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Regis Reports Second Quarter 2012 Results

By: Regis Corporation |  2 Shares     98 Reads

• 2Q12 GAAP net loss of $57.4 million; GAAP diluted loss per share of $1.01
• 2Q12 operational diluted earnings per share of $0.32 up 24.8% from $0.25 in 2Q11

MINNEAPOLIS--(BUSINESS WIRE)--Regis Corporation (NYSE:RGS), the global leader in the $160 billion haircare industry, today reported a second quarter net loss of $1.01 per share. These results include non-operational after-tax items of $77.0 million primarily related to the non-cash write-down of goodwill in its Hair Restoration Centers segment. Absent non-operational items, second quarter operational earnings increased to $0.32 per diluted share.

Randy L. Pearce, President, commented, "Our second quarter operational earnings of $0.32 per share were the result of Regis' commitment to improving financial performance while continuing to develop and implement our strategy to drive new traffic and increase customer retention rates by enhancing the salon experience. "Our entire organization is focused on improving the salon experience and we are confident that our long-term plan will deliver improved financial results. However, the sales environment remains challenging and it will take time for our strategies to have a material impact on our top-line performance. As a result, we now believe that fiscal 2012 same-store sales will be in the range of negative 3.5% to negative 2.5%. At these lower same-store sales levels, our operational EBITDA should be in a range of $210 million to $220 million. We expect benefits from our previously announced cost saving initiatives to offset a significant portion of the impact from the decline in sales expectations. We continue to work hard to ensure Regis grows profitably and operates efficiently in order to enhance shareholder value."

FISCAL 2012 SECOND QUARTER FINANCIAL HIGHLIGHTS

Consolidated Highlights

• Sales of $563.3 million, down 1.9% from $574.4 million in the second quarter of fiscal 2011.
• Same-store sales declined 3.0% versus a decline of 1.3% in the second quarter of fiscal 2011.
• Same-store customer counts for our salon businesses declined 2.4% in the second quarter of fiscal 2012.
• Gross margin increased 30 basis points to 44.8% of sales from 44.5% in the second quarter of fiscal 2011.
• Operational operating margins increased 20 basis points to 4.4% of sales from 4.2% in the second quarter of fiscal 2011. Operational net income of $19.6 million increased 28.4%, from $15.3 million in the second quarter of fiscal 2011.
• Operational diluted earnings per share of $0.32 increased 24.8%, from $0.25 in the second quarter of fiscal 2011
• Operational EBITDA of $51.9 million decreased 2.0%, from $52.9 million in the second quarter of fiscal 2011.
• Net store base increased by 33 over the same period a year ago for a total store count of 12,777. This increase is primarily driven by growth in the number of franchise and affiliate locations.
• The reported income tax rate was 5.2%, which includes the impact of the non-operational charges. The operational income tax rate was 25.8%.
• As of December 31, 2011 the cash balance was $83.1 million, a decrease of $13.2 million since June 30, 2011.
• Debt on the balance sheet was $292.9 million, a decrease of $20.5 million since June 30, 2011.

Segment Results:

North America Salons

Revenues: Second quarter 2012 revenues were $492.1 million, a decrease of 1.9% from the fiscal 2011 second quarter. Service revenues were $379.7 million, a decrease of 2.3% compared to the same period a year ago. Same-store service sales for the quarter declined 3.2%. Same-store service customer counts declined 2.1% and average ticket declined 1.1%. Retail product revenues were $103.2 million, a decrease of 0.6%. Retail product same-store sales declined 1.5%.

Service Margins: Service margin rate for the second quarter of fiscal 2012 was 42.4%, an improvement of 80 basis points over the second quarter of fiscal 2011. The improvement in service margin was driven largely by reduced service commissions. Labor costs improved due to increased hourly productivity in our salons, as well as the recently implemented leveraged pay plans for new salon employees.

Retail Product Margins: Product margin rate for the second quarter of fiscal 2012 was 49.8%, a decline of 50 basis points compared to the second quarter of fiscal 2011. Product margins were impacted by a shift in sales mix during the holiday season to slightly lower margin nail care and salon accessories.

