Sally Beauty Holdings, Inc. (SBH) Earnings Call Transcript & Summary

Simeon Gutman, Morgan Stanley's hardline/broadline and food retail analyst. And it's my pleasure to welcome Sally Beauty to this virtual fireside chat. I'm joined by CEO, Chris Brickman; Sally Beauty's new CFO, Marlo Cormier; and Jeff Harkins, VP of IR. I'm just going to read a quick disclaimer, if I can find it, and before we begin, and then we'll jump right into questions. Please be aware, there is a webcast running side by side. I can see the questions as they come through. So feel free to bring them, to send them, and I can ask the management. The disclaimer. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures, one word. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, thanks again, Chris and Marlo for being here.

My first question, Chris, can you talk about sort of a COVID overview of 2020, what's the experience been like through COVID-19 year-to-date?

Yes. I originally told my team that I should write a book of 90 days in the crucible as we got into it early in March. But listen, for us, the intensity of it began in March. The first thing we did early on was about the 10th or 11th of March, we had just started same-day delivery and ship from store, and we hadn't tested it thoroughly. We planned on testing it for a few months and then rolling it out. But we made the decision to roll it out untested in the event that stores were shut down. By the 26th of March, we had shut down all of our stores, and we were deep into furloughing all of our team, going through aggressive cost and cash management, shutting down all of our warehouse stocks to make -- and turning around all the trucks to go back. And of course, Marlo was engaged in making sure our liquidity was appropriately bolstered both in terms of drawing down our line of credit as well as issuing an additional bond during the process. And by middle of April then, e-commerce sales skyrocketed, and we saw intense demand. We use ship from store and same-day delivery to make up for the fact that the demand was so high, it exceeded our capacity to deliver. Then our stores started to come back online, really at early May was the time they started to come back online. As they did, we saw elevated levels of demand, all of them got back online by -- or the vast majority by mid-June to late June. And that as we were operating our stores, we saw a surge in demand. Euphoria, if it will, as people busted back out and got their color done either at a salon or at Sally. And then, of course, we have the second wave in July, where salons were shut down again in California as there were increases in cases. There was kind of shifting consumer behavior around that. And we reported a pretty solid fourth quarter, as you know, through all that with significant increases in margin and -- but some choppiness in demand as consumers went through the second wave. And now we're in the third wave, which is the -- kind of the accelerating case counts as those cases in mid-October, there were 66,000 cases a day. Now we're at 180,000 cases a day and growing. And so it's this last surge before the vaccines are most likely available. And of course, that's having -- there was a second shutdown in Europe, U.K. and French stores. Some regional shutdowns or restrictions in the U.S., but nothing major. But of course, we're seeing dramatic changes in behavior right now as the consumers hunker down to get to the point in time when the vaccine is finally available.

So just a little bit of a loaded question, and we're going to talk about pickup in store or ship from store at some point. But if you reflect back on what 1 or 2 things you wish you had in place sort of pre-pandemic, obviously, you couldn't have predicted what this was. But what could you have had in place that could have made the experience, even, I guess, I don't know, more impactful or beneficial for Sally Beauty?

No. It would have been nice to have had 2 or 3 months of optimizing ship from store and same-day delivery to really refine it before we had and just turn it on nationwide. That would have been the biggest. The truth is I'm not sure we would have been allowed to do BOPUS in the first wave. Because in the first wave, when they shut down our stores, they were demanding that nobody be in the stores at all. And so you can't really do BOPUS because there's nobody there to process -- pick the order for the customer. So in the second wave, what we're finding is that the local authorities are allowing BOPUS and curbside and all those things, but not necessarily true across the board in the first wave. So I think the biggest thing would have been more time to test and really get shipped from store and same-day delivery refined before we turned it on nationwide.

So transformation and change, I think, particularly at Sally Beauty Supply. Chris, this is something you've been working on over time. Can you just lay to set the foundation for what are like the fundamental pieces of change and what are the sort of competencies you're trying to build, and when and the timing and when do those get completed?

