Company Reports Net Income from Continuing Operations of $4.8 Million, a $16.6 Million Increase Versus Prior Year
Adjusted EBITDA of $20.8 Million is $2.9 Million, or 16.0% Favorable Year-Over-Year; Year-To-Date Adjusted EBITDA of $62.9 Million Increased $5.1 Million, or 8.8% Year-Over-Year
During the Quarter, the Company Successfully Restructured its Company-Owned SmartStyle® Portfolio by Closing 597 Cash Flow Negative Salons, Closed on a New Five-Year, Unsecured Revolving Credit Facility Subsequently Increased to $295 Million and Redemption of the Company’s 5.5% High-Yield Notes and Repurchased 586,000 Shares of Its Common Stock
MINNEAPOLIS - (BUSINESS WIRE) - May 01, 2018 - Regis Corporation (NYSE: RGS):
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Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose primary business is owning, operating and franchising hair salons, today reported third quarter 2018 net income from continuing operations of $4.8 million, or $0.10 per diluted share as compared to net loss from continuing operations of $11.8 million, or $0.26 per diluted share in the third quarter of 2017. The Company’s reported results include $3.0 million of costs associated with securing the new revolving credit facility and redemption of the Company’s 5.5% high-yield notes, a net $2.3 million of one-time costs associated with the restructuring of the Company's SmartStyle® salon portfolio and $1.3 million of other discrete costs, partially offset by $1.4 million of related tax benefits. Excluding discrete items, and the losses from discontinued operations, the Company reported third quarter 2018 as adjusted net income of $9.9 million, or $0.21 earnings per diluted share versus net loss of $1.6 million, or $0.04 earnings per diluted share, for the same period last year.
Total revenue in the quarter of $300.8 million decreased $12.7 million, or 4.0%, year-over-year driven primarily by the closure of 597 non-performing SmartStyle salons and the conversion of 376 company-owned salons to franchised locations, partially offset by positive same-store sales comps of 1.6%. Reported revenue includes $2.1 million of benefit related to discounted close-out product sales as part of the closure of the 597 non-performing SmartStyle salons. Excluding this one-time benefit, as adjusted sales were $298.7 million and related same-store sales comps were approximately 0.9%. Management estimates the shift of the Easter holiday benefited third quarter same-store sales comps by 90 basis points.
Third quarter EBITDA of $6.6 million increased $5.5 million versus the same period last year. As a percentage of sales, the Company's third quarter EBITDA margin rate of 2.2% compares to 0.4% in the third quarter last year. Third quarter adjusted EBITDA of $20.8 million was 7.0% of adjusted sales and was $2.9 million, or 16.0% favorable year-over-year. Last year's third quarter adjusted EBITDA margin rate was 5.7%.
On a full year basis, the Company reported net income from continuing operations of $54.9 million, or $1.17 per diluted share as compared to net loss from continuing operations of $5.1 million, or $0.11 per diluted share in the prior year. On an adjusted basis, net income from continuing operations was $17.5 million, an increase of $11.8 million. Adjusted EBITDA of $62.9 million increased $5.1 million, or 8.8% versus the same period last year.
Hugh Sawyer, President and Chief Executive Officer, commented, "We are pleased to report continued progress in our multi-year turnaround strategy, including improvement in both our quarterly and year-over-year adjusted EBITDA results. Mr. Sawyer continued, "During a busy quarter we closed on our new five-year revolving credit facility, accelerated the growth of our franchise platform and launched an industry-exclusive sponsorship of Major League Baseball through our Supercuts brand. We also began to consider options to further expand our franchise concept within our Supercuts company-owned salon portfolio where we believe it may support our strategy and potentially improve shareholder value."
Restructuring of Company-Owned SmartStyle® Portfolio
In January 2018, the Company closed 597 non-performing Company-owned SmartStyle® salons. The 597 non-performing salons generated negative cash flow of approximately $15 million during the twelve months ended September 30, 2017. The action delivered on the Company's commitment to restructure its salon portfolio to improve shareholder value and position the Company for long-term growth. The Company anticipates this action will allow the Company to reallocate capital and human resources to strategically grow its remaining SmartStyle® salons with creative new offerings.
Third Quarter Segment Results
Third quarter revenue, as adjusted, for the Company-owned salon segment decreased 8.3% versus the prior year to $269.8 million. The year-over-year decline in revenue was driven by the closure of unprofitable salons and the sale of Company-owned salons to franchisees, partially offset by an increase in same-store sales of 0.9% driven by a 3.1% increase in average ticket, partially offset by a decrease in traffic of 2.2%.
