Regis Reports Third Quarter 2017 Results

MINNEAPOLIS–(BUSINESS WIRE)–Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose
primary business is owning, operating and franchising hair salons, today
reported results for its third fiscal quarter ended March 31, 2017
versus the prior year as noted below.

As a result of the Company’s valuation allowance against most of its
deferred tax assets, associated reported and, as adjusted, after-tax
results of operations are not comparable to prior periods.

  • Sales of $412.6 million, a decline of $30.0 million. Same-store
    sales decreased 2.9% with same-store service sales decreasing 2.9% and
    same-store product sales decreasing 3.0%.

    • The Company estimates the shift of Easter from March of last
      year to April of this year negatively impacted same-store sales by
      approximately 50 basis points during the quarter.
    • Same-store sales for Value concepts (excluding MasterCuts)
      declined 1.7%.

      • 1.2% decrease after adjusting for the Easter shift.
    • Same-store sales for mall concepts (Premium and MasterCuts)
      declined 6.1%.

      • 5.5% decrease after adjusting for the Easter shift.
  • Operating loss of $12.8 million compared to a gain of $5.6
    million in the prior year quarter.

    • Current year operating loss includes severance and other
      discrete items totaling $10.2 million.
    • Operating loss, as adjusted, of $2.6 million compared to a
      gain of $4.8 million in the prior year quarter.
  • Net loss of $18.5 million or $0.40 per diluted share.

    • Includes ($0.22) per diluted share unfavorable impact due to
      the deferred tax valuation allowance on income tax expense.
  • EBITDA, as adjusted, of $14.8 million compared to $22.9 million
    in the prior year quarter.

    • Decrease of ($4.6) million from same-store sales declines.
    • Decrease of ($3.5) million mainly from minimum wage and
      inflation, lower stylist productivity, lapping certain benefits in
      the prior year quarter, royalties and fees, and planned strategic
      investments, partly offset by cost savings, lower incentive
      compensation and reduced salon counts.
  • Diluted EPS, as adjusted, was ($0.18) compared to ($0.06) in the
    prior year quarter.

    • Excluding the impact of the deferred tax valuation
      allowance, Diluted EPS, as adjusted, declined $0.11 per share
      compared to the prior year period. Primary drivers of this
      decrease were the EBITDA impacts listed above.

Hugh Sawyer, President and Chief Executive Officer, commented, “Regis is
a great company with strong brands and a talented group of stylists,
managers and professionals. Given the inherent strength of our core
assets, our financial results have been disappointing. I look forward to
working with the Regis team to accelerate the growth of our franchise
business while addressing performance improvement opportunities in our
Company-owned salons.”

Mr. Sawyer also provided an update on the Company’s strategic and
operational initiatives. “We are in the process of finalizing and
implementing an operationally-focused 120-day turnaround plan designed
to improve the results of our Company-owned salons. Our near-term
objective is to stabilize performance and establish a platform for
longer-term revenue and earnings growth in these Company salons. Given
certain execution factors, I am not yet at a point where I can share the
details. However, the core components are focused on improving our
guests’ experience, better managing variable salon labor and
disinvesting in certain programming that does not create value. Last
week, a number of key executives within our organization were redeployed
to these value-creating initiatives.

“At the same time, we are making thoughtful decisions to accelerate the
growth of our franchise business, including the promotion of Eric Bakken
to President of our Franchise business. This strategic initiative is
intended to facilitate an ongoing multi-year transformation of our
operating platform that balances our commitment to high-performing
Company salons while enabling strategic optionality. In the third
quarter, we reached agreements to sell nearly 200 Company-owned
SmartStyle salons to franchisees and expect the bulk of these
refranchise agreements will close in the first quarter of fiscal 2018.
Selling these non-core salons is expected to improve our results as they
produced negative four-wall cash flow over the last twelve months.
Moreover, these actions will generate sales proceeds, franchise fees and
ongoing royalty revenue for the Company.

