8-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of Report:  July 30, 2009

(Date of earliest event reported)

SALLY BEAUTY HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Delaware	1-33145	36-2257936
(State or other jurisdiction of incorporation)	(Commission file number)	(I.R.S. Employer Identification Number)

3001 Colorado Boulevard
Denton, Texas 76210

(Address of principal executive offices)

(940) 898-7500

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o    Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o    Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o    Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))

o    Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))

ITEM 2.02.  RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On July 30, 2009, Sally Beauty Holdings, Inc. (the “Company”) issued the news release attached hereto as Exhibit 99.1 reporting the financial results of the Company for the quarter ended June 30, 2009 (the “Earnings Release”).  In the Earnings Release, the Company utilized the non-GAAP financial measures and other items discussed in the attached Appendix A, which is incorporated herein by this reference.  Appendix A also contains statements of the Company’s management regarding the use and purposes of the non-GAAP financial measures utilized in the Earnings Release.  A reconciliation of the non-GAAP financial measures discussed in the Earnings Release to the most directly comparable GAAP financial measures is attached to the Earnings Release.

ITEM 7.01.  REGULATION FD DISCLOSURE

The Earnings Release also provides an update on the Company’s strategy and business outlook.

In addition, Sally Beauty Holdings, Inc. (the “Company”) announced today that L’Oreal USA S/D, Inc.  (“L’Oreal”) has filed a Second Amended Complaint in connection with the previously disclosed lawsuit in the Superior Court of the State of California in and for the County of San Diego — Central Division against SD Hair, Ltd. and Hair of Nevada, LLC, franchisees of the subsidiary Armstrong McCall division (“AMLP”) of the Company’s BSG business unit, and AMLP, among others.  The original suit alleged, among other things, that SD Hair breached its franchise agreement with AMLP by selling Matrix branded products to unauthorized buyers.  At this stage, there was no direct action against AMLP.

The Second Amended Complaint alleges, among other things, that AMLP, certain of its employees and others were involved in selling Matrix branded products to unauthorized buyers and that certain of its employees (and others) engaged in improper business transactions for personal benefit during 2005 through 2007.  L’Oreal seeks money damages, certain injunctive relief and a declaration that L’Oreal is entitled to terminate the 1981 Matrix Distributor Agreement now in effect between L’Oreal and AMLP.  None of the employees involved in the allegations are executive officers of the Company.  Substantially all of these allegations were made known by L’Oreal to the Company prior to the filing of the Second Amended Complaint.   L’Oreal also provided the Company with documents allegedly supporting the allegations.  As a result of these allegations made by L’Oreal, many of which are incorporated into the Second Amended Complaint, the Audit Committee of the Board of Directors of the Company engaged independent special counsel to investigate whether certain employees engaged in improper business transactions for personal benefit.  After extensive review, the Audit Committee and independent special counsel found insufficient evidence to support a conclusion that Company employees entered into improper transactions for personal benefit.  The Company intends to file its response to the Second Amended Complaint and to vigorously defend itself in the lawsuit.

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ITEM 9.01.  FINANCIAL STATEMENTS AND EXHIBITS

(d)           See exhibit index.

All of the information furnished in Items 2.02, 7.01 and 9.01 of this report and the accompanying appendix and exhibits shall not be deemed to be “filed” for the purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and shall not be incorporated by reference in any filing under the Securities Act of 1933, as amended, unless expressly incorporated by reference therein.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	July 30, 2009
		SALLY BEAUTY HOLDINGS, INC.
		By:	/s/ Raal H. Roos
		Name:	Raal H. Roos
		Title:	Senior Vice President, Secretary and General Counsel

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EXHIBIT INDEX

Exhibit Number	Description
Exhibit 99.1	News release reporting financial results for the quarter ended June 30, 2009, issued by Sally Beauty Holdings, Inc. on July 30, 2009.
Exhibit 99.2	Scripted Questions and Answers (Q&A), dated July 30, 2009, to be used by Sally Beauty Holdings, Inc. when discussing litigation developments with representatives of the financial community.

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EX-99.1

Exhibit 99.1

Contact:	Karen Fugate
	Investor Relations
	940-297-3877

Sally Beauty Holdings, Inc. Reports Solid Results for Fiscal 2009 Third Quarter

·Grew same store sales by 2.6%

·GAAP net earnings up 7% to $31 million; $0.17 earnings per share

·Adjusted net earnings up 23% to $30 million; $0.16 earnings per share

·Adjusted EBITDA up 6% to $95 million

·Reduced long term debt by $30 million

DENTON, Texas, July 30, 2009 – Sally Beauty Holdings, Inc. (NYSE: SBH) (the “Company”) today announced financial results for the third quarter ended June 30, 2009.  The Company will hold a conference call today at 10:00 a.m. (Central) to discuss these results and its business.

