November 06, 2013 // Franchising.com // 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 first quarter ended September 30, 2013 versus the prior year as noted below.
Dan Hanrahan, President and Chief Executive Officer commented, "Last quarter, we made significant investments behind three foundational initiatives that were necessary to allow Regis to move along a strategic continuum towards becoming a best in class operator. We rolled out a new point-of-sale system throughout North America, we reorganized our field leadership, and we standardized our retail plan-o-grams. As we discussed in late August, these changes negatively impacted our performance. Our focus over the last two months has been on stabilizing these trends."
The Company provided the following progress updates on the three strategic initiatives cited by Mr. Hanrahan:
Technology. The initial rollout of SuperSalon point-of-sale and salon workstations to our North American salons is essentially complete. Team members are working to become more efficient and effective in using the new system. Significant progress has been made to resolve technical issues, and the number of help desk tickets has fallen significantly. We continue to focus on ensuring our stylists are well trained to optimize the use of SuperSalon and associated operating processes. Encouraging the right behaviors that optimize accuracy and consistency of data capture will allow us to capitalize on the data capture capabilities of having a standardized point-of-sale platform throughout North America, and further develop management and reporting tools. While these steps will take some time, we are on the right path towards our ultimate objective.
Merchandising. Subsequent to standardizing retail plan-o-grams throughout North America, the Company moved quickly to validate assortment assumptions, promotional plans, reset efficacy and guest buying behaviors. The results of this work provided us with useful insights into guest behavior that when recently applied have improved recent retail sales trends. While our retail business is not where we want it to be, it is heading in the right direction.
Organization. Through the field reorganization, the Company moved from a branded to a geographic management structure. Eleven highly competent Regional Vice Presidents were put in place to enable more localized management and decision making. The Company is focused on improving execution at the salon level. A new management process has been put in place that focuses our field leaders, salon managers and stylists on growing guest traffic. Training on this process is ongoing, emphasizing development of our associates and instilling effective guest experience behaviors. A weekly goal setting process cascades from the individual stylists to the CEO. The training focuses stylists on behaviors to increase guest counts by delivering a better guest experience and recruiting new guests. It also builds a team atmosphere within each salon and a competitive spirit throughout the field organization and salons. This process makes top performers visible, and enables sharing of winning practices across regions, districts, salons and stylists. Similar to our experience with SuperSalon, it will take time and learning to become efficient.
Mr. Hanrahan concluded, "Although the transformational changes we implemented have been disruptive, these changes are necessary to turn Regis around. We have taken significant actions to stabilize the business. While our sales performance in the first quarter is not where I would like it to be, I am pleased with our efforts to control expenses. We are seeing pockets of revenue improvement, which provide us with confidence that the operational changes we put in place will position Regis to improve over time. The key to our success is continuing to improve our ability to execute at the salon level through the development of our field leaders and salon managers, so we consistently deliver a strong guest experience."
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As a reminder, beginning in the first quarter of fiscal year 2014, costs associated with field leaders, excluding salons within the mass premium category, that were previously recorded within General and Administrative expense are now categorized to Cost of Service and Site Operating as a result of the field reorganization that took place in the fourth quarter of fiscal year 2013. Previously, field leaders did not work on the salon floor daily. As reorganized, field leaders now spend most of their time on the salon floor leading and mentoring stylists, and serving guests. Accordingly, field leader costs, including labor and travel costs, now directly arise from the management of salon operations. As a result, district and senior district leader labor costs are reported within Cost of Service rather than General and Administrative expenses, and their travel costs are reported within Site Operating expenses rather than General and Administrative expenses. This expense classification does not have a financial impact on the Company's reported operating income (loss), reported net income (loss) or cash flows from operations. Re-casted historical annual and quarterly financial statements can be found on the Company's website.
Revenues. Revenues declined $36.8 million, or 7.3%, compared to the prior year quarter.
Service revenues were $371.7 million, a decrease of $21.7 million, or 5.5%, from the prior year quarter, mainly driven by declines in North American salon revenues. Compared to the prior year quarter, same-store service sales declined 3.1%, comprised of a 5.7% decrease in guest counts and 2.6% increase in average ticket price. Net changes in store counts drove the remaining 2.4% decrease compared to the prior year quarter.
Product revenues were $86.7 million, a decrease of $15.5 million, or 15.2%, versus the prior year quarter. Product same-store sales declined 14.8%.
Royalties and fees of $10.1 million increased $0.5 million, or 4.7%, versus the prior year quarter.
