esthetician Services Inc. (Delaware)
                    Femme Couture International, Inc. (Delaware)
                    Generic Value Products, Inc. (Delaware)
                    Venique, Inc. (Delaware)
                    Land of Dreams, Inc. (Delaware)
                    Coloresse, Inc. (Delaware)
                    Design Lengths, Inc. (Delaware)
                    Power IQ, Inc. (Delaware)
                    Soren Enterprises, Inc. (Delaware)
            Sally Beauty Distribution of Ohio, Inc. (Delaware)
                Sally Beauty International, Inc. (Delaware)
                    Sally Beauty Supply BV (Netherlands)
                        Pro-Duo Deutschland GmbH (Germany)
                    Sally Beauty Canada Holdings LLC (Delaware)
                    SBCBSG Company de Mexico, s. de R.I. de C.V. (Mexico)
                    SBIFCO Company de Mexico, S.A. de C.V. (Mexico)
                    Sally Beauty International Holdings, C.V. (Netherlands)
                        Sally International Holdings LLC (Delaware)
                        Sally Beauty Holdings LP (Bermuda)

                            Sally EURO Holdings LLC (Delaware)
                            Sally CAD Holdings LLC (Delaware)
                            Sally GBP Holdings LLC (Delaware)
                            Gen X Beauty LLC (Delaware)
                            Sally Beauty Worldwide Holdings BV ((Netherlands)
                                SBH Finance B.V. (Netherlands)
                                Sally Beauty de Puerto Rico, Inc. (Puerto Rico)(3)
                                BSG Canada Holdings Company (Nova Scotia)
                            SBH Netherlands Cooperatief U.A. (Netherlands)
                                        Beauty Systems Group (Canada), Inc. (New Brunswick)(4)
                                        Sally Beauty Global Holdings BV i.l. (Netherlands)
                                Salon Success BV (Netherlands)
                                        Kappersserv ice Floral B.V. (Netherlands)
                                        Exphair B.V. (Netherlands)
                                        Hair Zone B.V. (Netherlands)
                                Sally Salon Services (Ireland) Ltd (Ireland)
                                Sally Beauty Colombia S.A.S. (Colombia)
                                Pro-Duo Spain SL (Spain)
                                    Salon del Exito, S.L. (Spain)
                                Sally UK Holdings Limited (England)
                                    Sally Salon Services Ltd (England)
                                    MHR Limited (England)
                                    Sally Chile Holding SpA (Chile)
                                    Sinelco Group BVBA (Belgium)
                                        Sinelco International BVBA (Belgium)
                                        Sinelco Italiana SRL (Italy)
                                        Sinelco France SAS (France)
                                    Salon Services (Hair and Beauty Supplies) Ltd (Scotland)
                                        Salon Services Franchising Ltd (Scotland)
                                    Salon Success Limited (England)(5)
                                    Ogee Limited (England)
                                    Pro-Duo NV (Belgium)
                                        Pro-Duo France SAS (France)
                                        Vigox BVBA (Belgium)
                                        Montane Importaciones, S.L. (Spain)
                                        Pro-Duo Nederland BV (Netherlands)
                                        Wacos  NV (Belgium)
                                        Ainat Lilibeth, S.L. (Spain)
                                        HUSH BVBA (Belgium)
                                             Kapperscentrale Bauwens N.V. (Belgium)

(1)

Doing business as CosmoProf

(2)

Doing business as CosmoProf, Matrix of Los Angeles, CosmoProf Professional Salon Services, Cosmovision Innovative Salon Concepts, Infinity Salon Services, Matrix Distribution of Hawaii and WDG Hawaii

(3)

Doing business as Belleza

(4)

Doing business as CosmoProf and Sally Beauty Supply

(5)

Education division doing business as 3·6·5

QuickLinks

Exhibit 21.1

EX-23.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Sally Beauty Holdings, Inc.:

We consent to the incorporation by reference in the registration statements on Form S-3 (Registration No. 333-170675) and Form S-8 (Registration Nos. 333-142583, 333-138830 and 333-164545) of Sally Beauty Holdings, Inc. of our reports dated November 15, 2011, with respect to the consolidated balance sheets of Sally Beauty Holdings, Inc. and subsidiaries as of September 30, 2011 and 2010, and the related consolidated statements of earnings, cash flows and stockholders' equity (deficit) for each of the years in the three-year period ended September 30, 2011, and the effectiveness of internal control over financial reporting as of September 30, 2011, which reports appear in the September 30, 2011 Annual Report on Form 10-K of Sally Beauty Holdings, Inc.

/s/ KPMG LLP

KPMG LLP
Dallas, Texas
November 15, 2011

QuickLinks

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

EX-31.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.1

CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Gary G. Winterhalter, certify that:

(1)    I have reviewed this Annual Report on Form 10-K of Sally Beauty Holdings, Inc.;

(2)    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5)    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 16, 2011
	By:	/s/ GARY G. WINTERHALTER Gary G. Winterhalter Chief Executive Officer

QuickLinks

Exhibit 31.1

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

EX-31.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 31.2

CERTIFICATION
PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a),
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark J. Flaherty, certify that:

(1)    I have reviewed this Annual Report on Form 10-K of Sally Beauty Holdings, Inc.;

(2)    Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)    Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)    The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.    Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.    Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.    Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.    Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

(5)    The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a.    All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b.    Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 16, 2011
	By:	/s/ MARK J. FLAHERTY Mark J. Flaherty Senior Vice President and Chief Financial Officer

QuickLinks

Exhibit 31.2

CERTIFICATION PURSUANT TO EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.1

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Sally Beauty Holdings, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gary G. Winterhalter, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	By:	/s/ GARY G. WINTERHALTER Gary G. Winterhalter Chief Executive Officer
Date: November 16, 2011

QuickLinks

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

EX-32.2

QuickLinks -- Click here to rapidly navigate through this document

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Sally Beauty Holdings, Inc. (the "Company") on Form 10-K for the fiscal year ended September 30, 2011 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Mark J. Flaherty, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	By:	/s/ MARK J. FLAHERTY Mark J. Flaherty Senior Vice President and Chief Financial Officer
Date: November 16, 2011

QuickLinks

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

XML

Earnings Per Share (Details) (USD $) In Thousands, except Share data	3 Months Ended								12 Months Ended
	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2009	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Earnings Per Share
Net earnings	$ 54,355	$ 69,143	$ 49,278	$ 40,949	$ 42,026	$ 41,116	$ 34,560	$ 26,126	$ 213,725	$ 143,828	$ 99,117
Weighted-average basic shares									183,020,000	181,985,000	181,691,000
Adjustments for assumed dilution - stock options and stock awards (in shares)									5,073,000	2,103,000	1,615,000
Weighted average diluted shares									188,093,000	184,088,000	183,306,000
Earnings per share:
Basic (in dollars per share)	$ 0.30	$ 0.38	$ 0.27	$ 0.22	$ 0.23	$ 0.23	$ 0.19	$ 0.14	$ 1.17	$ 0.79	$ 0.55
Diluted (in dollars per share)	$ 0.29	$ 0.37	$ 0.26	$ 0.22	$ 0.23	$ 0.22	$ 0.19	$ 0.14	$ 1.14	$ 0.78	$ 0.54
Common stock potentially outstanding but not included in the computation of diluted earnings per share
Options to purchase shares not included in the computation of diluted earnings per share since the options were anti-dilutive (in shares)										6,286,491	6,431,741

XML

Consolidated Statements of Earnings (USD $) In Thousands, except Per Share data	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Net sales	$ 3,269,131	$ 2,916,090	$ 2,636,600
Cost of products sold and distribution expenses	1,674,526	1,511,716	1,393,283
Gross profit	1,594,605	1,404,374	1,243,317
Selling, general and administrative expenses	1,086,414	1,012,321	899,415
Depreciation and amortization	59,722	51,123	47,066
Operating earnings	448,469	340,930	296,836
Interest expense	112,530	112,982	132,022
Earnings before provision for income taxes	335,939	227,948	164,814
Provision for income taxes	122,214	84,120	65,697
Net earnings	$ 213,725	$ 143,828	$ 99,117
Basic earnings per share (in dollars per share)	$ 1.17	$ 0.79	$ 0.55
Diluted earnings per share (in dollars per share)	$ 1.14	$ 0.78	$ 0.54
Weighted average shares:
Basic (in shares)	183,020	181,985	181,691
Diluted (in shares)	188,093	184,088	183,306

XML

Consolidated Statements of Cash Flows (USD $) In Thousands	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Cash Flows from Operating Activities:
Net earnings	$ 213,725	$ 143,828	$ 99,117
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	59,722	51,123	47,066
Share-based compensation expense	15,560	12,818	8,618
Amortization of deferred financing costs	6,846	7,775	8,319
Excess tax (benefit) shortfall from share-based compensation	(3,712)	(248)	194
Net loss (gain) on disposal of property and equipment	327	(41)	(56)
Net loss on extinguishment of debt	2,765	985	1,017
Deferred income tax expense (benefit)	459	(662)	8,129
Changes in (exclusive of effects of acquisitions):
Trade accounts receivable	(4,163)	(17)	3,708
Accounts receivable, other	(3,971)	(4,520)	9
Inventory	(47,930)	(34,247)	46,208
Prepaid expenses	(3,262)	(4,369)	832
Other assets	2,145	3,565	558
Accounts payable and accrued liabilities	51,332	37,443	17,946
Income taxes payable	1,041	7,020	(11,628)
Other liabilities	957	(3,207)	(6,704)
Net cash provided by operating activities	291,841	217,246	223,333
Cash Flows from Investing Activities:
Capital expenditures	(59,955)	(48,702)	(37,320)
Proceeds from sale of property and equipment	384	143	217
Acquisitions, net of cash acquired	(87,164)	(36,463)	(81,459)
Net cash used by investing activities	(146,735)	(85,022)	(118,562)
Cash Flows from Financing Activities:
Change in book cash overdraft			(1,633)
Proceeds from issuance of long-term debt	428,605	334,000	95,577
Repayments of long-term debt	(577,911)	(461,567)	(243,666)
Debt issuance costs	(5,397)
Proceeds from exercises of stock options	10,942	878	687
Excess tax benefit (shortfall) from share-based compensation	3,712	248	(194)
Purchases of treasury stock		(70)	(33)
Net cash used by financing activities	(140,049)	(126,511)	(149,262)
Effect of foreign currency exchange rate changes on cash and cash equivalents	(1,070)	(666)	(850)
Net increase (decrease) in cash and cash equivalents	3,987	5,047	(45,341)
Cash and cash equivalents, beginning of year	59,494	54,447	99,788
Cash and cash equivalents, end of year	63,481	59,494	54,447
Supplemental Cash Flow Information:
Interest paid	102,059	108,733	130,204
Income taxes paid, net	$ 121,226	$ 81,668	$ 67,463

XML

Acquisitions (Details) In Millions, unless otherwise specified		1 Months Ended				1 Months Ended			1 Months Ended
	Oct. 02, 2010 Aerial Company, Inc. ("Aerial") USD ($) State Store	Oct. 31, 2010 Aerial Company, Inc. ("Aerial") Prior ABL facility USD ($)	Sep. 30, 2011 Not individually material acquisitions USD ($)	Sep. 30, 2010 Not individually material acquisitions USD ($)	Sep. 30, 2009 Not individually material acquisitions USD ($)	Dec. 31, 2009 Sinelco Group NV ("Sinelco") USD ($) Customer	Dec. 31, 2009 Sinelco Group NV ("Sinelco") EUR (€)	Sep. 30, 2010 2009 acquisitions USD ($)	Sep. 30, 2009 Schoeneman Beauty Supply, Inc. ("Schoeneman") USD ($) Store
Acquisitions
Number of beauty supply stores	82								43
Number of states in which the entity operates	11
Cost of acquisition	$ 81.8		$ 5.0	$ 9.0	$ 11.3	$ 36.6	€ 25.2		$ 71.0
Intangible assets recorded in connection with the acquisition						14.0
Intangible assets subject to amortization	34.7					5.8		24.9
Intangible assets with indefinite lives recorded								0.8
Goodwill expected to be deducted for tax purposes	25.3		4.3						61.0
Borrowings to fund the acquisition in addition to cash from operations		78.0
Goodwill not deductible for tax purposes recorded in connection with the acquisitions				5.4		5.2
Pre-acquisition debt, excluding capital lease obligations, assumed with the acquisition						5.8	4.0
Number of customers served through a product catalog and website						1,500	1,500
Present value of future tax savings expected to be realized as a result of anticipated incremental depreciation and amortization tax deductions related to assets acquired									$ 10

XML

Share-Based Payments (Details 3) (USD $)	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Stock option disclosures
Cash proceeds from option exercised	$ 10,942,000	$ 878,000	$ 687,000
Stock Options
Weighted average assumptions relating to the valuation of stock options
Expected lives (in years)	5.0	5.0	5.0
Expected volatility (as a percent)	59.00%	64.40%	47.90%
Risk-free interest rate (as a percent)	1.10%	2.40%	2.60%
Dividend yield (as a percent)	0.00%	0.00%	0.00%
Stock option disclosures
Weighted average fair value of the stock options issued (in dollars per share)	$ 5.74	$ 4.15	$ 2.33
Total fair value of stock options	8,500,000	7,600,000	6,200,000
Total intrinsic value of options exercised	15,900,000	1,800,000	1,000,000
Tax benefit realized for the tax deductions of stock option exercises	6,200,000	500,000	400,000
Cash proceeds from option exercised	10,900,000	878,000	687,000
Total unrecognized compensation costs related to unvested stock option awards	$ 11,300,000
Weighted average period for recognition of unvested awards (in years)	2.6

XML

401(k) and Profit Sharing Plan

12 Months Ended

Sep. 30, 2011

401(k) and Profit Sharing Plan

401(k) and Profit Sharing Plan

17. 401(k) and Profit Sharing Plan

The Company sponsors the Sally Beauty 401(k) and Profit Sharing Plan (the "401k Plan"), which is a qualified defined contribution plan. The 401k Plan covers employees of the Company who meet certain eligibility requirements and who are not members of a collective bargaining unit. Under the terms of the 401k Plan, employees may contribute a percentage of their annual compensation to the 401k Plan up to certain maximums, as defined by the 401k Plan and by the U.S. Internal Revenue Code. The Company currently matches a portion of employee contributions to the plan. The Company recognized expense of $5.9 million, $4.7 million and $4.0 million in the fiscal years 2011, 2010 and 2009, respectively, related to such employer matching contributions under the plan. These amounts are included in selling, general and administrative expenses.

In addition, pursuant to the 401k Plan, the Company may make profit sharing contributions to the accounts of employees who meet certain eligibility requirements and who are not members of a collective bargaining unit. The Company's profit sharing contributions to the 401k Plan are determined by the Compensation Committee of the Company's Board of Directors. The Company recognized expense of $3.1 million, $2.7 million and $2.4 million in the fiscal years 2011, 2010 and 2009, respectively, related to such profit sharing contributions under the 401k Plan. These amounts are included in selling, general and administrative expenses.

XML

Consolidated Balance Sheets (USD $) In Thousands	Sep. 30, 2011	Sep. 30, 2010
Current assets:
Cash and cash equivalents	$ 63,481	$ 59,494
Trade accounts receivable, less allowance for doubtful accounts of $2,086 and $2,756 at September 30, 2011 and 2010, respectively	61,996	54,989
Accounts receivable, other	33,530	29,510
Inventory	665,246	604,357
Prepaid expenses	26,360	23,486
Deferred income tax assets, net	28,535	22,939
Total current assets	879,148	794,775
Property and equipment, net of accumulated depreciation of $317,677 and $291,186 at September 30, 2011 and 2010, respectively	182,489	168,119
Goodwill	505,873	478,240
Intangible assets, excluding goodwill, net of accumulated amortization of $45,467 and $33,031 at September 30, 2011 and 2010, respectively	129,658	109,352
Other assets	31,432	38,926
Total assets	1,728,600	1,589,412
Current liabilities:
Current maturities of long-term debt	3,004	3,045
Accounts payable	262,114	224,931
Accrued liabilities	185,509	167,496
Income taxes payable	9,379	12,180
Total current liabilities	460,006	407,652
Long-term debt	1,410,111	1,559,591
Other liabilities	26,154	40,692
Deferred income tax liabilities, net	51,311	41,803
Total liabilities	1,947,582	2,049,738
Stock options subject to redemption		946
Stockholders' deficit:
Common stock, $0.01 par value. Authorized 500,000 shares; 184,502 and 182,592 shares issued and 184,057 and 182,230 shares outstanding at September 30, 2011 and 2010, respectively	1,841	1,822
Preferred stock, $0.01 par value, Authorized 50,000 shares, none issued
Additional paid-in capital	681,256	650,315
Accumulated deficit	(879,305)	(1,093,030)
Treasury stock, 15 shares at September 30, 2011 and 2010, respectively, at cost	(103)	(103)
Accumulated other comprehensive loss, net of tax	(22,671)	(20,276)
Total stockholders' deficit	(218,982)	(461,272)
Total liabilities and stockholders' deficit	$ 1,728,600	$ 1,589,412

XML

Fair Value Measurements (Details) (Fair value measurement on recurring basis, USD $) In Thousands	Sep. 30, 2011	Sep. 30, 2010
Total
Assets
Total assets	$ 1,104	$ 119
Liabilities
Long-term debt	1,420,337	1,596,228
Total liabilities	1,427,315	1,612,086
Total | Hedged interest rate swaps
Liabilities
Interest rate derivative	6,450	15,530
Total | Foreign currency forwards
Assets
Foreign exchange derivative	424	20
Liabilities
Foreign exchange derivative	528	328
Level 1
Liabilities
Long-term debt	725,288	751,250
Total liabilities	725,288	751,250
Level 2
Assets
Total assets	1,104	119
Liabilities
Long-term debt	695,049	844,978
Total liabilities	702,027	860,836
Level 2 | Hedged interest rate swaps
Liabilities
Interest rate derivative	6,450	15,530
Level 2 | Foreign currency forwards
Assets
Foreign exchange derivative	424	20
Liabilities
Foreign exchange derivative	528	328
Level 2 | Foreign currency collars
Assets
Foreign exchange derivative	680	99
Foreign currency collars
Assets
Foreign exchange derivative	$ 680	$ 99

XML

Business Segments and Geographic Area Information

12 Months Ended

Sep. 30, 2011

Business Segments and Geographic Area Information

Business Segments and Geographic Area Information

20. Business Segments and Geographic Area Information

The Company's business is organized into two separate segments: (i) Sally Beauty Supply, a domestic and international chain of cash and carry retail stores which offers professional beauty supplies to both salon professionals and retail customers in North America and parts of South America and Europe and (ii) BSG (including its franchise-based business, Armstrong McCall), a full service beauty supply distributor which offers professional brands of beauty products directly to salons through its own sales force and professional only stores (including franchise stores) in generally exclusive geographic territories in North America and parts of Europe.

The accounting policies of both of our business segments are the same as described in the summary of significant accounting policies contained in Note 2. Sales between segments, which were eliminated in consolidation, were not material for the fiscal years ended September 30, 2011, 2010 and 2009.

Business Segments Information

Segment data for the fiscal years ended September 30, 2011, 2010 and 2009 is as follows (in thousands):

			Year Ended September 30,
			2011			2010			2009
Net sales:
	Sally Beauty Supply		$	2,012,407		$	1,834,631		$	1,695,652
	BSG			1,256,724			1,081,459			940,948
		Total	$	3,269,131		$	2,916,090		$	2,636,600
Earnings before provision for income taxes:
	Segment operating profit:
		Sally Beauty Supply	$	380,963		$	320,456		$	283,872
		BSG(a)		164,660			112,495			91,604
		Segment operating profit		545,623			432,951			375,476
	Unallocated expenses(a)(b)			(81,594	)		(79,203	)		(70,022	)
	Share-based compensation expense			(15,560	)		(12,818	)		(8,618	)
	Interest expense			(112,530	)		(112,982	)		(132,022	)
		Total	$	335,939		$	227,948		$	164,814
Identifiable assets:
	Sally Beauty Supply		$	766,896		$	729,380		$	652,184
	BSG			908,093			808,842			792,879
		Sub-total		1,674,989			1,538,222			1,445,063
	Shared services			53,611			51,190			45,669
		Total	$	1,728,600		$	1,589,412		$	1,490,732
Depreciation and amortization:
	Sally Beauty Supply		$	28,763		$	26,426		$	24,175
	BSG			25,099			20,081			18,735
	Corporate			5,860			4,616			4,156
		Total	$	59,722		$	51,123		$	47,066
Capital expenditures:
	Sally Beauty Supply		$	34,946		$	30,366		$	23,203
	BSG			14,145			11,252			8,470
	Corporate			10,864			7,084			5,647
		Total	$	59,955		$	48,702		$	37,320

(a)

For the fiscal year ended September 30, 2011, consolidated operating earnings reflect a net favorable impact of $21.3 million; including a $27.0 million credit from a litigation settlement and certain non-recurring charges of $5.7 million. This net benefit of $21.3 million is reflected in the BSG segment and in unallocated expenses in the amount of $19.0 million and $2.3 million, respectively.