Consolidated net sales for the fiscal 2009 third quarter were $673.3 million, a decline of 0.5% from the fiscal 2008 third quarter, and include a negative impact from foreign currency exchange of $21.9 million, or 3.2 % of sales.  Same store sales (1) in the fiscal 2009 third quarter grew 2.6% from the fiscal 2008 third quarter.  Fiscal 2009 third quarter GAAP net earnings were $31.5 million, growth of 7.3% from the fiscal 2008 third quarter.  GAAP diluted earnings per share were $0.17 compared to $0.16 in the fiscal 2008 third quarter.  Fiscal 2009 third quarter adjusted net earnings, a non-GAAP measure, were $30.0 million, an increase of 22.5% over the fiscal 2008 third quarter.  Adjusted earnings per share were $0.16, growth of 23.1% when compared to $0.13 adjusted earnings per share in the fiscal 2008 third quarter.   In the fiscal 2009 third quarter capital expenditures were $9.5 million.  Total store count at the end of fiscal 2009 third quarter was 3,821, an increase over fiscal 2008 third quarter of 105 stores, or growth of 2.8%.

“We are pleased with our third quarter performance as we once again delivered solid financial results. Consolidated same store sales grew 2.6% and gross profit, as a percent of sales, expanded 60 basis points for the quarter and year-to-date,” stated Gary Winterhalter, President and Chief Executive Officer.  “We remain confident in our ability to generate cash and were able to pay down an additional $30 million of long-term debt during the quarter.   We believe we are well positioned to execute our long-term strategy of growing the Company both organically and through potential acquisitions while at the same time continue to strengthen our balance sheet.”

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FISCAL 2009 THIRD QUARTER FINANCIAL HIGHLIGHTS

Net Sales:  For the fiscal 2009 third quarter, consolidated net sales were $673.3 million, a decline of 0.5% over the fiscal 2008 third quarter of $676.8 million, and include a negative impact from foreign currency exchange of $21.9 million, or 3.2% of sales.Positive same store sales growth of 2.6% and the addition of new stores and acquisitions partially offset the unfavorable impact of foreign currency exchange.

Gross Profit:  Consolidated gross profit for the fiscal 2009 third quarter was $317.8 million, an increase of 0.9% over gross profit of $315.1 million for the fiscal 2008 third quarter.   Consolidated gross profit as a percentage of net sales was 47.2%, a 60 basis point improvement from the fiscal 2008 third quarter.

Selling, General and Administrative Expenses:  For the fiscal 2009 third quarter, selling, general and administrative (SG&A) expenses were $224.0 million, or 33.3% of sales, a 20 basis point decrease over the fiscal 2008 third quarter metric of 33.5% of sales and total SG&A of $226.7 million.  SG&A expenses in the BSG segment were down year-over-year as a result of cost control measures.  Unallocated corporate expenses were $18.6 million for the fiscal 2009 third quarter, up $1.8 million over fiscal 2008 third quarter partially due to higher payroll related costs and professional fees.

Note: SG&A expenses include unallocated corporate expenses, as detailed in the Company’s segment information on Schedule B.

Interest Expense: Interest expense, net of interest income, for the fiscal 2009 third quarter was $31.1 million and included $2.5 million in non-cash credits for the mark-to-market change in the fair value of the Company’s interest rate swap transactions.  Fiscal 2008 third quarter interest expense was $29.9 million and included $7.6 million in non-cash credits for the mark-to-market change in the fair value of the Company’s interest rate swap transactions.

Provision for Income Taxes:  Income taxes were $19.7 million for the fiscal 2009 third quarter versus $17.3 million in the fiscal 2008 third quarter.  The Company’s effective tax rate for the fiscal 2009 third quarter was approximately 38.5% compared to 37.1% for the fiscal 2008 third quarter.  The increase in tax rate for the fiscal 2009 third quarter and year-to-date is primarily due to lower international earnings than the comparable fiscal 2008 period.

Net Earnings and Diluted Net Earnings Per Share (EPS):  For the fiscal 2009 third quarter, adjusted net earnings (a non-GAAP measure) increased by 22.5% to $30.0 million, or $0.16 earnings per diluted share, after adjusting for $1.5 million, or approximately $0.01 per diluted share, in after-tax non-cash interest credits from changes in the fair value of the Company’s mark-to-market interest rate swaps.  For the fiscal 2008 third quarter, adjusted net earnings were $24.5 million, or $0.13 per diluted share, after adjusting for $4.9 million, or approximately $0.03 per diluted share, in after-tax non-cash interest credits from changes in the fair value of the mark-to-market interest rate swaps.  On a GAAP basis, net earnings for the fiscal 2009 third quarter grew 7.3% to $31.5 million, or $0.17 per diluted share, compared to $29.4 million, or $0.16 per diluted share, for the fiscal 2008 third quarter.