Well, they're mostly done. And if you go back 3 years and really look at the full kind of mortgage board of everything we've done, it had to be a soup to nuts process, right? So the -- actually, we started with a major cost takeout program in order to fund the investments we wanted to make in our business. We've done -- we've replaced our financials, our Oracle financials, we've replaced our CRM system, we've replatformed our Sally website, our BSG website is coming. We've replaced our customer relationship management platform with Demandware and with Salesforce. We've replaced our loyalty program or relaunched that. We've launched our private label credit card program, and we've launched JDA. We've stood up a North Texas facility. So we've kind of done all the big heavy lifting. And now what's happening is we're commercializing that. So we're commercializing the private label credit card and rolling it out now. We're commercializing buy online, pick up in-store. We're scaling the JDA program across all of our warehouses in the coming months and quarters. And so we're at those final throes. And what we're really doing is saying, listen, now is our time to focus in our core, which is color. We got to grind it out 1 color customer at a time, both DIY, color for the Sally side and professional color on the BSG side. And then we're using all these technology capabilities to really enable convenient service models. And then the final thing we built around that was a new team. We built a digital marketing team, a digital commerce team, a really top-notch marketing team period. So we've really added capability and depth to the team in a way that can really use all these new tools. So it's been a soup to nuts and sometimes disruptive process that is -- the dust of it are done. And now it's about commercializing those things and serving our customers.

Got it. We got an early question from the audience. So I'm going to ask it because it ties into sort of the theme of COVID and changes. The question is, which COVID changes do you think could be structural going forward? And these are just some examples, Chris. And I'm curious if you want to add a few to the mix. But these examples, discovery of beauty innovation online, higher e-commerce of replenishment products, anything else? And how significant are these to the -- could be to the top line of the business?

Well, I'm going to add a few actually because I'm not sure those are the biggest ones to us. I think one of the biggest ones is DIY and the trend towards DIY. And there's DIY beauty, in general, for us, it's really DIY color, maybe DIY nails. But there's a lot of interest in people learning how to do things themselves. I think there's another one around just self-expression and experimentation. We're seeing huge increases in vivid color sales in both businesses, but especially in Sally. And there's just a freedom to experiment with your look in hair that just wasn't there before in purples, pinks, blues, yellows. To give you some example of the scale of this, vivid would have been middle to high-teens percent of our color business 2 years ago, and now it's 30% of our color business. So it's really dramatically changed that willingness to experiment. Obviously, the digital and the rush to digital is a huge trend. And luckily, we've been building towards that and investing in that. That one has already been happening, it just got a kick start another 3 or 4-year kick start. And that's a major -- so I think the other big one for us, and I don't know if this is a trend, it was just an opportunity. We pulled the needle out on promotional activity completely. And really said, listen, we're about teaching customers how to use color at home, professional color or how to convert and use a new color line. And you don't win customers in that model by promoting. And so we stopped dealing and promoting and renting customers for short periods of time in noncore categories. And we're very, very focused on recruiting our core color customers, and then they'll buy the other categories when they visit our stores or websites. And that's obviously driving significant margin increases as we focus more on what we need, the core of the business.

Got it. Okay. I wanted to ask about -- as you've executed this transformation and it seems like both sides of the house have gotten some attention. Can you talk about the changes that are occurring or not as far as the customer type? Either broadening out the customer, the core customer, the age, the product mix. I think -- I mean the vivid is a good near-term example, but curious if there's been other ships. And then the channels, and if you can just also paint the picture of the channels of which -- how much is online in each of the segments today.

