Regis Reports Fourth Quarter and Fiscal Year 2008 Results

Fourth Quarter Operational Earnings Meet Guidance

Regis Corporation (NYSE:RGS), the global leader in the $170 billion hair care industry, today reported fourth quarter net income of $23.1 million, or $0.54 per diluted share. Fourth quarter earnings included two non-operational items that were not contemplated in previous guidance. The first item relates to an incremental non-cash asset write-off of $4.5 million, on a pre-tax basis, associated with the planned closure of up to 160 underperforming salons which was announced in a press release issued July 9, 2008. The second item relates to a pre-tax $3.4 million benefit from an unplanned change in workers' compensation and other insurance reserve estimates. Absent these two items, fourth quarter earnings were $0.55 per diluted share which was at the low end of the Company's previously issued guidance.

On July 10, 2008, the Company reported revenues for the fourth quarter ended June 30, 2008 of $709 million, compared to $675 million a year ago. Deconsolidation of the beauty schools and the European franchise salon operations reduced revenue in the quarter by approximately $31.5 million. Absent the impact of the school and European deconsolidation, consolidated revenues for the quarter would have increased 10.1 percent. Fourth quarter total same-store sales increased 0.6 percent, falling within the previously issued guidance of 0.5 to 2.5 percent. Same-store service sales in North America increased 3.3 percent during the fourth quarter.

"Our retail business remains a challenge and will continue to have issues for a year or two," commented Paul D. Finkelstein, Chairman and Chief Executive Officer. "Service comps are a barometer as to the health of our business, as nearly seventy percent of our revenues come from services. Third and fourth quarter same-store service sales were the best we have reported in eight years. Regis is well positioned and I am more bullish today, for the long term, than I have been in over four years. We are in the quintessential replenishment business offering affordable services and products. Our strategy of moderately increasing service prices is working and we plan to continue this strategy for the next several years. However, in the near term, my optimism has to be moderated by the current state of the economy which is adversely impacting consumer related businesses. We are no exception, as our current quarter-to-date same-store sales are down slightly."

As of June 30, 2008, Regis Corporation owned, franchised or held ownership interests in 13,551 worldwide locations, a net increase of 102 units during the quarter and 1,135 units for the fiscal year.

Full-Year Results

For the full year, revenues totaled $2.7 billion, up 4 percent compared to $2.6 billion during fiscal year 2007. Deconsolidation of the beauty schools and the European franchise salon operations reduced fiscal year revenue by approximately $86.9 million. Absent the impact of the school and European deconsolidation, consolidated revenues for the year would have increased 7.8 percent. Same-store sales for the full year increased 0.5 percent. Net income was $85.2 million, or $1.95 per diluted share. Fiscal 2008 earnings results included several non-operational items which reduced earnings per diluted share by $0.04. Absent these items, fiscal year 2008 earnings were $1.99 per diluted share.

First Quarter 2009 Outlook

The following outlook pertains to the fiscal first quarter ending September 30, 2008:

  • The Company's non-GAAP earnings per diluted share, which excludes lease termination costs and costs associated with its Trade Secret transformation, is forecasted to be in a range of $0.41 to $0.47.
  • Lease termination costs are expected to be spread across the first half of fiscal 2009, the timing of which is dependent on lease termination negotiations with third parties.
  • The Company forecasts the cost of the Trade Secret transformation to be in a range of $0.03 to $0.05 per diluted share in the first quarter.
  • Consolidated revenue is forecasted to grow four to six percent to a range of $695 million to $705 million, compared to $668 million a year ago. (Revenue growth of approximately seven to nine percent before deconsolidation of beauty schools and the European franchise salon operations.)
  • Consolidated same-store sales are forecasted to be in a range of negative one percent to positive one percent.


Fiscal Year 2009 Outlook Remains Unchanged

The following outlook pertains to the fiscal year ending June 30, 2009:

  • Excluding accretion from future possible acquisitions, the Company's non-GAAP diluted earnings per share, which excludes lease termination costs and costs associated with its Trade Secret transformation, is forecasted to be in a range of $2.03 to $2.29.
  • Excluding revenue from future possible acquisitions, consolidated revenue is forecasted to grow four percent to $2.85 billion. (Revenue growth of approximately six percent before deconsolidation of beauty schools and the European franchise salon operations.)
  • Consolidated same-store sales are forecasted to increase to a range of 0.5 to 2.5 percent.
  • The effective income tax rate is forecasted to be in the high 37 percent range.