“In closing, I am delighted to join the Regis team. It is a privilege to
serve our stakeholders and I am committed to building a championship
team for our shareholders, salon guests, employees and franchise
partners. At Regis, we intend to play the game to win.”

 
Comparable Profitability Measures
  (Unaudited)    

Three Months
Ended
March 31,

 

Nine Months
Ended
March 31,

Fiscal Years Ended
June 30,

2017   2016 2017   2016 2016 2015
(Dollars in millions)
Revenue $ 412.6 $ 442.6 $ 1,267.7 $ 1,343.2 $ 1,790.9 $ 1,837.3
 
Revenue decline % (6.8 ) (2.5 ) (5.6 ) (2.3 ) (2.5 ) (2.9 )
 
Same-Store Sales % (2.9 ) (0.4 ) (2.5 ) 0.8 0.2 (0.3 )
Same-Store Average Ticket % Change 2.8 2.6 3.3 2.9 3.1 1.6
Same-Store Guest Count % Change (5.7 ) (3.0 ) (5.8 ) (2.1 ) (2.9 ) (1.9 )
 
Cost of Service and Product %, U.S. GAAP reported and as adjusted (1) 62.0 60.4 61.2 60.2 60.1 59.3
Cost of Service %, U.S. GAAP reported and as adjusted (1) 65.1 63.1 64.1 63.0 62.7 61.8
Cost of Product %, U.S. GAAP reported and as adjusted (1) 49.9 49.6 50.3 50.0 49.9 49.7
 
Site operating expense as % of total revenues, U.S. GAAP reported 9.8 9.7 10.0 10.3 10.2 10.5
Site operating expense as % of total revenues, as adjusted 9.8 9.7 10.0 10.3 10.2 10.6
 
General and administrative as % of total revenues, U.S. GAAP reported 12.1 9.6 10.3 10.0 9.9 10.1
General and administrative as % of total revenues, as adjusted 9.6 9.8 9.5 9.9 9.9 10.1
 
Operating (loss) income as % of total revenues, U.S. GAAP reported (3.1 ) 1.3 (0.5 ) 0.5 1.0 0.2
Operating (loss) income as % of total revenues, as adjusted (0.6 ) 1.1 0.4 0.6 1.0 0.1
 
EBITDA 4.6 23.6 45.4 47.1 74.5 73.8
EBITDA, as adjusted 14.8 22.9 56.3 63.2 90.3 86.5
 

____________________________________

 

(1) Excludes depreciation and amortization.

 

Third Quarter Results:

Prior year adjusted results have been recast to exclude the prior year
self-insurance reserve adjustment of $0.4 million.

Same-Store Sales. Same-store sales decreased 2.9% compared to the
prior year quarter. Management estimates the shift of Easter, from March
of last year to April of this year, negatively impacted same-store sales
by approximately 50 basis points during the third quarter of the current
year, and expects this impact to reverse in the upcoming fourth quarter.

Revenues. Revenue in the quarter of $412.6 million declined $30.0
million, or 6.8%, compared to the prior year quarter. Same-store sales
decreased 2.9% compared to the prior year quarter. The remaining 390
basis point, or $18.3 million decline in revenue, compared to the prior
year quarter was primarily due to the closing of unprofitable salons,
unfavorable calendar shifts and foreign currency.

Service revenue was $319.5 million, a $24.6 million, or 7.1% decrease,
compared to the prior year quarter. Same-store service sales decreased
2.9%, driven by a decline in same-store guest visits of 5.5%, partly
offset by an increase in average ticket price of 2.6%. The remaining 420
basis point, or $15.2 million, decline in service revenues compared to
the prior year quarter was primarily due to the closing of unprofitable
salons, unfavorable calendar shifts and foreign currency.

Product revenue was $81.5 million, a decrease of $5.2 million, or 6.0%,
compared to the prior year quarter. Product same-store sales for the
quarter decreased 3.0%, driven by a decrease in same-store transactions
of 5.3%, partly offset by an increase in average ticket price of 2.3%.
The remaining 300 basis point, or $3.0 million, decline in product
revenues compared to the prior year quarter was primarily due to the
closing of unprofitable salons, unfavorable calendar shifts and foreign
currency.