Adjusted (Non-GAAP) EBITDA:  Adjusted EBITDA for the fiscal 2009 third quarter was $95.5 million, an increase of 6.2% from $89.9 million for the fiscal 2008 third quarter.  This increase was primarily a result of improved gross margin and lower operating and selling, general and administrative expenses.

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Note: A detailed table reconciling fiscal 2009 third quarter and fiscal 2008 third quarter GAAP net earnings to adjusted net earnings, adjusted EPS and adjusted EBITDA is included in Supplemental Schedule C.

Financial Position, Capital Expenditures and Working Capital:  Cash and cash equivalents as of June 30, 2009, were $105.9 million.  The Company’s asset-based loan revolving credit facility began the fiscal 2009 third quarter at zero outstanding borrowings and ended the quarter unchanged.

Total debt as of June 30, 2009 was $1.7 billion. The Company paid down an additional $30 million in long term debt during the quarter.

Capital expenditures in the fiscal 2009 third quarter were $9.5 million.  The Company expects to end the fiscal year 2009 with capital expenditure in the range of $37 million to $39 million versus previous projections of $35 million to $40 million.

Inventories as of June 30, 2009 were $559.6 million, a decrease of $50.7 million from June 30, 2008.   On a sequential basis, fiscal 2009 third quarter versus the fiscal 2009 second quarter, inventory increased $20.7 million.

Business Segment Results:

Sally Beauty Supply

Fiscal 2009 Third Quarter Results for Sally Beauty Supply

Net sales were $434.7 million, up 1.6% from $428.0 million in the fiscal 2008 third quarter.  The year-over-year increase in net sales was positively impacted by revenue growth from new store openings of 1.6% and from acquisitions of 1.2%.  Same store sales were up 3.2% over the fiscal 2008 third quarter.  The negative impact of unfavorable foreign currency exchange on net sales was $16.8 million, or 3.9% of sales.  Gross margin at Sally Beauty Supply for the fiscal 2009 third quarter was 51.7%, up 70 basis points from 51.0% in the fiscal 2008 third quarter. This margin expansion is primarily the result of a shift in product and customer mix, recent marketing efforts, and low-cost sourcing initiatives.

Segment operating earnings for the fiscal 2009 third quarter were $76.7 million, or 17.7% of net sales, compared to $73.0 million, or 17.1% of net sales in the fiscal 2008 third quarter.  Sally segment operating earnings increased by 5.1% over fiscal 2008 third quarter primarily due to growth in same store sales, gross margin improvement and lower SG&A expenditures.

Sally Beauty Supply ended its fiscal 2009 third quarter with 2,879 Sally Beauty Supply stores, an increase of 2.8 %, or 78 stores over the fiscal 2008 third quarter.

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Beauty Systems Group

Fiscal 2009 Third Quarter Results for Beauty Systems Group

Net sales for BSG were $238.6 million, a decrease of 4.1% from the fiscal 2008 third quarter total of $248.9 million.  Net sales were positively impacted by revenue growth from new store openings of 0.8% and from acquisitions of 0.5%.  Same store sales were up 0.6% over the fiscal 2008 third quarter.  Unfavorable foreign currency exchange of $5.1 million or 2.0% of sales and softness in the franchise business and the BSG sales consultant business had a negative impact on net sales.

BSG gross margins were 39.0% of net sales in the fiscal 2009 third quarter.  Gross margins were up 90 basis points sequentially from the fiscal 2009 second quarter; and flat versus the fiscal 2008 third quarter.

Segment operating earnings were $25.6 million in the fiscal 2009 third quarter, up 17.4% from $21.8 million in the fiscal 2008 third quarter.  Included in the fiscal 2008 third quarter total was $1.6 million in warehouse optimization expense that did not occur in the fiscal 2009 third quarter.  Segment operating margins increased by 190 basis points to 10.7% of sales from 8.8% in the fiscal 2008 third quarter. Continued operating margin improvement reflects the Company’s on-going cost reduction initiatives and savings realized from the warehouse optimization project.

The BSG segment ended the fiscal 2009 third quarter with 942 stores, including 163 franchise locations, a year-over-year increase of 3.0% or 27 stores versus the fiscal 2008 third quarter.