Regis Corporation will host a conference call discussing fourth quarter and fiscal year results today at 4:00 p.m., Central time. Interested parties are invited to listen by logging on to www.regiscorp.com or dialing 800-218-9073. A replay of the call will be available through August 23, 2008. The replay phone number is 800-405-2236, access code 11117579#.

About Regis Corporation

Regis Corporation (NYSE:RGS) is the beauty industry's global leader in beauty salons, hair restoration centers and cosmetology education. As of June 30, 2008, the Company owned, franchised or held ownership interests in over 13,500 worldwide locations. Regis' corporate and franchised locations operate under concepts such as Supercuts, Sassoon Salon, Regis Salons, MasterCuts, SmartStyle, Cost Cutters, Trade Secret, PureBeauty, BeautyFirst and Hair Club for Men and Women. In addition, Regis maintains an ownership interest in Provalliance, which operates salons primarily in Europe, under the brands of Jean Louis David, Franck Provost and Saint Algue. Regis also maintains ownership interests in Empire Education Group and various other salon concepts such as Cool Cuts 4 Kids and the MY Style concepts in Japan. System-wide, these and other concepts are located in the U.S. and in over 30 other countries in North America, South America, Europe, Africa and Asia. Regis also maintains a 49 percent ownership interest in Intelligent Nutrients, a business that provides a wide variety of certified organic products for health and beauty. For additional information about the company, including management's current financial outlook and a reconciliation of non-GAAP financial information, please visit the Investor Information section of the corporate website at www.regiscorp.com.

This press release contains "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 competition within the personal hair care industry, which remains strong, both domestically and internationally; price sensitivity; changes in economic conditions; changes in consumer tastes and fashion trends; labor and benefit costs; legal claims; risk inherent to international development (including currency fluctuations); the continued ability of the Company and its franchisees to obtain suitable locations for new salon development; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify, acquire and integrate salons that support its growth objectives; the ability of the Company to maintain satisfactory relationships with suppliers; the ability of the Company to consummate the planned closure of salons and the related realization of the anticipated costs, benefits and time frame; the ability of the Company to successfully complete the transformation of Trade Secret through expansion of product assortments; or other factors not listed above.The ability of the Company to meet its expected revenue growth is dependent on salon acquisitions, new salon construction and same-store sales increases, all of which are affected by many of the aforementioned risks. 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, 2007. 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.


REGIS CORPORATION (NYSE: RGS)
CONSOLIDATED BALANCE SHEET
As of June 30, 2008 and 2007
(Dollars in thousands, except share data)
June 30,
2008 2007
ASSETS
Current assets:
Cash and cash equivalents $127,627 $184,785
Receivables, net 37,824 67,773
Inventories 212,468 196,582
Deferred income taxes 15,954 18,775
Other current assets 51,278 57,149
Total current assets 445,151 25,064
Property and equipment, net 481,851 494,085
Goodwill 870,993 812,383
Other intangibles, net 144,291 213,452
Investment in affiliates 203,706 20,213
Other assets 89,879 66,917
Total assets $2,235,871 $2,132,114
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $230,224 $223,352
Accounts payable 69,693 74,532
Accrued expenses 207,605 240,748
Total current liabilities 507,522 538,632
Long-term debt and capital lease obligations 534,523 485,879
Other noncurrent liabilities 217,640 194,295
Total liabilities 1,259,685 1,218,806
Shareholders' equity:
Common stock, $0.05 par value; issued and
outstanding, 43,070,927 and 44,164,645
common shares at June 30, 2008 and 2007,
respectively 2,153 2,209
Additional paid-in capital 143,265 178,029
Accumulated other comprehensive income 101,973 78,278
Retained earnings 728,795 654,792
Total shareholders' equity 976,186 913,308
Total liabilities and shareholders' equity $2,235,871 $2,132,114

