MINNEAPOLIS - May 7. 2013 - (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 fiscal third quarter ended March 31, 2013 versus the prior year as noted below. As a reminder, references made to discrete items were formerly referred to as non-operational items in previous earnings releases, and references made to financial measures, as adjusted, were formerly referred to as operational measures in previous earnings releases.
“Service traffic is the engine of our business and accounts for over 75% of our revenue. My primary focus over the past six months has been to reverse the decline in service traffic Regis has been experiencing over the past several years,” said Dan Hanrahan, President and Chief Executive Officer. “This focus is producing positive results. We have slowed the revenue decline in same-store sales and are generating sequential improvement in our service business. Third quarter consolidated same-store service sales declined 0.3%, which improved 120 basis points from second quarter and 270 basis points from first quarter.
“We made the decision to invest in salon hours, focusing mainly on our SmartStyle salons located in Walmart and our Supercuts salons as these are our biggest assets. Both groups posted positive same-store service sales in the quarter, with SmartStyle and Supercuts increasing revenue 2.6% and 1.3%, respectively. Traffic trends in the quarter were varied and we benefited from an early Easter. We made the decision to invest in stylist hours, recognizing it would have a negative impact on margins in the short term. I view these lower margins as a temporary and necessary investment to improve the guest experience and help bring guests back to our brands. We did make progress on our scheduling optimization initiative, which helped us narrow the gap between staffing and guest traffic and improved third quarter cost of service by 50 basis points when compared to second quarter.”
Mr. Hanrahan continued, “Over the last nine months I spent most of my time in the field, visiting our top performing stores, and consulting with our best operators and franchisees, and I have seen in action what works. We are applying these learnings and beginning to build a foundation that is necessary to turnaround our business. As we said on the last call, our mission is to create guests for life. To achieve our mission we need to make foundational changes to improve our guest and stylist experience, simplify and standardize operating processes and drive ownership behaviors inherent in a performance-based culture that capitalizes on the revenue and profitability potential of each salon, one guest at a time.”
Examples of foundational changes discussed by Mr. Hanrahan include the following:
Mr. Hanrahan concluded, “While these initiatives have made progress and we are beginning to simplify our business for long-term success, we are still in the early stages of a challenging turnaround. I remain optimistic about recent improvements in sales trends and, as I mentioned last quarter, changing the strategic direction of any established business requires investment, execution and time. We are focused on creating an ideal guest experience that drives loyalty and repeat business, developing, retaining and attracting the best stylists and optimizing our brand portfolio. I remain extremely confident about our ability to improve Regis’ long-term performance.”
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Revenues. Revenues for the quarter declined $31.0 million, or 5.8%, compared to the prior year quarter.
Service revenues during the quarter were $392.1 million, a decrease of $20.8 million, or 5.0%, from the prior year quarter, mainly driven by declines in North American salons. North American service revenues for the quarter were $370.7 million, a decrease of $19.5 million, or 5.0%, compared to the same period last year. Compared to the prior year quarter, North American same-store service sales declined 0.4%, comprised of a 1.7% decrease in guest counts and 1.3% increase in average ticket price. Management estimates that the shift in Easter from April to March positively impacted same-store service sales by approximately 70 basis points. Net changes in store counts and two fewer sales days drove the remaining 4.6% decrease compared to the prior year quarter.
Product revenues for the quarter were $103.2 million, a decrease of $9.9 million, or 8.8%, versus the same period last year. Product same-store sales declined 5.2%.
Royalties and fees for the quarter of $9.6 million decreased $0.2 million, or 2.1%, versus the prior year quarter.
Cost of Service and Product. Cost of service and product as a percent of service and product revenues for the third quarter increased 180 basis points to 58.1% compared to the prior year quarter.
Cost of service as a percent of service revenues for the quarter was 59.8%, an increase of 180 basis points compared the prior year quarter, primarily related to increased salon labor costs in North American salons and increased holiday pay due to the shift of the Easter holiday from April last year to March this year. The increase in salon labor costs was due to the Company’s continued decision to increase stylist hours to drive traffic. The Company is working to improve scheduling optimization which will help align changes to salon hours with changes in guest traffic.