(1)Sally Beauty Holdings has historically reported, and continues to report, same store sales in constant currency to minimize the fluctuations of foreign currency exchange rates.   Net sales as reported include the impact of foreign currency exchange rates.  As we announced in November 2008, we began reporting sales from the Sally Beauty Supply Internet website in same store sales beginning with the fiscal 2009 first quarter.

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Conference Call and Where You Can Find Additional Information

As previously announced, at approximately 10:00 a.m. (Central) today the Company will hold a conference call and audio webcast to discuss its financial results and its business.  During the conference call, the Company may discuss and answer one or more questions concerning business and financial matters and trends affecting the Company.  The Company’s responses to these questions, as well as other matters discussed during the conference call, may contain or constitute material information that has not been previously disclosed.  Simultaneous to the conference call, an audio webcast of the call will be available via a link on the Company’s website, investor.sallybeautyholdings.com.  The conference call can be accessed by dialing 800-288-8960 (International:  612-332-0530).  The teleconference will be held in a “listen-only” mode for all participants other than the Company’s current sell-side and buy-side investment professionals.  A replay of this call will be available at about 12:00 p.m. (Central) July 30, 2009 through August 6, 2009 by dialing 800-475-6701 or if international dial 320-365-3844 and reference the access code 108851. Also, a website replay will be available on investor.sallybeautyholdings.com.

About Sally Beauty Holdings, Inc.

Sally Beauty Holdings, Inc. (NYSE: SBH) is an international specialty retailer and distributor of professional beauty supplies with revenues of more than $2.6 billion annually. Through the Sally Beauty Supply and Beauty Systems Group businesses, the Company sells and distributes through over 3,800 stores, including approximately 200 franchised units, throughout the United States, the United Kingdom, Belgium, France, Canada, Puerto Rico, Mexico, Ireland, Spain and Germany.  Sally Beauty Supply stores offer more than 6,000 products for hair, skin, and nails through professional lines such as Clairol, L’Oreal, Wella and Conair, as well as an extensive selection of proprietary merchandise. Beauty Systems Group stores, branded as CosmoProf or Armstrong McCall stores, along with its outside sales consultants, sell up to 9,800 professionally branded products including Paul Mitchell, Wella, Sebastian, Goldwell, and TIGI which are targeted exclusively for professional and salon use and resale to their customers.  For more information about Sally Beauty Holdings, Inc., please visit sallybeauty.com.

Cautionary Notice Regarding Forward-Looking Statements

Statements in this news release and the schedules hereto which are not purely historical facts or which depend upon future events may be 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.  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 or to manage 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 beauty supply 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; the operational and financial performance of our Armstrong McCall, L.P. business; the

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success of our new Internet-based business; successfully identifying acquisition candidates or successfully completing desirable acquisitions; integrating businesses acquired in the future; opening and operating new stores profitably; the impact of a continued downturn in the economy upon our business; the success of our cost control plans; protecting our intellectual property rights, specifically our trademarks; conducting business outside the United States; disruption in our information technology systems; natural disasters or acts of terrorism; 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; 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 representativeness of our historical consolidated financial information with respect to our future financial position, results of operations or cash flows; our reliance upon Alberto-Culver for the accuracy of certain historical services and information; the share distribution of Alberto-Culver common stock in our separation from Alberto-Culver not constituting a tax-free distribution; actions taken by certain large shareholders 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.

Additional factors that could cause actual events or results to differ materially from the events or results described in the forward-looking statements can be found in our most recent Annual Report on Form 10-K for the year ended September 30, 2008, as filed with the Securities and Exchange Commission.  Consequently, all forward-looking statements in this release are qualified by the factors, risks and uncertainties contained therein.  We assume no obligation to publicly update or revise any forward-looking statements.

Note Concerning Non-GAAP Measurement Tools

We have provided detailed explanations of our non-GAAP financial measures in our Form 8-K filed this morning, which is available on our website.