REGIS CORPORATION (NYSE: RGS)
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Year Ended
June 30, June 30,
2008 2007 2008 2007
Revenues:
Service $501,494 $469,357 $1,894,257 $1,793,802
Product 195,940 185,141 775,980 752,280
Royalties and fees 11,610 20,823 68,628 80,506
709,044 675,321 2,738,865 2,626,588

Operating expenses:
Cost of service 286,880 265,022 1,090,710 1,014,781
Cost of product 99,480 92,414 395,979 380,492
Site operating expenses 49,197 45,866 204,001 208,101
General and administrative 82,374 85,982 337,160 328,644
Rent 107,839 102,226 406,270 382,820
Depreciation and amortization 37,008 33,741 130,448 124,137
Goodwill impairment – — – 23,000
Total operating expenses 662,778 625,251 2,564,568 2,461,975

Operating income 46,266 50,070 174,297 164,613

Other income (expense):
Interest expense (10,903) (10,906) (44,571) (41,770)
Interest income and other, net 2,294 1,645 8,373 5,113

Income before income taxes
and equity in income
of affiliated companies 37,657 40,809 138,099 127,956

Income taxes (14,735) (12,934) (53,744) (44,786)
Equity in income
of affiliated
companies, net of income taxes 159 — 849 —
Net income $23,081 $27,875 $85,204 $83,170

Net income per share:
Basic $0.54 $0.63 $1.97 $1.86
Diluted $0.54 $0.62 $1.95 $1.82

Weighted average common
and common equivalent
shares outstanding:
Basic 42,709 44,468 43,157 44,723
Diluted 43,073 45,256 43,587 45,623

Cash dividends
declared per common share $0.04 $0.04 $0.16 $0.16


REGIS CORPORATION (NYSE: RGS)
SELECTED CASH FLOW DATA
(In thousands)

Years Ended
June 30,
2008 2007

Net cash provided by operating activities $222,383 $241,860
Net cash used in investing activities (266,029) (193,049)
Net cash used in financing activities (11,004) (6,425)
Effect of exchange rate changes
on cash and cash equivalents (2,508) 7,002
(Decrease) increase in cash and cash equivalents (57,158) 49,388
Cash and cash equivalents:
Beginning of period 184,785 135,397
End of period $127,627 $184,785

REGIS CORPORATION (NYSE: RGS)
Salon / School / Hair Restoration Center Counts and Revenues


June 30, June 30,
SYSTEM-WIDE LOCATIONS: 2008 2007
Company-owned salons 8,582 8,139
Franchise salons 2,163 3,742
Beauty schools – 56
Company-owned hair restoration centers 57 49
Franchise hair restoration centers 35 41
Ownership interest locations 2,714 389
Total, system-wide 13,551 12,416

SALON LOCATION SUMMARY
June 30, June 30,
NORTH AMERICAN SALONS: 2008 2007
REGIS SALONS
Open at beginning of period 1,099 1,079
Salons constructed 14 17
Acquired 4 49
Less relocations (11) (14)
Salon openings 7 52
Conversions 1 (1)
Salons closed (29) (31)
Total, Regis Salons 1,078 1,099

MASTERCUTS
Open at beginning of period 629 642
Salons constructed 7 15
Acquired — —
Less relocations (6) (12)
Salon openings 1 3
Conversions — —
Salons closed (15) (16)
Total, MasterCuts 615 629
TRADE SECRET
Company-owned salons:
Open at beginning of period 613 615
Salons constructed 16 20
Acquired 2 3
Franchise buybacks 10 —
Less relocations (11) (11)
Salon openings 17 12
Conversions — 1
Affiliated joint ventures 63 —
Salons closed (19) (15)
Total company-owned salons 674 613

Franchise salons:
Open at beginning of period 19 19
Salons constructed 2 —
Acquired 42 —
Less relocations (1) —
Salon openings 43 —
Franchise buybacks (5) —
Affiliated joint ventures 51 —
Salons closed (2) —
Total franchise salons 106 19
Total, Trade Secret 780 632