(b)

Unallocated expenses consist of corporate and shared costs.

Geographic Area Information

Geographic data for the fiscal years ended September 30, 2011, 2010 and 2009 is as follows (in thousands):

			Year Ended September 30,
			2011		2010		2009
Net sales:(a)
	United States		$	2,688,062	$	2,402,085	$	2,202,218
	Foreign			581,069		514,005		434,382
		Total	$	3,269,131	$	2,916,090	$	2,636,600
Identifiable assets:
	United States		$	1,240,894	$	1,133,652	$	1,105,026
	Foreign			434,095		404,570		340,037
	Shared services			53,611		51,190		45,669
		Total	$	1,728,600	$	1,589,412	$	1,490,732

(a)

Net sales are attributable to individual countries based on the location of the customer.

XML

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income (Details) (USD $)	Sep. 30, 2011	Sep. 30, 2010
Components of accumulated other comprehensive (loss) income
Cumulative foreign currency translation adjustments	$ (18,724,000)	$ (10,772,000)
Deferred (losses) on interest rate swaps, net of tax	(3,947,000)	(9,504,000)
Total accumulated other comprehensive (loss) income, net of tax	(22,671,000)	(20,276,000)
Income tax benefit from deferred loss on interest rate swaps	$ 2,500,000	$ 6,000,000

XML

Accumulated Stockholders' Equity (Deficit)

12 Months Ended

Sep. 30, 2011

Accumulated Stockholders' Equity (Deficit)

Accumulated Stockholders' Equity (Deficit)

6. Accumulated Stockholders' Equity (Deficit)

The Company is authorized to issue up to 500.0 million shares of common stock with a par value of $0.01 per share and up to 50.0 million shares of preferred stock with a par value of $0.01 per share. Prior to 2006, the Company was a wholly-owned subsidiary of Alberto-Culver. In November 2006, the Company had approximately 180.1 million shares of common stock issued and outstanding and commenced regular-way trading on the New York Stock Exchange as an independent company under the symbol "SBH," in connection with the Separation Transactions. As of September 30, 2011, the Company had approximately 184.5 million shares issued and approximately 184.1 million shares outstanding. There have been no shares of the Company's preferred stock issued. Please see the Note 1 for additional information about the Separation Transactions.

XML

Subsequent Events

12 Months Ended

Sep. 30, 2011

Subsequent Events

Subsequent Events

21. Subsequent Events

On November 1, 2011, the Company acquired Kappersservice Floral B.V. and two related companies (the "Floral Group") for approximately €22.5 million (approximately $30.8 million), subject to certain adjustments. The Floral Group is a 19-store distributor of professional beauty products based in Eindhoven, the Netherlands. The acquisition will be accounted for using the purchase method of accounting and, accordingly, the results of operations of the Floral Group will be included in the Company's consolidated financial statements subsequent to the acquisition date. The acquisition was funded with cash from operations and with borrowings on our ABL credit facility in the amount of approximately $17.0 million.

On November 3, 2011, Sally Holdings LLC ("Sally Holdings") and Sally Capital, Inc. (together with Sally Holdings, the "Issuers"), both wholly-owned subsidiaries of the Company, the Company and certain of its domestic subsidiaries entered into a purchase agreement pursuant to which the Issuers sold in a private placement $750.0 million aggregate principal amount of the Issuers' 6.875% Senior Notes due 2019 (the "Senior Notes"). The Senior Notes bear interest at an annual rate of 6.875%, were issued at 98.5% of par, and are guaranteed by certain of the Company's domestic subsidiaries who have guaranteed obligations under Sally Holdings LLC's senior credit facilities, existing notes and other indebtedness outstanding prior to this issuance.

The Company intends to use the net proceeds from the Senior Notes (approximately $737.0 million) to redeem $430.0 million aggregate principal amount of the Issuers' outstanding 9.25% senior notes due 2014 (the "2014 Notes"), to redeem $275.0 million aggregate principal amount of the Issuers' outstanding 10.50% senior subordinated notes due 2016 (the "2016 Notes"), pursuant to the terms of the indentures governing the 2014 Notes and the 2016 Notes, as well as to pay accrued and unpaid interest thereof, and fees and expenses incurred in connection with issuance of the Senior Notes and redemption of the 2014 Notes and the 2016 Notes. The Company expects to complete the redemptions on or about December 5, 2011, subject to certain conditions.

XML

Business Segments and Geographic Area Information (Tables)

12 Months Ended

Sep. 30, 2011

Business Segments and Geographic Area Information

Schedule of segment data

			Year Ended September 30,
			2011			2010			2009
Net sales:
	Sally Beauty Supply		$	2,012,407		$	1,834,631		$	1,695,652
	BSG			1,256,724			1,081,459			940,948
		Total	$	3,269,131		$	2,916,090		$	2,636,600
Earnings before provision for income taxes:
	Segment operating profit:
		Sally Beauty Supply	$	380,963		$	320,456		$	283,872
		BSG(a)		164,660			112,495			91,604
		Segment operating profit		545,623			432,951			375,476
	Unallocated expenses(a)(b)			(81,594	)		(79,203	)		(70,022	)
	Share-based compensation expense			(15,560	)		(12,818	)		(8,618	)
	Interest expense			(112,530	)		(112,982	)		(132,022	)
		Total	$	335,939		$	227,948		$	164,814
Identifiable assets:
	Sally Beauty Supply		$	766,896		$	729,380		$	652,184
	BSG			908,093			808,842			792,879
		Sub-total		1,674,989			1,538,222			1,445,063
	Shared services			53,611			51,190			45,669
		Total	$	1,728,600		$	1,589,412		$	1,490,732
Depreciation and amortization:
	Sally Beauty Supply		$	28,763		$	26,426		$	24,175
	BSG			25,099			20,081			18,735
	Corporate			5,860			4,616			4,156
		Total	$	59,722		$	51,123		$	47,066
Capital expenditures:
	Sally Beauty Supply		$	34,946		$	30,366		$	23,203
	BSG			14,145			11,252			8,470
	Corporate			10,864			7,084			5,647
		Total	$	59,955		$	48,702		$	37,320

(a)

For the fiscal year ended September 30, 2011, consolidated operating earnings reflect a net favorable impact of $21.3 million; including a $27.0 million credit from a litigation settlement and certain non-recurring charges of $5.7 million. This net benefit of $21.3 million is reflected in the BSG segment and in unallocated expenses in the amount of $19.0 million and $2.3 million, respectively.

(b)

Unallocated expenses consist of corporate and shared costs.

Schedule of geographic data

			Year Ended September 30,
			2011		2010		2009
Net sales:(a)
	United States		$	2,688,062	$	2,402,085	$	2,202,218
	Foreign			581,069		514,005		434,382
		Total	$	3,269,131	$	2,916,090	$	2,636,600
Identifiable assets:
	United States		$	1,240,894	$	1,133,652	$	1,105,026
	Foreign			434,095		404,570		340,037
	Shared services			53,611		51,190		45,669
		Total	$	1,728,600	$	1,589,412	$	1,490,732

(a)

Net sales are attributable to individual countries based on the location of the customer.

XML

Commitments and Contingencies (Tables)

12 Months Ended

Sep. 30, 2011

Commitments and Contingencies

Schedule of future minimum payments under non-cancelable operating leases, net of sublease income

At September 30, 2011, future minimum payments under non-cancelable operating leases, net of sublease income, are as follows (in thousands):

Fiscal Year:
2012	$	141,422
2013		115,781
2014		87,196
2015		61,634
2016		39,470
Thereafter		50,199
	$	495,702

XML

Acquisitions

12 Months Ended

Sep. 30, 2011

Acquisitions

Acquisitions

19. Acquisitions

On October 1, 2010, the Company acquired Aerial, an 82-store professional-only distributor of beauty products operating in 11 states in the midwestern United States, for approximately $81.8 million. The assets acquired and liabilities assumed, including intangible assets subject to amortization of $34.7 million, were recorded at their respective fair values at the acquisition date. In addition, goodwill of $25.3 million (which is expected to be deductible for tax purposes) was recorded as a result of this acquisition. The acquisition of Aerial was funded with borrowings in the amount of $78.0 million under the prior ABL credit facility (which have since been paid in full) and with cash from operations. In addition, during the fiscal year 2011, the Company completed several other individually immaterial acquisitions at an aggregate cost of approximately $5.0 million and recorded additional goodwill in the amount of $4.3 million (the majority of which is expected to be deductible for tax purposes) in connection with such acquisitions. Generally, we funded these acquisitions with cash from operations. The valuation of the assets acquired and liabilities assumed in connection with these acquisitions was based on their fair values at the acquisition date.

In December 2009, the Company acquired Sinelco, a wholesale distributor of professional beauty products based in Ronse, Belgium, for approximately €25.2 million (approximately $36.6 million). We also assumed €4.0 million (approximately $5.8 million) of pre-acquisition debt, excluding capital lease obligations, of Sinelco in connection with the acquisition. Sinelco serves over 1,500 customers through a product catalog and website and has sales throughout Europe. Goodwill of $5.2 million (which is not expected to be deductible for tax purposes) and other intangible assets of $14.0 million, including intangible assets subject to amortization of $5.8 million, were recorded as a result of this acquisition. In addition, during the fiscal year 2010, the Company completed several other individually immaterial acquisitions at an aggregate cost of $9.0 million and recorded additional goodwill in the amount of $5.4 million (the majority of which is not expected to be deductible for tax purposes) in connection with such acquisitions. The assets acquired and liabilities assumed in connection with all acquisitions completed during the fiscal year 2010 were recorded at fair values at the acquisition date in accordance with ASC 805. We funded these acquisitions with cash from operations and borrowings on our ABL credit facility. In addition, during the fiscal year 2010, the Company recorded intangible assets subject to amortization in the amount of $24.9 million and intangible assets with indefinite lives in the amount of $0.8 million in connection with certain 2009 acquisitions, including the acquisition of Schoeneman. These amounts were previously reported in Goodwill pending completion of the final valuations of the assets acquired and liabilities assumed, as discussed in the following paragraph.

In September 2009, the Company acquired Schoeneman, a 43-store beauty supply chain located in the central northeast United States, at a cost of approximately $71.0 million, subject to certain adjustments. The Company currently expects to realize approximately $10 million in present value of future tax savings as a result of anticipated incremental depreciation and amortization tax deductions relating to the assets acquired in this transaction. In the fiscal year 2009, goodwill of approximately $61.0 million (which is expected to be deductible for tax purposes) was initially recorded as a result of this acquisition. In addition, during the fiscal year 2009, the Company completed several other individually immaterial acquisitions at an aggregate cost of $11.3 million of which a significant portion was allocated to goodwill (the majority of which is not expected to be deductible for tax purposes). The purchase prices of certain acquisitions completed during the fiscal year 2009 (including the acquisition of Schoeneman) were initially allocated to assets acquired and liabilities assumed based on their preliminary estimated fair values at the date of acquisition. The final valuations of the assets acquired and liabilities assumed were completed during the fiscal year 2010. Generally, we funded these acquisitions with cash from operations.

These business combinations have been accounted for using the purchase method of accounting and, accordingly, the results of operations of the entities acquired have been included in the Company's consolidated financial statements since their respective dates of acquisition.

XML

Goodwill and Intangible Assets

12 Months Ended

Sep. 30, 2011

Goodwill and Intangible Assets

Goodwill and Intangible Assets

11. Goodwill and Intangible Assets

The changes in the carrying amounts of goodwill by operating segment for the fiscal years 2010 and 2011 are as follows (in thousands):

	Sally Beauty Supply			Beauty Systems Group			Total
Balance at September 30, 2009	$	73,208		$	420,927		$	494,135
Acquisitions and purchase price adjustments		8,092			2,568			10,660
Reclassifications		(2,780	)		(22,920	)		(25,700	)
Foreign currency translation		(2,221	)		1,366			(855	)
Balance at September 30, 2010		76,299			401,941			478,240
Acquisitions and purchase price adjustments		333			29,321			29,654
Foreign currency translation		(1,096	)		(925	)		(2,021	)
Balance at September 30, 2011	$	75,536		$	430,337		$	505,873

As described in Note 19, during the fiscal year 2010, $5.2 million of the increase in Sally Beauty Supply's goodwill was attributable to the acquisition of Sinelco Group NV ("Sinelco") in December 2009. The remaining increase in Sally Beauty Supply's goodwill in the amount of $2.9 million and the $2.6 million increase in BSG's goodwill during the fiscal year 2010 were attributable to other acquisitions which were not individually material and to net purchase price adjustments. During the fiscal year 2010, intangible assets subject to amortization in the amount of $24.9 million were also recorded in connection with certain 2009 acquisitions, including the September 2009 acquisition of Schoeneman Beauty Supply, Inc. ("Schoeneman"), and intangible assets with indefinite lives in the amount of $0.8 million were recorded in connection with such 2009 acquisitions. These amounts were previously reported in Goodwill pending completion of the final valuations of the assets acquired and liabilities assumed.

As described in Note 19, during the fiscal year 2011, $25.3 million of the increase in BSG's goodwill was attributable to the acquisition of Aerial Company, Inc. ("Aerial") on October 1, 2010. The remaining increase in BSG's goodwill in the amount of $4.0 million and the increase in Sally Beauty Supply's goodwill in the amount of $0.3 million during the fiscal year 2011 was attributable to acquisitions which were not individually material and/or to net purchase price adjustments.

The following table provides the carrying value for intangible assets with indefinite lives, excluding goodwill, and the gross carrying value and accumulated amortization for intangible assets subject to amortization by operating segment at September 30, 2011 and 2010 (in thousands):

				Sally Beauty Supply			Beauty Systems Group			Total
Balance at September 30, 2011:
Intangible assets with indefinite lives:
	Trade names			$	27,344		$	33,722		$	61,066
		Total			27,344			33,722			61,066
Intangible assets subject to amortization:
	Gross carrying amount				14,491			99,568			114,059
	Accumulated amortization				(6,622	)		(38,845	)		(45,467	)
		Net value			7,869			60,723			68,592
			Total intangible assets, excluding goodwill, net	$	35,213		$	94,445		$	129,658
Balance at September 30, 2010:
Intangible assets with indefinite lives:
	Trade names			$	28,046		$	33,752		$	61,798
	Other				—			5,700			5,700
		Total			28,046			39,452			67,498
Intangible assets subject to amortization:
	Gross carrying amount				14,399			60,486			74,885
	Accumulated amortization				(4,301	)		(28,730	)		(33,031	)
		Net value			10,098			31,756			41,854
			Total intangible assets, excluding goodwill, net	$	38,144		$	71,208		$	109,352

Amortization expense totaled $12.4 million, $8.7 million and $6.2 million for the fiscal years 2011, 2010 and 2009, respectively. As of September 30, 2011, future amortization expense related to intangible assets subject to amortization is estimated to be as follows (in thousands):

Fiscal Year:
2012	$	11,325
2013		9,514
2014		9,226
2015		8,791
2016		7,638
Thereafter		22,098
	$	68,592

The weighted average amortization period for intangible assets subject to amortization is approximately 8 years.

XML

Significant Accounting Policies

12 Months Ended

Sep. 30, 2011

Significant Accounting Policies

Significant Accounting Policies

2. Significant Accounting Policies

The preparation of financial statements in conformity with GAAP requires us to interpret and apply accounting standards and to develop and follow accounting policies consistent with such standards. The following is a summary of the significant accounting policies used in preparing the Company's consolidated financial statements.

   Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent liabilities in the financial statements. Our most significant estimates relate to: the valuation of inventory, vendor concessions, retention of risk, income taxes, the assessment of long-lived assets and intangible assets for impairment, and share-based payments. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results may differ from these estimates in amounts that may be material to the financial statements. Management believes that the estimates and assumptions used in the preparation of the Company's consolidated financial statements are reasonable.

   Cash and Cash Equivalents

All highly liquid investments purchased by the Company from time to time which have an original maturity of three months or less are considered to be cash equivalents. These investments are stated at cost, which approximates fair value. Also included in cash equivalents are proceeds due from customer credit and debit card transactions, which generally settle within one to three days, and were $10.3 million and $8.4 million at September 30, 2011 and 2010, respectively.

   Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of investments in cash equivalents, accounts receivable and derivative instruments.

The Company invests from time to time in securities of financial institutions with high credit quality. Accounts receivable are deemed by the Company to be highly diversified due to the high number of entities comprising the Company's customer base and their dispersion across diverse geographical regions. The counterparties to all our derivative instruments are deemed by the Company to be of substantial resources and strong creditworthiness. The Company believes that no significant concentration of credit risk exists with respect to its investments in cash equivalents, its accounts receivable and its derivative instruments at September 30, 2011 and 2010.

   Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the values invoiced to customers and do not bear interest. Trade accounts receivable are stated net of the allowance for doubtful accounts. The allowance for doubtful accounts requires management to estimate the future collectability of amounts receivable at the balance sheet date. Management records allowances for doubtful accounts based on 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. In the Company's consolidated statements of earnings, bad debt expense is included in selling, general and administrative expenses. The Company's exposure to credit risk with respect to trade receivables is mitigated by the Company's broad customer base and their dispersion across diverse geographical regions.

   Accounts Receivable, Other

Accounts receivable, other, consist primarily of amounts expected to be received from vendors under various contractual agreements and are recorded at the amount management estimates will be collected.

   Inventory

Inventory consists primarily of beauty supplies and related accessories, and salon equipment for sale in the normal course of our business. Inventory is stated at the lower of cost, determined using the first-in, first-out ("FIFO") method, or market (net realizable value). Inventory cost reflects actual product costs, the cost of transportation to the Company's distribution centers, 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 necessary, the Company adjusts the carrying value of inventory to the lower of cost or market, including disposal costs, and for estimated inventory shrinkage. Estimates of the future demand for the Company's products, historical turn-over rates, the age and sales history of the inventory, and historic as well as anticipated changes in stock keeping units ("SKUs") are some of the key factors used by management in assessing the net realizable value of inventory.

The Company estimates inventory shrinkage between physical counts based on its historical experience. Physical inventory counts are performed at substantially all stores and significant distribution centers at least annually, and sooner when management has reason to believe that the risk of inventory shrinkage at a particular location is heightened. Upon completion of physical inventory counts, the Company's consolidated financial statements are adjusted to reflect actual quantities on hand. The Company has policies and processes in place that are intended to minimize inventory shrinkage. Inventory shrinkage expense has averaged approximately 1% of our consolidated net sales during each of the past three fiscal years.

   Lease Accounting

The Company's lease agreements for office space, retail stores and warehouse/distribution facilities are generally accounted for as operating leases, consistent with applicable GAAP. Rent expense (including any rent abatements or escalation charges) is recognized on a straight-line basis from the date the Company takes possession of the property to begin preparation of the site for occupancy, to the end of the lease term, including renewal options determined to be reasonably assured. Certain lease agreements to which the Company is a party provide for contingent rents that are determined as a percentage of revenues in excess of specified levels. The Company records a contingent rent liability, along with the corresponding rent expense, when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.

Certain lease agreements to which the Company is a party provide for tenant improvement allowances. Such allowances are recorded as deferred lease credits, included in accrued liabilities and other liabilities, as appropriate, on our consolidated balance sheets, and amortized on a straight-line basis over the lease term (including renewal options determined to be reasonably assured) as a reduction of rent expense. The amortization period used for deferred lease credits is generally consistent with the amortization period used for the constructed leasehold improvement asset for a given location.

   Valuation of Long-Lived Assets and Intangible Assets with Definite Lives

Long-lived assets, such as property and equipment, including store equipment, and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets and intangible assets subject to amortization is assessed by comparing the net carrying amount of each asset to its total estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. There were no significant impairment losses recognized in our financial statements in the current or prior fiscal years presented.

Intangible assets subject to amortization include customer relationships, certain distribution rights and non-competition agreements, and are amortized, on a straight-line basis, over periods of one to twelve years. Such amortization periods are based on the estimated useful lives of the assets and take into account the terms of any underlying agreements, but do not generally reflect all renewal terms contractually available to the Company.

   Goodwill and Intangible Assets with Indefinite Lives

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Intangible assets with indefinite lives include trade names and certain distribution rights acquired in a business combination. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually, during our second fiscal quarter, and whenever events or changes in circumstances indicate it is more likely than not that the value of the asset may be impaired. When assessing goodwill and intangible assets with indefinite lives for potential impairment, management compares the carrying amount of the asset to its fair value. In addition, management considers whether there has been an impairment to the value of the asset by evaluating if various factors (including current operating results, anticipated future results and cash flows, and relevant market and economic conditions) indicate a possible impairment. Based on the reviews performed, after taking into account the economic downturn experienced during the past couple of years in certain geographic areas in which we operate, there was no impairment of goodwill or intangible assets with indefinite lives recognized in our financial statements in the current or prior fiscal years presented.