Supplemental Schedules
Consolidated Statement of Earnings	A
Segment Information	B
Non-GAAP Financial Reconciliations	C
Store Count and Same Store Sales	D
Selected Financial Data and Debt	E

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Supplemental Schedule A

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,								Nine Months Ended June 30,
	2009			2008			% CHG		2009			2008			% CHG
Net sales	$	673,337		$	676,830		-0.5	%	$	1,960,424		$	1,975,963		-0.8	%
Cost of products sold and distribution expenses	355,492			361,764			-1.7	%	1,036,923			1,056,304			-1.8	%
Gross profit	317,845			315,066			0.9	%	923,501			919,659			0.4	%
Selling, general and administrative expenses (1)	223,982			226,673			-1.2	%	667,930			672,303			-0.7	%
Depreciation and amortization	11,642			11,806			-1.4	%	34,860			35,379			-1.5	%
Operating earnings	82,221			76,587			7.4	%	220,711			211,977			4.1	%
Interest expense, net (2) (3)	31,050			29,889			3.9	%	102,692			124,015			-17.2	%
Earnings before provision for income taxes	51,171			46,698			9.6	%	118,019			87,962			34.2	%
Provision for income taxes	19,682			17,339			13.5	%	45,876			31,864			44.0	%
Net earnings	$	31,489		$	29,359		7.3	%	$	72,143		$	56,098		28.6	%
Net earnings per share:
Basic	$	0.17		$	0.16		6.3	%	$	0.40		$	0.31		29.0	%
Diluted	$	0.17		$	0.16		6.3	%	$	0.39		$	0.31		25.8	%
Weighted average shares:
Basic	181,715			181,268					181,658			181,132
Diluted	183,748			182,837					183,183			182,775
							Basis Pt Chg								Basis Pt Chg
Comparison as a % of Net sales
Sally Beauty Supply Segment Gross Profit Margin	51.7		%	51.0		%	70		51.9		%	51.2		%	70
BSG Segment Gross Profit Margin	39.0		%	39.0		%	0		38.6		%	38.6		%	0
Consolidated Gross Profit Margin	47.2		%	46.6		%	60		47.1		%	46.5		%	60
Selling, general and administrative expenses	33.3		%	33.5		%	(20	)	34.1		%	34.0		%	10
Operating Margin	12.2		%	11.3		%	90		11.3		%	10.7		%	60
Net Earnings Margin	4.7		%	4.3		%	40		3.7		%	2.8		%	90
Effective Tax Rate	38.5		%	37.1		%	140		38.9		%	36.2		%	270

(1)Selling, general and administrative expenses include share-based compensation expense of $1.6 million and $1.5 million for the three months ended June 30, 2009 and 2008; and $6.8 million and $8.7 million for the nine months ended June 30, 2009 and 2008, respectively.

(2)Interest expense, net of interest income of $0.1 million and $0.2 million, includes non-cash income from marked-to-market adjustments for certain interest rate swaps of $2.5 million and $7.6 million for the three months ended June 30, 2009 and 2008, respectively.

(3)Interest expense, net of interest income of $0.3 million and $0.6 million, includes non-cash income from marked-to-market adjustments for certain interest rate swaps of $1.7 million and non-cash expense of $6.6 million for the nine months ended June 30, 2009 and 2008, respectively.

Supplemental Schedule B

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Segment Information

(In thousands)

(Unaudited)

	Three Months Ended								Nine Months Ended
	June 30,								June 30,
	2009			2008 (1)			% CHG		2009			2008 (1)			% CHG
Net sales:
Sally Beauty Supply	$	434,732		$	427,965		1.6	%	$	1,257,607		$	1,243,594		1.1	%
Beauty Systems Group	238,605			248,865			-4.1	%	702,817			732,369			-4.0	%
Total net sales	$	673,337		$	676,830		-0.5	%	$	1,960,424		$	1,975,963		-0.8	%
Operating earnings:
Sally Beauty Supply	$	76,748		$	73,021		5.1	%	$	212,413		$	212,665		-0.1	%
Beauty Systems Group	25,632			21,827			17.4	%	66,227			60,799			8.9	%
Segment operating earnings	$	102,380		$	94,848		7.9	%	$	278,640		$	273,464		1.9	%
Unallocated corporate expenses (2)	(18,555		)	(16,754		)	10.7	%	(51,130		)	(52,770		)	-3.1	%
Share-based compensation	(1,604		)	(1,507		)	6.4	%	(6,799		)	(8,717		)	-22.0	%
Interest expense, net of interest income	(31,050		)	(29,889		)	3.9	%	(102,692		)	(124,015		)	-17.2	%
Earnings before provision for income taxes	$	51,171		$	46,698		9.6	%	$	118,019		$	87,962		34.2	%
							Basis Pt Chg								Basis Pt Chg
Segment operating profit margin:
Sally Beauty Supply	17.7		%	17.1		%	60		16.9		%	17.1		%	(20	)
Beauty Systems Group	10.7		%	8.8		%	190		9.4		%	8.3		%	110
Consolidated operating profit margin	12.2		%	11.3		%	90		11.3		%	10.7		%	60

(1)   Certain amounts for prior periods have been reclassified to conform to the current year presentation.