Yes. So our average online is about 7% across the whole company, that's where we were in the fourth quarter. Sally is probably a little below that, BSG is closer to that, Europe is above that, especially the U.K. The reality is there's been a really interesting change in both businesses. So if you look at the history of Sally, the history was -- the majority customer was a gray coverage customer. And that tends to be an older customer, and then there was blonding, and then there was a small vivid color customer. What we're seeing now is that the gray coverage customer is still coming, in fact, there's more of them as they -- some learn are afraid to go back to the salon. But we're really seeing the growth with Gen Z, younger customers who are doing vivid. And so we like it because what that's doing is it's teaching a next generation of customers that Sally is all about hair color, that we have all the tools and resources to teach you how to do color at a very young age. And then they may move into blonding or highlights, and then eventually, they'll get to gray coverage someday. So in our mind, it's a great way to recruit the next generation of customer. On the BSG side, the disruption is different. Because of all the restrictions being imposed on salons in their ability to operate and just the economic impact on salons, we're seeing a huge amount of fragmentation. And so big salons are breaking apart, they're having to operate with fewer stylists, and then those stylists have to go find a new home. And they either land in a suite, where they rent a suite, which was a trend that was already happening, but it's just being accelerated by the virus. Or they're landing in a small salon or they may in the future land in their own salon. And so what we're having to do is really enable our DSCs, and the team calls it the digital DSC, to go out and really connect with those local communities even though they're more fragmented. And so we're hosting a lot of events that are Zoom call events where we bring a celebrity stylist to our artistic team member into an event, teach them about new color lines, new treatments, new products and then use that as a way of connecting them. And obviously, this is a great time to be launching our rewards credit card there as well. Because it's allowing us to also, as they sign up, we're seeing great traction with that card with the stylist community, I think because of the 3% cash back and the value of that to them. And as they sign up then, it's giving us a way to connect with them, see their baskets, see what they're buying and then make them much more relevant offers. So in my mind, this is disrupting a lot of life, some things are going to go back to normal. A great example is we reported color sales in Sally last quarter, up 22%. Meanwhile, there's other categories like hair extensions and styling aids and styling tools that are significantly down because as people aren't going out, they're not buying those things. And I think what you'll see is color is going to continue to be a grower, but it's not going to grow 22%. But you're also going to see those other categories come back because as beauty enthusiasts gets back to normal lifestyle, they'll begin to style their hair again and curl their hair again and do other things that they would have done normally that they just aren't doing now because they're not going to parties and bars and things like that. So it's a very disruptive event, but honestly, it's allowing us to grow the core and recruit new customers into the core, which will benefit us long term.

You mentioned the salon suites. And I want to ask about BSG. And that business -- I mean a slight history lesson, so I'll date myself, but when I started covering Sally Beauty, booth renting was up and coming. They were still wholly-owned salons and you had a much bigger sales force. We went to booth renting, which seems like it's been very favorable for the business, right, breaking up the purchase and then having the store fleet. I wouldn't think there's anything secularly harmful around that shift. Then the suites and now these fully contained salon suites that are developing at least in some parts of this country. Is there anything that changes the stylist purchase in the suite environment?

There are some impacts. But the first biggest impact is they tend to be a store customer. So they tend not to get a DSC visiting. They tend to be a store customer, which is a higher-margin channel for us. And it gives us a chance to sell them more products, obviously, when they visit. That's the biggest thing. Now the other thing that happens is as they break apart from big salons, it's very possible that they may have been tied to a certain color line where that salon bought -- and I'm just going to pick a number. I'm picking a competitor because I want to. They may have been L'Oreal salon, and they were only using, therefore, L'Oreal color in the salon. And as they then become a free agent, then they are, a, they will be sticky, but at the same time, there is more of an opportunity to convert them and get them to try others. And what we're seeing is that stylists in general are going to use about 2 color lines, maybe 2.5. 1 of those is probably a vivid line for the people who want to have more crazier or fantasy colors. And it just -- I think it creates more opportunity for us to grab some market share when it was previously locked up or even in some cases, it would shift directly from the manufacturer.

Got it. And do you think -- and do you see it as the movement towards suites is the trend and that is the direction that the industry is going in? Or is it...

I think it's going to be that way for a while. Although I do think in about a year, maybe 9 months, I think there's going to be a lot of smaller new salons open up as some of these stylists, who were disenfranchised, who have a little bit more money will come and open their own as well. But I do think suites is going to be a winning platform and avenue for stylists.

Right. And there isn't a chance that this comes full circle in which the salon suites end up can do centralized buying again. It's been -- it's broken up, it's bifurcate, it's going to stay that way or could somebody's suites end up saying, hey, we can buy and use our scale again. I know it would come full circle, but I'm just throwing out it there.

Yes. No, I get it. But the issue is you've got so many different stylists who want so many different products. It's really hard for them to consolidate that purchase. And because they can't -- unlike a salon where you can force the stylists that work for you to use the color line you want them to use, you can't do that as a suite.

Got it. Jumping across into a financial question. Growth algorithm for SBS, BSG, top line and then some type of sustainable margin or EBIT, or it's EBIT dollar growth, whether it's a margin. Curious if you can talk about it broadly.