Cost of product as a percent of product revenues for the quarter was 51.6%, an increase of 130 basis points compared to the prior year quarter, largely driven by clearance sales. We made a conscious decision to mark down salon inventories in anticipation of plan-o-gram standardization and simplification across over 7,000 salons and product rationalization initiatives planned for next fiscal year. While this activity increases our cost of product rate as a percentage of product revenues, marking down inventories yields higher cash returns than the Company’s past practice of repackaging and returning these products to our distribution centers for restocking, disposal or return to vendors. We expect to continue this clearance program in the fourth quarter of fiscal 2013.
Site Operating Expenses. Site operating expenses for the quarter of $53.7 million, or 10.6% of revenues, increased by $3.0 million or 5.8% compared to the same quarter last year. The increase was primarily driven by increased connectivity costs to support the Company’s new point of sale system and salon work stations, advertising costs and higher salon repairs and maintenance expense.
General and Administrative. General and administrative expenses for the quarter of $56.8 million, or 11.2% of revenues, decreased $3.5 million, or 5.7%, compared to the same quarter last year. Excluding the impact of discrete items in both periods, general and administrative expenses, as adjusted, for the quarter increased $1.3 million, or 2.3%, compared to the same quarter last year, representing an 90 basis point increase as a percent of revenues. It is important to note that the current quarter has begun to lap significant cost reductions made in the same quarter last year when the Company implemented its senior management restructuring and corporate workforce reduction. While general and administrative expenses, as adjusted, during the third quarter were consistent with the first half of our fiscal year, we remain focused on simplification to drive further cost efficiencies.
Rent. Rent expense for the quarter was $80.8 million, or 16.0% of revenues, representing an increase of 70 basis points over the same quarter last year, primarily the result of negative leverage due to decreases in same-store sales. Rent expense declined by $1.4 million, or 1.7%, compared to the same quarter last year, due to store closures.
Depreciation and Amortization. Depreciation and amortization for the quarter was $22.7 million, or 4.5% of revenues, compared to $23.5 million, or 4.4% of revenues in the prior quarter. Excluding the impact of discrete items in both years, depreciation and amortization increased 20 basis points versus the prior year quarter.
Income Taxes. During the three months ended March 31, 2013, the Company recognized a tax benefit, as adjusted, of approximately $1.0 million primarily relating to Work Opportunity tax credits.
Equity in Affiliates. Income from equity method investments and affiliated companies was $1.2 million in the third quarter of fiscal 2013, a decrease of $1.2 million over the as adjusted amount for the third quarter of fiscal 2012. The reduction in earnings is the result of the Company’s sale of its investment in Provalliance and reduced earnings at Empire Education Group due to declining student enrollment.
EBITDA. EBITDA for the quarter of $28.6 million decreased by $5.2 million, or 15.5%, compared to the prior year quarter. Excluding the impact of discrete items, EBITDA, as adjusted, for the quarter of $26.8 million decreased by $25.3 million, or 48.5% compared to the prior year quarter.
Discrete Items. Discrete income for the current quarter netted to $1.7 million on an after-tax basis, and consisted of the following after-tax items:
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 and presentation via webcast discussing third quarter results today, May 7, 2013, at 10 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 877-941-8631. A replay of the presentation will be available later that day. The replay phone number is 800-406-7325, access code 4615164#.
Regis Corporation (NYSE:RGS) a leader in beauty salons and cosmetology education. As of March 31, 2013, the Company owned, franchised or held ownership interests in approximately 10,000 worldwide locations. Regis’ corporate and franchised locations operate under concepts such as Supercuts, SmartStyle, MasterCuts, Regis Salons, Sassoon Salon, Cost Cutters and Cool Cuts 4 Kids. 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 impact of management and organizational changes; the Company’s dependence on same-store sales increases to increase revenue; the impact on the Company of healthcare reform and minimum wage legislation; successful deployment of point-of-sale and guest relationship management systems; competition within the personal hair care industry, which remains strong, both domestically and internationally; price sensitivity; changes in economic conditions; changes in consumer tastes and fashion trends; the ability of the Company to implement its planned spending and cost reduction plan and to continue to maintain compliance with financial covenants in its credit agreements; the Company’s reliance on management information systems; the ability of the Company to retain and attract stylists; labor and benefit costs; legal claims; the continued ability of the Company and its franchisees to obtain suitable locations and financing for new salon development and to maintain satisfactory relationships with landlords and other licensors with respect to existing locations; governmental initiatives such as minimum wage rates, taxes, unionization and possible franchise legislation; the ability of the Company to optimize its brand portfolio and integrate salons that support its growth objectives; the ability of the Company to maintain satisfactory relationships with suppliers; financial performance of our joint ventures; risk inherent to international developments (including currency fluctuations); 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, 2012. 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.