   Deferred Financing Costs

Certain costs incurred in connection with the issuance of debt are capitalized when incurred and are amortized over the estimated term of the related debt agreements generally using the effective interest method. Such capitalized costs are included in other assets in our consolidated balance sheets. Unamortized deferred financing costs are expensed proportionally when certain debt is prepaid.

   Insurance/Self-Insurance Programs

The Company retains a substantial portion of the risk related to certain of its workers' compensation, general and auto liability and property damage insurable loss exposure. Predetermined loss limits have been arranged with insurance companies to limit the Company's exposure per occurrence and aggregate cash outlay. Certain of our employees and their dependents are also covered by a self-insurance program for healthcare benefit purposes. Currently these self-insurance costs, less amounts recovered through payroll deductions and certain out-of-pocket amounts incurred in connection with the employee healthcare program, are funded by the Company. The Company maintains an annual stop-loss insurance policy for the healthcare benefits plan.

The Company records an estimated liability for the ultimate cost of claims incurred and unpaid as of the balance sheet date, which includes both claims filed and estimated losses incurred but not yet reported. The Company estimates the ultimate cost based on an analysis of historical data and actuarial estimates. Workers' compensation, general and auto liability and property damage insurable loss liabilities are recorded at the estimate of their net present value, while healthcare plan liabilities are not discounted. These estimates are reviewed on a regular basis to ensure that the recorded liability is adequate. The Company believes the amounts accrued at September 30, 2011 and 2010 are adequate.

   Revenue Recognition

The Company recognizes sales revenue when a customer consummates a point-of-sale transaction at a store. The cost of sales incentive programs, including customer and consumer coupons, is recognized as a reduction of revenue at the time of sale. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis and are excluded from revenue. The Company also recognizes revenue on merchandise shipped to customers when title and risk of loss pass to the customer (generally upon shipment). Appropriate provisions for sales returns and cash discounts are made at the time the sales are recognized. Sales returns and allowances averaged approximately 2.0% of net sales during each of the past three fiscal years.

   Cost of Products Sold and Distribution Expenses

Cost of products sold and distribution expenses include actual product costs, the cost of transportation to the Company's distribution centers, and certain shipping and handling costs, such as freight from the distribution centers to the stores and handling costs incurred at the distribution centers. All other shipping and handling costs are included in selling, general and administrative expenses when incurred.

   Shipping and Handling

Shipping and handling costs (including freight and distribution expenses) related to delivery to customers are included in selling, general and administrative expenses in our consolidated statements of earnings when incurred and amounted to $41.2 million, $36.0 million and $30.3 million for the fiscal years 2011, 2010 and 2009, respectively.

   Advertising Costs

Advertising costs relate mainly to print advertisements, digital marketing, 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 costs of $70.9 million, $64.6 million and $55.2 million for the fiscal years 2011, 2010 and 2009, respectively, are included in selling, general and administrative expenses in our consolidated statements of earnings.

   Vendor Rebates and Concessions

The Company deems a cash consideration received from a supplier to be a reduction of the cost of products sold unless it is in exchange for an asset or service or a reimbursement of a specific, incremental, identifiable cost incurred by the Company in selling the vendor's products. The majority of cash consideration received by the Company is considered to be a reduction of the cost of the related products and is reflected in cost of products sold and distribution expenses in our consolidated statements of earnings as the related products are sold. Any portion of such cash consideration received that is attributable to inventory on hand is reflected as a reduction of inventory.

   Income Taxes

The Company recognizes 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 estimated to be recovered or settled. The effect on deferred taxes of a change in 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 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 the Company's foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (the Company's reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations are translated using the average exchange rates during the period presented. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income in our consolidated balance sheets. Foreign currency transaction gains or losses are included in our consolidated statements of earnings when incurred and were not significant in any of the periods presented in the accompanying financial statements.

   Share-Based Compensation

Prior to November 2006, the Company was a subsidiary of Alberto-Culver and had no share-based compensation plans of its own, however, Alberto-Culver had granted to Company employees certain stock options with a cash settlement provision contingent upon the occurrence of certain change in control events, pursuant to its stock option plans. As such, the contingent cash settlement of these stock options as a result of such events would not be solely in the control of the Company. Accordingly, as of September 30, 2010, the Company reported $0.9 million in "Stock options subject to redemption" outside of accumulated stockholders' equity (deficit) on its consolidated balance sheets and this amount was reclassified back into additional paid-in capital as the related stock options were exercised or canceled or otherwise terminated.

XML

Property and Equipment, Net (Tables)

12 Months Ended

Sep. 30, 2011

Property and Equipment, Net

Schedule of property and equipment, net

		September 30,
		2011			2010
Land		$	11,187		$	11,124
Buildings and building improvements			59,248			58,594
Leasehold improvements			171,916			155,476
Furniture, fixtures and equipment			257,815			234,111
	Total property and equipment, gross		500,166			459,305
Less accumulated depreciation and amortization			(317,677	)		(291,186	)
	Total property and equipment, net	$	182,489		$	168,119

XML

Share-Based Payments

12 Months Ended

Sep. 30, 2011

Share-Based Payments

Share-Based Payments

8. Share-Based Payments

In January 2010, the Company adopted the Sally Beauty Holdings, Inc. 2010 Omnibus Incentive Plan (the "2010 Plan"), a stockholder-approved share-based compensation plan which allows for the issuance of up to 29.8 million shares of the Company's common stock. During the fiscal years 2011, 2010 and 2009, the Company granted to its employees and consultants approximately 3.0 million, 2.9 million and 2.7 million stock options and approximately 199,000, 118,000 and 123,000 restricted share awards, respectively, under either the 2010 Plan or a predecessor share-based compensation plan, the Sally Beauty Holdings, Inc. 2007 Omnibus Incentive Plan (the "2007 Plan"). Additionally, during the fiscal years 2011, 2010 and 2009, the Company granted 43,015, 66,038 and 93,500 restricted stock units ("RSUs"), respectively, to its non-employee directors under either the 2010 Plan or the 2007 Plan. After the adoption of the 2010 Plan, the Company's equity awards have been made under the 2010 Plan and all future awards are currently expected to be made under such plan.

The Company measures the cost of services received from employees, directors and consultants in exchange for an award of equity instruments based on the fair value of the award on the date of grant, and recognizes compensation expense on a straight-line basis over the vesting period or up to the date a participant becomes eligible for retirement, if earlier. For the fiscal years 2011, 2010 and 2009, total compensation cost charged against income and included in selling, general and administrative expenses in the Company's consolidated statements of earnings for all share-based compensation arrangements was $15.6 million, $12.8 million and $8.6 million, respectively, and resulted in an increase in additional paid-in capital by the same amounts. These amounts included, for the fiscal years 2011, 2010 and 2009, $5.0 million, $2.5 million and $2.0 million, respectively, of accelerated expense related to certain retirement eligible employees who continue vesting awards upon retirement, under the provisions of the 2010 Plan and certain predecessor share-based plans such as the 2007 Plan. For fiscal years 2011, 2010 and 2009, the total income tax benefit recognized in our consolidated statements of earnings from these plans was $6.0 million, $5.0 million and $3.0 million, respectively.

Prior to the Separation Transactions, we were a wholly-owned subsidiary of Alberto-Culver and had no share-based compensation plans of our own; however, certain of our employees had been granted stock options and restricted stock awards under share-based compensation plans of Alberto-Culver. Upon completion of the Separation Transactions, all outstanding Alberto-Culver stock options held by our employees became options to purchase shares of our common stock.

Stock Options

Each option entitles the holder to acquire one share of the Company's common stock, has an exercise price that equals 100% of the market price per share of the Company's common stock on the date of grant and generally has a maximum term of 10 years. Options generally vest ratably over a four year period and are generally subject to forfeiture until the vesting period is complete, subject to certain retirement provisions contained in the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

The following table presents a summary of the activity for the Company's stock option plans for the fiscal year ended September 30, 2011:

		Number of Outstanding Options (in Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Outstanding at September 30, 2010			12,738		$	7.53		7.3	$	46,789
	Granted		3,009			11.39
	Exercised		(1,731	)		6.32
	Forfeited or expired		(238	)		8.68
Outstanding at September 30, 2011			13,778		$	8.50		6.8	$	111,571
Exercisable at September 30, 2011			6,999		$	8.17		5.5	$	59,026

The following table summarizes information about stock options under the Company's option plans at September 30, 2011:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding at September 30, 2011 (in Thousands)		Weighted Average Remaining Contractual Term (in Years)		Weighted Average Exercise Price		Number Exercisable at September 30, 2011 (in Thousands)		Weighted Average Exercise Price
$2.00 - $5.24			2,623		6.2	$	4.70		1,381	$	4.22
$7.42 - $11.39			11,155		6.9		9.40		5,618		9.14
	Total		13,778		6.8	$	8.50		6,999	$	8.17

The Company uses the Black-Scholes option pricing model to value the Company's stock options for each stock option award. Using this option pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company's stock option awards is expensed on a straight-line basis over the vesting period (generally four years) of the stock options or to the date a participant becomes eligible for retirement, if earlier.

The weighted average assumptions relating to the valuation of the Company's stock options are as follows:

	Year Ended September 30,
	2011		2010		2009
Expected lives (in years)		5.0		5.0		5.0
Expected volatility		59.0%		64.4%		47.9%
Risk-free interest rate		1.1%		2.4%		2.6%
Dividend yield		0.0%		0.0%		0.0%

The expected life of options represents the period of time that the options granted are expected to be outstanding and is based on historical experience of employees of the Company who have been granted stock options, including grants under stock option plans of Alberto-Culver prior to the Separation Transactions. Expected volatility is derived using the average volatility of both the Company and similar companies (based on industry sector) since it is not practicable to estimate the Company's expected volatility on a stand-alone basis due to a lack of sufficient trading history. The risk-free interest rate is based on the zero-coupon U.S. Treasury issue as of the date of the grant. Since the Company does not currently expect to pay dividends, the dividend yield is 0%.

The weighted average fair value per option at the date of grant, of the stock options issued to the Company's grantees during the fiscal years 2011, 2010 and 2009 was $5.74, $4.15 and $2.33, respectively. The total fair value of stock options issued to the Company's grantees that vested during the fiscal years 2011, 2010 and 2009 was $8.5 million, $7.6 million and $6.2 million, respectively.

The total intrinsic value of options exercised during the fiscal years 2011, 2010 and 2009 was $15.9 million, $1.8 million and $1.0 million, and the tax benefit realized for the tax deductions from these option exercises was $6.2 million, $0.5 million and $0.4 million, respectively. The total cash received during the fiscal years 2011, 2010 and 2009 from these option exercises was $10.9 million, $0.9 million and $0.7 million, respectively.

At September 30, 2011, approximately $11.3 million of unrecognized compensation costs related to unvested stock option awards are expected to be recognized over the weighted average period of 2.6 years.

Stock Awards

Restricted Stock Awards

The Company from time to time grants restricted stock awards to employees and consultants under the 2010 Plan. A restricted stock award is an award of shares of the Company's common stock (which have full voting and dividend rights but are restricted with regard to sale or transfer) the restrictions over which lapse ratably over a specified period of time (generally five years). Restricted stock awards are independent of stock option grants and are generally subject to forfeiture if employment terminates prior to these restrictions lapsing, subject to certain retirement provisions of the 2010 Plan and certain predecessor share-based compensation plans such as the 2007 Plan.

The Company expenses the cost of the restricted stock awards, which is determined to equal the fair value of the restricted stock award at the date of grant, on a straight-line basis over the period (the "vesting period") in which the restrictions on these stock awards lapse ("vesting") or to the date a participant becomes eligible for retirement, if earlier. For these purposes, the fair value of the restricted stock award is determined based on the closing price of the Company's common stock on the date of grant.

The following table presents a summary of the activity for the Company's restricted stock awards for the fiscal year ended September 30, 2011:

Restricted Stock Awards		Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2010			362		$	7.38		3.2
	Granted		199			11.39
	Vested		(111	)		7.63
	Forfeited or expired		(5	)		6.58
Unvested at September 30, 2011			445		$	9.12		3.1

At September 30, 2011, approximately $2.3 million of unrecognized compensation costs related to unvested restricted stock awards are expected to be recognized over the weighted average period of 3.1 years.

Restricted Stock Units

The Company from time to time grants RSUs which generally vest within one year from the date of grant pursuant to the 2010 Plan. To date, the Company has only granted RSU awards to its non-employee directors. RSUs represent an unsecured promise of the Company to issue shares of common stock of the Company. Upon vesting, such RSUs are generally retained by the Company as deferred stock units that are not distributed until six months after the independent director's service as a director terminates. RSUs are independent of stock option grants and are generally subject to forfeiture if service terminates prior to the vesting of the units. Participants have no voting rights with respect to unvested RSUs. Under the 2010 Plan, the Company may settle the vested deferred stock units with shares of the Company's common stock or in cash.

The Company expenses the cost of services received in exchange of RSUs (which is determined to equal the fair value of the RSUs at the date of grant) on a straight-line basis over the vesting period (generally one year). For these purposes, the fair value of the RSU is determined based on the closing price of the Company's common stock on the date of grant.

The following table presents a summary of the activity for the Company's RSUs for the fiscal year ended September 30, 2011:

Restricted Stock Units	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (In Years)
Unvested at September 30, 2010		—		$	—		—
Granted		43			11.39
Vested		(43	)		11.39
Forfeited		—			—
Unvested at September 30, 2011		—			—		—

During fiscal year 2011, all RSUs vested. Therefore, there are no remaining unrecognized compensation costs to be expensed as of September 30, 2011.

XML

Commitments and Contingencies

12 Months Ended

Sep. 30, 2011

Commitments and Contingencies

Commitments and Contingencies

13. Commitments and Contingencies

Lease Commitments

The Company's principal leases relate to retail stores and warehousing properties. At September 30, 2011, future minimum payments under non-cancelable operating leases, net of sublease income, are as follows (in thousands):

Fiscal Year:
2012	$	141,422
2013		115,781
2014		87,196
2015		61,634
2016		39,470
Thereafter		50,199
	$	495,702

Certain of the Company's leases require the Company to pay a portion of real estate taxes, insurance, maintenance and special assessments assessed by the lessor. Also, certain of the Company's leases include renewal options and escalation clauses.

Total rental expense for operating leases amounted to $192.6 million, $178.5 million and $166.3 million for the fiscal years 2011, 2010 and 2009, respectively, and is included in selling, general and administrative expenses in our consolidated statements of earnings. These amounts include $0.7 million, $0.5 million and $0.4 million for contingent rents for the fiscal years 2011, 2010 and 2009, respectively.

Contingencies

Legal Proceedings

There were no material legal proceedings pending against the Company or its subsidiaries, as of September 30, 2011. The Company is involved in various claims and lawsuits incidental to the conduct of its business in the ordinary course. The Company does not believe that the ultimate resolution of these matters will have a material adverse impact on its consolidated financial position, statements of earnings or cash flows.

On June 2, 2011, we disclosed in a Current Report on Form 8-K that the Company's BSG and Armstrong McCall subsidiaries, certain franchisees of Armstrong McCall, certain other individual defendants and L'Oreal USA S/D, Inc. (along with L'Oreal's subsidiary Maly's West) ("L'Oreal"), executed an agreement (the "Settlement Agreement") settling the litigation initially brought by L'Oreal on February 21, 2008 against certain Armstrong McCall franchisees alleging breach of contract and other claims related to the distribution agreement between Armstrong McCall and L'Oreal concerning Matrix branded products. Armstrong McCall and Michael Voticky were added as defendants by L'Oreal on July 27, 2009.

Pursuant to the Settlement Agreement, the Company and L'Oreal have agreed a) to terminate their existing agreement to distribute Matrix branded products through Armstrong McCall and its franchisees; b) to enter into a new five-year agreement to distribute Matrix branded products through Armstrong McCall and its franchisees; and c) to an exchange of financial and other consideration. In connection with the settlement, the litigation was dismissed with prejudice and the parties entered into a mutual release of all claims asserted in the litigation.

Other Contingencies

The Company provides healthcare benefits to most of its full-time employees. The Company is largely self-funded for the cost of the healthcare plan (including healthcare claims), other than certain fees and out-of-pocket amounts paid by the employees. In addition, the Company retains a substantial portion of the risk related to certain workers' compensation, general liability, and automobile and property insurance. The Company records an estimated liability for the ultimate cost of claims incurred and unpaid as of the balance sheet date. The estimated liability is included in accrued liabilities (current portion) and other liabilities (long-term portion) in our consolidated balance sheets. The Company carries insurance coverage in such amounts in excess of its self-insured retention which management believes to be reasonable.

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. The Company has no significant liabilities for loss contingencies at September 30, 2011 and 2010.

XML

Subsequent Events (Details) (Acquisition, Kappersservice Floral B.V. and two related companies (the Floral Group)) In Millions, unless otherwise specified	1 Months Ended	3 Months Ended
	Nov. 30, 2011 Affiliate	Jun. 30, 2011 USD ($) Store	Jun. 30, 2011 EUR (€)
Subsequent Events
Number of affiliates of acquiree	2
Approximate purchase price		$ 30.8	€ 22.5
Number of stores		19
Borrowings on ABL credit facility used to fund acquisition		$ 17.0

XML

Allowance for Doubtful Accounts

12 Months Ended

Sep. 30, 2011

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

9. Allowance for Doubtful Accounts

The change in the allowance for doubtful accounts was as follows (in thousands):

	Year Ended September 30,
	2011			2010			2009
Balance at beginning of period	$	2,756		$	2,266		$	2,702
Bad debt expense		1,631			1,578			1,859
Uncollected accounts written off, net of recoveries		(2,423	)		(1,431	)		(2,648	)
Allowance for doubtful accounts of acquired companies		122			343			353
Balance at end of period	$	2,086		$	2,756		$	2,266

XML

Earnings Per Share (Tables)

12 Months Ended

Sep. 30, 2011

Earnings Per Share

Schedule of computations of basic and diluted earnings per share

		Year ended September 30,
		2011		2010		2009
Net earnings		$	213,725	$	143,828	$	99,117
Weighted average basic shares			183,020		181,985		181,691
Adjustments for assumed dilution—stock options and stock awards			5,073		2,103		1,615
Weighted average diluted shares			188,093		184,088		183,306
Earnings per share:
	Basic	$	1.17	$	0.79	$	0.55
	Diluted	$	1.14	$	0.78	$	0.54

XML

Earnings Per Share

12 Months Ended

Sep. 30, 2011

Earnings Per Share

Earnings Per Share

7. Earnings Per Share

Basic earnings per share ("EPS"), is calculated by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated similarly but includes potential dilution from the exercise of all outstanding stock options and stock awards, except when the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

		Year ended September 30,
		2011		2010		2009
Net earnings		$	213,725	$	143,828	$	99,117
Weighted average basic shares			183,020		181,985		181,691
Adjustments for assumed dilution—stock options and stock awards			5,073		2,103		1,615
Weighted average diluted shares			188,093		184,088		183,306
Earnings per share:
	Basic	$	1.17	$	0.79	$	0.55
	Diluted	$	1.14	$	0.78	$	0.54

At September 30, 2011, all outstanding options to purchase shares of the Company's common stock were dilutive. At September 30, 2010 and 2009, options to purchase 6,286,491 shares and 6,431,741 shares, respectively, of the Company's common stock were outstanding but not included in the computation of diluted earnings per share, since these options were anti-dilutive. Anti-dilutive options are: (a) out-of-the-money options (options the exercise price of which is greater than the average price per share of the Company's common stock during the period) and (b) in-the-money options (options the exercise price of which is less than the average price per share of the Company's common stock during the period) for which the sum of assumed proceeds, including unrecognized compensation expense, exceeds the average price per share for the period.

XML

Share-Based Payments (Details 2) (USD $) In Thousands, except Per Share data, unless otherwise specified	12 Months Ended
	Sep. 30, 2011 Y
Options Outstanding
Range of Exercise Prices, Number Outstanding (in shares)	13,778
Range of Exercise Prices, Weighted Average Remaining Contractual Term (in years)	6.8
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share)	$ 8.50
Options Exercisable
Range of Exercise Prices, Number Exercisable (in shares)	6,999
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share)	$ 8.17
Range of Exercise Prices $2.00 - 5.24
Information about stock options under option plans
Lower Range of Exercise Prices (in dollars per share)	$ 2.00
Upper Range of Exercise Prices (in dollars per share)	$ 5.24
Options Outstanding
Range of Exercise Prices, Number Outstanding (in shares)	2,623
Range of Exercise Prices, Weighted Average Remaining Contractual Term (in years)	6.2
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share)	$ 4.70
Options Exercisable
Range of Exercise Prices, Number Exercisable (in shares)	1,381
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share)	$ 4.22
Range of Exercise Prices $7.42 - 11.39
Information about stock options under option plans
Lower Range of Exercise Prices (in dollars per share)	$ 7.42
Upper Range of Exercise Prices (in dollars per share)	$ 11.39
Options Outstanding
Range of Exercise Prices, Number Outstanding (in shares)	11,155
Range of Exercise Prices, Weighted Average Remaining Contractual Term (in years)	6.9
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share)	$ 9.40
Options Exercisable
Range of Exercise Prices, Number Exercisable (in shares)	5,618
Range of Exercise Prices, Weighted Average Exercise Price (in dollars per share)	$ 9.14

XML

Consolidated Statements of Stockholders' Equity (Deficit) (Parenthetical) (USD $) In Thousands	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Consolidated Statements of Stockholders' Equity (Deficit)
Deferred gains (losses) on interest rate swaps, income taxes (benefit)	$ 3,523	$ (64)	$ (6,471)

XML

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

12 Months Ended

Sep. 30, 2011

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

3. Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

   Comprehensive Income

Comprehensive income reflects changes in accumulated stockholders' equity (deficit) from sources other than transactions with stockholders and, as such, includes net earnings and certain other specified components. The Company's only components of comprehensive income, other than net earnings, are foreign currency translation adjustments and deferred gains (losses) on certain interest rate swap agreements, net of income tax.