I'll do it broadly. I can't give long-term guidance, obviously, yet. We're not ready for that. What I'd say is this, which is, again, go back to that model of winning customers one at a time. Not buying or renting customers, but winning them one at a time. That means teaching DIY color customers how to do pro color at home and converting stylists to new color lines when they're very sticky. That's a -- you build the core and then they buy the other categories when they're in your store or on your site. That is not a high-growth model. But I do think it's a low single digits growth model, and we're really good at it. And we're geared toward it, and you're going to see all of our marketing dollars, digital DSC investments, go towards that process of winning it one at a time. Now if you have then kind of low single digits growth, I think you're going to have this higher level of margin is our new normal. And then there's some opportunity to grow off that as you get mix shift towards color. And obviously, then I think there'll be some labor inflation on the bottom line we'll have to offset. We can probably get some of that with price increases because there tends not to be much price elasticity in these categories. And then finally, there's going to be an awful lot of cash that's kind of come off that's going to allow us to either pay down debt and reduce interest expense or buy back shares and increase EPS. And I think that's kind of the way the financial model works. It's going to be grounded in the beginning. Part of the engine of the train is that day in, day out recruitment and education of customers to learn how to do DIY color at home, pro color at home and convert stylists one at a time. Marlo, is there anything you'd add to that?

No. I think within the margin structure, one of the fundamental changes that we touched on was our change in promotional strategy. So I think that is foundational, and we saw it take shape around kind of into Q3 for sure. I know that was a complicated quarter. If you go back and look at it, there was a lot of clearance activity. But when you peel it back, you saw some really strong low 50% margins. We saw that hold in Q4, and we're still continuing that strategy. So I think with that fundamental shift and all the things that Chris just described, I think we're set up for a really profitable growth long term.

Can I ask you, Chris or Marlo, are you gearing to provide some type of framework at some point? And is it you want to get through '21, which will be an interesting lab for a lot of retailers? But when might you decide to provide that framework?

Yes. It's probably sooner than 2022, it's probably somewhere middle of this year. I think we want to get through the remainder of the pandemic and kind of have that choppiness and uncertainty behind us, and then we can really begin to get the metrics right around how should you be looking at our business and evaluating success.

Great. I want to ask you about the store fleet for SBS. I was going to ask it, Chris, very generically, how do you think about it in relation to e-commerce? Maybe the nuance to the question is because you're utilizing the stores, and that's a newer part of your supply chain now and part of the business model, do you think your answer on what the store fleet size should look like could change?

Yes, I do because I think the customer is going to tell us what they want. We're launching BOPUS. We've launched same-day delivery at BSG. We've launched ship from store. At Sally, we'll launch ship from storage at BSG, and we'll also launch a delivery -- a local delivery service model tied to BOPUS at Sally through a Postmates or somebody like that, that we already use at BSG, where you'll be able to get it same-day that afternoon for a small fee. And when all those are out there, I think you're going to see customers tell you what they want. If they shift dramatically towards that, it's great for our e-commerce economics, by the way, because we don't have to pay the delivery expense. But what it really then says is that your local store is a really essential part of your omnichannel delivery model. It's part of you getting the product to the customer fast. So as I mentioned, early on before this -- when you and I were chatting ahead of time, we see 95% of our BOPUS orders being picked within 1 hour. Wow, a customer can order and have a product available at the store they can pick up in an hour, or we could give it to a Postmates and probably have it at their house in a couple of hours. And if that's the future of what this model is going to look like, that's a really convenient model that a lot of customers are going to want. If the majority of customers choose one of those models, then the stores are essential to the delivery framework and to servicing that. And so we're just going to put the delivery service models up. They'll all be stood up by Sally is mostly there with the exception of the local delivery option, BSG will get there by March. And when all that's done, we're going to let the customer tell us how do they want to leverage and access our inventory and what's the best service model for them. And that will really affect our store fleet choices.

Right. Right. So you're keeping it open-minded far as what it could look like. I mean it could shrink, it may not, I think. Is that a fair way to describe it?

I think that's a fair way to describe it.

Right. Okay. And I don't know if this has come up much. But is rent, I guess, as a good guide for you or is it a nonevent, and knowing that the stores are, in theory, becoming a little more important as part of the supply chain?

