MINNEAPOLIS - August 28, 2015 - (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 fourth quarter ended June 30, 2015 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 are not comparable to prior periods.
Dan Hanrahan, President and Chief Executive Officer, commented, “Fiscal 2015 has been a year where we began to stabilize the business and we have seen change beginning to add value in many of our salons and districts. Our overall business reported same-store sales of minus 80 and 30 basis points for the fourth quarter and full year, respectively. We’ve made significant progress against our fiscal 2015 initiatives focused around Leadership Development, Asset Protection and Technical Education. Our strong leaders are driving sustainable improvement by using the tools, processes and metrics we provide to drive growth in their districts and salons quarter after quarter. They are becoming better at leading their salons and hiring and retaining top stylists and salon managers. To date, they continue to represent slightly over half our business. We are focused on those leaders who have yet to show progress by providing ongoing training and development and we continue to upgrade our field talent.”
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.
Leadership Development. As part of our ongoing effort to build a culture that provides an environment for stylists to succeed, we continued our work to develop, and where necessary, upgrade field leadership capabilities. We continued to train Regional Vice Presidents and Regional Directors, delivering on our commitment to offer important foundational development, focused on positive leadership, operational excellence, salon-level execution, presentation, coaching and training skills, strategic thinking, business planning and multi-unit oversight. In the back half of 2015, we rolled out training to all of our District Leaders, integrating technical education with positive leadership. In the fourth quarter, we continued our Salon Manager training pilot, focused on stylist recruitment, onboarding and retention, guest retention and basic salon operations. The pilot identified key developmental needs and helped us understand the pace and vehicles in which to deliver this type of training. As a result, we will introduce our new Salon Manager curriculum in fiscal 2016. This is a comprehensive program that helps Salon Managers become more confident and competent in their roles as teacher, leader and coach to stylists and focuses them on stylist retention and salon staffing. As designed, Salon Managers will review short bursts of online training tailored to key operational, leadership and revenue-generating programs with knowledge tests, applicable scenarios, and reinforcement and coaching by their District Leaders.
Technical Education. Providing meaningful technical education to our stylists is critical to satisfy their desire to develop their craft and make Regis their career destination. We are working to become more localized in the way we deliver and execute technical and experiential training and are nearly 50% complete in our efforts to recruit and align 92 Artistic Directors with our Regional Directors. These programs will provide our stylists with opportunities to receive several technical training sessions each year. When fully implemented, the program will ensure all salons receive in-salon technical training and provide regional cluster classes for our stylists to leverage based on specific needs.
Asset Protection. Our Asset Protection team continued helping our stylists and salons improve their sales performance and salon profitability. Through our stylist asset awareness program and salon visits, they are encouraging field leaders and stylists to make the right choices to optimize their individual success and revenues of Regis. During the fourth quarter, the Asset Protection team conducted approximately 800 awareness training sessions and salon visits, bringing our year to date total to approximately 3,500. Sales improvements from these visits were maintained in the fourth quarter, as our field leaders hold salons accountable for acceptable asset protection behaviors.
Mr. Hanrahan concluded, “Heading into fiscal 2016, I am confident we are following the right strategies to make Regis the place where stylists can have successful and satisfying careers. Doing so will drive improved stylist retention, salon staffing, salon-level execution, and in turn, great guest experiences that lead to consistent, profitable growth. We have significantly strengthened our field leadership and execution capabilities, improved our understanding of what drives successful results and developed reporting and analytics to measure our progress on stylist retention and salon staffing. That said, it is important to remember we are transforming our culture into one that is focused on realizing the potential of each of our salons. It takes time for cultural shifts to occur and is difficult to predict the pace at which our organization can change. We have significant work ahead of us, but I am proud of the foundational work already in place to help us drive long-term growth and shareholder value.”
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Revenues. Revenue in the quarter of $462.9 million declined $(21.0) million, or 4.3%, compared to the prior year quarter. Same-store sales decreased 0.8% compared to the prior year quarter.
Service revenues were $362.3 million, a $(17.9) million decline, or 4.7%, compared to the prior year quarter. During this period, same-store service sales decreased 0.6%, driven by a decline in guest traffic of 1.7%, partly offset by an increase in average ticket of 1.1%. The remaining 410 basis point decline in service revenues compared to the prior year quarter was primarily due to a net reduction of 252 salons and foreign currency.
Product revenues were $88.6 million, a decrease of $(4.0) million, or 4.3%, compared to the prior year quarter. Product same-store sales for the quarter decreased 1.8%, driven by a decrease in average ticket of 2.6%, partly offset by an increase in guest traffic of 0.8%. The remaining 250 basis point decline in product revenues compared to the prior year quarter was primarily due to a net reduction of 252 salons and foreign currency.
Royalties and fees were $11.9 million, an increase of $0.8 million, or 7.3% compared to the prior year quarter. Franchisees posted positive same-store sales during the quarter and the Company added 145 net franchised locations in the last twelve months.
Cost of Service and Product. Cost of service and product, as a percent of service and product revenues, decreased to 58.7%, or 30 basis points, compared to the prior year quarter.