   Accumulated Other Comprehensive (Loss) Income

The components of accumulated other comprehensive (loss) income at September 30, 2011 and 2010, are as follows (in thousands):

	As of September 30,
	2011			2010
Cumulative foreign currency translation adjustments(a)	$	(18,724	)	$	(10,772	)
Deferred (losses) on interest rate swaps, net of tax(b)		(3,947	)		(9,504	)
Total accumulated other comprehensive (loss) income, net of tax	$	(22,671	)	$	(20,276	)

(a)

There were no income tax amounts related to foreign currency translation adjustments at September 30, 2011 and 2010.

(b)

Amounts are net of income tax of $2.5 million and $6.0 million at September 30, 2011 and 2010, respectively. Please see Note 16 for more information about the Company's interest rate swaps.

XML

Sally Beauty Holdings, Inc. Stand-Alone Financial Information (Tables)

12 Months Ended

Sep. 30, 2011

Sally Beauty Holdings, Inc. Stand-Alone Financial Information

Schedule of financial data for Sally Beauty Holdings, Inc. on a stand-alone basis

			2011			2010
Balance Sheet
Assets:
	Deferred income tax assets		$	1,274		$	1,071
	Income taxes receivable			1,679			—
	Due from subsidiaries and other			60,483			41,479
	Investment in subsidiaries			(281,690	)		(497,888	)
		Total assets	$	(218,254	)	$	(455,338	)
Liabilities:
	Deferred income tax liabilities		$	346		$	330
	Income taxes payable			—			5,368
	Other			382			236
		Total liabilities		728			5,934
Stockholders' deficit:				(218,982	)		(461,272	)
		Total liabilities and stockholders' deficit	$	(218,254	)	$	(455,338	)
Statement of Earnings
Operating loss			$	(7,813	)	$	(7,662	)
Interest expense				—			(29	)
		Loss before provision for income taxes		(7,813	)		(7,691	)
Benefit from income taxes				(2,945	)		(2,890	)
		Net loss	$	(4,868	)	$	(4,801	)
Statement of Cash Flows
Net cash used by operating activities			$	(10,942	)	$	(808	)
Net cash used by investing activities:
	Capital expenditures			—			—
		Net cash used by investing activities		—			—
Net cash provided by financing activities:
	Proceeds from exercise of stock options			10,942			878
	Purchases of treasury stock			—			(70	)
		Net cash provided by financing activities		10,942			808
Net change in cash				—			—
Cash and cash equivalents, beginning of year				—			—
Cash and cash equivalents, end of year			$	—		$	—

XML

Fair Value Measurements (Tables)

12 Months Ended

Sep. 30, 2011

Fair Value Measurements

Schedule of fair value hierarchy of financial assets and liabilities

		As of September 30, 2011
		Total		Level 1		Level 2		Level 3
Assets
	Foreign currency forwards(a)	$	424		—	$	424		—
	Foreign currency collars(a)		680		—		680		—
Total assets		$	1,104			$	1,104
Liabilities
	Long-term debt(b)	$	1,420,337	$	725,288	$	695,049		—
	Hedged interest rate swaps(a)		6,450		—		6,450		—
	Foreign currency forwards(a)		528		—		528		—
Total liabilities		$	1,427,315	$	725,288	$	702,027

		As of September 30, 2010
		Total		Level 1		Level 2		Level 3
Assets
	Foreign currency forwards(a)	$	20		—	$	20		—
	Foreign currency options(a)		99		—		99		—
Total assets		$	119			$	119
Liabilities
	Long-term debt(b)	$	1,596,228	$	751,250	$	844,978		—
	Hedged interest rate swaps(a)		15,530		—		15,530		—
	Foreign currency forwards(a)		328		—		328		—
Total liabilities		$	1,612,086	$	751,250	$	860,836

(a)

Foreign currency options, collars and forwards, and interest rate swaps are valued for purposes of this disclosure using widely accepted valuation techniques, such as discounted cash flow analyses, and reasonable estimates, such as projected market interest rates and projected foreign currency exchange rates, as appropriate. Please see Note 16 for more information about the Company's foreign currency options, collars and forwards, and interest rate swaps.

(b)

Long-term debt, which is carried at amortized cost in the Company's consolidated financial statements, is generally valued for purposes of this disclosure using widely accepted valuation techniques, such as discounted cash flow analyses, and observable inputs, such as market interest rates, except for the senior and senior subordinated notes. The senior and senior subordinated notes are valued using unadjusted quoted market prices for such debt securities.

XML

Goodwill and Intangibles Assets (Details 2) (USD $)	12 Months Ended
	Sep. 30, 2011 Y Segment M D	Sep. 30, 2010	Sep. 30, 2009
Intangible assets with indefinite lives:
Trade names	$ 61,066,000	$ 61,798,000
Other		5,700,000
Total	61,066,000	67,498,000
Intangible assets subject to amortization:
Gross carrying amount	114,059,000	74,885,000
Accumulated amortization	(45,467,000)	(33,031,000)
Net value	68,592,000	41,854,000
Amortization expense	12,400,000	8,700,000	6,200,000
Total intangible assets
Total other intangible assets, net	129,658,000	109,352,000
Estimated future amortization expense related to intangible assets subject to amortization:
2012	11,325,000
2013	9,514,000
2014	9,226,000
2015	8,791,000
2016	7,638,000
Thereafter	22,098,000
Total	68,592,000
Intangible assets weighted average amortization period (in years)	8
Sally Beauty Supply
Intangible assets with indefinite lives:
Trade names	27,344,000	28,046,000
Total	27,344,000	28,046,000
Intangible assets subject to amortization:
Gross carrying amount	14,491,000	14,399,000
Accumulated amortization	(6,622,000)	(4,301,000)
Net value	7,869,000	10,098,000
Total intangible assets
Total other intangible assets, net	35,213,000	38,144,000
Beauty Systems Group
Intangible assets with indefinite lives:
Trade names	33,722,000	33,752,000
Other		5,700,000
Total	33,722,000	39,452,000
Intangible assets subject to amortization:
Gross carrying amount	99,568,000	60,486,000
Accumulated amortization	(38,845,000)	(28,730,000)
Net value	60,723,000	31,756,000
Total intangible assets
Total other intangible assets, net	94,445,000	71,208,000
2009 acquisitions
Intangible assets with indefinite lives:
Intangible assets with indefinite lives recorded in connection with acquisitions		800,000
Intangible assets subject to amortization:
Intangible assets subject to amortization recorded in connection with acquisitions		$ 24,900,000

XML

Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Sep. 30, 2011 Y Segment M D	Sep. 30, 2010	Sep. 30, 2009
Fiscal Year:
2012	$ 141,422,000
2013	115,781,000
2014	87,196,000
2015	61,634,000
2016	39,470,000
Thereafter	50,199,000
Total operating lease, future minimum payments due	495,702,000
Total rental expense for operating leases	192,600,000	178,500,000	166,300,000
Contingent rents	$ 700,000	$ 500,000	$ 400,000
Term of distribution agreement pursuant to the Settlement Agreement (in years)	5

XML

Share-Based Payments (Details) (USD $)	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009	Jan. 31, 2010
Share-Based Payments
Share-based compensation plan, maximum issuance authorized (in shares)				29,800,000
Share-Based Payments
Total compensation cost charged against income	$ 15,560,000	$ 12,818,000	$ 8,618,000
Accelerated expense related to certain retirement eligible employees	5,000,000	2,500,000	2,000,000
Total income tax benefit recognized	6,000,000	5,000,000	3,000,000
Stock Options
Share-Based Payments
Granted (in shares)	3,009,000	2,900,000	2,700,000
Stock options exercise price relative to closing market price on grant date (as a percent)	100.00%
Number of shares authorize to acquire	1
Maximum term of stock options (in years)	10
Vesting period (in years)	4Y
Stock Options, Number of Outstanding Options
Outstanding at the beginning of the period (in shares)	12,738,000
Granted (in shares)	3,009,000	2,900,000	2,700,000
Exercised (in shares)	(1,731,000)
Forfeited or expired (in shares)	(238,000)
Outstanding at the end of the period (in shares)	13,778,000	12,738,000
Exercisable at the end of the period (in shares)	6,999,000
Stock Options, Weighted Average Exercise Price
Outstanding at the beginning of the period (in dollars per share)	$ 7.53
Granted (in dollars per share)	$ 11.39
Exercised (in dollars per share)	$ 6.32
Forfeited or expired (in dollars per share)	$ 8.68
Outstanding at the end of the period (in dollars per share)	$ 8.50	$ 7.53
Exercisable at the end of the period (in dollars per share)	$ 8.17
Stock Options, Weighted Average Remaining Contractual Term
Outstanding at the beginning of the period (in years)	7.3
Outstanding at the end of the period (in years)	6.8	7.3
Exercisable at the end of the period (in years)	5.5
Stock Options, Aggregate Intrinsic Value
Outstanding at the beginning of the period (in dollars)	46,789,000
Outstanding at the end of the period (in dollars)	111,571,000	46,789,000
Exercisable at the end of the period (in dollars)	$ 59,026,000

XML

Derivative Instruments and Hedging Activities (Details)	12 Months Ended
	Sep. 30, 2011 USD ($)	Sep. 30, 2010 USD ($)	Sep. 30, 2009 USD ($)	Sep. 30, 2008 USD ($)	Nov. 30, 2006 USD ($)	Sep. 30, 2011 USD:EUR USD ($)	Sep. 30, 2011 USD:EUR EUR (€)	Sep. 30, 2011 CAD:USD USD ($)	Sep. 30, 2011 CAD:USD CAD	Sep. 30, 2011 UKPounds:USD USD ($)	Sep. 30, 2011 UKPounds:USD GBP (£)	Sep. 30, 2011 Minimum EUR (€)	Sep. 30, 2011 Maximum EUR (€)
Designated Cash Flow Hedges
Aggregate notional amount of interest rate swap agreements				$ 300,000,000
Interest expense resulting from OCI reclassifications	(10,174,000)	(10,067,000)	(7,935,000)
Estimated interest expense to result from OCI reclassifications in the next twelve months	6,500,000
Non-designated Cash Flow Hedges
Aggregate notional amount of non-designated interest rate swap agreements					500,000,000
Marked-to-market adjustments for interest rate swaps			7,500,000
Maximum marked-to-market adjustments for interest rate swaps		100,000
Aggregate notional amount of foreign currency collars	12,500,000
Contractual exchange rate of Euros to US dollars under foreign currency collar agreements (in Euros)												1.4000	1.4612
Foreign currency forward, sale contract						26,700,000	19,900,000
Contractual exchange rate for sale contracts						1.3610	1.3610
Foreign currency forwards, purchase contract								17,500,000	18,300,000	8,700,000	5,600,000
Weighted average contractual exchange rate for purchase contracts								1.01855	1.01855	1.5630	1.5630
Net gain included in selling, general and administrative expenses	$ 200,000	$ 200,000

XML

Recent Accounting Pronouncements and Accounting Changes

12 Months Ended

Sep. 30, 2011

Recent Accounting Pronouncements and Accounting Changes

Recent Accounting Pronouncements and Accounting Changes

4. Recent Accounting Pronouncements and Accounting Changes

Recent Accounting Pronouncements

We have not yet adopted and are currently assessing any potential effect of the following recent pronouncements on our consolidated financial statements:

In December 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-28 which amended Accounting Standards Codification ("ASC") Topic 350, Intangibles-Goodwill and Other. This amendment modifies the goodwill impairment test for reporting units with a zero or negative carrying amount, by requiring that Step 2 of the goodwill impairment test be performed for such reporting units if it is more likely than not that an impairment of goodwill exists. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early application is not permitted.

In December 2010, the FASB issued ASU No. 2010-29 which amended ASC Topic 805, Business Combinations ("ASC 805"). This amendment requires that a public company that enters into business combinations that are material on an individual or aggregate basis disclose certain pro forma information for the current and the immediately preceding fiscal year. This amendment also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to such business combination or business combinations. This amendment is effective prospectively for business combinations consummated on or after the first annual reporting period beginning on or after December 15, 2010. Early application is permitted.

In May 2011, the FASB issued ASU No. 2011-04 which amended ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"). When effective, this amendment will change the title of ASC 820 to "Fair Value Measurement" and will adopt fair value measurement and disclosure guidance that is generally consistent with the corresponding International Financial Reporting Standards ("IFRS") guidance. More specifically, this amendment will change certain requirements for measuring fair value or for disclosing information about fair value measurements or, alternatively, clarify the FASB's intent about the application of existing fair value measurement and disclosure requirements. For public companies, this amendment is effective for interim periods and fiscal years beginning after December 15, 2011. Early application by public companies is not permitted.

In June 2011, the FASB issued ASU No. 2011-05 which amended ASC Topic 220, Comprehensive Income. This amendment, which must be applied retrospectively, will allow an entity the option to present the components of net income, as well as total comprehensive income and the components of other comprehensive income, either in a single continuous statement of comprehensive income or in two separate consecutive statements. This amendment also eliminates the option to present the components of other comprehensive income in the statement of stockholders' equity but does not change the items that must be reported. For public companies, this amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. Early application is permitted.

In September 2011, the FASB issued ASU No. 2011-08 which amended ASC Topic 350, Intangibles-Goodwill and Other. This amendment will allow an entity to first assess relevant qualitative factors in order to determine whether it is necessary to perform the two-step quantitative goodwill impairment test under ASC 350. In effect, the amendment eliminates the need to calculate the fair value of a reporting unit in connection with the goodwill impairment test unless the entity determines, based on the qualitative assessment, that it is more likely than not that the reporting unit's fair value is less than its carrying amount. This amendment is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. Early application is permitted.

Accounting Changes

The Company made no accounting changes during the fiscal year 2011.

XML

Document and Entity Information (USD $)	12 Months Ended
	Sep. 30, 2011	Nov. 11, 2011	Mar. 31, 2011
Document and Entity Information
Entity Registrant Name	Sally Beauty Holdings, Inc.
Entity Central Index Key	0001368458
Document Type	10-K
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 1,333,335,000
Entity Common Stock, Shares Outstanding		184,775,543
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY

XML

Income Taxes (Tables)

12 Months Ended

Sep. 30, 2011

Income Taxes

Schedule of provision for income taxes

			Year Ended September 30,
			2011			2010			2009
Current:
	Federal		$	97,172		$	69,112		$	48,335
	Foreign			11,081			4,432			4,276
	State			13,629			11,197			5,507
		Total current portion		121,882			84,741			58,118
Deferred:
	Federal			2,615			2,896			8,204
	Foreign			(2,525	)		(2,814	)		(1,676	)
	State			242			(703	)		1,051
		Total deferred portion		332			(621	)		7,579
		Total provision for income tax	$	122,214		$	84,120		$	65,697

Schedule of the difference between U.S. statutory federal income tax rate and the effective income tax rate

		Year Ended September 30,
		2011			2010			2009
Statutory tax rate			35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit			2.8			2.9			2.8
Effect of foreign operations			(1.3	)		(1.2	)		0.8
Other, net			(0.1	)		0.2			1.3
	Effective tax rate		36.4	%		36.9	%		39.9	%

Schedule of the tax effects of temporary differences that give rise to the Company's deferred tax assets and liabilities

			September 30,
			2011			2010
Deferred tax assets attributable to:
	Share-based compensation expense		$	19,683		$	16,471
	Accrued liabilities			28,711			22,829
	Inventory adjustments			3,432			3,303
	Foreign loss carryforwards			18,315			16,675
	Unrecognized tax benefits			651			577
	Interest rate swaps			2,503			6,026
	Other			2,673			2,579
		Total deferred tax assets		75,968			68,460
Valuation allowance				(17,100	)		(16,552	)
		Total deferred tax assets, net		58,868			51,908
Deferred tax liabilities attributable to:
	Depreciation and amortization			81,644			70,772
		Total deferred tax liabilities		81,644			70,772
		Net deferred tax liability	$	22,776		$	18,864

Schedule of changes in the amount of unrecognized tax benefits

	2011			2010
Balance at beginning of the fiscal year	$	13,647		$	14,378
Increases related to prior year tax positions		166			1,895
Decreases related to prior year tax positions		(15	)		—
Increases related to current year tax positions		208			620
Settlements		(71	)		(1,131	)
Lapse of statute		(3,099	)		(2,115	)
Balance at end of fiscal year	$	10,836		$	13,647

XML

Quarterly Financial Data (Unaudited)

12 Months Ended

Sep. 30, 2011

Quarterly Financial Data (Unaudited)

Quarterly Financial Data (Unaudited)

22. Quarterly Financial Data (Unaudited)

Certain unaudited quarterly consolidated statement of earnings information for the fiscal years ended September 30, 2011 and 2010 is summarized below (in thousands, except per share data):

Fiscal Year			1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
2011:
	Net sales		$	793,564	$	801,805	$	836,576	$	837,186
	Gross profit		$	379,391	$	391,814	$	410,532	$	412,868
	Net earnings		$	40,949	$	49,278	$	69,143	$	54,355
	Earnings per common share(a)
		Basic	$	0.22	$	0.27	$	0.38	$	0.30
		Diluted	$	0.22	$	0.26	$	0.37	$	0.29
2010:
	Net sales		$	704,851	$	720,467	$	742,975	$	747,797
	Gross profit		$	333,214	$	344,284	$	360,859	$	366,017
	Net earnings		$	26,126	$	34,560	$	41,116	$	42,026
	Earnings per common share(a)
		Basic	$	0.14	$	0.19	$	0.23	$	0.23
		Diluted	$	0.14	$	0.19	$	0.22	$	0.23

(a)

The sum of the quarterly earnings per share may not equal the full year amount, as the computations of the weighted average number of common shares outstanding for each quarter and for the full year are performed independently.