Listen, I think, as you can imagine, in a model like ours where we have mostly 5-year leases, in fact, virtually all 5-year leases and 750 to 800 coming up a year, we have a great opportunity to either leverage the situation to negotiate rent discounts or to move stores into better traffic areas and get better leverage of our stores without having to pay a premium for that, that we would have had to pay in the past. So we'll be looking at both of those opportunities. And my guess is either way, being a profitable retailer in a disrupted environment is a good thing.

Yes. Makes sense. One from the webcast, what are your metrics for recurring revenues through SBS and BSG? And I think, Chris, I don't know, maybe I'll restate it, is, I guess, how do you measure recurring revenue at either of those formats?

And I won't get down to specifics right here, right now because we want to develop these metrics over time and share them with the -- and use them as better benchmarks. But it's all going to come down to that measuring that loyal color customer. So in Sally, how do you measure the person who comes on a regular basis to either buy their gray coverage, buy their vivid colors, their blonding products? And that continues to repeat because once you've got them in buying that, they're stuck. And there's really no place else for them to go. And the same is true on the BSG side. It's probably a higher level of frequency because if you're running a salon, you -- a lot of those customers visit every week, in some cases, if not minimum twice a month. And those customers at BSG, once we know we've got them under an exclusive color line that they can't buy any place else, we know we've got that business, and we can grow it and add-on to the basket. So we're going to be tying it more to those core customer-related metrics. We'll figure those what's the right way to benchmark that over time. But that's really the proof is in the pudding of are you growing the healthy, profitable long-term business.

And then can you just remind me and the audience, is there a place in retail, physical retail that has a broader selection of pro color than Sally Beauty Supply?

There isn't really anybody that sells it other than us. I mean there are isolated local beauty supply houses that are one-off, two-off, small suppliers. Other than that, we're the only one that really sells pro color to consumers on a national basis. We actually have data from a public source that we're the largest seller of hair color to consumers in the United States, even bigger than Walmart. And they're selling only box color. Obviously, we're the only one really selling pro color for home use. Once consumers get into it, it is a technical leap for them to believe they can do it. Once they're there, they're stuck. They're very much sticky and they're going to be there for the long term.

Great. Two from the webcast, I'm just going to preface that they're unrelated to the line of questioning. First, this is a balance sheet question. Can you talk about either pay down of debt, debt pay down or a share buyback that's been iterated? How do you balance those two? And what's the targeted debt leverage ratio near and long term?

Yes. So I'll recap kind of what we said in our past earnings calls, just to make sure we stay consistent. But as you know, we left last year with over $500 million of cash on the balance sheet. We had nothing outstanding on our ABL. So we have plenty of access to liquidity. So we do have a really strong balance sheet. The way we were thinking about going into this year, as Chris has mentioned, we expect it to be choppy. We're seeing that. And so it's really a matter of monitoring the situation. Some news more recently about vaccines is starting to turn positive. Hopefully, consumers are starting to get a little bit more optimistic, and that's basically what we've been waiting for. So we are monitoring the situation. Our stance on capital allocation has been to invest in the business. We have been focused on debt paydown. You saw us do that last year -- last quarter. And then we stay focused on that. Yes. The -- what we have been doing too is talking about investing in the business, not just the transformation, but also the inventory investments. We left last year too low. We commented on that. It was a combination of things, including some supplier disruption. We are investing back into that this quarter. We do expect to leave the quarter in a cash used position when you look at cash flow, but we do expect strong cash generation throughout the year, it's more back half loaded. So again, that all puts us in a great position to consider debt paydown, which we are monitoring the situation and very much focused on that. We have talked about a 2.5x leverage ratio. We still are targeting that. We're not far off, 2.8, 2.9 right now. So we will stay focused on that. But it puts us in a great position to also consider share repurchase. Again, we've looked at the stock price like you. We don't think it necessarily reflects the underlying fundamentals of our business and where our strategy going forward. So we will consider to opportunistically look at that. But again, we're in a bit of a monitoring situation, but it's starting to turn more optimistic, and we're seeing consumers starting to change their tone with more light. I think they're seeing light at the end of the tunnel now.

And related, actually balance sheet question, maybe this is from the webcast. And hopefully, I understand it right. When the company spoke to its net debt target, which I think you just spoke about the 2.5x, I think, it indicated net debt per its bank agreement allows a max of $100 million in cash against its gross debt. Is this the net debt figure investors should focus on per your focus to deleveraging the 2.5x EBITDA?

