MINNEAPOLIS - May 04, 2017 - (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 third fiscal quarter ended March 31, 2017 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.
*Sales of $412.6 million, a decline of $30.0 million. Same-store sales decreased 2.9% with same-store service sales decreasing 2.9% and same-store product sales decreasing 3.0%.
*Operating loss of $12.8 million compared to a gain of $5.6 million in the prior year quarter.
*Net loss of $18.5 million or $0.40 per diluted share.
*EBITDA, as adjusted, of $14.8 million compared to $22.9 million in the prior year quarter.
*Diluted EPS, as adjusted, was ($0.18) compared to ($0.06) in the prior year quarter.
Hugh Sawyer, President and Chief Executive Officer, commented, “Regis is a great company with strong brands and a talented group of stylists, managers and professionals. Given the inherent strength of our core assets, our financial results have been disappointing. I look forward to working with the Regis team to accelerate the growth of our franchise business while addressing performance improvement opportunities in our Company-owned salons.”
Mr. Sawyer also provided an update on the Company’s strategic and operational initiatives. “We are in the process of finalizing and implementing an operationally-focused 120-day turnaround plan designed to improve the results of our Company-owned salons. Our near-term objective is to stabilize performance and establish a platform for longer-term revenue and earnings growth in these Company salons. Given certain execution factors, I am not yet at a point where I can share the details. However, the core components are focused on improving our guests’ experience, better managing variable salon labor and disinvesting in certain programming that does not create value. Last week, a number of key executives within our organization were redeployed to these value-creating initiatives.
“At the same time, we are making thoughtful decisions to accelerate the growth of our franchise business, including the promotion of Eric Bakken to President of our Franchise business. This strategic initiative is intended to facilitate an ongoing multi-year transformation of our operating platform that balances our commitment to high-performing Company salons while enabling strategic optionality. In the third quarter, we reached agreements to sell nearly 200 Company-owned SmartStyle salons to franchisees and expect the bulk of these refranchise agreements will close in the first quarter of fiscal 2018. Selling these non-core salons is expected to improve our results as they produced negative four-wall cash flow over the last twelve months. Moreover, these actions will generate sales proceeds, franchise fees and ongoing royalty revenue for the Company.
“In closing, I am delighted to join the Regis team. It is a privilege to serve our stakeholders and I am committed to building a championship team for our shareholders, salon guests, employees and franchise partners. At Regis, we intend to play the game to win.”
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Prior year adjusted results have been recast to exclude the prior year self-insurance reserve adjustment of $0.4 million.
Same-Store Sales. Same-store sales decreased 2.9% compared to the prior year quarter. Management estimates the shift of Easter, from March of last year to April of this year, negatively impacted same-store sales by approximately 50 basis points during the third quarter of the current year, and expects this impact to reverse in the upcoming fourth quarter.
Revenues. Revenue in the quarter of $412.6 million declined $30.0 million, or 6.8%, compared to the prior year quarter. Same-store sales decreased 2.9% compared to the prior year quarter. The remaining 390 basis point, or $18.3 million decline in revenue, compared to the prior year quarter was primarily due to the closing of unprofitable salons, unfavorable calendar shifts and foreign currency.
Service revenue was $319.5 million, a $24.6 million, or 7.1% decrease, compared to the prior year quarter. Same-store service sales decreased 2.9%, driven by a decline in same-store guest visits of 5.5%, partly offset by an increase in average ticket price of 2.6%. The remaining 420 basis point, or $15.2 million, decline in service revenues compared to the prior year quarter was primarily due to the closing of unprofitable salons, unfavorable calendar shifts and foreign currency.
Product revenue was $81.5 million, a decrease of $5.2 million, or 6.0%, compared to the prior year quarter. Product same-store sales for the quarter decreased 3.0%, driven by a decrease in same-store transactions of 5.3%, partly offset by an increase in average ticket price of 2.3%. The remaining 300 basis point, or $3.0 million, decline in product revenues compared to the prior year quarter was primarily due to the closing of unprofitable salons, unfavorable calendar shifts and foreign currency.