XML

Derivative Instruments and Hedging Activities (Details 3) (USD $)	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Derivatives in Cash Flow Hedging Relationships
Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax	$ 5,557,000	$ (101,000)	$ (10,196,000)
Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	(10,174,000)	(10,067,000)	(7,935,000)
Derivatives Not Designated as Hedging Instruments
Amount of gain or (loss) recognized in income on Derivative, Foreign Currency Options, Collars and Forwards	194,000	203,000
Amount of gain or (loss) recognized in income on Derivative, Interest Rate Swaps		(24,000)	(7,488,000)
Total derivatives not designated as hedging instruments	194,000	179,000
Credit-risk-related Contingent Features
Interest Rate Swaps, Liability	6,500,000
Termination value of settlement obligations including accrued interest and other termination costs	6,500,000
Foreign Currency Options, Collars and Forwards, net asset	600,000
Foreign Currency Options and Forwards, Asset	1,100,000
Foreign Currency Options and Forwards, Liability	$ 500,000

XML

Short-term Borrowings and Long-Term Debt (Details 2) (USD $)			1 Months Ended	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Nov. 30, 2011 New ABL credit facility, Sally Holdings D	Sep. 30, 2011 Sally Holdings, LLC
Fiscal Year:
2012	$ 2,240,000
2013	8,652,000
2014	690,638,000
2015	430,100,000
Thereafter	275,000,000
Total	1,406,630,000
Capital lease obligations	6,485,000
Less: current portion	(3,004,000)	(3,045,000)
Total long-term debt	1,410,111,000	1,559,591,000
Consolidated interest coverage ratio threshold, numerator				2.0
Consolidated interest coverage ratio threshold, denominator				1.0
Dividend and distribution restriction, covenant amount			30,000,000
Minimum borrowing availability			80,000,000
Percentage of borrowing base			20.00%
Period prior to payments of dividends and other equity distributions up to $30 million for which certain thresholds under the terms of the credit facility must be met (in days)			45
Minimum fixed-charge coverage ratio, numerator			1.10
Fixed-charge coverage ratio, denominator			1.00
Unrestricted net asset of subsidiaries				483,200,000
Outstanding letter of credit related to inventory purchases and self-insurance programs	$ 16,000,000	$ 14,500,000

XML

Share-Based Payments (Tables)

12 Months Ended

Sep. 30, 2011

Share-Based Payments

Summary of activity for stock option plans

		Number of Outstanding Options (in Thousands)			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)		Aggregate Intrinsic Value (in Thousands)
Outstanding at September 30, 2010			12,738		$	7.53		7.3	$	46,789
	Granted		3,009			11.39
	Exercised		(1,731	)		6.32
	Forfeited or expired		(238	)		8.68
Outstanding at September 30, 2011			13,778		$	8.50		6.8	$	111,571
Exercisable at September 30, 2011			6,999		$	8.17		5.5	$	59,026

Summary of stock options by range of exercise prices

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number Outstanding at September 30, 2011 (in Thousands)		Weighted Average Remaining Contractual Term (in Years)		Weighted Average Exercise Price		Number Exercisable at September 30, 2011 (in Thousands)		Weighted Average Exercise Price
$2.00 - $5.24			2,623		6.2	$	4.70		1,381	$	4.22
$7.42 - $11.39			11,155		6.9		9.40		5,618		9.14
	Total		13,778		6.8	$	8.50		6,999	$	8.17

Schedule of weighted average assumptions for valuation of stock options

	Year Ended September 30,
	2011		2010		2009
Expected lives (in years)		5.0		5.0		5.0
Expected volatility		59.0%		64.4%		47.9%
Risk-free interest rate		1.1%		2.4%		2.6%
Dividend yield		0.0%		0.0%		0.0%

Summary of the activity for restricted stock awards

Restricted Stock Awards		Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (in Years)
Unvested at September 30, 2010			362		$	7.38		3.2
	Granted		199			11.39
	Vested		(111	)		7.63
	Forfeited or expired		(5	)		6.58
Unvested at September 30, 2011			445		$	9.12		3.1

Summary of the activity for restricted stock unit awards RSUs

Restricted Stock Units	Number of Shares (in Thousands)			Weighted Average Fair Value Per Share		Weighted Average Remaining Vesting Term (In Years)
Unvested at September 30, 2010		—		$	—		—
Granted		43			11.39
Vested		(43	)		11.39
Forfeited		—			—
Unvested at September 30, 2011		—			—		—

XML

Derivative Instruments and Hedging Activities (Tables)

12 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities

Tabular Disclosure of Fair Values of Derivative Instruments

		Asset Derivatives As of September 30, 2011			Liability Derivatives As of September 30, 2011
		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
	Interest Rate Swaps	Other assets	$	—	Accrued liabilities	$	6,450
Total derivatives designated as hedging instruments			$	—		$	6,450
Derivatives not designated as hedging instruments:
	Foreign Currency Collars and Forwards	Prepaid expenses	$	1,104	Accrued liabilities	$	528
Total derivatives not designated as hedging instruments			$	1,104		$	528

		Asset Derivatives As of September 30, 2010			Liability Derivatives As of September 30, 2010
		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
	Interest Rate Swaps	Other assets	$	—	Other liabilities	$	15,530
Total derivatives designated as hedging instruments			$	—		$	15,530
Derivatives not designated as hedging instruments:
	Foreign Currency Options and Forwards	Prepaid expenses	$	119	Accrued liabilities	$	328
Total derivatives not designated as hedging instruments			$	119		$	328

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2011
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	5,557	Interest expense	$	(10,174	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Foreign Currency Options, Collars and Forwards	Selling, general and administrative expenses	$	194
Interest Rate Swaps	Interest expense		—
Total derivatives not designated as hedging instruments		$	194

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2010
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	(101	)	Interest expense	$	(10,067	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Foreign Currency Options and Forwards	Selling, general and administrative expenses	$	203
Interest Rate Swaps	Interest expense		(24	)
Total derivatives not designated as hedging instruments		$	179

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2009
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	(10,196	)	Interest expense	$	(7,935	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Interest Rate Swaps	Interest expense	$	(7,488	)

XML

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income (Tables)

12 Months Ended

Sep. 30, 2011

Comprehensive Income and Accumulated Other Comprehensive (Loss) Income

Schedule of components of accumulated other comprehensive (loss) income

	As of September 30,
	2011			2010
Cumulative foreign currency translation adjustments(a)	$	(18,724	)	$	(10,772	)
Deferred (losses) on interest rate swaps, net of tax(b)		(3,947	)		(9,504	)
Total accumulated other comprehensive (loss) income, net of tax	$	(22,671	)	$	(20,276	)

(a)

There were no income tax amounts related to foreign currency translation adjustments at September 30, 2011 and 2010.

(b)

Amounts are net of income tax of $2.5 million and $6.0 million at September 30, 2011 and 2010, respectively. Please see Note 16 for more information about the Company's interest rate swaps.

XML

Accrued Liabilities

12 Months Ended

Sep. 30, 2011

Accrued Liabilities

Accrued Liabilities

12. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

		September 30,
		2011		2010
Compensation and benefits		$	78,796	$	74,446
Interest payable			27,274		26,518
Deferred revenue			16,987		13,099
Rental obligations			12,403		11,531
Property and other taxes			4,764		4,511
Insurance reserves			8,114		8,428
Interest rate swaps(a)			6,450		—
Operating accruals and other			30,721		28,963
	Total accrued liabilities	$	185,509	$	167,496

(a)

Prior to the fiscal year ended September 30, 2011, interest rate swaps had a maturity in excess of one year and, accordingly, were classified in other assets or other liabilities, as appropriate, in the Company's consolidated balance sheets.

XML

Property and Equipment, Net (Details) (USD $)	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Property and Equipment, Net
Total property and equipment, gross	$ 500,166,000	$ 459,305,000
Less accumulated depreciation and amortization	(317,677,000)	(291,186,000)
Total property and equipment, net	182,489,000	168,119,000
Depreciation expense	47,300,000	42,400,000	40,900,000
Land
Property and Equipment, Net
Total property and equipment, gross	11,187,000	11,124,000
Buildings and building improvements
Property and Equipment, Net
Total property and equipment, gross	59,248,000	58,594,000
Minimum useful lives (in years)	5
Maximum useful lives (in years)	40
Leasehold improvements
Property and Equipment, Net
Total property and equipment, gross	171,916,000	155,476,000
Furniture, fixtures and equipment
Property and Equipment, Net
Total property and equipment, gross	$ 257,815,000	$ 234,111,000
Minimum useful lives (in years)	3
Maximum useful lives (in years)	10

XML

Subsequent Events (Details 2) (USD $)	12 Months Ended			1 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009	Nov. 30, 2011 Sally Holdings, LLC Issuance of debt 6.875 % Senior notes due 2019	Nov. 03, 2011 Sally Holdings, LLC Issuance of debt 6.875 % Senior notes due 2019	Nov. 03, 2011 Senior notes Sally Holdings, LLC Refinancing of debt	Nov. 03, 2011 Senior subordinated notes Sally Holdings, LLC Refinancing of debt	Sep. 30, 2011 Senior notes	Sep. 30, 2011 Senior subordinated notes
Subsequent Events
Aggregate principal amount					$ 750,000,000	$ 430,000,000	$ 275,000,000
Interest rate (as a percent)					6.875%	9.25%	10.50%	9.25%	10.50%
Percentage of par value at which debt was issued					98.50%
Net proceeds from long-term debt	$ 428,605,000	$ 334,000,000	$ 95,577,000	$ 737,000,000

XML

Short-term Borrowings and Long-Term Debt (Details) (USD $)	12 Months Ended				1 Months Ended		12 Months Ended											1 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009	Nov. 30, 2011 New ABL facility, term loan B and other notes payable	Nov. 30, 2010 New ABL facility Y	Sep. 30, 2011 New ABL facility	Sep. 30, 2011 New ABL facility LIBOR	Sep. 30, 2011 New ABL facility Prime	Sep. 30, 2011 Term Loan B	Sep. 30, 2011 Term Loan B Sally Investment Holdings LLC, Sally Holdings, LLC and Sally Capital Inc	Sep. 30, 2011 Term Loan B LIBOR	Sep. 30, 2011 Term Loan B Prime	Sep. 30, 2011 Other	Nov. 30, 2011 Senior notes and senior subordinated notes	Sep. 30, 2011 Senior notes	Nov. 30, 2006 Senior notes Sally Investment Holdings LLC, Sally Holdings, LLC and Sally Capital Inc	Sep. 30, 2011 Senior subordinated notes	Nov. 30, 2006 Senior subordinated notes Sally Investment Holdings LLC, Sally Holdings, LLC and Sally Capital Inc	Nov. 30, 2006 Term Loans A and B LoanFacility	Nov. 30, 2010 Prior ABL facility	Nov. 30, 2006 Prior ABL facility Sally Investment Holdings LLC and Sally Holdings, LLC	Nov. 30, 2006 Sally Investment Holdings LLC and Sally Holdings, LLC	Sep. 30, 2011 Hedged interest rate swaps	Sep. 30, 2008 Hedged interest rate swaps
Debt Instruments
Total	$ 1,406,630,000			$ 701,630,000					$ 696,856,000				$ 4,774,000	$ 705,000,000	$ 430,000,000		$ 275,000,000
Capitalized lease obligations	6,485,000
Less: current portion	(3,004,000)	(3,045,000)
Total long-term debt	1,410,111,000	1,559,591,000
Percentage points added to the reference rate, low end of range							2.25%	1.25%			2.25%	1.25%
Percentage points added to the reference rate, high end of range							2.75%	1.75%			2.50%	1.50%
Interest rate, low end of range (as a percent)													4.05%
Interest rate, high end of range (as a percent)													7.00%
Interest rate (as a percent)															9.25%		10.50%
Interest rate in effect at end of period (as a percent)									2.49%
Face amount of debt instruments																430,000,000		280,000,000	1,070,000,000			1,850,000,000
Revolving credit facility					400,000,000																400,000,000
Number of term loan facilities																			2
Outstanding borrowings									300,000,000												70,000,000
Debt issuance costs	5,397,000																	58,500,000
Term of revolving credit facility (in years)					5
Remaining credit facility available						366,500,000
Commitment fee for line of credit facility (as a percent)					0.50%
Write off of unamortized deferred financing costs																				1,600,000
Covenant consolidated secured leverage ratio, maximum										3.50
Mandatory prepayment as a percentage of excess cash flows									50.00%
Mandatory prepayment as a percentage of proceeds from specified asset sales									100.00%
Optional prepayment of debt									147,000,000
Losses on extinguishment of debt	2,765,000	985,000	1,017,000						1,200,000
Aggregate notional amount of interest rate swap agreements																								$ 300,000,000
Portion of variable-interest converted to fixed-interest rates, low end of range (as a percent)																							5.818%
Portion of variable-interest converted to fixed-interest rates, high end of range (as a percent)																							6.09%

XML

Fair Value Measurements

12 Months Ended

Sep. 30, 2011

Fair Value Measurements

Fair Value Measurements

5. Fair Value Measurements

The Company's financial instruments consist of cash and cash equivalents, trade and other accounts receivable, accounts payable, interest rate swap agreements, foreign currency option, collar and forward agreements and debt. The carrying amounts of cash and cash equivalents, trade and other accounts receivable and accounts payable approximate fair value due to the short-term nature of these financial instruments.

The Company measures on a recurring basis and discloses its financial instruments under the provisions of ASC 820, as amended. The Company defines "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; or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active; or 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.

Consistent with this hierarchy, the Company categorized certain of its financial assets and liabilities as follows at September 30, 2011 and 2010 (in thousands):

		As of September 30, 2011
		Total		Level 1		Level 2		Level 3
Assets
	Foreign currency forwards(a)	$	424		—	$	424		—
	Foreign currency collars(a)		680		—		680		—
Total assets		$	1,104			$	1,104
Liabilities
	Long-term debt(b)	$	1,420,337	$	725,288	$	695,049		—
	Hedged interest rate swaps(a)		6,450		—		6,450		—
	Foreign currency forwards(a)		528		—		528		—
Total liabilities		$	1,427,315	$	725,288	$	702,027

		As of September 30, 2010
		Total		Level 1		Level 2		Level 3
Assets
	Foreign currency forwards(a)	$	20		—	$	20		—
	Foreign currency options(a)		99		—		99		—
Total assets		$	119			$	119
Liabilities
	Long-term debt(b)	$	1,596,228	$	751,250	$	844,978		—
	Hedged interest rate swaps(a)		15,530		—		15,530		—
	Foreign currency forwards(a)		328		—		328		—
Total liabilities		$	1,612,086	$	751,250	$	860,836

(a)

Foreign currency options, collars and forwards, and interest rate swaps are valued for purposes of this disclosure using widely accepted valuation techniques, such as discounted cash flow analyses, and reasonable estimates, such as projected market interest rates and projected foreign currency exchange rates, as appropriate. Please see Note 16 for more information about the Company's foreign currency options, collars and forwards, and interest rate swaps.

(b)

Long-term debt, which is carried at amortized cost in the Company's consolidated financial statements, is generally valued for purposes of this disclosure using widely accepted valuation techniques, such as discounted cash flow analyses, and observable inputs, such as market interest rates, except for the senior and senior subordinated notes. The senior and senior subordinated notes are valued using unadjusted quoted market prices for such debt securities.

XML

Sally Beauty Holdings, Inc. Stand-Alone Financial Information

12 Months Ended

Sep. 30, 2011

Sally Beauty Holdings, Inc. Stand-Alone Financial Information

Sally Beauty Holdings, Inc. Stand-Alone Financial Information

15. Sally Beauty Holdings, Inc. Stand-Alone Financial Information

Sally Beauty Holdings, Inc. is a holding company and has no material assets or operations other than its ownership interests in its subsidiaries. The Company's operations are conducted almost entirely through its subsidiaries. As such, Sally Beauty depends on its subsidiaries for cash to meet its obligations or to pay dividends.

Sally Investment Holdings LLC, which is a wholly-owned subsidiary of Sally Beauty and the direct parent of Sally Holdings, does not have any assets or operations of any kind. Summary financial data for Sally Beauty Holdings, Inc. on a stand-alone basis as of and for each of the fiscal years ended September 30, 2011 and 2010 is as follows (in thousands):

			2011			2010
Balance Sheet
Assets:
	Deferred income tax assets		$	1,274		$	1,071
	Income taxes receivable			1,679			—
	Due from subsidiaries and other			60,483			41,479
	Investment in subsidiaries			(281,690	)		(497,888	)
		Total assets	$	(218,254	)	$	(455,338	)
Liabilities:
	Deferred income tax liabilities		$	346		$	330
	Income taxes payable			—			5,368
	Other			382			236
		Total liabilities		728			5,934
Stockholders' deficit:				(218,982	)		(461,272	)
		Total liabilities and stockholders' deficit	$	(218,254	)	$	(455,338	)
Statement of Earnings
Operating loss			$	(7,813	)	$	(7,662	)
Interest expense				—			(29	)
		Loss before provision for income taxes		(7,813	)		(7,691	)
Benefit from income taxes				(2,945	)		(2,890	)
		Net loss	$	(4,868	)	$	(4,801	)
Statement of Cash Flows
Net cash used by operating activities			$	(10,942	)	$	(808	)
Net cash used by investing activities:
	Capital expenditures			—			—
		Net cash used by investing activities		—			—
Net cash provided by financing activities:
	Proceeds from exercise of stock options			10,942			878
	Purchases of treasury stock			—			(70	)
		Net cash provided by financing activities		10,942			808
Net change in cash				—			—
Cash and cash equivalents, beginning of year				—			—
Cash and cash equivalents, end of year			$	—		$	—

XML

Derivative Instruments and Hedging Activities (Details 2) (USD $) In Thousands	Sep. 30, 2011	Sep. 30, 2010
Derivatives in Cash Flow Hedging Relationships
Interest Rate Swaps, Liability	$ 6,500
Total derivatives designated as hedging instruments, Liability	6,450	15,530
Derivatives Not Designated as Hedging Instruments
Foreign Currency Collars and Forwards	1,100
Foreign Currency Options and Forwards, Liability	500
Total derivatives not designated as hedging instruments, Asset	1,104	119
Total derivatives not designated as hedging instruments, Liability	528	328
Prepaid expenses
Derivatives Not Designated as Hedging Instruments
Foreign Currency Collars and Forwards	1,104	119
Other liabilities
Derivatives in Cash Flow Hedging Relationships
Interest Rate Swaps, Liability		15,530
Accrued liabilities
Derivatives in Cash Flow Hedging Relationships
Interest Rate Swaps, Liability	6,450
Derivatives Not Designated as Hedging Instruments
Foreign Currency Options and Forwards, Liability	$ 528	$ 328

XML

Sally Beauty Holdings, Inc. Stand-Alone Financial Information (Details) (USD $) In Thousands	3 Months Ended								12 Months Ended
	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2009	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009	Sep. 30, 2008
Assets:
Deferred income tax assets	$ 58,868				$ 51,908				$ 58,868	$ 51,908
Total assets	1,728,600				1,589,412				1,728,600	1,589,412	1,490,732
Liabilities:
Total liabilities	1,947,582				2,049,738				1,947,582	2,049,738
Stockholders' deficit:	(218,982)				(461,272)				(218,982)	(461,272)	(615,451)	(702,960)
Total liabilities and stockholders' deficit	1,728,600				1,589,412				1,728,600	1,589,412
Statement of Earnings
Operating loss									448,469	340,930	296,836
Earnings before provision for income taxes									335,939	227,948	164,814
Benefit from income taxes									122,214	84,120	65,697
Net earnings	54,355	69,143	49,278	40,949	42,026	41,116	34,560	26,126	213,725	143,828	99,117
Statement of Cash Flows
Net cash used by operating activities									291,841	217,246	223,333
Net cash used by investing activities:
Capital expenditures									59,955	48,702	37,320
Net cash used by investing activities									(146,735)	(85,022)	(118,562)
Net cash provided by financing activities:
Proceeds from exercises of stock options									10,942	878	687
Purchases of treasury stock										(70)	(33)
Net cash used by financing activities									(140,049)	(126,511)	(149,262)
Net change in cash									3,987	5,047	(45,341)
Cash and cash equivalents, beginning of year				59,494				54,447	59,494	54,447	99,788
Cash and cash equivalents, end of year	63,481				59,494				63,481	59,494	54,447
Sally Beauty Holdings, Inc.
Assets:
Deferred income tax assets	1,274				1,071				1,274	1,071
Income taxes receivable	1,679								1,679
Due from subsidiaries and other	60,483				41,479				60,483	41,479
Investment in subsidiaries	(281,690)				(497,888)				(281,690)	(497,888)
Total assets	(218,254)				(455,338)				(218,254)	(455,338)
Liabilities:
Deferred income tax liabilities	346				330				346	330
Income taxes payable					5,368					5,368
Other	382				236				382	236
Total liabilities	728				5,934				728	5,934
Stockholders' deficit:	(218,982)				(461,272)				(218,982)	(461,272)
Total liabilities and stockholders' deficit	(218,254)				(455,338)				(218,254)	(455,338)
Statement of Earnings
Operating loss									(7,813)	(7,662)
Interest expense										(29)
Earnings before provision for income taxes									(7,813)	(7,691)
Benefit from income taxes									(2,945)	(2,890)
Net earnings									(4,868)	(4,801)
Statement of Cash Flows
Net cash used by operating activities									(10,942)	(808)
Net cash provided by financing activities:
Proceeds from exercises of stock options									10,942	878
Purchases of treasury stock										(70)
Net cash used by financing activities									$ 10,942	$ 808

XML

Short-term Borrowings and Long-Term Debt (Tables)

12 Months Ended

Sep. 30, 2011

Short-term Borrowings and Long-Term Debt

Summary of long-term debt

		September 30, 2011			Maturity Dates		Interest Rates
ABL facility		$	—			Nov. 2015	(i) Prime plus (1.25% to 1.75%) or;
							(ii) LIBOR(a) plus (2.25% to 2.75%)
Term loan B			696,856			Nov. 2013	(i) Prime plus (1.25% to 1.50%) or;
							(ii) LIBOR(a) plus (2.25% to 2.50%)(b)
Other(c)			4,774			2012-2015	4.05% to 7.00%
	Total	$	701,630
Senior notes		$	430,000			Nov. 2014	9.25%
Senior subordinated notes			275,000			Nov. 2016	10.50%
	Total	$	705,000
Capitalized lease obligations		$	6,485
Less: current portion			(3,004	)
	Total long-term debt	$	1,410,111

(a)

London Interbank Offered Rate ("LIBOR").

(b)

At September 30, 2011, the contractual interest rate for the term loan B facility was 2.49%. The interest rate on $300.0 million of principal outstanding under this loan is fixed by interest rate swaps which expire in May 2012.

(c)

Represents pre-acquisition debt of Pro-Duo NV and Sinelco.