SMARTSTYLE/COST CUTTERS IN WAL-MART
Company-owned salons:
Open at beginning of period 2,000 1,739
Salons constructed 207 242
Acquired — —
Franchise buybacks 12 21
Less relocations (3) (2)
Salon openings 216 261
Conversions — —
Salons closed (4) —
Total company-owned salons 2,212 2,000

Franchise salons:
Open at beginning of period 151 164
Salons constructed 7 8
Salon openings 7 8
Franchise buybacks (12) (21)
Salons closed — —
Total franchise salons 146 151
Total, SmartStyle/Cost Cutters in Wal-Mart 2,358 2,151

STRIP CENTERS
Company-owned salons:
Open at beginning of period 3,317 3,031
Salons constructed 66 101
Acquired 138 193
Franchise buybacks 128 72
Less relocations (14) (17)
Salon openings 318 349
Conversions — —
Salons closed (104) (63)
Total company-owned salons 3,531 3,317

Franchise salons:
Open at beginning of period 1,998 2,004
Salons constructed 120 135
Acquired(2) — —
Less relocations (11) (19)
Salon openings 109 116
Conversions — —
Franchise buybacks (133) (72)
Salons closed (63) (50)
Total franchise salons 1,911 1,998
Total, Strip Centers 5,442 5,315


INTERNATIONAL SALONS (1):

Company-owned salons:
Open at beginning of period 481 453
Salons constructed 15 25
Acquired 25 12
Franchise buybacks — 4
Less relocations (1) (3)
Salon openings 39 38
Conversions 1 —
Affiliated joint ventures (40) —
Salons closed (9) (10)
Total company-owned salons 472 481

Franchise salons:
Open at beginning of period 1,574 1,587
Salons constructed 50 110
Acquired(2) — —
Less relocations — 1
Salon openings 50 109
Conversions 3 —
Franchise buybacks — (4)
Affiliated joint ventures (1,587) —
Salons closed (40) (118)
Total franchise salons — 1,574
Total, International Salons 472 2,055

TOTAL SYSTEM WIDE SALONS
Company-owned salons:
Open at beginning of period 8,139 7,559
Salons constructed 325 420
Acquired 169 257
Franchise buybacks 150 97
Less relocations (46) (59)
Salon openings 598 715
Conversions 2 —
Affiliated joint ventures 23 —
Salons closed (180) (135)
Total company-owned salons 8,582 8,139

Franchise salons:
Open at beginning of period 3,742 3,774
Salons constructed 179 253
Acquired(2) 42 —
Less relocations (12) (20)
Salon openings 209 233
Conversions 3 —
Franchise buybacks (150) (97)
Affiliated joint ventures (1,536) —
Salons closed (105) (168)
Total franchise salons 2,163 3,742
Total Salons 10,745 11,881

BEAUTY SCHOOLS
Open at beginning of period 56 54
Salons constructed — 2
Acquired — 1
Less closures — —
Conversions (5) —
Affiliate joint ventures (51) —
Less relocations — (1)
Total Beauty Schools — 56


HAIR RESTORATION CENTERS:

Company-owned hair restoration centers:
Open at beginning of period 49 48
Salons constructed 3 —
Acquired — 1
Franchise buybacks 6 1
Less relocations (1) —
Salon openings 8 2
Sites closed — (1)
Total company-owned hair restoration centers 57 49

Franchise hair restoration centers:
Open at beginning of period 41 42
Salons constructed 2 —
Acquired — 3
Less relocations (2) (2)
Salon openings — 1
Franchise buybacks (6) (1)
Sites closed — (1)
Total franchise hair restoration centers 35 41
Total Hair Restoration Centers 92 90
Ownership interest locations 2,714 389
Grand Total, System-wide 13,551 12,416


(1) Canadian and Puerto Rican salons are included in the Regis Salons, Strip Center, MasterCuts and Trade Secret concepts and not included in the International salon totals.

(2) Represents primarily the acquisition of franchise networks.

Relocations represent a transfer of location by the same salon concept. Conversions represent the transfer of one salon concept to another concept.