Yes. Yes. The $2.5 million is not with the $100 million restriction. That is purely a debt covenant. So if you read the 10-Ks and those sorts of things, you're going to see those numbers. But the 2.5 is a typical net debt calculation.

Perfect. And then this is a, I guess, a fourth quarter-related question. How sustainable is the recent pickup in gross margin?

Yes. Well that's, again, back to the commentary from Q4, very sustainable. We expect this to be the new normal. And if you think about the components of how we got there, it's really -- the biggest driver is the change in the [Audio Gap]

Glitch. I think hopefully, everyone stuck with us. I'll check that out in a second. I was in the process of getting -- we're getting an answer around the sustainability of gross margin. And I think that's where we've lost the last question. And we can, hopefully, in the next 10 minutes, pick that one up in the last few that we have. So if we...

I'll inexplicably say that we see the fourth quarter as our new normal. Based upon the change in promotional strategy and our approach, what Q4 was -- is kind of what we see as the new baseline.

Got it. Okay. That's helpful. Let me jump back. Okay, good. The audience is still here. Very nice. Great. So I wanted to ask about innovation, Chris. Is there -- at one point, this business used to be driven by it by hot products, et cetera. I don't know if it's as dependent any longer. You did mention a trend of vivid hair color. Is there any innovation loss in this period given the disruption over the last 9 months?

Maybe some, but we're still seeing -- there's a couple of big ones that are really growing fast. And let me start on the pro side. So I'd pick 3 or 4 on the pro side. So one is bonding. So Olaplex is a bonding product that treats the hair, usually post some sort of color or bleaching damage of some sort. And it has been growing fast and continues to grow globally, that's one. So bonding products. The other one is high lift lightener, so 9 level lighteners, and that may sound like Greek to some of your people listening to us. But effectively, it's lighteners that allow you to go all the way from dark brown or almost black to blond in one sitting, as opposed to having to do that in multiple treatments. And so high lift bonding added lighteners is growing fast. I would point to natural products. So things that are less bad for you and are natural in general are definitely growing better for the environment, usually things that have some sort of a charitable tie. Those are definitely growing. And then the last one would be vivid colors, is clearly been a long-term growing segment. So those 4 areas are where the innovation and the growth tends to be right now. We may add to that over time, but those are the ones that are driving growth right now.

Great. And maybe two in the BSG or professional arena. One, and this is from probably 1.5 years ago, the Amazon's entry into the pro arena, which it was a lot of hype. I don't know if it's had any type of impact, and we talked a lot about this over the last year. Just your thoughts on that competitive aspect. And then related to that, Chris, in BSG broadly, it seems like it's becoming less reliant on the sales force, or at least the stores are becoming a bigger complement or a bigger role. Is it harder or easier to differentiate yourself without a sales force?

So let me hit both of those because they're very different questions. So on the Amazon side, it's actually more like 4 years because they stood the website up like 3 or 4 years ago, then they did the big announcement about it 2 years ago. And no, it hasn't really gone anywhere. If you go look at the website, there's still no major color lines that are distributing through there. The color lines they are distributing through there are lines that are actually long since left the pro channel and are mostly in Sally today. And there are only a couple of them that are even in Sally. So the reality is it hasn't had much success. I don't think it's recruiting many stylists, and we don't really see it as a competitor at this point. I don't know whether they'll stick with it or not, but I think it was much to do about nothing for the most part. Then in terms of this change, you're correct. That as there's been this major fragmentation of stylists, more and more booth renting and suite renting, which has been going on for a long time. And of course, it's only going to be accelerated right now during -- as we come out of the crisis. There has been a shift to stores because there's been fewer big salons and more independent stylists. And they tended to buy through the stores. So I agree that, that's been a shift. I think we make more money doing that. But I do think that where we're going is enabling our DSCs to really be the point of the spear, and they call the -- the team calls it the digital DSC. And we're really going to be investing in the next 6 months to -- and we're doing it already, to enable them with technology that allows them to really host communities locally, to serve the customers differently, using better technology to tie to new delivery models, whether that's from a warehouse or from a store so they can get inventory to that customer on a much faster basis and improve the service model. So I think there is a very powerful role for the DSC community. And I think it's all about it becoming -- it's going to be different. It's going to be digitally enabled. They're going to be doing things like hosting local and regional Zoom calls where they bring in a celebrity or artistic team member stylist to teach a new technique. And then they use that as a way to build a new relationship and then go visit that stylist or salon at some point. So I think it's going to change and the way we service will change. But I think it's going to be a very powerful part of our business model because I think the stylists want it. And I think you're going to see -- we don't want to lose that personal touch completely and our ability to reach out to customers.