Royalties and fees were $11.6 million. Royalties increased 0.4% driven primarily by increased franchise salon counts. This increase was offset by a higher level of franchise termination fees in the prior year quarter and lower initial franchise fees. While the number of new salons opened in the quarter was flat to last year, the mix of franchisees opening salons in the quarter shifted to existing franchisees, who pay lower fees for opening additional salons.
Cost of Service and Product. Cost of service and product, as a percent of service and product revenues, increased 160 basis points to 62.0% when compared to the prior year quarter.
Cost of service as a percent of service revenues for the quarter increased 200 basis points versus the prior year quarter, to 65.1%. The primary drivers were lower stylist productivity, state minimum wage and other inflation increases, and higher credit card fees as the prior year benefited from a rebate, partly offset by lower salon-level incentives.
Cost of product as a percent of product revenues was 49.9%. The increase of 30 basis points when compared to the prior year quarter was mainly due to inventory write-offs associated with salon closures.
Site Operating Expenses. Site operating expenses of $40.3 million decreased $2.6 million compared to the prior year quarter. This was primarily driven by a net reduction of 381 salons and cost savings, partly offset by a favorable self-insurance reserve adjustment in the prior year quarter.
General and Administrative. General and administrative expenses of $49.8 million increased $7.2 million compared to the prior year quarter. Excluding the impact of discrete items in the current and prior year quarters, general and administrative expenses decreased $3.8 million. The decrease was a result of lower incentive compensation, partly offset by planned strategic investments in technical training.
Rent. Rent expense of $69.8 million decreased $4.6 million compared to the prior year quarter. This decrease was primarily the result of a net reduction of 381 salons and foreign exchange, partly offset by rent inflation.
Depreciation and Amortization. Depreciation and amortization was $17.0 million, which was flat compared to the prior year quarter. Year-over-year decreases due to a net reduction of 381 salons were offset by an increase in non-cash salon fixed asset impairments.
Income Taxes. During the three months ended March 31, 2017 and 2016, the Company recognized tax expense of $3.9 and $6.3 million, respectively, at effective tax rates of (26.5%) and 149.2%, respectively.
The recorded tax provision and effective tax rates for the three months ended March 31, 2017 and 2016 were different than what would normally be expected primarily due to the impact of the deferred tax valuation allowance. The majority of the tax provision related 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 nine months ended March 31, 2017 included non-cash tax expense of $3.1 million and $6.4 million, respectively, related to this matter. This non-cash impact will continue as long as the Company has a valuation allowance in place against most of its deferred tax assets and is expected to approximate $7.7 million of expense for the year ending June 30, 2017.
EBITDA, as Adjusted. EBITDA, as adjusted, was $14.8 million, a decline of $8.1 million compared to EBITDA, as adjusted, in the prior year quarter.
Discrete Items. Discrete items for the current quarter totaled $10.2 million of expense, comprised of the following items:
Expense:
Income:
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 third quarter results today, May 4, 2017, 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 (877) 548-7906 and entering access code 7540672. A replay of the presentation will be available later in the day. The replay phone number is (888) 203-1112, access code 7540672.
Regis Corporation (NYSE:RGS) is the leader in beauty salons and cosmetology education. As of March 31, 2017, the Company owned, franchised or held ownership interests in 9,217 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 evolve and execute 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; our ability to sell company-owned salons to franchisees; performance of our franchisees; 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; 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 in the Company’s Annual Report on Form 10-K for the year ended June 30, 2016. 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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Non-GAAP Reconciliations
We believe our presentation of non-GAAP operating (loss) income, net loss, net 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 nine months ended March 31, 2017 and 2016:
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:
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Paul Dunn
Regis Corporation
VP, Finance and Investor Relations
952-947-7915
SOURCE Regis Corporation
Regis Corporation is the beauty industry's global leader in beauty salons, hair restoration centers and cosmetology education.