NOTE 1: REVENUES BY CONCEPT:
For the Periods Ended June 30,
Three Months Twelve Months
(Dollars in thousands) 2008 2007 2008 2007
North American salons:
Regis $127,288 $107,626 $513,820 $498,577
MasterCuts 43,752 42,310 175,974 174,287
Trade Secret (1) 68,597 57,248 257,873 253,250
SmartStyle 132,590 119,235 507,349 462,321
Strip Centers (1) 237,326 202,473 886,646 776,995
Other (2) — 17,077 5,558 —
Total North American salons 609,553 545,969 2,347,220 2,165,430

International salons (1)(3) 63,753 76,194 256,063 253,430
Beauty schools (2) — 21,245 — 85,627
Hair restoration centers (1) 35,738 31,913 135,582 122,101
Consolidated revenues $709,044 $675,321 $2,738,865 $2,626,588

Percent change from prior year 5.0% 6.2% 4.3% 8.1%
Same-store sales
increase (decrease) (4) 0.6% (0.1)% 0.5% 0.2%


(1) Includes aggregate franchise royalties and fees of $11.6 and $20.8 million for the three months ended June 30, 2008 and 2007, respectively, and $68.6 and $80.5 million for the twelve months ended June 30, 2008 and 2007, respectively. North American salon franchise royalties and fees represented 91.6 and 48.4 percent of total franchise revenues in the three months ended June 30, 2008 and 2007, respectively, and 59.2 and 48.2 percent of total franchise revenues in the twelve months ended June 30, 2008 and 2007, respectively.

(2) On August 1, 2007, the Company contributed its 51 accredited cosmetology schools to Empire Education Group, Inc. Accordingly, revenue growth was negatively impacted as a result of the deconsolidation. For the fiscal year ended June 30, 2008, the results of operations for the month ended July 31, 2007 for the accredited cosmetology schools are reported in the North American salons segment. The Company retained ownership of its one North America and four United Kingdom Sassoon schools. Subsequent to August 1, 2007 results of operations for the Sassoon schools are included in the respective North American and international salon segments.

(3) On January 31, 2008, the Company deconsolidated the results of operations of its European franchise salon operations. Accordingly, revenue growth was negatively impacted as a result of the deconsolidation.

(4) Same-store sales increases or decreases are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period. Annual same-store sales increases are the sum of the same-store sales increases computed on a daily basis. Relocated locations are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies so that foreign currency fluctuations do not impact the calculation. We began including hair restoration centers in same-store sales calculations beginning with the third fiscal quarter of 2007. Management believes that same-store sales, a component of organic growth, are useful in order to help determine the increase in salon revenues attributable to its organic growth (new salon construction and same-store sales growth) versus growth from acquisitions.


NOTE 2: FINANCIAL INFORMATION BY SEGMENT:

Financial information concerning the Company's salon,
school, and hair restoration
business is shown in the following tables:

For the Three Months Ended June 30, 2008(1)
Hair
Salons Restoration Unallocated
(Dollars North America International Centers Corporate Consolidated
in thousands)
Revenues:
Service $438,281 $46,954 $16,259 $— $501,494
Product 160,639 16,799 18,502 — 195,940
Royalties
and fees 10,633 — 977 — 11,610
609,553 63,753 35,738 — 709,044

Operating expenses:
Cost of service 253,276 24,700 8,904 — 286,880
Cost of product 85,929 8,302 5,249 — 99,480
Site
operating expenses 43,949 3,884 1,364 — 49,197
General
and administrative 35,874 6,000 8,407 32,093 82,374
Rent 88,660 16,667 2,005 507 107,839
Depreciation
and amortization 25,856 3,698 2,613 4,841 37,008
Total
operating expenses 533,544 63,251 28,542 37,441 662,778

Operating
income (loss) 76,009 502 7,196 (37,441) 46,266

Other income (expense):
Interest expense — — — (10,903) (10,903)
Interest income
and other, net — — — 2,294 2,294
Income (loss) before
income taxes and
equity in income
of affiliated
companies $76,009 $502 $7,196 $(46,050) $37,657


(1) On August 1, 2007, the Company contributed its accredited cosmetology schools to Empire Education Group, Inc. For the year ended June 30, 2008 the results of operations for the month ended July 31, 2007 for the accredited cosmetology schools are reported in the North American salons segment. The Company retained ownership of its one North American and four United Kingdom Sassoon schools. Subsequent to August 1, 2007 results of operations for the Sassoon schools are included in their respective North American and International salon segments.