Royalties and fees were $11.6 million. Royalties increased 0.4% driven
primarily by increased franchise salon counts. This increase was offset
by a higher level of franchise termination fees in the prior year
quarter and lower initial franchise fees. While the number of new salons
opened in the quarter was flat to last year, the mix of franchisees
opening salons in the quarter shifted to existing franchisees, who pay
lower fees for opening additional salons.

Cost of Service and Product. Cost of service and product, as a
percent of service and product revenues, increased 160 basis points to
62.0% when compared to the prior year quarter.

Cost of service as a percent of service revenues for the quarter
increased 200 basis points versus the prior year quarter, to 65.1%. The
primary drivers were lower stylist productivity, state minimum wage and
other inflation increases, and higher credit card fees as the prior year
benefited from a rebate, partly offset by lower salon-level incentives.

Cost of product as a percent of product revenues was 49.9%. The increase
of 30 basis points when compared to the prior year quarter was mainly
due to inventory write-offs associated with salon closures.

Site Operating Expenses. Site operating expenses of $40.3 million
decreased $2.6 million compared to the prior year quarter. This was
primarily driven by a net reduction of 381 salons and cost savings,
partly offset by a favorable self-insurance reserve adjustment in the
prior year quarter.

General and Administrative. General and administrative expenses
of $49.8 million increased $7.2 million compared to the prior year
quarter. Excluding the impact of discrete items in the current and prior
year quarters, general and administrative expenses decreased $3.8
million. The decrease was a result of lower incentive compensation,
partly offset by planned strategic investments in technical training.

Rent. Rent expense of $69.8 million decreased $4.6 million
compared to the prior year quarter. This decrease was primarily the
result of a net reduction of 381 salons and foreign exchange, partly
offset by rent inflation.

Depreciation and Amortization. Depreciation and amortization was
$17.0 million, which was flat compared to the prior year quarter.
Year-over-year decreases due to a net reduction of 381 salons were
offset by an increase in non-cash salon fixed asset impairments.

Income Taxes. During the three months ended March 31, 2017 and
2016, the Company recognized tax expense of $3.9 and $6.3 million,
respectively, at effective tax rates of (26.5%) and 149.2%, respectively.

The recorded tax provision and effective tax rates for the three months
ended March 31, 2017 and 2016 were different than what would normally be
expected primarily due to the impact of the deferred tax valuation
allowance. The majority of the tax provision related to a non-cash tax
expense for tax benefits on certain indefinite-lived assets the Company
cannot recognize for reporting purposes. Income tax expense for the
three and nine months ended March 31, 2017 included non-cash tax expense
of $3.1 million and $6.4 million, respectively, related to this matter.
This non-cash impact will continue as long as the Company has a
valuation allowance in place against most of its deferred tax assets and
is expected to approximate $7.7 million of expense for the year ending
June 30, 2017.

EBITDA, as Adjusted. EBITDA, as adjusted, was $14.8 million, a
decline of $8.1 million compared to EBITDA, as adjusted, in the prior
year quarter.

Discrete Items. Discrete items for the current quarter totaled
$10.2 million of expense, comprised of the following items:

Expense:

  • Severance of $7.9 million
  • Legal settlements of $1.4 million
  • Professional fees of $1.0 million

Income:

  • Gain on life insurance proceeds of $0.1 million

A complete reconciliation of reported earnings to adjusted earnings is
included in this press release and is available on the Company’s website
at www.regiscorp.com.

Regis Corporation will host a conference call via webcast discussing
third quarter results today, May 4, 2017, at 9 a.m., Central time.
Interested parties are invited to participate in the live webcast by
logging on to www.regiscorp.com
or participate by phone by dialing (877) 548-7906 and entering access
code 7540672. A replay of the presentation will be available later in
the day. The replay phone number is (888) 203-1112, access code 7540672.