(2)   Unallocated expenses consist of corporate and shared costs.

Supplemental Schedule C

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Non-GAAP Financial Reconciliations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended June 30,								Nine Months Ended June 30,
	2009			2008			% CHG		2009			2008			% CHG
Adjusted EBITDA:
Net earnings (per GAAP)	$	31,489		$	29,359		7.3	%	$	72,143		$	56,098		28.6	%
Add:
Depreciation and amortization	11,642			11,806			-1.4	%	34,860			35,379			-1.5	%
Share-based compensation (1)	1,604			1,507			6.4	%	6,799			8,717			-22.0	%
Interest expense, net of interest income (2) (3)	31,050			29,889			3.9	%	102,692			124,015			-17.2	%
Provision for income taxes	19,682			17,339			13.5	%	45,876			31,864			44.0	%
Adjusted EBITDA (Non-GAAP)	$	95,467		$	89,900		6.2	%	$	262,370		$	256,073		2.5	%
Net earnings (per GAAP)	$	31,489		$	29,359				$	72,143		$	56,098
Add (Less):
Marked-to-market adjustment for certain interest rate swaps	(2,507		)	(7,626		)	-67.1	%	(1,714		)	6,634			-125.8	%
Tax provisions for the marked-to-market adjustment (4)	1,003			2,745			-63.5	%	686			(2,388		)	-128.7	%
Adjusted net earnings, excluding the interest rate swaps (Non-GAAP)	$	29,985		$	24,478		22.5	%	$	71,115		$	60,344		17.8	%
Adjusted net earnings per share (Non-GAAP):
Basic	$	0.17		$	0.14		21.4	%	$	0.39		$	0.33		18.2	%
Diluted	$	0.16		$	0.13		23.1	%	$	0.39		$	0.33		18.2	%
Weighted average shares:
Basic	181,715			181,268					181,658			181,132
Diluted	183,748			182,837					183,183			182,775

(1)Share-based compensation for the nine months ended June 30, 2009 and 2008 includes $2.0 million and $3.1 million, respectively, of accelerated expense related to certain retirement-eligible employees who are eligible to continue vesting awards upon retirement.

(2)Interest expense, net of interest income of $0.1 million and $0.2 million, includes non-cash income from marked-to-market adjustments for certain interest rate swaps of $2.5 million and $7.6 million for the three months ended June 30, 2009 and 2008, respectively.

(3)Interest expense, net of interest income of $0.3 million and $0.6 million, includes non-cash income from marked-to-market adjustments for certain interest rate swaps of $1.7 million and non-cash expense of $6.6 million for the nine months ended June 30, 2009 and 2008, respectively.

(4)The tax provisions for the marked-to-market adjustments were calculated using an effective tax rate of 40.0% for the three and nine-month periods ended June 30, 2009 and 36.0% for the three and nine-month periods ended June 30, 2008.

Supplemental Schedule D

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Store Count and Same Store Sales

(Unaudited)

	As of June 30,
	2009		2008		CHG
Number of retail stores (end of period):
Sally Beauty Supply:
Company-operated stores	2,853		2,776		77
Franchise stores	26		25		1
Total Sally Beauty Supply	2,879		2,801		78
Beauty Systems Group:
Company-operated stores	779		744		35
Franchise stores	163		171		(8	)
Total Beauty System Group	942		915		27
Total	3,821		3,716		105
BSG distributor sales consultants (end of period) (1)	931		970		(39	)
					Basis Pt Chg
Third quarter company-operated same store sales growth (2)
Sally Beauty Supply	3.2	%	2.1	%	110
Beauty Systems Group	0.6	%	7.2	%	(660	)
Consolidated	2.6	%	3.4	%	(80	)

(1)As of fiscal 2009 first quarter the definition of a full-time sales consultant was standardized across BSG and the franchises.  The number of full-time equivalent sales consultants in the franchise business reflects this change for the periods ending June 30, 2009 and 2008.  This change does not impact the results of operation. Distributor sales consultants as reported by franchisees are 298 and 313 as of June 30, 2009 and 2008, respectively.

(2)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, and includes internet-based sales for the period ended June 30, 2009.  Our internet site has generated sales for at least 14 months and, accordingly, effective as of the fiscal 2009 first quarter, internet-based sales are included in same store sales.