On January 31, 2008, the Company merged its continental European franchise salon operations with the Franck Provost Salon Group. For the year ended June 30, 2008 the results of operations for the seven months ended January 31, 2008 are reported in the International salon segment.


For the Three Months Ended June 30, 2007
Hair
Salons Beauty Restoration Unallocated
(Dollars North America International Schools Centers Corporate Consolidated
in thousands)
Revenues:
Service $389,024 $47,277 $18,991 $14,065 $ — $469,357
Product 146,857 19,521 2,254 16,509 — 185,141
Royalties
and fees 10,088 9,396 0 1,339 — 20,823
545,969 76,194 21,245 31,913 — 675,321
Operating expenses:
Cost of service 224,499 24,738 8,328 7,457 — 265,022
Cost of product 75,596 10,931 1,049 4,838 — 92,414
Site operating
expenses 36,587 4,122 3,770 1,387 — 45,866
General and
administrative 30,307 12,235 2,328 7,146 33,966 85,982
Rent 81,014 16,642 2,447 1,637 486 102,226
Depreciation and
amortization 22,744 2,835 862 2,657 4,643 33,741
Total operating
expenses 470,747 71,503 18,784 25,122 39,095 625,251

Operating
income (loss) 75,222 4,691 2,461 6,791 (39,095) 50,070


Other income (expense):
Interest expense — — — — (10,906) (10,906)
Interest income
and other, net — — — — 1,645 1,645
Income (loss)
before
income taxes $75,222 $4,691 $2,461 $6,791 $(48,356) $40,809

For the Year Ended June 30, 2008(1)
Hair
Salons Restoration Unallocated
(Dollars North America International Centers Corporate Consolidated
in thousands)
Revenues:
Service $1,667,005 $165,379 $61,873 $— $1,894,257
Product 639,603 67,078 69,299 — 775,980
Royalties
and fees 40,612 23,606 4,410 — 68,628
2,347,220 256,063 135,582 — 2,738,865
Operating expenses:
Cost of
service 967,393 89,617 33,700 — 1,090,710
Cost of product 340,293 35,702 19,984 — 395,979
Site operating
expenses 184,417 14,410 5,174 — 204,001
General and
administrative 136,942 37,143 30,941 132,134 337,160
Rent 340,453 56,571 7,313 1,933 406,270
Depreciation and
amortization 90,910 10,969 10,289 18,280 130,448
Total operating
expenses 2,060,408 244,412 107,401 152,347 2,564,568

Operating
income (loss) 286,812 11,651 28,181 (152,347) 174,297

Other income (expense):
Interest expense — — — (44,571) (44,571)
Interest income
and other, net — — — 8,373 8,373
Income (loss)
before income taxes
and equity in income
of affiliated
companies $286,812 $11,651 $28,181 $(188,545) $138,099


(1) On August 1, 2007, the Company contributed its accredited cosmetology schools to Empire Education Group, Inc. For the year ended June 30, 2008 the results of operations for the month ended July 31, 2007 for the accredited cosmetology schools are reported in the North American salons segment. The Company retained ownership of its one North American and four United Kingdom Sassoon schools. Subsequent to August 1, 2007 results of operations for the Sassoon schools are included in their respective North American and International salon segments.

On January 31, 2008, the Company merged its continental European franchise salon operations with the Franck Provost Salon Group. For the year ended June 30, 2008 the results of operations for the seven months ended January 31, 2008 are reported in the International salon segment.


