MINNEAPOLIS - August 23, 2016 - (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, 2016 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.
Fiscal 2016 Highlights:
Fourth Quarter 2016 Results:
Dan Hanrahan, President and Chief Executive Officer, commented, “I am proud of the work our organization has put forth to deliver our first positive full year sales comp since fiscal 2007. This could not have been achieved without improved execution in the organization around our key strategies focused on Leadership Development, Technical Education and Asset Protection. I am also pleased by the fact we expanded our EBITDA, as adjusted, by $3.8 and $3.0 million for the full year and the fourth quarter, respectively. This reflects our continued efforts to contain our cost structure while we are fixing our business. During the year, we aggressively grew our franchising business, strengthened our balance sheet, and returned $101 million to shareholders in the form of share repurchases. That said, I end the year with mixed emotions. We still need to reverse guest traffic declines that have persisted for many years and fourth quarter same-store sales declined by 1.4%. This demonstrates the opportunity we have to continue to improve our execution capabilities and a key reason why I have said over the past three years our improvement would not be linear.”
Mr. Hanrahan concluded, “As I look toward fiscal 2017, I recognize the path to sustainable growth is in the quality of our field leadership and execution capabilities. Transforming a culture comprised of 45,000 stylists, 1,000 field leaders and 7,000 salons requires strong execution, an ongoing commitment and time. I am confident our strategies will make Regis the place where stylists can have successful and satisfying careers that, in turn, will deliver sustainable growth in guest traffic and profitability.”
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Revenues. Revenue in the quarter of $447.7 million declined $15.2 million, or 3.3%, compared to the prior year quarter. Same-store sales decreased 1.4% compared to the prior year quarter. Management estimates the shift of Easter from April of last year to March of this year negatively impacted same-store sales by approximately 40 basis points during the fourth quarter of the current year. The remaining 190 basis point, or $9.2 million, decline in revenue, compared to the prior year quarter, was primarily due to the closing of unprofitable salons and foreign currency, partly offset by one more calendar day in the quarter and growth from royalties and fees.
Service revenues were $348.9 million, a $13.4 million, or 3.7% decrease, compared to the prior year quarter. Same-store service sales decreased 1.6%, driven by a decline in guest traffic of 5.1%, partly offset by an increase in average ticket of 3.5%. The remaining 210 basis point, or $7.9 million, decline in service revenues, compared to the prior year quarter, was primarily due to the closing of unprofitable salons and foreign currency, partly offset by one more calendar day in the quarter.
Product revenues were $86.7 million, a decrease of $1.9 million, or 2.2%, compared to the prior year quarter. Product same-store sales for the quarter decreased 0.8%, driven by a decrease in traffic of 0.9%, partly offset by a 0.1% increase in average ticket. The other 140 basis point, or $1.3 million, decline in product revenues, compared to the prior year quarter, was primarily due to the closing of unprofitable salons and foreign currency, partly offset by one more calendar day in the quarter.
Royalties and fees were $12.1 million, an increase of $0.2 million, or 1.4% compared to the prior year quarter. Franchisees posted positive same-store sales during the quarter. The timing of new franchised-salon openings impacted results in the quarter. The Company added a net 42, or 1.7%, and a net 172, or 7.4%, new franchised locations during the quarter and year, respectively.
Cost of Service and Product. Cost of service and product, as a percent of service and product revenues, increased 90 basis points to 59.6% compared to the prior year quarter.
Cost of service as a percent of service revenues for the quarter increased 60 basis points versus the prior year quarter, to 62.1%. The primary drivers were state minimum wage increases and higher health insurance costs, partly offset by the timing of Easter Sunday pay and lower salon incentives.
In the fourth quarter, the Company issued a press release stating new U.S. Department of Labor overtime rules, effective December 1, 2016, could increase its costs from $0 to $5 million per year. After considering alternatives to mitigate these cost increases, the Company now believes the annualized impact will be on the lower end of this range.
Cost of product as a percent of product revenues was 49.5%. The increase of 250 basis points when compared to the prior year quarter was mainly the result of lapping one-time inventory improvements.