I want to shift gears pretty wildly and talk about marketing. Can you talk about the dollar spend or the percentage of sales? And then it feels like in using social media, which this business has shifted towards. And I guess, using different medium and sort of activating sales differently, do you feel like there's a better return on that and that you could invest more into marketing to drive sales? Or is the dollar is the same, it's just more effectively used?

Well, listen. I think there's no doubt that when you think about our new business -- our business model, which is very focused on color and recruiting color customers, there's a big role for digital marketing and education. And that's why you see us building and investing in a really great digital marketing team. It's why you see us launching the Sally Crew, which are influencers, mainly focused in color, but in color and hair and textured hair who are going to be teaching customers how to do these things at home. It's why you're going to see more of our website focused on education. We've just launched DIY University on our website and we may think about offering to diplomas to customers through their online education. And that is very much a personal model that's not -- doesn't really lend itself as much to mass media. And -- but it's much more about digital marketing and one-on-one outreach through CRM. That being said, as we really refine the model, and I think the tagline on lease share potential is fits perfectly with this. We're going to test as we come out of the crisis, different marketing investments, whether it be TV, radio and others, where we try and communicate our differentiated what we can offer the customer in terms of DIY. And we'll see if we can -- if that's the best way or if it's better to use these more one-on-one techniques. But the good news is we have the team now that can really both do it in an advanced way and then learn from it and optimize over time, and we didn't really have that team before.

Yes. And you probably have seen a share of new customers come to Sally Beauty over the last 9 months. How do you handicap the likelihood of retaining them? Like how do you plan for it? I mean do you expect that we retain most of them because we have data, we have a file, and we can see them repeating? Or do you make them the -- is there assumption that certain percent is just natural attrition?

No. Listen, what gives me confidence is if you pull the number out of our fourth quarter release, color was up 22% in the fourth quarter, right? Color customers are sticky customers because, again, we're the only one that sells pro color for home use. So if they've made that shift to pro color and doing the service or doing this themselves, there's a high likelihood for us to retain that customer. And so our first metric is color growth. And both businesses are growing color significantly as a portion of their portfolio, which is great. But then you're right. Then we're going to have to use CRM metrics around customer repeat purchases and retention to understand are we keeping those color customers, getting them to buy more frequently and getting them to become a steady customer. And again, these are all the metrics that as we refine our guidance later this year that we've got to give you better benchmarks and metrics by which to track the health of our business. But the most important metric is going to be color growth. Because if we're growing color and customers are coming in buying that, I guarantee you that's a sticky customer.

And maybe last. We're at time, but maybe one quick hit. International, I didn't get to ask about it. How does it strategically fit in the portfolio or just as an update and an outlook for it?

Listen, we've made a lot of changes. First of all, our Lat Am business is shifting also to become much more focused on color and making great progress at that. And so I see it as very tied to the core Sally business in the U.S. In Europe, it's a little bit more of a hybrid because we have some of the business that looks more like BSG and some of the business that's more retail. We've done a lot of change there, both cost reduction and improvements in marketing, then COVID hits. So we haven't really been able to assess how well is the business doing. And of course, we just went through a second set of shutdowns in the U.K. and France in November. They're all reopening now. So I think somewhere later this year, we'll get a better read on the long-term health of the business. We've made a lot of investments in it, a lot of upgrades and talent. I'm hoping we're going to see a steady improvement in that business as well but we got to get past the pandemic and get a good read on it.

Great. So Chris, with that, I think we'll wrap up. I just wanted to say thank you from Morgan Stanley for participating in this event and being a regular now. And thank you to Marlo. Sorry that we had some technical difficulties earlier. I wish you the success for the rest of this year and then wish you success -- actually, you're already in your next fiscal year. So wish you success in the fiscal year.

We are. You bet. Well, thanks, Simy, and always a pleasure.

Thanks. Be well. Thank you very much.

You bet.