For the Year Ended June 30, 2007
Hair
Salons Beauty Restoration Unallocated
(Dollars North America International Schools Centers Corporate Consolidated
in thousands)
Revenues:
Service $1,512,287 $151,057 $76,556 $53,902 $– $1,793,802
Product 614,377 65,675 9,071 63,157 – 752,280
Royalties
and fees 38,766 36,698 – 5,042 – 80,506
2,165,430 253,430 85,627 22,101 – 2,626,588
Operating expenses:
Cost of service 872,813 80,256 32,583 29,129 – 1,014,781
Cost of product 317,214 38,957 5,462 18,859 – 380,492
Site operating
expenses 174,733 11,989 16,366 5,013 – 208,101
General and
administrative 119,204 45,179 9,848 27,191 127,222 328,644
Rent 314,718 50,410 9,272 6,535 1,885 382,820
Depreciation and
amortization 84,250 9,091 3,355 9,813 17,628 124,137
Goodwill
impairment (1) – – 23,000 – – 23,000
Total operating
expenses 1,882,932 235,882 99,886 96,540 146,735 2,461,975
Operating
income (loss) 282,498 17,548 (14,259) 25,561 (146,735) 164,613
Other income (expense):
Interest expense – – – – (41,770) (41,770)
Interest income
and other, net – – – – 5,113 5,113
Income (loss)
before
income taxes $282,498 $17,548 $(14,259) $25,561 $(183,392) $127,956


(1) Operating income for the beauty schools segment was reduced by $23.0 million for a non-cash write-off for goodwill impairment related to the merger of the Company's beauty schools segment with Empire Education.

REGIS CORPORATION (NYSE: RGS)
NON-GAAP FINANCIAL MEASURES (Unaudited)

The Company's press release announcing results of operations for the fourth quarter and fiscal year ended June 30, 2008 includes references to the following "non-GAAP financial measures" as defined by Regulation G of the Securities and Exchange Commission:

  • Revenue results absent the impact of the deconsolidation of the 51 wholly owned accredited cosmetology schools (schools) and the European franchise salon operations. On August 1, 2007, the Company contributed the schools to Empire Education Group, Inc. (Empire), in exchange for a minority interest in Empire, and, on January 31, 2008, merged its European franchise salon operations with the Franck Provost Salon Group in exchange for a minority interest in Provalliance.
  • Fourth quarter diluted net income per share from ongoing operations absent the impact of two non-operational items.


-- An incremental non-cash asset write-off of $4.5 million, on a pre-tax basis, associated with the planned closure of up to 160 underperforming salons
-- $3.4 million pre-tax benefit from an unplanned change in workers' compensation and other insurance reserve estimates

  • Fiscal 2008 earnings results included several non-operational items which reduced earnings per diluted share by $0.04. Absent these items, fiscal year 2008 earnings were $1.99 per diluted share.


Non-GAAP Consolidated Revenues

On August 1, 2007, the Company contributed the schools to Empire, and the results of operations through July 31, 2007 were included in the consolidated statement of operations. The Company retained ownership of its one North American and four United Kingdom Vidal Sassoon schools.

On January 31, 2008, the Company merged its continental European franchise salon operations with the Franck Provost Salon Group. The results of operations through January 31, 2008 were included in the consolidated statement of operations.

The unaudited adjusted revenues, a non-GAAP financial measure (adjusted revenues), set forth below assume the deconsolidation of the schools as of July 31 for each respective three month and fiscal year periods presented, and exclude product sales to Empire for the periods presented. The unaudited adjusted revenues also assume the deconsolidation of the European franchise salon operations as of January 31 for each respective three month and fiscal year periods presented. Management believes this measurement is a meaningful presentation of the revenue growth of the Company's core salon and hair restoration businesses between the comparable periods, excluding the impact of deconsolidating the school business and the European franchise salon operations. If the Company had deconsolidated the schools and the European franchise salon operations on the dates assumed in the adjusted revenues, the Company might have performed differently. You should not rely on the adjusted revenues as an indication of the revenues that the Company would have achieved, had the deconsolidation of the schools and European franchise salon operations been completed at the dates indicated, or of the future revenues that the Company will achieve after the deconsolidation of the schools and the European franchise salon operations.

The adjusted revenues are based on available information and certain assumptions that management believes are reasonable. The unaudited adjusted revenues should be read in conjunction with the historical financial statements of the Company.


Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
(Dollars in (Dollars in
thousands) thousands)
Consolidated revenues, as reported (U.S. GAAP) $709,044 $675,321
Increase in consolidated revenues, as reported 5.0%
Consolidated revenues, as reported (U.S. GAAP) $709,044 $675,321
Deconsolidation of schools – (17,077)
Deconsolidation of European
franchise salon operations – (14,776)
Product sales to Empire Education Group, Inc. (373) –
Consolidated revenues, adjusted $708,671 $643,468
Increase in consolidated revenues, adjusted 10.1%

Fiscal Year Ended Fiscal Year Ended
June 30, 2008 June 30, 2007
(Dollars in (Dollars in
thousands) thousands)
Consolidated revenues, as reported (U.S. GAAP) $2,738,865 $2,626,588
Increase in consolidated revenues, as reported 4.3%
Consolidated revenues, as reported (U.S. GAAP) $2,738,865 $2,626,588
Deconsolidation of schools – (64,089)
Deconsolidation of European
franchise salon operations – (24,666)
Product sales to Empire Education Group, Inc. (1,869) –
Consolidated revenues, adjusted $2,736,996 $2,537,833
Increase in consolidated revenues, adjusted 7.8%


Non-GAAP Diluted Net Income Per Share

The table below is provided to assist the reader's understanding of earnings for the three months and fiscal years ended June 30, 2008 and 2007. The Company believes that adjusted net income per diluted share from ongoing operations, a non-GAAP financial measure, is a useful basis to compare the Company's results against, because unusual items during the three months and fiscal years ended June 30, 2008 and 2007 impacted the Company's reported net income (see "Adjustments" in table below). The presentation below reconciles as reported net income per diluted share (U.S. GAAP amounts) to adjusted net income per diluted share from ongoing operations. The adjusted net income per diluted share information should not be construed as an alternative to reported results under U.S. GAAP.


Three Months Ended Three Months Ended
June 30, 2008 June 30, 2007
(Dollars) (Dollars)
Diluted net income per share, as reported (U.S. GAAP) $0.54 $0.62
Adjustments:
Asset write-offs (1) $0.06 $0.01
Workers' compensation (2) (0.05) (0.11)
Severance (3) – 0.01
Diluted net income per share
from ongoing operations, adjusted $0.55 $0.53


(1) The three months ended June 30, 2008 included a $4.5 million pre-tax non-cash asset write-off associated with the planned closure of up to 160 underperforming salons. The three months ended June 30, 2007 included a $0.5 million pre-tax non-cash asset write-off associated with five underperforming salons.

(2) The three months ended June 30, 2008 included a $3.4 million pre-tax benefit from an unplanned change in workers' compensation and other insurance reserve estimates. The three months ended June 30, 2007 included a $7.5 million pre-tax benefit from an unplanned change in workers' compensation reserve estimates.

(3) The three months ended June 30, 2007 included a $1.0 million severance charge associated with the termination of certain executives.


Fiscal Fiscal
Year Ended Year Ended
June 30, 2008 June 30, 2007
(Dollars) (Dollars)
Diluted net income per share, as reported (U.S. GAAP) $1.95 $1.82

Adjustments:
Asset write-offs (1) $0.06 $0.01
Workers' compensation (2) (0.09) (0.15)
Tax charge (benefit) (3) 0.07 (0.07)
Goodwill impairment (4) – 0.43
Severance (5) – 0.01
Diluted net income per share
from ongoing operations, adjusted $1.99 $2.05


(1) The fiscal year ended June 30, 2008 included a $4.5 million pre-tax non-cash asset write-off associated with the planned closure of up to 160 underperforming salons. The fiscal year ended June 30, 2007 included a $0.5 million pre-tax non-cash asset write-off associated with five underperforming salons.

(2) The fiscal year ended June 30, 2008 included a $7.1 million pre-tax benefit from an unplanned change in workers' compensation and other insurance reserve estimates. The fiscal year ended June 30, 2007 included a $10.2 million pre-tax benefit from an unplanned change in workers' compensation reserve estimates.

(3) The fiscal year ended June 30, 2008 included a $3.0 million tax charge associated with the cash repatriation of $30.0 million. The fiscal year ended June 30, 2007 included a tax benefit related to the retroactive reinstatement of the work opportunity and welfare-to-work tax credits.

(4) The fiscal year ended June 30, 2007 included a $23.0 million goodwill impairment charge associated with the beauty school transaction.

(5) The fiscal year ended June 30, 2007 included a $1.0 million severance charge associated with the termination of certain executives.

###

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