MINNEAPOLIS - November 04, 2014 - (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 first quarter ended September 30, 2014 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.
Dan Hanrahan, President and Chief Executive Officer, commented, "Our first quarter same-store sales performance provides support that more of our leaders are beginning to execute our strategy. First quarter same-store sales increased 60 basis points compared to the prior year quarter. Service same-store sales were flat, demonstrating continued improvement in our execution capabilities during the past two quarters. Our focus on and investments in SmartStyle and Supercuts are producing results, as these core value businesses posted blended positive service comps of 2.8% during the first quarter. While more of our leaders are beginning to drive improved results, we continue to have a wide range of performance within our salon portfolio. We are focused on driving consistency in execution across the portfolio to deliver further sustainable improvement. Higher promotion levels and increased service guest traffic contributed to retail sales improvements. However, we are lapping our most disruptive quarter when we executed the plan-o-gram reset. Our retail performance over the past several years tells us we have significant work to do before we deliver consistent retail results. We did make progress during the quarter on our three key priorities. Our asset protection, leadership development, and technical education programs are contributing to our execution progress. I am encouraged by the trend improvement we saw in the first quarter and appreciative of the hard work coming from the entire Regis organization. However, we have significant work ahead of us before we are executing consistently, driving performance, and realizing improved profitability from investments we are making to turn around our business."
The Company provided an update on the three key priorities to improve execution and performance in fiscal 2015. These areas follow the theme of people, process and metrics enabled by real time information to make good business decisions and drive improved execution.
Asset Protection. Build-out of the Asset Protection team is complete and we have begun to implement our stylist asset protection awareness and training program. During the first quarter we conducted approximately 700 sessions with field leaders and stylists. Although early, results indicate sales performance improves post-training as we educate our employees and hold them accountable for acceptable asset protection behaviors. Leveraging technology, exception reporting tools have been built and case management systems implemented to prioritize our asset protection efforts against our most compelling revenue growth opportunities.
Leadership Talent and Recruitment. Successful execution is dependent upon strong leaders helping stylists have successful and satisfying careers. We have taken significant steps to develop our leaders, and where necessary, upgrade our leadership capabilities. We are focused on providing ongoing leadership and development training for our field leaders. Extensive training was conducted for Regional Vice Presidents and Regional Directors, focusing on positive leadership, employee development and coaching skills in order to develop our District Leaders and Salon Managers. In cases where we’ve had to upgrade leadership talent, experienced multi-unit leaders have been added to the organization and have helped drive results. We continue to leverage our cosmetology school relationship with Empire Education and have begun a national campus recruiting program to help build our stylist talent pipeline.
Technical Education Programs. We are investing in training programs that will become our point of difference in attracting and retaining stylists. Our first priority is expanding our technical education team. We also rolled out new stylist training programs to increase coordination and performance of newly opened salons, began retraining stylists in core technical skills, partnered with product vendors to leverage their training teams, and are in the process of piloting guest experience/technical training programs supporting our Supercuts and SmartStyle concepts.
Mr. Hanrahan concluded, "While we are making progress on the turnaround, we know this will not be a linear process. The work we have done to lay the foundation for the turn and the progress we are seeing from our strong field leaders tells me we are moving in the right direction."
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Revenues. Revenue in the quarter of $464.6 million declined $4.0 million, or 0.9%, compared to the prior year quarter. Same-store sales increased 0.6% compared to the prior year quarter.
Service revenues were $364.7 million, a $7.0 million reduction, or 1.9%, compared to the prior year quarter. During the period, same-store service sales were flat, as a decline in guest traffic of 0.6% was offset by an increase in average ticket price of 0.6%. The remaining 190 basis point decline in service revenues compared to the prior year quarter was primarily due to a net reduction of 195 North American salons.
Product revenues were $88.8 million, an increase of $2.0 million, or 2.3%, compared to the prior year quarter. Product same-store sales for the quarter increased 3.5%, driven by an increase in guest traffic of 4.1%, partly offset by a decrease in average ticket price of 0.6%. A net reduction of 195 North American salons partly offset the increase in product revenues.
Royalties and fees were $11.0 million, an increase of $0.9 million, or 9.2% compared to the prior year quarter. Franchisees posted positive same-store sales during the quarter and the Company added 111 net franchised locations in the last twelve months.
Cost of Service and Product. Cost of service and product, as a percent of associated revenues, increased to 59.2%, or 50 basis points, compared to the prior year quarter. Excluding the impact of discrete items in the prior period, cost of service and product as a percent of service and product revenues increased 70 basis points compared to the prior year quarter.