Supplemental Schedule E

SALLY BEAUTY HOLDINGS, INC. AND SUBSIDIARIES

Selected Financial Data and Debt

(In thousands)

(Unaudited)

	June 30, 2009			September 30, 2008
Financial condition information (at period end):
Working capital	$	420,459		$	367,198
Cash and cash equivalents	105,942			99,788
Property and equipment, net	149,096			156,260
Total assets	1,464,897			1,527,023
Total debt, including capital leases	1,697,117			1,825,285
Total stockholders’ (deficit) equity	$	(650,695	)	$	(702,960	)

	As of
	June 30, 2009		Interest Rates
Debt position excluding capital leases (at period end):
Revolving ABL Facility	$	0	Prime + up to 0.5% or LIBOR + 1-1.5%
Senior Term A Loan (1)	105,407		Prime + 1-1.5% or LIBOR + 2-2.5%
Senior Term B Loan (1)	883,449		Prime + 1.25-1.5% or LIBOR + 2.25-2.5%
Other (2)	2,677		4.05% to 7.0%
Senior Notes	430,000		9.25%
Senior Subordinated Notes	275,000		10.50%
Total debt	$	1,696,533
Debt maturities excluding capital leases
FY2009	$	864
FY2010	1,364
FY2011	39,640
FY2012	84,520
FY2013	9,390
Thereafter	1,560,755
Total debt	$	1,696,533

(1) Interest rates on $650.0 million of these loans are fixed by interest rate swaps which expire between November 2009 and May 2012.

(2) Represents pre-acquisition debt of Pro-Duo, N.V.

EX-99.2

Exhibit 99.2

Investor Q&A

What did Sally Beauty Holdings, Inc. announce?

The Company announced that L’Oreal has filed an amended complaint in connection with the previously disclosed lawsuit against franchisees of AMLP and AMLP, among others.  The new complaint alleges, among other things, that AMLP and certain of its employees and others were involved in selling Matrix branded products to unauthorized buyers and that certain of its employees (and others) engaged in improper business transactions for personal benefit during 2005 through 2007.  None of the employees involved in the allegations are executive officers of the Company.  L’Oreal seeks money damages, certain injunctive relief and a declaration that L’Oreal is entitled to terminate the 1981 Matrix Distributor Agreement now in effect between L’Oreal and AMLP.

What has Sally Beauty Holdings done to investigate these allegations?

As a result of allegations, the Audit Committee of the Board of Directors of the Company engaged independent special counsel to investigate whether certain employees engaged in improper business transactions for personal benefit.  After extensive review by the independent special counsel, the Audit Committee and independent special counsel found insufficient evidence to support a conclusion that Company employees entered into improper transactions for personal benefit.  The Company intends to file its response to the Second Amended Complaint and to vigorously defend itself in the lawsuit.

Are L’Oreal products still going to be available through Armstrong McCall?

Yes.  Armstrong McCall retains its exclusive rights to distribute Matrix products in its territories.

Are L’Oreal products still going to be available through BSG/Sally Beauty Supply stores?

Yes. L’Oreal professional products will remain available in BSG stores that currently carry these products.  Sally Beauty Supply stores, which carry a different selection of L’Oreal products from those carried in BSG or AMLP stores, are not impacted by these developments.

What are your next steps?

The Company intends to file its response to the Second Amended Complaint and to vigorously defend itself in the lawsuit. AMLP intends to conduct its normal business pending the resolution of the litigation.

What is the anticipated financial impact of these developments on your 2009 financials?

We currently expect no material impact on our financial statements.  Pending resolution of the litigation, we expect to continue to incur legal fees related to the litigation and have planned accordingly.

How much in sales does Matrix represent for Armstrong McCall?

Over the last couple of years, Matrix sales as a percent of overall sales have declined at Armstrong McCall.  Sales of Matrix through Armstrong McCall were $8.2 million during the quarter ended June 30, 2009, representing approximately 3% of BSG’s sales for the third quarter of fiscal 2009.

Cautionary Notice Regarding Forward-Looking Statements

Statements in this filing and the exhibit hereto which are not purely historical facts or which depend upon future events may be 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.  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 or 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 beauty supply 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; the operational and financial performance of our Armstrong McCall, L.P. business; the success of our new Internet-based business; successfully identifying acquisition candidates or successfully completing desirable acquisitions; integrating businesses acquired in the future; opening and operating new stores profitably; the impact of a continued downturn in the economy upon our business; the success of our cost control plans; protecting our intellectual property rights, specifically our trademarks;

conducting business outside the United States; disruption in our information technology systems; natural disasters or acts of terrorism; 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; 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 representativeness of our historical consolidated financial information with respect to our future financial position, results of operations or cash flows; our reliance upon Alberto-Culver for the accuracy of certain historical services and information; the share distribution of Alberto-Culver common stock in our separation from Alberto-Culver not constituting a tax-free distribution; actions taken by certain large shareholders 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.