Site Operating Expenses. Site operating expenses of $44.8 million decreased $3.6 million compared to the prior year quarter. Excluding the impact of discrete items in the prior year period, site operating expenses decreased $1.3 million. This was primarily driven by a net reduction of 233 salons, the timing of marketing expenses, cost savings, and foreign currency, partly offset by lapping favorable self-insurance costs and certain tax refunds.
General and Administrative. General and administrative expenses of $43.5 million decreased $6.6 million compared to the prior year quarter. Excluding the impact of discrete items in the current and prior periods, general and administrative expenses decreased $6.4 million compared to the prior year quarter. The decrease was mainly due to lower incentive costs, lapping certain costs in the prior year quarter, timing of expenses throughout the year, cost savings and foreign currency, partly offset by planned strategic investments.
Rent. Rent expense of $73.6 million decreased $4.6 million compared to the prior year quarter. This decrease was primarily the result of a net reduction of 233 salons, lapping certain lease renewal costs in the prior year quarter, receipt of a one-time landlord credit, and foreign exchange, partly offset by rent inflation.
Depreciation and Amortization. Depreciation and amortization was $15.6 million compared to $22.0 million in the prior year quarter, a decrease of $6.5 million. This decrease was primarily due to a net reduction of 233 salons and lower non-cash salon fixed asset impairments.
Income Taxes. During the three months ended June 30, 2016 and 2015, the Company recognized income tax expense of $4.1 million and tax benefit of $2.2 million, at effective tax rates of 42.6% and 92.6%, respectively.
The recorded tax expense and effective tax rates for the three and twelve months ended June 30, 2016 and 2015 were different than what would normally be expected due to the impact of the deferred tax valuation allowance. The majority of the tax expense relates 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 twelve months ended June 30, 2016 includes non-cash expense of $4.5 and $7.9 million, respectively, related to this matter. This non-cash impact will continue as long as the Company has a valuation allowance against most of its deferred tax assets and is expected to approximate $7.8 million of expense for the year ending June 30, 2017.
Equity in Affiliates. Income from equity method investments and affiliated companies was flat compared to a loss of $1.8 million in the prior year quarter. The prior year loss of $1.8 million represented the Company's portion of EEG's loss.
EBITDA, as Adjusted. EBITDA, as adjusted, which excludes the impact of equity in earnings of affiliated companies and discrete items in both periods, was $27.4 million, an improvement of $3.0 million compared to the prior year quarter.
Capital Allocation. During the fourth quarter, the Company repurchased 0.3 million shares for $4.0 million at an average price of $13.65 per share, excluding transaction costs. For the full year, the Company repurchased 7.6 million shares for $101.0 million at an average price of $13.19 per share, excluding transaction costs. At June 30, 2016, approximately $60 million remained outstanding under the Company's existing share repurchase authorization.
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 23, 2016, at 9 a.m., Central time. Interested parties are invited to participate in the live webcast by logging on to www.regiscorp.comor participate by phone by dialing (877) 852-6561. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 8618174.
Regis Corporation (NYSE:RGS) is the leader in beauty salons and cosmetology education. As of June 30, 2016, the Company owned, franchised or held ownership interests in 9,483 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; 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; financial performance of our franchisees; 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 under Item 1A of this Form 10-K. 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-Q and 8-K and Proxy Statements on Schedule 14A.
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Non-GAAP Reconciliations
We believe our presentation of non-GAAP operating income, net income (loss), net income (loss) 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 and twelve months ended June 30, 2016 and 2015:
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:
* In the three month period ended June 30, 2016, the Company did not adjust results for self-insurance reserves.
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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)
Adjusted EBITDA
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 loss of affiliated companies, and identified items impacting comparability for each respective period. For the three and twelve months ended June 30, 2016 and 2015, 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 accelerated depreciation related to the corporate office consolidation 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 adjusted EBITDA. The impacts of the Company's portion of the deferred tax asset valuation allowance established by EEG, the impairment on the Company's investment in EEG and the recovery of previously impaired investments in an affiliate, are already included by excluding the impact of the Company’s equity in loss of affiliated companies, net of taxes, as reported.
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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.