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We believe our presentation of non-GAAP operating income, net income, net income per diluted share, and other non-GAAP financial measures provides meaningful insight into our ongoing operating performance and an alternative perspective of our results of operations. Presentation of the non-GAAP measures allows investors to review our core ongoing operating performance business from the same perspective as management and Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors’ analysis and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe that the non-GAAP measures are useful to investors because they provide supplemental information that research analysts frequently use to analyze financial performance.
The method we use to produce non-GAAP results is not in accordance with U.S. GAAP and may differ from methods used by other companies. These non-GAAP results should not be regarded as a substitute for the corresponding U.S. GAAP measures but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with U.S. GAAP and the reconciliation of the selected U.S. GAAP to non-GAAP financial measures, which are located in the Investor Information section of the corporate website at www.regiscorp.com.
Non-GAAP reconciling items for the three and nine months ended March 31, 2013 and 2012 and fiscal years ended June 30, 2012 and 2011:
The following information is provided to give qualitative and quantitative information related to items impacting comparability. Items impacting comparability are not defined terms within U.S. GAAP. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies. We determine which items to consider as “items impacting comparability” based on how management views our business, makes financial, operating and planning decisions and evaluates the Company’s ongoing performance. The following items have been excluded from our non-GAAP results:
The non-GAAP tax provision adjustments related to the amounts excluded from our non-GAAP results are due to the change in non-GAAP taxable income as compared to U.S. GAAP taxable income or loss, resulting from the non-GAAP reconciling items addressed herein. The non-GAAP tax provision adjustments are made to reflect the year-to-date non-GAAP tax rate for each period. The non-GAAP weighted average shares adjustments are due to the change in non-GAAP net income as compared to the U.S. GAAP net income or loss, resulting from the non-GAAP reconciling items addressed herein. Non-GAAP net income per share reflects the weighted average shares associated with non-GAAP net income, which may included the dilutive effect of common stock and convertible share equivalents.
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REGIS CORPORATION
Reconciliation of reported U.S. GAAP net income (loss) to Adjusted EBITDA, a non-GAAP financial measure
(Dollars in thousands)
(unaudited)
EBITDA represents U.S. GAAP net income (loss) for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines adjusted EBITDA, as EBITDA excluding equity in income (loss) of affiliated companies, and identified items impacting comparability for each respective period. For the three and nine months ended March 31, 2013 and 2012, the items impacting comparability consisted of the items identified in the non-GAAP reconciling items for the respective periods. The impact of the income tax provision adjustments associated with the above items and the accelerated depreciation related to Corporate office consolidation and our point-of-sale system are already included in the U.S. GAAP reported net income (loss) to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. The impact of the impairment EEG and the net Provalliance impairment and gain for the settlement of a portion of the Provalliance equity put is already included by excluding the impact of the Company’s equity in income (loss) of affiliated companies, net of taxes, as reported.
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REGIS CORPORATION
Reconciliation of reported U.S. GAAP net loss to Adjusted EBITDA, a non-GAAP financial measure
(Dollars in thousands)
(unaudited)
EBITDA represents U.S. GAAP net loss for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines adjusted EBITDA, as EBITDA excluding equity in (loss) income of affiliated companies, and identified items impacting comparability for each respective period. For the twelve months ended June 30, 2012 and 2011, the items impacting comparability consisted of the items identified in the non-GAAP reconciling items for the twelve months ended June 30, 2012 and 2011. The impact of the income tax provision adjustments associated with the above items and the accelerated depreciation related to our point-of-sale system are already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. The impact of the impairment and discrete charges recorded by EEG, the MY Style impairment and the net Provalliance impairment and gain for the settlement of a portion of the Provalliance equity put is already included by excluding the impact of the Company’s equity in (loss) income of affiliated companies, net of taxes, as reported.
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Regis Corporation
Mark Fosland
952-806-1707
SVP, Finance and Investor Relations
Regis Corporation is the beauty industry's global leader in beauty salons, hair restoration centers and cosmetology education.