About Regis Corporation

Regis Corporation (NYSE:RGS) is the leader in beauty salons and
cosmetology education. As of March 31, 2017, the Company owned,
franchised or held ownership interests in 9,217 worldwide locations.
Regis’ corporate and franchised locations operate under concepts such as
Supercuts, SmartStyle, MasterCuts, Regis Salons, Sassoon Salon, Cost
Cutters and First Choice Haircutters. Regis maintains ownership
interests in Empire Education Group in the U.S. and the MY Style
concepts in Japan. For additional information about the Company,
including a reconciliation of certain non-GAAP financial information and
certain supplemental financial information, please visit the Investor
Information section of the corporate website at www.regiscorp.com.
To join Regis Corporation’s email alert list, click on this link: http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1

This press release may contain “forward-looking statements” within
the meaning of the federal securities laws, including statements
concerning anticipated future events and expectations that are not
historical facts. These forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. The forward-looking statements in this document reflect
management’s best judgment at the time they are made, but all such
statements are subject to numerous risks and uncertainties, which could
cause actual results to differ materially from those expressed in or
implied by the statements herein. Such forward-looking statements are
often identified herein by use of words including, but not limited to,
“may,” “believe,” “project,” “forecast,” “expect,” “estimate,”
“anticipate,” and “plan.” In addition, the following factors could
affect the Company’s actual results and cause such results to differ
materially from those expressed in forward-looking statements. These
factors include the continued ability of the Company to evolve and
execute our strategy and build on the foundational initiatives that we
have implemented; the success of our stylists and our ability to
attract, train and retain talented stylists; our ability to sell
company-owned salons to franchisees; performance of our franchisees;
changes in regulatory and statutory laws; our ability to manage cyber
threats and protect the security of sensitive information about our
guests, employees, vendors or Company information; changes in tax
exposure; the effect of changes to healthcare laws; reliance on
management information systems; financial performance of Empire
Education Group; reliance on external vendors; consumer shopping trends
and changes in manufacturer distribution channels; competition within
the personal hair care industry; changes in interest rates and foreign
currency exchange rates; failure to standardize operating processes
across brands; the ability of the Company to maintain satisfactory
relationships with certain companies and suppliers; the continued
ability of the Company to implement cost reduction initiatives;
compliance with debt covenants; changes in economic conditions; changes
in consumer tastes and fashion trends; or other factors not listed
above. Additional information concerning potential factors that could
affect future financial results is set forth in the Company’s Annual
Report on Form 10-K for the year ended June 30, 2016. We undertake no
obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
However, your attention is directed to any further disclosures made in
our subsequent annual and periodic reports filed or furnished with the
SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

   

REGIS CORPORATION (NYSE: RGS)
CONDENSED
CONSOLIDATED BALANCE SHEET

(Dollars in thousands,
except per share data)

 

March 31, 2017
(Unaudited)

June 30,
2016

ASSETS
Current assets:
Cash and cash equivalents $ 168,689 $ 147,346
Receivables, net 22,893 24,691
Inventories 127,307 134,212
Other current assets   48,402   51,765
Total current assets 367,291 358,014
 
Property and equipment, net 155,689 183,321
Goodwill 416,140 417,393
Other intangibles, net 14,027 15,185
Other assets   62,182   62,019
 
Total assets $ 1,015,329 $ 1,035,932
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 53,171 $ 59,884
Accrued expenses   130,050   135,431
Total current liabilities 183,221 195,315
 
Long-term debt, net 120,351 119,606
Other noncurrent liabilities   206,228   201,610
Total liabilities   509,800   516,531
Commitments and contingencies
Shareholders’ equity:
Common stock, $0.05 par value; issued and outstanding 46,305,679 and
46,154,410 common shares at March 31, 2017 and June 30, 2016,
respectively
2,315 2,308
Additional paid-in capital 215,610 207,475
Accumulated other comprehensive income 456 5,068
Retained earnings   287,148   304,550
 
Total shareholders’ equity   505,529   519,401
 
Total liabilities and shareholders’ equity $ 1,015,329 $ 1,035,932
 
   

REGIS CORPORATION (NYSE: RGS)
CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