Cost of service as a percent of service revenues for the quarter was 61.5%, an increase of 30 basis points compared to the prior year quarter. State minimum wage increases, lapping of certain benefits in the prior year, increased healthcare and benefit costs and higher field incentives, as we lap an incentive-lite year, were partly offset by improved stylist productivity.
Cost of product as a percent of product revenues was 47.0%, an improvement of 330 basis points when compared to the prior year quarter. This is mainly the result of a favorable book-to-physical inventory adjustment, reflecting improved salon level inventory management and compliance throughout the year.
Site Operating Expenses. Site operating expenses of $48.4 million decreased $(2.7) million compared to the prior year quarter. Excluding the impact of discrete items in the current and prior year quarters, site operating expenses decreased $(6.2) million compared to the prior year quarter. The decrease was primarily driven by lower self-insurance reserves, a one-time refund of sales and use taxes, a net reduction of 252 salons, cost savings and lapping of certain costs in the prior year quarter.
General and Administrative. General and administrative expenses (G&A expense) for the year ended June 30, 2015 was $186.1 million. Due to the timing of certain expenses, fourth quarter G&A expense was disproportionately higher than the run-rate for the first three quarters of the current fiscal year. As a result, general & administrative expenses for the full fiscal year of $186.1 million is more reflective of the overall run-rate. We remain focused on simplifying and driving further cost efficiencies.
In the fourth quarter, general and administrative expenses of $50.1 million increased $5.1 million compared to the prior year quarter. Excluding the impact of discrete items in both periods, general and administrative expenses increased $5.9 million compared to the prior year quarter. The increase was driven by higher incentives as we lap an incentive-lite year, and planned strategic investments in Asset Protection and Human Resource initiatives, partly offset by reduced professional fees.
Rent. Rent expense was $78.2 million, or 16.9% of revenues. As a percentage of revenues, rent decreased 30 basis points versus the prior year quarter. The net reduction of 252 salons was partly offset by negative leverage from same-store sales declines.
In the fourth quarter, the Company identified a $5.3 million understatement of its deferred rent liability. This did not have a material impact on adjusted earnings in any fiscal year from 2011 through 2015. Non-cash rent expense increased $63,000, $157,000 and $471,000 in fiscal 2015, 2014 and 2013, respectively, and $4.3 million of this understatement related to fiscal 2010 and prior. Cash flows were not impacted in any year because the understatement relates to non-cash impacts of deferred rent and deferred tax. Because the overall understatement was deemed to be material to the fourth quarter and fiscal year earnings, the Company revised its annual financial statements for fiscal years 2011 through 2015 and quarterly financial statements for fiscal years 2014 and 2015 to reflect the revised accounting treatment for deferred rent. Accordingly, the Company concluded a material weakness existed in its internal controls related to the accounting for leases, and is the process of remediating this weakness.
Depreciation and Amortization. Depreciation and amortization was $22.0 million compared to $22.9 million in the prior year quarter, a decrease of $(0.9) million. This decrease was primarily driven by lower depreciation expense on a reduced salon asset base, partly offset by higher non-cash impairment charges.
Income Taxes. Income tax benefit of $2.2 million primarily represents a $2.0 million non-cash reversal of previously recorded charges relating to tax benefits on certain indefinite-lived assets the Company cannot recognize for reporting purposes. While the total non-cash expense related to this matter for the year ended June 30, 2015 was $8.9 million, there is variation from quarter to quarter as a result of how the effective tax rate is computed at interim periods.
The presence of a valuation allowance, including the non-cash tax effect on certain indefinite-lived assets, affects comparability of income taxes, as adjusted.
Equity in Affiliates. Loss from equity method investments and affiliated companies was $(1.8) million, compared to a $(16.4) million loss in the prior year quarter. Excluding the impact of discrete items in the prior year, equity in losses of affiliates improved $2.0 million compared to the prior year quarter, primarily due to lower non-cash charges recorded by Empire Education Group in the current year quarter.
EBITDA, as Adjusted. EBITDA, as adjusted, which excludes the impact of equity in earnings of affiliated companies and discrete items in both periods, was $24.4 million, a decrease of $(1.4) million compared to the prior year quarter.
Discrete Items. Discrete items for the current quarter netted to $3.1 million of expense, comprised of the following items:
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 fourth quarter results today, August 28, 2015, 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 800-967-7134. A replay of the presentation will be available later that day. The replay phone number is 888-203-1112, access code 9656366.
Regis Corporation (NYSE:RGS) is the leader in beauty salons and cosmetology education. As of June 30, 2015, the Company owned, franchised or held ownership interests in 9,556 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 execute on 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; changes in regulatory and statutory laws; changes in tax rates; the effect of changes to healthcare laws; our ability to manage cyber threats and protect the security of sensitive information about our guests, employees, vendors or Company information; reliance on management information systems; reliance on external vendors; changes in distribution channels of manufacturers; financial performance of our franchisees; internal control over the accounting for leases; 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; financial performance of our investment with Empire Education Group; 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, 2015. 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 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.
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 three months ended December 31, 2013, the Company established a valuation allowance against the majority of its deferred tax assets. Any non-GAAP adjustments identified after the establishment of the valuation allowance were not tax effected in the Non-GAAP tables.
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SOURCE Regis
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.