Schedule of maturities of long-term debt

Maturities of the Company's long-term debt are as follows at September 30, 2011 (in thousands):

Fiscal Year:
	2012	$	2,240
	2013		8,652
	2014		690,638
	2015		430,100
	2016		—
	Thereafter		275,000
		$	1,406,630
Capital lease obligations			6,485
Less: current portion			(3,004	)
	Total	$	1,410,111

XML

Income Taxes (Details 3) (USD $)	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Reconciliation of the changes in the amount of unrecognized tax benefits
Balance at beginning of the fiscal year	$ 13,647,000	$ 14,378,000
Increases related to prior year tax positions	166,000	1,895,000
Decreases related to prior year tax positions	(15,000)
Increases related to current year tax positions	208,000	620,000
Settlements	(71,000)	(1,131,000)
Lapse of statute	(3,099,000)	(2,115,000)
Balance at end of fiscal year	10,836,000	13,647,000
Total unrecognized tax benefits of accrued interest and penalties	$ 4,200,000	$ 4,600,000

XML

Significant Accounting Policies (Policies)

12 Months Ended

Sep. 30, 2011

Significant Accounting Policies

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and disclosures of contingent liabilities in the financial statements. Our most significant estimates relate to: the valuation of inventory, vendor concessions, retention of risk, income taxes, the assessment of long-lived assets and intangible assets for impairment, and share-based payments. The level of uncertainty in estimates and assumptions increases with the length of time until the underlying transactions are completed. Actual results may differ from these estimates in amounts that may be material to the financial statements. Management believes that the estimates and assumptions used in the preparation of the Company's consolidated financial statements are reasonable.

Cash and Cash Equivalents

Cash and Cash Equivalents

All highly liquid investments purchased by the Company from time to time which have an original maturity of three months or less are considered to be cash equivalents. These investments are stated at cost, which approximates fair value. Also included in cash equivalents are proceeds due from customer credit and debit card transactions, which generally settle within one to three days, and were $10.3 million and $8.4 million at September 30, 2011 and 2010, respectively.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of investments in cash equivalents, accounts receivable and derivative instruments.

The Company invests from time to time in securities of financial institutions with high credit quality. Accounts receivable are deemed by the Company to be highly diversified due to the high number of entities comprising the Company's customer base and their dispersion across diverse geographical regions. The counterparties to all our derivative instruments are deemed by the Company to be of substantial resources and strong creditworthiness. The Company believes that no significant concentration of credit risk exists with respect to its investments in cash equivalents, its accounts receivable and its derivative instruments at September 30, 2011 and 2010.

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are recorded at the values invoiced to customers and do not bear interest. Trade accounts receivable are stated net of the allowance for doubtful accounts. The allowance for doubtful accounts requires management to estimate the future collectability of amounts receivable at the balance sheet date. Management records allowances for doubtful accounts based on 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. In the Company's consolidated statements of earnings, bad debt expense is included in selling, general and administrative expenses. The Company's exposure to credit risk with respect to trade receivables is mitigated by the Company's broad customer base and their dispersion across diverse geographical regions.

Accounts Receivable, Other

Accounts Receivable, Other

Accounts receivable, other, consist primarily of amounts expected to be received from vendors under various contractual agreements and are recorded at the amount management estimates will be collected.

Inventory

Inventory

Inventory consists primarily of beauty supplies and related accessories, and salon equipment for sale in the normal course of our business. Inventory is stated at the lower of cost, determined using the first-in, first-out ("FIFO") method, or market (net realizable value). Inventory cost reflects actual product costs, the cost of transportation to the Company's distribution centers, 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 necessary, the Company adjusts the carrying value of inventory to the lower of cost or market, including disposal costs, and for estimated inventory shrinkage. Estimates of the future demand for the Company's products, historical turn-over rates, the age and sales history of the inventory, and historic as well as anticipated changes in stock keeping units ("SKUs") are some of the key factors used by management in assessing the net realizable value of inventory.

The Company estimates inventory shrinkage between physical counts based on its historical experience. Physical inventory counts are performed at substantially all stores and significant distribution centers at least annually, and sooner when management has reason to believe that the risk of inventory shrinkage at a particular location is heightened. Upon completion of physical inventory counts, the Company's consolidated financial statements are adjusted to reflect actual quantities on hand. The Company has policies and processes in place that are intended to minimize inventory shrinkage. Inventory shrinkage expense has averaged approximately 1% of our consolidated net sales during each of the past three fiscal years.

Lease Accounting

Lease Accounting

The Company's lease agreements for office space, retail stores and warehouse/distribution facilities are generally accounted for as operating leases, consistent with applicable GAAP. Rent expense (including any rent abatements or escalation charges) is recognized on a straight-line basis from the date the Company takes possession of the property to begin preparation of the site for occupancy, to the end of the lease term, including renewal options determined to be reasonably assured. Certain lease agreements to which the Company is a party provide for contingent rents that are determined as a percentage of revenues in excess of specified levels. The Company records a contingent rent liability, along with the corresponding rent expense, when specified levels have been achieved or when management determines that achieving the specified levels during the fiscal year is probable.

Certain lease agreements to which the Company is a party provide for tenant improvement allowances. Such allowances are recorded as deferred lease credits, included in accrued liabilities and other liabilities, as appropriate, on our consolidated balance sheets, and amortized on a straight-line basis over the lease term (including renewal options determined to be reasonably assured) as a reduction of rent expense. The amortization period used for deferred lease credits is generally consistent with the amortization period used for the constructed leasehold improvement asset for a given location.

Valuation of Long-Lived Assets and Intangible Assets with Definite Lives

Valuation of Long-Lived Assets and Intangible Assets with Definite Lives

Long-lived assets, such as property and equipment, including store equipment, and purchased intangibles subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The recoverability of long-lived assets and intangible assets subject to amortization is assessed by comparing the net carrying amount of each asset to its total estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the estimated fair value of the asset. There were no significant impairment losses recognized in our financial statements in the current or prior fiscal years presented.

Intangible assets subject to amortization include customer relationships, certain distribution rights and non-competition agreements, and are amortized, on a straight-line basis, over periods of one to twelve years. Such amortization periods are based on the estimated useful lives of the assets and take into account the terms of any underlying agreements, but do not generally reflect all renewal terms contractually available to the Company.

Goodwill and Intangible Assets with Indefinite Lives

Goodwill and Intangible Assets with Indefinite Lives

Goodwill represents the excess of the purchase price over the fair value of the net assets acquired in a business combination. Intangible assets with indefinite lives include trade names and certain distribution rights acquired in a business combination. Goodwill and intangible assets with indefinite lives are not amortized; rather, they are reviewed for impairment at least annually, during our second fiscal quarter, and whenever events or changes in circumstances indicate it is more likely than not that the value of the asset may be impaired. When assessing goodwill and intangible assets with indefinite lives for potential impairment, management compares the carrying amount of the asset to its fair value. In addition, management considers whether there has been an impairment to the value of the asset by evaluating if various factors (including current operating results, anticipated future results and cash flows, and relevant market and economic conditions) indicate a possible impairment. Based on the reviews performed, after taking into account the economic downturn experienced during the past couple of years in certain geographic areas in which we operate, there was no impairment of goodwill or intangible assets with indefinite lives recognized in our financial statements in the current or prior fiscal years presented.

Deferred Financing Costs

Deferred Financing Costs

Certain costs incurred in connection with the issuance of debt are capitalized when incurred and are amortized over the estimated term of the related debt agreements generally using the effective interest method. Such capitalized costs are included in other assets in our consolidated balance sheets. Unamortized deferred financing costs are expensed proportionally when certain debt is prepaid.

Insurance/Self-Insurance Programs

Insurance/Self-Insurance Programs

The Company retains a substantial portion of the risk related to certain of its workers' compensation, general and auto liability and property damage insurable loss exposure. Predetermined loss limits have been arranged with insurance companies to limit the Company's exposure per occurrence and aggregate cash outlay. Certain of our employees and their dependents are also covered by a self-insurance program for healthcare benefit purposes. Currently these self-insurance costs, less amounts recovered through payroll deductions and certain out-of-pocket amounts incurred in connection with the employee healthcare program, are funded by the Company. The Company maintains an annual stop-loss insurance policy for the healthcare benefits plan.

The Company records an estimated liability for the ultimate cost of claims incurred and unpaid as of the balance sheet date, which includes both claims filed and estimated losses incurred but not yet reported. The Company estimates the ultimate cost based on an analysis of historical data and actuarial estimates. Workers' compensation, general and auto liability and property damage insurable loss liabilities are recorded at the estimate of their net present value, while healthcare plan liabilities are not discounted. These estimates are reviewed on a regular basis to ensure that the recorded liability is adequate. The Company believes the amounts accrued at September 30, 2011 and 2010 are adequate.

Revenue Recognition

Revenue Recognition

The Company recognizes sales revenue when a customer consummates a point-of-sale transaction at a store. The cost of sales incentive programs, including customer and consumer coupons, is recognized as a reduction of revenue at the time of sale. Taxes collected from customers and remitted to governmental authorities are recorded on a net basis and are excluded from revenue. The Company also recognizes revenue on merchandise shipped to customers when title and risk of loss pass to the customer (generally upon shipment). Appropriate provisions for sales returns and cash discounts are made at the time the sales are recognized. Sales returns and allowances averaged approximately 2.0% of net sales during each of the past three fiscal years.

Cost of Products Sold and Distribution Expenses

Cost of Products Sold and Distribution Expenses

Cost of products sold and distribution expenses include actual product costs, the cost of transportation to the Company's distribution centers, and certain shipping and handling costs, such as freight from the distribution centers to the stores and handling costs incurred at the distribution centers. All other shipping and handling costs are included in selling, general and administrative expenses when incurred.

Shipping and Handling

Shipping and Handling

Shipping and handling costs (including freight and distribution expenses) related to delivery to customers are included in selling, general and administrative expenses in our consolidated statements of earnings when incurred and amounted to $41.2 million, $36.0 million and $30.3 million for the fiscal years 2011, 2010 and 2009, respectively.

Advertising Costs

Advertising Costs

Advertising costs relate mainly to print advertisements, digital marketing, 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 costs of $70.9 million, $64.6 million and $55.2 million for the fiscal years 2011, 2010 and 2009, respectively, are included in selling, general and administrative expenses in our consolidated statements of earnings.

Vendor Rebates and Concessions

Vendor Rebates and Concessions

The Company deems a cash consideration received from a supplier to be a reduction of the cost of products sold unless it is in exchange for an asset or service or a reimbursement of a specific, incremental, identifiable cost incurred by the Company in selling the vendor's products. The majority of cash consideration received by the Company is considered to be a reduction of the cost of the related products and is reflected in cost of products sold and distribution expenses in our consolidated statements of earnings as the related products are sold. Any portion of such cash consideration received that is attributable to inventory on hand is reflected as a reduction of inventory.

Income Taxes

Income Taxes

The Company recognizes 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 estimated to be recovered or settled. The effect on deferred taxes of a change in 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 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

Foreign Currency

The functional currency of each of the Company's foreign operations is generally the respective local currency. Balance sheet accounts are translated into U.S. dollars (the Company's reporting currency) at the rates of exchange in effect at the balance sheet date, while the results of operations are translated using the average exchange rates during the period presented. The resulting translation adjustments are recorded as a component of accumulated other comprehensive income in our consolidated balance sheets. Foreign currency transaction gains or losses are included in our consolidated statements of earnings when incurred and were not significant in any of the periods presented in the accompanying financial statements.

Share-Based Compensation

Share-Based Compensation

Prior to November 2006, the Company was a subsidiary of Alberto-Culver and had no share-based compensation plans of its own, however, Alberto-Culver had granted to Company employees certain stock options with a cash settlement provision contingent upon the occurrence of certain change in control events, pursuant to its stock option plans. As such, the contingent cash settlement of these stock options as a result of such events would not be solely in the control of the Company. Accordingly, as of September 30, 2010, the Company reported $0.9 million in "Stock options subject to redemption" outside of accumulated stockholders' equity (deficit) on its consolidated balance sheets and this amount was reclassified back into additional paid-in capital as the related stock options were exercised or canceled or otherwise terminated.

XML

Consolidated Statements of Stockholders' Equity (Deficit) (USD $) In Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Treasury Stock	Accumulated Other Comprehensive Income (Loss)	Comprehensive Income
Balance at Sep. 30, 2008	$ (702,960)	$ 1,815	$ 622,511	$ (1,335,975)		$ 8,689
Balance (in shares) at Sep. 30, 2008		181,516
Increase (Decrease) in Stockholders' Equity
Net earnings	99,117			99,117			99,117
Deferred gains (losses) on interest rate swaps, net of income taxes of $3,523, $64 and $6,471 in 2011, 2010 and 2009 respectively	(10,196)					(10,196)	(10,196)
Foreign currency translation	(14,391)					(14,391)	(14,391)
Total comprehensive income	74,530						74,530
Stock options subject to redemption	4,083		4,083
Share-based compensation	8,618	1	8,617
Share-based compensation (in shares)		67
Purchases of treasury stock	(33)				(33)
Stock issued for stock options	311	3	308
Stock issued for stock options (in shares)		275
Balance at Sep. 30, 2009	(615,451)	1,819	635,519	(1,236,858)	(33)	(15,898)
Balance (in shares) at Sep. 30, 2009		181,858
Increase (Decrease) in Stockholders' Equity
Net earnings	143,828			143,828			143,828
Deferred gains (losses) on interest rate swaps, net of income taxes of $3,523, $64 and $6,471 in 2011, 2010 and 2009 respectively	(101)					(101)	(101)
Foreign currency translation	(4,277)					(4,277)	(4,277)
Total comprehensive income	139,450						139,450
Stock options subject to redemption	854		854
Share-based compensation	12,818	1	12,817
Share-based compensation (in shares)		88
Purchases of treasury stock	(70)				(70)
Stock issued for stock options	1,127	2	1,125
Stock issued for stock options (in shares)		284
Balance at Sep. 30, 2010	(461,272)	1,822	650,315	(1,093,030)	(103)	(20,276)
Balance (in shares) at Sep. 30, 2010	182,230	182,230
Increase (Decrease) in Stockholders' Equity
Net earnings	213,725			213,725			213,725
Deferred gains (losses) on interest rate swaps, net of income taxes of $3,523, $64 and $6,471 in 2011, 2010 and 2009 respectively	5,557					5,557	5,557
Foreign currency translation	(7,952)					(7,952)	(7,952)
Total comprehensive income	211,330						211,330
Stock options subject to redemption	946		946
Share-based compensation	15,560	1	15,559
Share-based compensation (in shares)		96
Stock issued for stock options	14,454	18	14,436
Stock issued for stock options (in shares)		1,731
Balance at Sep. 30, 2011	$ (218,982)	$ 1,841	$ 681,256	$ (879,305)	$ (103)	$ (22,671)
Balance (in shares) at Sep. 30, 2011	184,057	184,057

XML

Derivative Instruments and Hedging Activities

12 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

16. Derivative Instruments and Hedging Activities

Risk Management Objectives of Using Derivative Instruments

The Company is exposed to a wide variety of risks, including risks arising from changing economic conditions, including changing interest rates, and foreign currency risks. The Company manages its exposure to certain economic risks (including liquidity, credit risk, and changes in interest rates and in foreign currency exchange rates) primarily: (a) by closely managing its cash flows from operating and investing activities and the amounts and sources of its debt obligations; (b) by assessing periodically the creditworthiness of its business partners; and (c) through the use of derivative instruments (including interest rate swaps, and foreign currency options, collars and forwards) by Sally Holdings.

The Company uses interest rate swaps, as part of its overall economic risk management strategy, to add stability to the interest payments due in connection with its senior term loan obligations. Interest payments related to our senior term loans are impacted by changes in LIBOR. The Company's interest rate swap agreements involve the periodic receipt by Sally Holdings of amounts based on a variable rate in exchange for Sally Holdings making payments based on a fixed rate over the term of the interest rate swap agreements, without exchange of the underlying notional amount.

The Company uses foreign currency options, collars and forwards, as part of its overall economic risk management strategy, to fix the amount of certain foreign assets and obligations relative to its functional and reporting currency (the U.S. dollar) or to add stability to cash flows resulting from its net investments (including intercompany notes not permanently invested) and earnings denominated in foreign currencies. Such cash flows may be materially affected (favorably or unfavorably) by changes in the exchange rates for the U.S. dollar versus the Euro, the British pound sterling, the Canadian dollar, the Chilean peso, and the Mexican peso. The Company's foreign currency exposures at times offset each other, providing a natural hedge against its foreign currency risk. In connection the remaining foreign currency risk, the Company uses foreign currency options, collars and forwards to effectively fix the foreign currency exchange rate applicable to specific anticipated foreign currency-denominated cash flows, thus limiting the potential fluctuations in such cash flows resulting from foreign currency market movements.

At September 30, 2011, the Company did not purchase or hold any derivative instruments for speculative or trading purposes.

Designated Cash Flow Hedges

In the fiscal year 2008, Sally Holdings entered into certain interest rate swap agreements with an aggregate notional amount of $300 million. These agreements expire in May 2012 and are designated and qualify as effective cash flow hedges, in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). Accordingly, changes in the fair value of these derivative instruments (which are adjusted quarterly) are recorded, net of income tax, in accumulated other comprehensive (loss) income ("OCI") until the hedged obligation is settled or the swap agreements expire, whichever is earlier. Any hedge ineffectiveness, as this term is used in ASC 815, is recognized in interest expense in our consolidated statements of earnings. No hedge ineffectiveness on cash flow hedges was recognized during each of the last three fiscal years.

Amounts reported in OCI related to interest rate swaps are reclassified into interest expense, as a yield adjustment, in the same period in which interest on the Company's variable-rate debt obligations affect earnings. During the fiscal years 2011, 2010 and 2009, interest expense resulting from such reclassifications was $10.2 million, $10.1 million and $7.9 million, respectively. During the twelve-month period ending September 30, 2012, the entire amount reported in OCI ($6.5 million, before income tax) will be reclassified into interest expense.

Non-designated Cash Flow Hedges

The Company may use from time to time derivative instruments (such as interest rate swaps, and foreign currency options, collars and forwards) not designated as hedges or that do not meet the requirements for hedge accounting, to manage its exposure to interest rate or foreign currency exchange rate movements.

In November 2006, Sally Holdings entered into certain interest rate swap agreements with an aggregate notional amount of $500 million. These interest rate swap agreements expired on or before November 2009 and were not designated as hedges and, accordingly, the changes in fair value of these interest rate swap agreements (which were adjusted quarterly) were recorded in interest expense in our consolidated statements of earnings. In the fiscal year 2009, interest expense, including marked-to-market adjustments, resulting from these interest rate swap agreements was $7.5 million. In the fiscal year 2010, interest expense, including marked-to-market adjustments, resulting from these interest rate swap agreements was less than $0.1 million.

The Company uses foreign currency options and collars, including, at September 30, 2011, collars with an aggregate notional amount of $12.5 million to manage the exposure to the U.S. dollar resulting from our Sinelco Group subsidiaries' purchases of merchandise from third-party suppliers. Sinelco's functional currency is the Euro. The foreign currency collar agreements held by the Company at September 30, 2011 have contractual Euro to U.S. dollar exchange rates between 1.4000 and 1.4612 and expire in varying amounts monthly through September 2012.

In addition, the Company uses foreign currency forwards to mitigate its exposure to changes in foreign currency exchange rates in connection with certain intercompany balances not permanently invested. At September 30, 2011, we held a foreign currency forward which enabled us to sell approximately €19.9 million ($26.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.3610, a foreign currency forward which enabled us to buy approximately $18.3 million Canadian dollars ($17.5 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.01855 and a foreign currency forward which enabled us to buy approximately £5.6 million ($8.7 million, at the September 30, 2011 exchange rate) at the contractual exchange rate of 1.5630. All the foreign currency forwards held by the Company at September 30, 2011 expired in October 2011.

The Company's foreign currency option, collar and forward agreements are not designated as hedges and do not currently meet the requirements for hedge accounting. Accordingly, the changes in the fair value (i.e., marked-to-market adjustments) of these derivative instruments (which are adjusted quarterly) are recorded in selling, general and administrative expenses in our consolidated statements of earnings. During each of the fiscal years ended September 30, 2011 and 2010, selling general and administrative expenses included $0.2 million in net gains, including marked-to-market adjustments, from all of the Company's foreign currency option, collar and forward agreements.