(Dollars
and shares in thousands, except per share data)

 
Three Months Ended March 31, Nine Months Ended March 31,
2017   2016 2017   2016
Revenues:
Service $ 319,470 $ 344,063 $ 978,222 $ 1,034,751
Product 81,497 86,722 254,395 272,977
Royalties and fees   11,636     11,780     35,071     35,434  
  412,603     442,565     1,267,688     1,343,162  
Operating expenses:
Cost of service 207,816 217,046 626,690 651,486
Cost of product 40,693 43,000 127,902 136,420
Site operating expenses 40,339 42,912 126,981 138,145
General and administrative 49,783 42,606 130,780 134,554
Rent 69,758 74,388 212,278 223,666
Depreciation and amortization   16,998     16,992     48,973     51,877  
Total operating expenses   425,387     436,944     1,273,604     1,336,148  
 
Operating (loss) income (12,784 ) 5,621 (5,916 ) 7,014
 
Other (expense) income:
Interest expense (2,156 ) (2,405 ) (6,526 ) (7,141 )
Interest income and other, net   393     1,017     2,416     2,958  
 
(Loss) income before income taxes and equity in loss of affiliated
companies
(14,547 ) 4,233 (10,026 ) 2,831
 
Income tax expense (3,858 ) (6,317 ) (7,317 ) (4,926 )
Equity in loss of affiliated companies, net of income taxes   (50 )       (50 )   (14,783 )
 
Net loss $ (18,455 ) $ (2,084 ) $ (17,393 ) $ (16,878 )
 
Net loss per share:
Basic and diluted $ (0.40 ) $ (0.04 ) $ (0.38 ) $ (0.34 )
 
Weighted average common and common equivalent shares outstanding:
Basic and diluted   46,360     46,991     46,304     49,287  
 
   

REGIS CORPORATION (NYSE: RGS)
CONDENSED
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (Unaudited)

(Dollars
in thousands)

 

Three Months Ended
March 31,

Nine Months Ended
March 31,

2017   2016 2017   2016
Net loss $ (18,455 ) $ (2,084 ) $ (17,393 ) $ (16,878 )
Other comprehensive income (loss):
Foreign currency translation adjustments 248 1,806 (4,590 ) (4,801 )
Recognition of deferred compensation   (22 )       (22 )    
Other comprehensive income (loss)   226     1,806     (4,612 )   (4,801 )
Comprehensive loss $ (18,229 ) $ (278 ) $ (22,005 ) $ (21,679 )
 
 

REGIS CORPORATION (NYSE: RGS)
CONDENSED
CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)

(Dollars
in thousands)

 

Nine Months Ended
March 31,

2017   2016
Cash flows from operating activities:
Net loss $ (17,393 ) $ (16,878 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 41,351 44,261
Equity in loss of affiliated companies 50 14,783
Deferred income taxes 6,419 3,607
Gain from sale of salon assets, net (53 ) (827 )
Salon asset impairments 7,622 7,616
Stock-based compensation 9,498 7,492
Amortization of debt discount and financing costs 1,054 1,249
Other non-cash items affecting earnings 150 195
Changes in operating assets and liabilities, excluding the effects
of asset sales
  (1,884 )   (21,908 )
Net cash provided by operating activities   46,814     39,590  
 
Cash flows from investing activities:
Capital expenditures (25,420 ) (22,689 )
Proceeds from sale of assets 594 1,472
Change in restricted cash 999 6,985
Proceeds from company-owned life insurance policies   876     2,948  
Net cash used in investing activities   (22,951 )   (11,284 )
 
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations (2 )
Repurchase of common stock (97,033 )
Purchase of noncontrolling interest (684 )
Employee taxes paid for shares withheld (1,228 ) (698 )
Settlement of equity awards   (440 )    
Net cash used in financing activities   (1,668 )   (98,417 )
 
Effect of exchange rate changes on cash and cash equivalents   (852 )   (1,037 )
 
Increase (decrease) in cash and cash equivalents 21,343 (71,148 )
 