Cost of service as a percent of service revenues for the quarter increased 80 basis points versus the prior year quarter, to 61.3%. The primary drivers were higher field incentives as we anniversary against an incentive-lite year, state minimum wage increases and stylist productivity, partly offset by lower health insurance costs.
Cost of product as a percent of product revenues was 50.7%, a decrease of 10 basis points when compared to the prior year quarter. Excluding the impact of discrete items in the prior year, cost of product as a percent of product revenues increased 90 basis points when compared to the prior year quarter, representing the impact of higher retail promotions undertaken during the quarter.
Site Operating Expenses. Site operating expenses of $51.7 million increased $0.8 million compared to the prior year quarter. This was primarily driven by lapping last year’s favorable impact from adjustments to self-insurance reserves.
General and Administrative. General and administrative expenses of $45.2 million increased $0.8 million compared to the prior year quarter. Excluding the impact of discrete items in both periods, general and administrative expenses increased $0.9 million compared to the prior year quarter. This increase was primarily driven by planned strategic investments in Asset Protection and Human Resources initiatives, partly offset by cost savings.
Rent. Rent expense of $77.5 million decreased $1.5 million compared to the prior year quarter. This decrease was primarily the result of the net reduction of 195 North American salons.
Depreciation and Amortization. Depreciation and amortization was $22.2 million compared to $23.8 million in the prior year quarter, a decrease of $1.6 million. Excluding the impact of discrete items in the prior period, depreciation and amortization decreased $0.9 million compared to the prior year quarter. The decrease was primarily due to salon closings.
Equity in Affiliates. Income from equity method investments and affiliated companies was $0.4 million compared to $2.0 million in the prior year quarter, a decrease of $1.6 million. Excluding the impact of discrete items in the prior period, equity in affiliates decreased $0.6 million compared to the prior year quarter, primarily due to lower current year earnings by Empire Education.
EBITDA, as Adjusted. EBITDA, as adjusted, which excludes the impact of equity in earnings of affiliated companies and discrete items in both periods, was $22.1 million, a decrease of $5.3 million compared to the prior year quarter.
Interest. Interest expense of $3.1 million declined $1.4 million as compared to the prior year quarter. The decrease was due to settlement of the $172.5 million convertible debt in July, partly offset by interest expense related to the $120.0 million note placement in November 2013.
Discrete Items. Discrete items for the current quarter consisted of $0.7 million of legal expense.
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 first quarter results today, November 4, 2014, 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 888-389-5997 and entering access code 7675796. A replay of the presentation will be available later that day. The replay phone number is 888-203-1112, access code 7675796.
Regis Corporation (NYSE:RGS) is the leader in beauty salons and cosmetology education. As of September 30, 2014, the Company owned, franchised or held ownership interests in 9,652 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 impact of significant initiatives, changes in our management and organizational structure and our ability to attract and retain our executive management team; negative same-store sales; the success of our stylists and our ability to attract, train and retain talented stylists; changes in regulatory and statutory laws; the effect of changes to healthcare laws; our ability to protect the security of sensitive information about our guests, employees, vendors or Company information; the Company's reliance on management information systems; the continued ability of the Company to implement cost reduction initiatives; reliance on external vendors; changes in distribution channels of manufacturers; compliance with debt covenants; financial performance of our franchisees; competition within the personal hair care industry; changes in economic conditions; failure to standardize operating processes across brands; the ability of the Company to maintain satisfactory relationships with certain companies and suppliers; financial performance of our investment with Empire Education Group; changes in interest rates and foreign currency exchange rates; 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, 2014. 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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SAME-STORE SALES (1):
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Non-GAAP Reconciliations
We believe our presentation of non-GAAP operating income, net (loss) income, net (loss) 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 the non-GAAP measures are useful to investors because they provide supplemental information 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 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 months ended September 30, 2014 and 2013:
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:
Non-GAAP tax provision adjustments primarily relate to changes in taxable income or loss resulting from the non-GAAP reconciling items addressed above. During the twelve months ended June 30, 2014, the Company established a valuation allowance against its U.S. and U.K. deferred tax assets. As a result of the valuation allowance, the Company did not record any tax effect for the non-GAAP adjustments during the three months ended September 30, 2014. The non-GAAP weighted average shares adjustments are due to the change in non-GAAP net (loss) income as compared to the U.S. GAAP net (loss) income, resulting from the non-GAAP reconciling items addressed herein. Non-GAAP net (loss) income per share reflects the weighted average shares associated with non-GAAP net (loss) income, which may include the dilutive effect of common stock and convertible share equivalents, if applicable.
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SOURCE Regis Corporation
Mark Fosland
Regis Corporation
SVP, Finance And Investor Relations
952-806-1707
Regis Corporation is the beauty industry's global leader in beauty salons, hair restoration centers and cosmetology education.