Third quarter adjusted EBITDA of $28.7 million increased $1.0 million, or 3.6% versus the same period last year driven primarily by benefits from the Company's focus on cost reductions, the closing of unprofitable salons, and same-store sales comp increases, partially offset by salon-level compensation changes, investments in a strategic digital marketing campaign, health insurance costs, and the prior year inclusion of a more favorable self-insurance reserve adjustment. The EBITDA margin rate of the Company-owned salon segment of 10.6% increased 120 basis points compared to the third quarter of last year.
Third quarter Franchise revenue was $28.9 million, a $9.8 million, or 51.0%, increase compared to the prior year quarter. Royalties and fees were $14.0 million, a $2.4 million, or 20.2% increase versus the same period last year. Royalties increased 11.0% driven primarily by positive same-store revenue and increased franchise salon counts. Initial franchise fees increased $1.4 million as the Company opened, or converted, a net 144 franchised locations in the quarter as compared to 46 in the prior year quarter. Product sales to franchisees were $14.9 million, an increase of $7.4 million. Product sales to The Beautiful Group accounted for $6.5 million of this year-over-year sales increase.
Franchise adjusted EBITDA of $10.3 million improved $1.7 million, or 19.4% year-over-year. The Franchise EBITDA margin rate of 35.5% was negatively impacted by roughly 960 basis points due to the low margin rate of product sales to The Beautiful Group in accordance with the terms of our agreement. Removing the dilutive impact of these sales, EBITDA margin rates in the Franchise segment of 45.1% improved 20 basis points when compared to the third quarter of last year.
Consolidated Year-Over-Year General & Administrative ("G&A") Comparability
The Company announced a realignment of its field leadership team by brand during the first fiscal quarter. An outcome of this reorganization is that the costs associated with senior district leaders have been moved out of cost of goods sold and site operating expense, where the expense has historically been recorded, and into G&A. The Company notes that this change does not impact the overall consolidated results but does result in an $8.5 million decrease in cost of goods sold and site expense, and a corresponding $8.5 million increase to G&A this quarter, when compared to the comparable period last year. On a year-to-date basis, this reclassification of expenses decreased cost of goods sold and site expense, and had a corresponding increase to G&A of $23.6 million versus the same period last year.
Transformational Strategy Update
The Company continued to make progress implementing its transformational strategy and operational turnaround initiatives focused on improving the performance of Company-owned salons, while at the same time accelerating the growth of its franchise portfolio. During the quarter, the Company:
Non-GAAP reconciliations:
For GAAP to non-GAAP reconciliations, please refer to attached section titled "Non-GAAP Reconciliations". 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.
Earnings Webcast
Regis Corporation will host a conference call via webcast discussing third quarter results today, May 1, 2018, 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 via telephone by dialing (888) 394-8218 and entering access code 3375512. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 3375512.
Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of March 31, 2018, the Company owned, franchised or held ownership interests in 8,228 worldwide locations. Regis’ corporate and franchised locations operate under concepts such as Supercuts®, SmartStyle®, MasterCuts®, Regis Salons®, Sassoon®, Cost Cutters®, Roosters® and First Choice Haircutters®. Regis maintains an ownership interest in Empire Education Group in the U.S. 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 contains or 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 implement its strategy, priorities and initiatives; our ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of certain salons to franchisees; the ability of the Company to maintain a satisfactory relationship with Walmart; the success of The Beautiful Group; marketing efforts to drive traffic; changes in regulatory and statutory laws including increases in minimum wages; our ability to manage cyber threats and protect the security of sensitive information about our guests, employees, vendors or Company information; reliance on information technology systems; reliance on external vendors; competition within the personal hair care industry; changes in tax exposure; changes in healthcare; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; consumer shopping trends and changes in manufacturer distribution channels; financial performance of Empire Education Group; 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; exposure to uninsured or unidentified risks; ability to attract and retain key management personnel; reliance on our management team and other key personnel 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, 2017. 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.
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 nine months ended March 31, 2018 and 2017:
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:
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 identified items impacting comparability for each respective period. For the three and nine months ended March 31, 2018 and 2017, the items impacting comparability consisted of the items identified in the non-GAAP reconciling items for the respective periods. The impacts of the debt refinancing, income tax provision adjustments associated with the above items, impact of tax reform and the SmartStyle restructuring costs included within depreciation and amortization 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.
REGIS CORPORATION
Reconciliation by reportable segment of reported U.S. GAAP gross profit (excluding depreciation and amortization) to adjusted gross profit (excluding depreciation and amortization), a non-GAAP financial measure
(Dollars in thousands)
(Unaudited)
Gross profit
The Company defines gross profit as service and product revenues less cost of service and cost of product, excluding depreciation and amortization. Non-GAAP gross profit is gross profit, as defined by the Company, adjusted for items impacting comparability for each respective period.
Paul Dunn
Regis Corporation
952-947-7915
VP, Finance and Investor Relations
SOURCE Regis Corporation
Regis Corporation is the beauty industry's global leader in beauty salons, hair restoration centers and cosmetology education.