The tables below present the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheet as of September 30, 2011 and 2010 (in thousands):

Tabular Disclosure of Fair Values of Derivative Instruments

		Asset Derivatives As of September 30, 2011			Liability Derivatives As of September 30, 2011
		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
	Interest Rate Swaps	Other assets	$	—	Accrued liabilities	$	6,450
Total derivatives designated as hedging instruments			$	—		$	6,450
Derivatives not designated as hedging instruments:
	Foreign Currency Collars and Forwards	Prepaid expenses	$	1,104	Accrued liabilities	$	528
Total derivatives not designated as hedging instruments			$	1,104		$	528

Tabular Disclosure of Fair Values of Derivative Instruments

		Asset Derivatives As of September 30, 2010			Liability Derivatives As of September 30, 2010
		Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
	Interest Rate Swaps	Other assets	$	—	Other liabilities	$	15,530
Total derivatives designated as hedging instruments			$	—		$	15,530
Derivatives not designated as hedging instruments:
	Foreign Currency Options and Forwards	Prepaid expenses	$	119	Accrued liabilities	$	328
Total derivatives not designated as hedging instruments			$	119		$	328

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of earnings for the fiscal year ended September 30, 2011 (in thousands):

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2011
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax		Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	5,557	Interest expense	$	(10,174	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Foreign Currency Options, Collars and Forwards	Selling, general and administrative expenses	$	194
Interest Rate Swaps	Interest expense		—
Total derivatives not designated as hedging instruments		$	194

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of earnings for the fiscal year ended September 30, 2010 (in thousands):

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2010
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	(101	)	Interest expense	$	(10,067	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Foreign Currency Options and Forwards	Selling, general and administrative expenses	$	203
Interest Rate Swaps	Interest expense		(24	)
Total derivatives not designated as hedging instruments		$	179

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of earnings for the fiscal year ended September 30, 2009 (in thousands):

Tabular Disclosure of the Effect of Derivative Instruments on the Statement of Earnings for the Fiscal Year Ended September 30, 2009
Derivatives in Cash Flow Hedging Relationships	Amount of Gain or (Loss) Recognized in OCI on Derivative (Effective Portion), net of tax			Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)			Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing)
Interest Rate Swaps	$	(10,196	)	Interest expense	$	(7,935	)	Interest expense	$	—

Derivatives Not Designated as Hedging Instruments	Location of Gain or (Loss) Recognized in Income on Derivative	Amount of Gain or (Loss) Recognized in Income on Derivative
Interest Rate Swaps	Interest expense	$	(7,488	)

Credit-risk-related Contingent Features

The agreements governing the Company's interest rate swaps contain provisions pursuant to which the Company could be declared in default on its interest rate swap obligations in the event the Company defaulted under certain terms of the loan documents governing the Company's ABL credit facility. As of September 30, 2011, the fair value of our interest rate swaps in a liability position related to these agreements was $6.5 million and the Company was under no obligation to post and had not posted any collateral related to these agreements. If the Company breached any of these provisions, it would be required to settle its obligations under the swap agreements at their termination value of $6.5 million, as of September 30, 2011, including accrued interest and other termination costs.

At September 30, 2011, the aggregate fair value of all foreign currency option, collar and forward agreements held was a net asset of $0.6 million, consisting of derivative instruments in an asset position of $1.1 million and derivative instruments in a liability position of $0.5 million. The Company was under no obligation to post and had not posted any collateral related to the agreements in a liability position.

The counterparties to all our derivative instruments are deemed by the Company to be of substantial resources and strong creditworthiness. However, these transactions result in exposure to credit risk in the event of default by a counterparty. The financial crisis affecting the world financial markets in recent years has resulted in many well-known financial institutions becoming less creditworthy or having diminished liquidity, which could expose us to an increased level of counterparty risk. In the event that a counterparty defaults in its obligation under our interest rate swaps and/or foreign currency derivative instruments, we could incur substantial financial losses. However, at the present time, no such losses are deemed probable.

XML

Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Sep. 30, 2011

Quarterly Financial Data (Unaudited)

Schedule of selected unaudited quarterly consolidated statement of earnings data

Fiscal Year			1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
2011:
	Net sales		$	793,564	$	801,805	$	836,576	$	837,186
	Gross profit		$	379,391	$	391,814	$	410,532	$	412,868
	Net earnings		$	40,949	$	49,278	$	69,143	$	54,355
	Earnings per common share(a)
		Basic	$	0.22	$	0.27	$	0.38	$	0.30
		Diluted	$	0.22	$	0.26	$	0.37	$	0.29
2010:
	Net sales		$	704,851	$	720,467	$	742,975	$	747,797
	Gross profit		$	333,214	$	344,284	$	360,859	$	366,017
	Net earnings		$	26,126	$	34,560	$	41,116	$	42,026
	Earnings per common share(a)
		Basic	$	0.14	$	0.19	$	0.23	$	0.23
		Diluted	$	0.14	$	0.19	$	0.22	$	0.23

(a)

The sum of the quarterly earnings per share may not equal the full year amount, as the computations of the weighted average number of common shares outstanding for each quarter and for the full year are performed independently.

XML

Income Taxes

12 Months Ended

Sep. 30, 2011

Income Taxes

Income Taxes

18. Income Taxes

The Company and its subsidiaries file consolidated income tax returns in the U.S. federal jurisdiction and most state jurisdictions as well as in various foreign jurisdictions.

The provision for income taxes for the fiscal years 2011, 2010 and 2009 consists of the following (in thousands):

			Year Ended September 30,
			2011			2010			2009
Current:
	Federal		$	97,172		$	69,112		$	48,335
	Foreign			11,081			4,432			4,276
	State			13,629			11,197			5,507
		Total current portion		121,882			84,741			58,118
Deferred:
	Federal			2,615			2,896			8,204
	Foreign			(2,525	)		(2,814	)		(1,676	)
	State			242			(703	)		1,051
		Total deferred portion		332			(621	)		7,579
		Total provision for income tax	$	122,214		$	84,120		$	65,697

The difference between the U.S. statutory federal income tax rate and the effective income tax rate is summarized below:

		Year Ended September 30,
		2011			2010			2009
Statutory tax rate			35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit			2.8			2.9			2.8
Effect of foreign operations			(1.3	)		(1.2	)		0.8
Other, net			(0.1	)		0.2			1.3
	Effective tax rate		36.4	%		36.9	%		39.9	%

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

			September 30,
			2011			2010
Deferred tax assets attributable to:
	Share-based compensation expense		$	19,683		$	16,471
	Accrued liabilities			28,711			22,829
	Inventory adjustments			3,432			3,303
	Foreign loss carryforwards			18,315			16,675
	Unrecognized tax benefits			651			577
	Interest rate swaps			2,503			6,026
	Other			2,673			2,579
		Total deferred tax assets		75,968			68,460
Valuation allowance				(17,100	)		(16,552	)
		Total deferred tax assets, net		58,868			51,908
Deferred tax liabilities attributable to:
	Depreciation and amortization			81,644			70,772
		Total deferred tax liabilities		81,644			70,772
		Net deferred tax liability	$	22,776		$	18,864

Management believes 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. The Company has recorded a valuation allowance to account for uncertainties regarding recoverability of certain deferred tax assets, primarily foreign loss carryforwards.

Domestic earnings before provision for income taxes were $300.1 million, $215.9 million and $165.1 million in the fiscal years 2011, 2010 and 2009, respectively. Foreign operations had earnings (losses) before provision for income taxes of $35.8 million, $12.0 million and $(0.3) million in the fiscal years 2011, 2010 and 2009, respectively.

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. Management does not expect the outcome of tax audits to have a material adverse effect on the Company's financial condition, results of operations or cash flow.

At September 30, 2011, undistributed earnings of the Company's foreign operations are intended to remain permanently invested to finance anticipated future growth and expansion. Accordingly, federal and state income taxes have not been provided on accumulated but undistributed earnings of $110.6 million and $76.5 million as of September 30, 2011 and 2010, respectively, as such earnings have been permanently reinvested in the business. The determination of the amount of the unrecognized deferred tax liability related to the undistributed earnings is not practicable.

At September 30, 2011 and 2010, the Company had total operating loss carry-forwards of $62.5 million and $53.3 million, respectively, of which $50.1 million and $46.1 million, respectively, are subject to a valuation allowance. At September 30, 2011, operating loss carry-forwards of $23.6 million expire between 2013 and 2026 and operating loss carry-forwards of $38.9 million have no expiration date. At September 30, 2011 and 2010, the Company had tax credit carryforwards of $1.1 million and $0.8 million, respectively, which have no expiration date and of which $0.5 million and $0.4 million, respectively, are subject to a valuation allowance.

The transactions separating us from Alberto-Culver were intended to qualify as a reorganization under Section 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code") and a distribution eligible for non-recognition under Sections 355(a) and 361(c) of the Code. In connection with the share distribution of Alberto-Culver common stock in the Separation Transactions, we received: (i) a private letter ruling from the IRS; and (ii) an opinion of Sidley Austin LLP, counsel to Alberto-Culver, in each case, to the effect that the transactions qualify as a reorganization under Section 368(a)(1)(D) of the Code and a distribution eligible for non-recognition under Sections 355(a) and 361(c) of the Code.

Certain internal restructurings also occurred at or immediately prior to the Separation Transactions. As a result of the internal restructurings and Separation Transactions, the Company inherited the federal tax identification number of the old Alberto-Culver parent for U.S. federal income tax purposes. In addition, as the successor entity to Alberto-Culver after the Separation Transactions, the Company relies upon the prior year federal income tax returns of Alberto-Culver, and accounting methods established therein, for certain calculations that affect our current U.S. federal income tax liability.

The Company and Alberto-Culver entered into a tax allocation agreement as part of the Separation Transactions. The agreement provides generally that the Company is responsible for its pre-separation income tax liabilities, calculated on a stand-alone basis, and Alberto-Culver is responsible for the remainder. In the event additional U.S federal income tax liability related to the period prior to the Separation Transactions was determined, the Company will be jointly and severally liable for these taxes, and there can be no assurance that Alberto-Culver would be able to fulfill its indemnification obligations to the Company under the tax allocation agreement if Alberto-Culver was determined to be responsible for these taxes thereunder.

The changes in the amount of unrecognized tax benefits for the fiscal year ended September 30, 2011 and 2010 are as follows (in thousands):

	2011			2010
Balance at beginning of the fiscal year	$	13,647		$	14,378
Increases related to prior year tax positions		166			1,895
Decreases related to prior year tax positions		(15	)		—
Increases related to current year tax positions		208			620
Settlements		(71	)		(1,131	)
Lapse of statute		(3,099	)		(2,115	)
Balance at end of fiscal year	$	10,836		$	13,647

If recognized, these positions would affect the Company's effective tax rate.

The Company classifies and recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. The total amount of accrued interest and penalties as of September 30, 2011 and 2010 was $4.2 million and $4.6 million, respectively.

Because existing tax positions will continue to generate increased liabilities for unrecognized tax benefits over the next 12 months, and the fact that we 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. An estimate of the amount or range of such change cannot be made at this time. However, we do not expect the change, if any, to have a material effect on our consolidated financial condition or results of operations within the next 12 months.

The IRS is currently conducting an examination of the Company's consolidated federal income tax returns for the fiscal years ended September 30, 2008 and 2007 in the ordinary course. The IRS had previously audited the Company's consolidated federal income tax returns through the tax year ended September 30, 2006, thus our statute remains open from the year ended September 30, 2007 forward. Our foreign subsidiaries are impacted by various statutes of limitations, which are generally open from 2004 forward. Generally, states' statutes in the United States are open for tax reviews from 2005 forward.

XML

Business Segments and Geographic Area Information (Details) (USD $)	3 Months Ended								12 Months Ended
	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2009	Sep. 30, 2011 Y Segment M D	Sep. 30, 2010	Sep. 30, 2009
Business Segments and Geographic Area Information
Number of operating segments									2
Net sales:
Total net sales	$ 837,186,000	$ 836,576,000	$ 801,805,000	$ 793,564,000	$ 747,797,000	$ 742,975,000	$ 720,467,000	$ 704,851,000	$ 3,269,131,000	$ 2,916,090,000	$ 2,636,600,000
Segment operating profit:
Total segment operating profit									448,469,000	340,930,000	296,836,000
Share-based compensation expense									(15,560,000)	(12,818,000)	(8,618,000)
Interest expense									(112,530,000)	(112,982,000)	(132,022,000)
Earnings before provision for income taxes									335,939,000	227,948,000	164,814,000
Identifiable assets:
Total assets	1,728,600,000				1,589,412,000				1,728,600,000	1,589,412,000	1,490,732,000
Depreciation and amortization:
Total depreciation and amortization									59,722,000	51,123,000	47,066,000
Capital expenditures:
Total capital expenditures									59,955,000	48,702,000	37,320,000
Other information
Net favorable impact on consolidated operating earnings									21,300,000
Credit from a litigation settlement									27,000,000
Non-recurring charges incurred									5,700,000
Operating segments
Segment operating profit:
Total segment operating profit									545,623,000	432,951,000	375,476,000
Identifiable assets:
Total assets	1,674,989,000				1,538,222,000				1,674,989,000	1,538,222,000	1,445,063,000
Sally Beauty Supply
Net sales:
Total net sales									2,012,407,000	1,834,631,000	1,695,652,000
Segment operating profit:
Total segment operating profit									380,963,000	320,456,000	283,872,000
Identifiable assets:
Total assets	766,896,000				729,380,000				766,896,000	729,380,000	652,184,000
Depreciation and amortization:
Total depreciation and amortization									28,763,000	26,426,000	24,175,000
Capital expenditures:
Total capital expenditures									34,946,000	30,366,000	23,203,000
Beauty Systems Group
Net sales:
Total net sales									1,256,724,000	1,081,459,000	940,948,000
Segment operating profit:
Total segment operating profit									164,660,000	112,495,000	91,604,000
Identifiable assets:
Total assets	908,093,000				808,842,000				908,093,000	808,842,000	792,879,000
Depreciation and amortization:
Total depreciation and amortization									25,099,000	20,081,000	18,735,000
Capital expenditures:
Total capital expenditures									14,145,000	11,252,000	8,470,000
Other information
Net favorable impact on consolidated operating earnings									19,000,000
Unallocated amount
Segment operating profit:
Unallocated expenses									(81,594,000)	(79,203,000)	(70,022,000)
Depreciation and amortization:
Total depreciation and amortization									5,860,000	4,616,000	4,156,000
Capital expenditures:
Total capital expenditures									10,864,000	7,084,000	5,647,000
Other information
Net favorable impact on consolidated operating earnings									2,300,000
Shared services
Identifiable assets:
Total assets	53,611,000				51,190,000				53,611,000	51,190,000	45,669,000
United States
Net sales:
Total net sales									2,688,062,000	2,402,085,000	2,202,218,000
Identifiable assets:
Total assets	1,240,894,000				1,133,652,000				1,240,894,000	1,133,652,000	1,105,026,000
Foreign
Net sales:
Total net sales									581,069,000	514,005,000	434,382,000
Identifiable assets:
Total assets	$ 434,095,000				$ 404,570,000				$ 434,095,000	$ 404,570,000	$ 340,037,000

XML

Income Taxes (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Current:
Federal	$ 97,172	$ 69,112	$ 48,335
Foreign	11,081	4,432	4,276
State	13,629	11,197	5,507
Total current portion	121,882	84,741	58,118
Deferred:
Federal	2,615	2,896	8,204
Foreign	(2,525)	(2,814)	(1,676)
State	242	(703)	1,051
Total deferred portion	332	(621)	7,579
Total provision for income tax	$ 122,214	$ 84,120	$ 65,697
Reconciliation between the U.S. statutory federal income tax rate and the effective income tax rate
Statutory tax rate (as a percent)	35.00%	35.00%	35.00%
State income taxes, net of federal tax benefit (as a percent)	2.80%	2.90%	2.80%
Effect of foreign operations (as a percent)	(1.30%)	(1.20%)	0.80%
Other, net (as a percent)	(0.10%)	0.20%	1.30%
Effective tax rate (as a percent)	36.40%	36.90%	39.90%

XML

Description of Business and Basis of Presentation

12 Months Ended

Sep. 30, 2011

Description of Business and Basis of Presentation

Description of Business and Basis of Presentation

1. Description of Business and Basis of Presentation

Description of Business

Sally Beauty Holdings, Inc. and its consolidated subsidiaries ("Sally Beauty" or "the Company") sell professional beauty supplies, primarily through its Sally Beauty Supply retail stores in the U.S., Puerto Rico, Canada, Mexico, Chile, the United Kingdom, Ireland, Belgium, France, Germany and Spain. Additionally, the Company distributes professional beauty products to salons and professional cosmetologists through its Beauty Systems Group ("BSG") store operations and a commissioned direct sales force that calls on salons primarily in the U.S., Puerto Rico, Canada, the United Kingdom and certain other countries in Europe, and to franchises in the southern and southwestern regions of the U.S., and in Mexico through the operations of its subsidiary Armstrong McCall, L.P. ("Armstrong McCall"). Certain beauty products sold by BSG and Armstrong McCall are sold under exclusive territory agreements with the manufacturers of the products.

Sally Beauty Holdings, Inc. was formed in June of 2006 in connection with our November 2006 separation from the Alberto-Culver Company ("Alberto-Culver"). In these financial statements and elsewhere in this Annual Report on Form 10-K, we refer to the transactions related to our separation from Alberto-Culver as the Separation Transactions. In connection with the Separation Transactions, CDRS Acquisition LLC ("CDRS"), a limited liability company organized by Clayton, Dubilier & Rice Fund VII, L.P., invested $575.0 million in exchange for an equity ownership of approximately 48% of the outstanding common stock of the Company on an undiluted basis. At September 30, 2011, CDRS owned approximately 47% of our outstanding common stock on an undiluted basis. In addition, the Company incurred approximately $1,850.0 million of new long-term debt in connection with the Separation Transactions.

Basis of Presentation

The consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These consolidated financial statements include the operations of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Certain amounts for prior fiscal years have been reclassified to conform to the current year's presentation.

All references in these notes to "management" are to the management of Sally Beauty.

XML

Property and Equipment, Net

12 Months Ended

Sep. 30, 2011

Property and Equipment, Net

Property and Equipment, Net

10. Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

		September 30,
		2011			2010
Land		$	11,187		$	11,124
Buildings and building improvements			59,248			58,594
Leasehold improvements			171,916			155,476
Furniture, fixtures and equipment			257,815			234,111
	Total property and equipment, gross		500,166			459,305
Less accumulated depreciation and amortization			(317,677	)		(291,186	)
	Total property and equipment, net	$	182,489		$	168,119

Depreciation expense for the fiscal years 2011, 2010 and 2009 was $47.3 million, $42.4 million and $40.9 million, respectively. As further described in Note 14, borrowings under the term loan facilities and the ABL credit facility are secured by substantially all of our assets, those of Sally Investment, a wholly-owned subsidiary of Sally Beauty and the direct parent of Sally Holdings, those of our domestic subsidiaries and, in the case of the ABL credit facility, those of our Canadian subsidiaries and a pledge of certain intercompany notes.

Depreciation of property and equipment is calculated using the straight-line method based on the estimated useful lives of the respective classes of assets and is reflected in depreciation and amortization expense in our consolidated statements of earnings. Buildings and building improvements are depreciated over periods ranging from five to 40 years. Leasehold improvements are amortized over the lesser of the estimated useful lives of the assets or the term of the related lease, including renewals determined to be reasonably assured. Furniture, fixtures and equipment are depreciated over periods ranging from three to ten years. Expenditures for maintenance and repairs are expensed as incurred, while expenditures for major renewals and improvements are capitalized.