Cash and cash equivalents:
Beginning of period   147,346     212,279  
End of period $ 168,689   $ 141,131  
 
 

SAME-STORE SALES (1):

 
For the Three Months Ended
March 31, 2017   March 31, 2016
       
 
Service Retail Total Service Retail Total
SmartStyle (1.9 ) (0.7 ) (1.5 ) 2.8 (0.7 ) 1.7
Supercuts (0.5 ) (6.3 ) (1.0 ) 2.9 2.9 2.9
MasterCuts (4.2 ) (2.1 ) (3.9 ) (4.9 ) (8.8 ) (5.6 )
Other Value (2.9 ) 0.8 (2.5 ) 1.0 (3.4 ) 0.5
North American Value (2.0 )% (1.2 )% (1.9 )% 1.6 % (1.4 )% 1.0 %
 
North American Premium (6.7 )% (8.5 )% (7.0 )% (4.9 )% (12.2 )% (6.2 )%
 
International (6.1 )% (14.5 )% (8.6 )% (0.8 )% (5.5 )% (2.2 )%
 
Consolidated (2.9 )% (3.0 )% (2.9 )% 0.3 % (3.5 )% (0.4 )%
 
 
For the Nine Months Ended
March 31, 2017 March 31, 2016
 
 
Service Retail Total Service Retail Total
SmartStyle (1.0 ) (1.8 ) (1.2 ) 3.7 4.5 4.0
Supercuts 0.1 (4.9 ) (0.4 ) 2.1 8.1 2.7
MasterCuts (4.4 ) (5.1 ) (4.5 ) (4.2 ) (2.1 ) (3.8 )
Other Value (2.1 ) (1.7 ) (2.1 ) 3.5 0.4
North American Value (1.4 )% (2.4 )% (1.6 )% 1.4 % 4.2 % 1.9 %
 
North American Premium (5.6 )% (10.1 )% (6.4 )% (3.1 )% (4.8 )% (3.4 )%
 
International (3.9 )% (11.1 )% (5.9 )% (0.5 )% (4.5 )% (1.6 )%
 
Consolidated (2.2 )% (4.0 )% (2.5 )% 0.5 % 2.0 % 0.8 %

____________________________________

 

(1) Same-store sales are calculated on a daily basis as the total
change in sales for company-owned locations that were open on a
specific day of the week during the current period and the
corresponding prior period. Quarterly and year-to-date same-store
sales are the sum of the same-store sales computed on a daily
basis. Locations relocated within a one-mile radius are included
in same-store sales as they are considered to have been open in
the prior period. International same-store sales are calculated in
local currencies to remove foreign currency fluctuations from the
calculation.

 

   

REGIS CORPORATION (NYSE: RGS)
System-wide location
counts

 
March 31, 2017 June 30, 2016
COMPANY-OWNED SALONS:
 
SmartStyle/Cost Cutters in Walmart Stores 2,711 2,683
Supercuts 1,007 1,053
MasterCuts 361 430
Other Value 1,509 1,604
Regis salons 586 694
Total North American Salons (1) 6,174 6,464
Total International Salons (2) 301 328
Total Company-owned Salons 6,475 6,792
 
FRANCHISE SALONS:
 
SmartStyle/Cost Cutters in Walmart Stores 120 125
Supercuts 1,655 1,579
Other Value 775 792
Total North American Salons (1) 2,550 2,496
Total International Salons (2) 11
Total Franchise Salons 2,561 2,496
 
OWNERSHIP INTEREST LOCATIONS:
 
Equity ownership interest locations 181 195
   
Grand Total, System-wide 9,217 9,483

____________________________________

 
(1) The North American Value operating segment is comprised
primarily of the SmartStyle, Supercuts, MasterCuts and Other Value
salon brands. The North American Premium operating segment is
comprised primarily of the Regis salon brands.
(2) Canadian and Puerto Rican salons are included in the North
American salon totals.
 

Contacts

REGIS CORPORATION:
Paul Dunn, 952-947-7915
VP, Finance
and Investor Relations

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