Additional factors that could cause actual events or results to differ materially from the events or results described in the forward-looking statements can be found in our most recent Annual Report on Form 10-K for the year ended September 30, 2008, as filed with the Securities and Exchange Commission.  Consequently, all forward-looking statements in this release are qualified by the factors, risks and uncertainties contained therein.  We assume no obligation to publicly update or revise any forward-looking statements.

Appendix A

USE OF NON-GAAP FINANCIAL MEASURES

The Company occasionally utilizes financial measures and terms not calculated in accordance with generally accepted accounting principles in the United States (“GAAP”) in order to provide investors with an alternative method for assessing our operating results in a manner that enables investors to more thoroughly evaluate our current performance as compared to past performance.  We also believe these non-GAAP measures provide investors with a more informed baseline for modeling the Company’s future financial performance.    Our management uses these non-GAAP measures for the same purpose.  We believe that our investors should have access to, and that we are obligated to provide, the same set of tools that we use in analyzing our results.  These non-GAAP measures should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results.  We have provided definitions below for certain non-GAAP financial measures, together with an explanation of why management uses these measures and why management believes that these non-GAAP financial measures are useful to investors.  In addition, in our Earnings Release we have provided tables to reconcile the non-GAAP financial measures utilized to GAAP financial measures.  We have provided adjusted net earnings and adjusted EPS metrics solely for the purpose of adjusting for non-cash interest expense or income from mark-to-market changes in the fair value of the Company’s interest rate swaps.  Excluding this non-cash mark-to-market adjustment provides investors with a better depiction of the Company’s core operating results and provides a more informed baseline for modeling future earnings expectations. We intend to adjust for all share-based compensation expense recognized in accordance with FAS 123R, including stock option expense and expense related to restricted shares, when calculating certain cash flow measures such as Adjusted EBITDA.  The Company believes adjusting for all share-based compensation expense is appropriate, as it is a non-cash expense, and adjusting is consistent with how a number of debt and equity analysts track that measure.

ADJUSTED EBITDA

We define the measure Adjusted EBITDA as GAAP Net Earnings before depreciation and amortization, share-based compensation, interest expense, and income taxes.   Our management uses Adjusted EBITDA as a supplemental measure in the evaluation of our businesses and believes that Adjusted EBITDA provides a meaningful measure of our ability to meet our future debt service, capital expenditures and working capital requirements.  Adjusted EBITDA is not a financial measure under GAAP.  Accordingly, it should not be considered in isolation or as a substitute for net income, operating income, cash flow provided by (used in) operating activities or other income or cash flow data prepared in accordance with GAAP.  When evaluating Adjusted EBITDA, investors

should consider, among other factors, (i) increasing or decreasing trends in Adjusted EBITDA, (ii) whether Adjusted EBITDA has remained at positive levels historically, and (iii) how Adjusted EBITDA compares to levels of interest expense. We provide a reconciliation of Adjusted EBITDA to GAAP Net Earnings.  Because Adjusted EBITDA excludes some, but not all, items that affect net earnings and may vary among companies, the Adjusted EBITDA presented by the Company may not be comparable to similarly titled measures of other companies.   Although we believe that Adjusted EBITDA may provide additional information with respect to our ability to meet our future debt service, capital expenditures and working capital requirements, our functional or legal requirements may require us to utilize available funds for other purposes.

ADJUSTED NET EARNINGS

This measure consists of GAAP Net Earnings, which is then adjusted solely for the purpose of adjusting for non-cash interest expense or income from marked-to-market changes in the fair value of the Company’s interest rate swaps.  Excluding this non-cash marked-to-market adjustment provides investors with a better depiction of the Company’s core operating results and provides a more informed baseline for modeling future earnings expectations.  We recommend a review of net earnings on both a non-GAAP basis and GAAP basis be performed to get a comprehensive view of our results.  We provide a reconciliation of Adjusted Net Earnings to GAAP Net Earnings.

ADJUSTED EARNINGS PER SHARE (ADJUSTED EPS)

We define this non-GAAP financial measure as the portion of the Company’s GAAP Net Earnings assigned to each share of stock, excluding non-cash interest expense or income from marked-to-market changes in the fair value of the Company’s interest rate swaps.  Excluding this non-cash marked-to-market adjustment provides investors with a better depiction of the Company’s core operating results and provides a more informed baseline for modeling future earnings expectations.  We recommend a review of diluted EPS on both a non-GAAP basis and GAAP basis be performed to get a comprehensive view of our results.  We provide a reconciliation of Adjusted Net Earnings to GAAP Net Earnings, as well as information on how these share calculations are made.