Cost of Service and Product. Cost of service and product as a percent of service and product revenues increased 110 basis points to 58.7% compared to the prior year quarter. Excluding impacts of discrete items and the prior year change in expense categorization as a result of the field reorganization, cost of service and product, as adjusted, as a percent of service and product revenues decreased 20 basis points to 58.5% compared to the prior year quarter.
Cost of service as a percent of service revenues was 60.5%, an increase of 140 basis points compared to the prior year quarter. After considering the prior year change in expense categorization as a result of the field reorganization, cost of service as a percent of service revenues was flat compared to the prior year quarter. Negative leverage of stylist hours caused by same-store service sales declines and increased health care costs were offset by cost reductions due to our field reorganization, reduced labor associated with a full commission coupon event that was not repeated this year and lower levels of bonuses.
Cost of product as a percent of product revenues was 50.8%, a decrease of 110 basis points when compared to the prior year quarter. Excluding the impact of discrete items in the current period, cost of product, as adjusted, as a percent of product revenues decreased 210 basis points to 49.8% compared to the prior year quarter. The Company lapped a sales incentive program from last year, and realized rate benefit due to better terms and reduced clearance activity as a result of our plan-o-gram initiative.
Site Operating Expenses. Site operating expenses of $50.8 million, or 10.8% of revenues, decreased by $1.5 million or 2.9% compared to the prior year quarter. After considering the prior year change in expense categorization as a result of our field reorganization, site operating expenses decreased $3.9 million, or 7.1% compared to the prior year quarter. The decrease was primarily driven by cost savings initiatives to lower utilities and repairs and maintenance expenses, lower travel expense due to the field reorganization and the timing of certain expenses including self-insurance reserves related to the prior year, partly offset by increased connectivity costs to support SuperSalon and salon workstations.
General and Administrative. General and administrative expenses of $44.4 million, or 9.5% of revenues, decreased $11.4 million, or 20.5%, compared to the prior year quarter. Excluding the impact of discrete items in both periods and considering the change in expense categorization as a result of our field reorganization, general and administrative expenses, as adjusted, decreased $4.6 million, or 9.5%, compared to the prior year quarter. About half of this improvement relates to cost savings initiatives and benefits from the field reorganization. The remaining benefit is timing related. We continue to focus on ways to simplify and drive further cost efficiencies.
Rent. Rent expense was $79.0 million, or 16.9% of revenues, representing an increase of 80 basis points over the prior year quarter, primarily the result of negative leverage due to same-store sales declines. Rent expense declined by $2.5 million, or 3.1%, compared to the prior year quarter, due to salon closures.
Depreciation and Amortization. Depreciation and amortization was $23.8 million, or 5.1% of revenues, compared to $20.7 million, or 4.1% of revenues in the prior year quarter. Excluding the impact of discrete items in the current quarter, depreciation and amortization increased $2.4 million, primarily due to increased depreciation related to the Company's new point-of-sale system and salon workstations.
Equity in Affiliates. Income from equity method investments and affiliated companies was $2.0 million. Excluding the impact of discrete items in both periods, income from equity method investments and affiliated companies, as adjusted, decreased $1.6 million compared to the prior year quarter. This decline is primarily the result of the Company's sale of its investment in Provalliance, partly offset by increased earnings in Empire Education Group.
EBITDA. EBITDA of $27.8 million declined $41.1 million compared to the prior year quarter. Excluding the impact of discrete items, EBITDA, as adjusted, of $27.4 million decreased by $3.0 million, or 9.8% compared to the prior year quarter.
Regis Corporation will host a conference call and presentation via webcast discussing first quarter results today, November 5, 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 877-941-6009. A replay of the presentation will be available later that day. The replay phone number is 800-406-7325, access code 4646057#.
Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of September 30, 2013, the Company owned, franchised or held ownership interests in 9,752 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 significant initiatives and changes in our management and organizational structure; negative same-store sales; the success of our stylists and our ability to attract and retain talented stylists; the effect of changes to healthcare laws; changes in regulatory and statutory laws; the Company's reliance on management information systems; competition within the personal hair care industry, which remains strong, both domestically and internationally; changes in economic conditions; the continued ability of the Company to implement cost reduction initiatives; certain of the terms and provisions of the outstanding convertible notes; failure to optimize our brand portfolio; the ability of the Company to maintain satisfactory relationships with certain companies and suppliers; financial performance of our joint ventures; changes in interest rates and foreign currency exchange rates; changes in consumer tastes and fashion trends; our ability to protect the security of personal information about our guests; 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, 2013. 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 from the same perspective as management and the Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors' analyses 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.
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 include the dilutive effect of common stock and convertible share equivalents.
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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.