XML

Allowance for Doubtful Accounts (Details) (USD $) In Thousands	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Change in the allowance for doubtful accounts
Balance at the end of the period	$ 2,086	$ 2,756
Allowance for Doubtful Accounts
Change in the allowance for doubtful accounts
Balance at the beginning of the period	2,756	2,266	2,702
Bad debt expense	1,631	1,578	1,859
Uncollected accounts written off, net of recoveries	(2,423)	(1,431)	(2,648)
Allowance for doubtful accounts of acquired companies	122	343	353
Balance at the end of the period	$ 2,086	$ 2,756	$ 2,266

XML

Accrued Liabilities (Details) (USD $) In Thousands	Sep. 30, 2011	Sep. 30, 2010
Accrued liabilities
Compensation and benefits	$ 78,796	$ 74,446
Interest payable	27,274	26,518
Deferred revenue	16,987	13,099
Rental obligations	12,403	11,531
Property and other taxes	4,764	4,511
Insurance reserves	8,114	8,428
Interest rate swaps	6,450
Operating accruals and other	30,721	28,963
Total accrued liabilities	$ 185,509	$ 167,496
Minimum maturity period for prior interest rate swaps (in years)	one year

XML

Income Taxes (Details 2) (USD $)	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Deferred tax assets attributable to:
Share-based compensation expense	$ 19,683,000	$ 16,471,000
Accrued liabilities	28,711,000	22,829,000
Inventory adjustments	3,432,000	3,303,000
Foreign loss carryforwards	18,315,000	16,675,000
Unrecognized tax benefits	651,000	577,000
Interest rate swaps	2,503,000	6,026,000
Other	2,673,000	2,579,000
Total deferred tax assets	75,968,000	68,460,000
Valuation allowance	(17,100,000)	(16,552,000)
Total deferred tax assets, net	58,868,000	51,908,000
Deferred tax liabilities attributable to:
Depreciation and amortization	81,644,000	70,772,000
Total deferred tax liabilities	81,644,000	70,772,000
Net deferred tax liability	22,776,000	18,864,000
Domestic earnings before provision for income taxes	300,100,000	215,900,000	165,100,000
Foreign earnings before provision for income taxes	35,800,000	12,000,000	(300,000)
Retained earnings attributable to foreign subsidiaries considered to be indefinitely invested	110,600,000	76,500,000
Total operating loss carry-forward	62,500,000	53,300,000
Operating loss carry-forward, subject to valuation allowance	50,100,000	46,100,000
Amount of operating loss carry-forwards with an expiration date	23,600,000
Amount of operating loss carry-forwards without an expiration date	38,900,000
Tax credit carryforwards	1,100,000	800,000
Tax credit carryforwards without an expiration date, subject to a valuation allowance	$ 500,000	$ 400,000

XML

Allowance for Doubtful Accounts (Tables)

12 Months Ended

Sep. 30, 2011

Allowance for Doubtful Accounts

Schedule of change in the allowance for doubtful accounts

	Year Ended September 30,
	2011			2010			2009
Balance at beginning of period	$	2,756		$	2,266		$	2,702
Bad debt expense		1,631			1,578			1,859
Uncollected accounts written off, net of recoveries		(2,423	)		(1,431	)		(2,648	)
Allowance for doubtful accounts of acquired companies		122			343			353
Balance at end of period	$	2,086		$	2,756		$	2,266

XML

Short-term Borrowings and Long-Term Debt

12 Months Ended

Sep. 30, 2011

Short-term Borrowings and Long-Term Debt

Short-term Borrowings and Long-Term Debt

14. Short-term Borrowings and Long-Term Debt

Details of long-term debt are as follows (in thousands):

		September 30, 2011			Maturity Dates		Interest Rates
ABL facility		$	—			Nov. 2015	(i) Prime plus (1.25% to 1.75%) or;
							(ii) LIBOR(a) plus (2.25% to 2.75%)
Term loan B			696,856			Nov. 2013	(i) Prime plus (1.25% to 1.50%) or;
							(ii) LIBOR(a) plus (2.25% to 2.50%)(b)
Other(c)			4,774			2012-2015	4.05% to 7.00%
	Total	$	701,630
Senior notes		$	430,000			Nov. 2014	9.25%
Senior subordinated notes			275,000			Nov. 2016	10.50%
	Total	$	705,000
Capitalized lease obligations		$	6,485
Less: current portion			(3,004	)
	Total long-term debt	$	1,410,111

(a)

London Interbank Offered Rate ("LIBOR").

(b)

At September 30, 2011, the contractual interest rate for the term loan B facility was 2.49%. The interest rate on $300.0 million of principal outstanding under this loan is fixed by interest rate swaps which expire in May 2012.

(c)

Represents pre-acquisition debt of Pro-Duo NV and Sinelco.

In connection with the Separation Transactions in November 2006, the Company, through its subsidiaries (Sally Investment Holdings LLC and Sally Holdings) incurred $1,850.0 million of indebtedness by: (i) drawing on a $400.0 million revolving, asset-based lending ("ABL") facility in the amount of $70.0 million; (ii) entering into two senior term loan facilities (term loans A and B) in an aggregate amount of $1,070.0 million; and (iii) together (jointly and severally) with another of the Company's indirect subsidiaries, Sally Capital Inc., issuing senior notes in an aggregate amount of $430.0 million and senior subordinated notes in an aggregate amount of $280.0 million. The Company incurred approximately $58.5 million in costs related to the issuance of the debt, which were capitalized and are being amortized to interest expense over the life of the related debt obligations. Borrowings under the term loan A facility were paid in full in the fiscal year 2010.

In November 2010, the Company entered into a new $400 million, five-year revolving credit facility (the "new ABL credit facility" or the "ABL credit facility") and replaced its prior ABL credit facility (the "prior ABL credit facility"). The ABL credit facility provides for senior secured revolving loans up to a maximum aggregate principal amount of $400.0 million, subject to borrowing base limitations. The availability of funds under the ABL credit facility is subject to a borrowing base calculation, which is based on specified percentages of the value of eligible inventory and eligible accounts receivables, subject to certain reserves and other adjustments and reduced by certain outstanding letters of credit. At September 30, 2011, the Company had $366.5 million available for borrowing under the ABL credit facility. The terms of the new ABL credit facility contain a commitment fee of 0.50% on the unused portion of the facility. In connection with the Company's termination of the prior ABL credit facility, the Company expensed approximately $1.6 million in unamortized deferred financing costs, which is included in interest expense in the Company's consolidated statements of earnings.

Principal and interest on the senior term loan B facility is payable quarterly. The senior term loan facilities contain a covenant requiring Sally Holdings and its subsidiaries to meet certain maximum consolidated secured leverage ratio levels, which decline over time. The consolidated secured leverage ratio is a ratio of (A) net consolidated secured debt to (B) consolidated EBITDA as defined in the agreement underlying the senior term loan facilities. Compliance with the consolidated secured leverage ratio is tested quarterly, with a maximum ratio of 3.50 as of September 30, 2011. Failure to comply with the consolidated secured leverage ratio covenant under the senior term loan facilities would result in a default under such facilities.

Borrowing under the senior term loan facilities and the ABL credit facility are secured by substantially all of our assets, those of Sally Investment Holdings LLC, a wholly-owned subsidiary of Sally Beauty and the direct parent of Sally Holdings, those of our domestic subsidiaries and, in the case of the ABL credit facility, those of our Canadian subsidiaries and a pledge of certain intercompany notes. Borrowings under the senior term loan facilities may be prepaid at the option of Sally Holdings at any time without premium or penalty and are subject to mandatory repayment in an amount equal to 50% of excess cash flow (as defined in the agreement governing the senior term loan facilities) for any fiscal year unless a specified leverage ratio is met. Amounts prepaid pursuant to said provision may be applied, at the option of Sally Holdings, against minimum loan repayments otherwise required of it over the twelve-month period following any such payment under the terms of the loan agreements. Additionally, borrowings under the senior term loan facilities would be subject to mandatory repayment in an amount equal to 100% of the proceeds of specified asset sales that are not reinvested in the business or applied to repay borrowings under the ABL credit facility. No mandatory repayments of any kind were made or required to be made in the fiscal year 2011. We believe that the Company is currently in compliance with the agreements and instruments governing our debt, including our financial covenants.

During the fiscal year 2011, the Company made optional prepayments in the aggregate amount of $147.0 million on its senior term loan B facility. In connection with such optional prepayments, the Company recorded losses on extinguishment of debt in the aggregate amount of $1.2 million, which are included in interest expense in the Company's consolidated statements of earnings.

The Company uses interest rate swaps, as part of its overall economic risk management strategy, to add stability to the interest payments due in connection with its senior term loan obligations. In the fiscal year 2008, the Company entered into interest rate swap agreements with an aggregate notional amount of $300.0 million. These agreements expire in May 2012 and enable the Company to convert a portion of its variable-interest rate obligations to fixed-interest rate obligations in connection with the term loan facilities, with interest ranging from 5.818% to 6.090%. Interest payments related to our term loans are impacted by changes in LIBOR. Please see Note 16 for additional information about the Company's interest rate swap agreements.

The senior notes and senior subordinated notes are unsecured obligations of the issuers and are jointly and severally guaranteed on a senior basis (in the case of the senior notes) and on a senior subordinated basis (in the case of the senior subordinated notes) by each material domestic subsidiary of the Company. Interest on the senior notes and senior subordinated notes is payable semi-annually. The senior notes carry optional redemption features whereby the Company has the option to redeem the notes prior to maturity on or after November 15, 2010 at par plus a premium declining ratably to par, plus accrued and unpaid interest. The senior subordinated notes carry optional redemption features whereby the Company has the option to redeem the notes before November 15, 2011 at par plus a premium, plus accrued and unpaid interest; and on or after November 15, 2011 at par plus a premium declining ratably to par, plus accrued and unpaid interest. Furthermore, the agreements underlying the Company's credit facilities contain terms which significantly restrict the ability of Sally Beauty's subsidiaries to pay dividends or otherwise transfer assets to Sally Beauty.

Maturities of the Company's long-term debt are as follows at September 30, 2011 (in thousands):

Fiscal Year:
	2012	$	2,240
	2013		8,652
	2014		690,638
	2015		430,100
	2016		—
	Thereafter		275,000
		$	1,406,630
Capital lease obligations			6,485
Less: current portion			(3,004	)
	Total	$	1,410,111

We are a holding company and do not have any material assets or operations other than ownership of equity interests of our subsidiaries. The agreements and instruments governing the debt of Sally Holdings and its subsidiaries contain material limitations on our subsidiaries' ability to pay dividends and other restricted payments to us which, in turn, constitute material limitations on our ability to pay dividends and other payments to our stockholders.

Under the agreements and indentures governing the term loan facilities and the notes, Sally Holdings may not make certain restricted payments to us if a default then exists under the credit agreement or the indentures or if its consolidated interest coverage ratio is less than 2.0 to 1.0 at the time of the making of such restricted payment. As of September 30, 2011, its consolidated interest coverage ratio exceeded 2.0 to 1.0. Further, the aggregate amount of restricted payments Sally Holdings is able to make is limited pursuant to various baskets as calculated pursuant to the credit agreement and indentures. Under the terms of our new ABL credit facility, Sally Holdings may pay dividends and make other equity distributions to us if availability under the ABL credit facility exceeds certain thresholds. For dividends and distributions up to $30.0 million during each fiscal year, borrowing availability must exceed the lesser of $80.0 million or 20% of the borrowing base for the 45-day period immediately prior to such dividend and distribution. For dividends in excess of that amount, Sally Holdings must maintain that same availability and its fixed-charge coverage ratio must exceed 1.10 to 1.00. The fixed-charge coverage ratio is defined as the ratio of EBITDA (as defined in the agreement underlying the ABL credit facility) less unfinanced capital expenditures to fixed charges (as included in the definition of the fixed-charge coverage ratio in the agreement governing the ABL credit facility). As of September 30, 2011, Sally Holdings met all of these conditions. In addition, as of September 30, 2011, the net assets of our consolidated subsidiaries that were unrestricted from transfer under our credit arrangements totaled $483.2 million, subject to certain adjustments. The ABL credit facility and the senior term loan facilities, as well as the Company's 9.25% Senior Notes indenture and its 10.5% Senior Subordinated Notes indenture contain customary cross-default and/or cross-acceleration provisions.

At September 30, 2011 and 2010, the Company had no off-balance sheet financing arrangements other than operating leases incurred in the ordinary course of business as disclosed in Note 13, and outstanding letters of credit related to inventory purchases and self-insurance programs which totaled $16.0 million and $14.5 million at September 30, 2011 and 2010, respectively.

XML

Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data	Sep. 30, 2011	Sep. 30, 2010
Consolidated Balance Sheets
Trade accounts receivable, allowance for doubtful accounts (in dollars)	$ 2,086	$ 2,756
Property and equipment, accumulated depreciation (in dollars)	317,677	291,186
Intangible assets, excluding goodwill, accumulated amortization (in dollars)	$ 45,467	$ 33,031
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, Authorized shares	500,000	500,000
Common stock, shares issued	184,502	182,592
Common stock, shares outstanding	184,057	182,230
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, Authorized shares	50,000	50,000
Preferred stock, shares issued	0	0
Treasury stock, shares	15	15

XML

Goodwill and Intangibles Assets (Tables)

12 Months Ended

Sep. 30, 2011

Goodwill and Intangible Assets

Schedule of changes in carrying amounts of goodwill by operating segment

	Sally Beauty Supply			Beauty Systems Group			Total
Balance at September 30, 2009	$	73,208		$	420,927		$	494,135
Acquisitions and purchase price adjustments		8,092			2,568			10,660
Reclassifications		(2,780	)		(22,920	)		(25,700	)
Foreign currency translation		(2,221	)		1,366			(855	)
Balance at September 30, 2010		76,299			401,941			478,240
Acquisitions and purchase price adjustments		333			29,321			29,654
Foreign currency translation		(1,096	)		(925	)		(2,021	)
Balance at September 30, 2011	$	75,536		$	430,337		$	505,873

Schedule of carrying value for intangible assets by operating segment

				Sally Beauty Supply			Beauty Systems Group			Total
Balance at September 30, 2011:
Intangible assets with indefinite lives:
	Trade names			$	27,344		$	33,722		$	61,066
		Total			27,344			33,722			61,066
Intangible assets subject to amortization:
	Gross carrying amount				14,491			99,568			114,059
	Accumulated amortization				(6,622	)		(38,845	)		(45,467	)
		Net value			7,869			60,723			68,592
			Total intangible assets, excluding goodwill, net	$	35,213		$	94,445		$	129,658
Balance at September 30, 2010:
Intangible assets with indefinite lives:
	Trade names			$	28,046		$	33,752		$	61,798
	Other				—			5,700			5,700
		Total			28,046			39,452			67,498
Intangible assets subject to amortization:
	Gross carrying amount				14,399			60,486			74,885
	Accumulated amortization				(4,301	)		(28,730	)		(33,031	)
		Net value			10,098			31,756			41,854
			Total intangible assets, excluding goodwill, net	$	38,144		$	71,208		$	109,352

Schedule of estimated future amortization expense related to intangible assets subject to amortization

As of September 30, 2011, future amortization expense related to intangible assets subject to amortization is estimated to be as follows (in thousands):

Fiscal Year:
2012	$	11,325
2013		9,514
2014		9,226
2015		8,791
2016		7,638
Thereafter		22,098
	$	68,592

XML

Quarterly Financial Data (Unaudited) (Details) (USD $) In Thousands, except Per Share data	3 Months Ended								12 Months Ended
	Sep. 30, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010	Sep. 30, 2010	Jun. 30, 2010	Mar. 31, 2010	Dec. 31, 2009	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
Quarterly Financial Data (Unaudited)
Net sales	$ 837,186	$ 836,576	$ 801,805	$ 793,564	$ 747,797	$ 742,975	$ 720,467	$ 704,851	$ 3,269,131	$ 2,916,090	$ 2,636,600
Gross profit	412,868	410,532	391,814	379,391	366,017	360,859	344,284	333,214	1,594,605	1,404,374	1,243,317
Net earnings	$ 54,355	$ 69,143	$ 49,278	$ 40,949	$ 42,026	$ 41,116	$ 34,560	$ 26,126	$ 213,725	$ 143,828	$ 99,117
Earnings per common share
Basic (in dollars per share)	$ 0.30	$ 0.38	$ 0.27	$ 0.22	$ 0.23	$ 0.23	$ 0.19	$ 0.14	$ 1.17	$ 0.79	$ 0.55
Diluted (in dollars per share)	$ 0.29	$ 0.37	$ 0.26	$ 0.22	$ 0.23	$ 0.22	$ 0.19	$ 0.14	$ 1.14	$ 0.78	$ 0.54

XML

Accumulated Stockholders' Equity (Deficit) (Details) (USD $) In Thousands, except Per Share data	Sep. 30, 2011	Sep. 30, 2010	Nov. 30, 2006
Accumulated Stockholders' Equity (Deficit)
Common stock, shares authorized (in shares)	500,000	500,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	50,000	50,000
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares issued (in shares)	184,502	182,592	180,100
Common stock, shares outstanding (in shares)	184,057	182,230	180,100

XML

Goodwill and Intangibles Assets (Details) (USD $) In Thousands	12 Months Ended				1 Months Ended	12 Months Ended						1 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011 Sally Beauty Supply [Member]	Sep. 30, 2010 Sally Beauty Supply [Member]	Dec. 31, 2009 Sally Beauty Supply [Member] Sinelco Group NV ("Sinelco")	Sep. 30, 2011 Sally Beauty Supply [Member] Not individually material acquisitions	Sep. 30, 2010 Sally Beauty Supply [Member] Not individually material acquisitions	Sep. 30, 2011 Beauty Systems Group [Member]	Sep. 30, 2010 Beauty Systems Group [Member]	Sep. 30, 2011 Beauty Systems Group [Member] Not individually material acquisitions	Sep. 30, 2010 Beauty Systems Group [Member] Not individually material acquisitions	Oct. 31, 2010 Beauty Systems Group [Member] Aerial Company, Inc. ("Aerial")
Change in the carrying amounts of goodwill
Balance at the beginning of the period	$ 478,240	$ 494,135	$ 76,299	$ 73,208				$ 401,941	$ 420,927
Acquisitions and purchase price adjustments	29,654	10,660	333	8,092	5,200	300	2,900	29,321	2,568	4,000	2,600	25,300
Reclassifications		(25,700)		(2,780)					(22,920)
Foreign currency translation	(2,021)	(855)	(1,096)	(2,221)				(925)	1,366
Balance at the end of the period	$ 505,873	$ 478,240	$ 75,536	$ 76,299				$ 430,337	$ 401,941

XML

401(k) and Profit Sharing Plan (Details) (USD $) In Millions	12 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2009
401(k) and Profit Sharing Plan
Defined contribution plan, expense recognized	$ 5.9	$ 4.7	$ 4.0
Profit sharing plan, expense recognized	$ 3.1	$ 2.7	$ 2.4

XML

Description of Business and Basis of Presentation (Details) (CDRS Acquisition LLC, USD $) In Millions, unless otherwise specified	1 Months Ended	12 Months Ended
	Nov. 30, 2006	Sep. 30, 2011
CDRS Acquisition LLC
Investment owned disclosures
Outstanding common stock of the entity owned by CDRS (as a percent)	48.00%	47.00%
Equity investment by CDRS Acquisition LLC	$ 575.0
New long-term debt incurred in connection with the separation transactions	$ 1,850.0

XML

Significant Accounting Policies (Details) (USD $)	12 Months Ended
	Sep. 30, 2011 Y Segment M D	Sep. 30, 2010	Sep. 30, 2009
Cash and Cash Equivalents
Maximum term of original maturity to classify an instrument as cash equivalent (in months)	3
Minimum period in which customer credit and debit card transactions are settled (in days)	1
Maximum period in which customer credit and debit card transactions are settled (in days)	3
Proceeds due from customers of credit and debit card transactions	$ 10,300,000	$ 8,400,000
Inventory
Average approximate inventory shrinkage, as percentage of consolidated net sales (as a percent)	1.00%
Period of net sales considered for inventory shrinkage (in years)	3
Intangible assets with definite lives
Estimated useful life, low end of range (in years)	1
Estimated useful life, high end of range (in years)	12
Revenue Recognition
Sales returns and allowance, average of net sales (as a percent)	2.00%
Period of sales considered for sales returns and allowances (in years)	3
Shipping and Handling
Shipping and handling costs	41,200,000	36,000,000	30,300,000
Advertising Costs
Advertising costs	70,900,000	64,600,000	55,200,000
Share-Based Compensation
Stock options subject to redemption		$ 946,000

XML

Share-Based Payments (Details 4) (USD $) In Millions, except Share data, unless otherwise specified	12 Months Ended
	Sep. 30, 2011 Y	Sep. 30, 2010 Y	Sep. 30, 2009
Restricted Stock Awards
Stock Awards
Vesting period (in years)	5Y
Summary of the activity for restricted stock awards and restricted stock units
Unvested at the beginning of the period (in shares)	362,000
Granted (in shares)	199,000	118,000	123,000
Vested (in shares)	(111,000)
Forfeited or expired (in shares)	(5,000)
Unvested at the end of the period (in shares)	445,000	362,000
Restricted stock awards and restricted stock units
Unvested at the beginning of the period (in dollars per share)	$ 7.38
Granted (in dollars per share)	$ 11.39
Vested (in dollars per share)	$ 7.63
Forfeited or expired (in dollars per share)	$ 6.58
Unvested at the end of the period (in dollars per share)	$ 9.12	$ 7.38
Weighted average remaining vesting term (in years)	3.1	3.2
Total unrecognized compensation costs related to unvested restricted stock awards	$ 2.3
Weighted average period for recognition of unvested restricted awards (in years)	3.1
Restricted Stock Units
Stock Awards
Vesting period (in years)	1Y
Summary of the activity for restricted stock awards and restricted stock units
Granted (in shares)	43,015	66,038	93,500
Vested (in shares)	(43,000)
Restricted stock awards and restricted stock units
Granted (in dollars per share)	$ 11.39
Vested (in dollars per share)	$ 11.39
Restricted stock units, retention period (in months)	6M

XML

Accrued Liabilities (Tables)

12 Months Ended

Sep. 30, 2011

Accrued Liabilities

Schedule of accrued liabilities

		September 30,
		2011		2010
Compensation and benefits		$	78,796	$	74,446
Interest payable			27,274		26,518
Deferred revenue			16,987		13,099
Rental obligations			12,403		11,531
Property and other taxes			4,764		4,511
Insurance reserves			8,114		8,428
Interest rate swaps(a)			6,450		—
Operating accruals and other			30,721		28,963
	Total accrued liabilities	$	185,509	$	167,496

(a)

Prior to the fiscal year ended September 30, 2011, interest rate swaps had a maturity in excess of one year and, accordingly, were classified in other assets or other liabilities, as appropriate, in the Company's consolidated balance sheets.