Site Operating Expense: Site operating expense for the second quarter of 2012 was 30 basis points, or $2.3 million lower than the second quarter of 2011, coming in at $44.5 million or 9.0% of revenue. Several cost savings initiatives account for a large portion of this improvement, including reduced insurance and workers' compensation costs. We experienced lower salon claims this year and as a result, we recorded a favorable actuarial adjustment to our insurance reserves.

General and Administrative Expense: General and administrative expense for the second quarter of 2012 was 70 basis points, or $3.9 million lower than the second quarter of 2011, coming in at $28.6 million or 5.8% of North American revenue. A large portion of the decline in expense relates to the implementation of new portable technology for our field staff, which contributed to a decrease in travel. Additionally, last year's expenses were higher than normal due to a national salon manager meeting in our Regis Salon Division which was not conducted this year.

Rent Expense: Rent expense was $73.7 million, or 15.0% of North American revenue. The increase of 40 basis points over the same period a year ago was primarily the result of deleveraging due to negative same-store sales.

Depreciation and Amortization Expense: Depreciation and amortization was $17.7 million, or 3.6% of North American revenues; which included non-operational charges of $0.8 million related to the accelerated depreciation on our point-of-sale system. Operational depreciation and amortization was $16.9 million, or 3.4% of North American revenues, a decrease of 10 basis points over the second quarter of fiscal 2011.

Operating Margins: Second quarter 2012 GAAP operating margins were 11.7% of North American revenues. Excluding non-operational items, operational operating margins were 11.8% of North American revenues, an increase of 120 basis points over the second quarter of fiscal 2011.

International Salons

Revenues: Second quarter 2012 revenues were $34.1 million, a decrease of 8.1% from the fiscal 2011 second quarter. Service revenues were $24.3 million, a decrease of 5.1% compared to the same period a year ago. Same-store service sales for the quarter declined 6.7%. Retail product revenues were $9.7 million, a decrease of 14.9%. Retail product same-store sales declined 16.1%.

Service Margins: Service margin rate for the second quarter of fiscal 2012 was 46.1%, a decline of 200 basis points over the second quarter of fiscal 2011. The decline in service margin was primarily driven by lower salon productivity due to reduced sales levels.

Retail Product Margins: Product margin rate for the second quarter of fiscal 2012 was 46.0%, an increase of 80 basis points compared to the fiscal 2011 second quarter. The increase in product margins was the result of a shift in the mix of product sales away from lower margin salon appliances.

Rent Expense: Rent expense was $9.1 million, or 26.6% of International revenue. The increase of 260 basis points over the same period a year ago was primarily the result of deleveraging due to negative same-store sales.

Operating Margins: Second quarter 2012 GAAP operating margins were $0.2 million, or 0.6% of International revenues; which includes non-operational depreciation expense of $0.1 million related to the accelerated depreciation on our point-of-sale system. Operational operating margins were $0.3 million, or 0.9% of International revenues, a decrease of 340 basis points compared to the second quarter of fiscal 2011.

Hair Restoration Centers

Revenues: Second quarter 2012 revenues were $37.1 million, an increase of 3.6% from the second quarter of fiscal year 2011. Same-store sales for the quarter increased 1.7%.

Gross Margins: Gross margin rate for the second quarter of fiscal 2012 was 53.2%, a decline of 230 basis points over the second quarter of fiscal 2011. The decline in gross margin was primarily driven by labor costs in acquired and new stores, as well as increased hair system costs due to wage pressure in China.

Operating Margins: Second quarter 2012 GAAP operating margins were a loss of $73.6 million, or -198.0% of Hair Club revenues, which includes non-operational expense related to the write-down of goodwill of $78.4 million. Operational operating margins were $4.9 million, or 13.1% of Hair Club revenues, a decrease of 120 basis points compared to the second quarter of fiscal 2011.

Corporate

General and Administrative Expense: Corporate general and administrative expense for the second quarter of 2012 was $35.5 million, or 6.3% of consolidated revenues, which includes non-operational charges of $1.8 million. Operational general and administrative expense for the second quarter of 2012 was $33.7 million or 6.0% of consolidated revenue, an increase of 70 basis points over the second quarter of 2011. Contributing to the planned increase in this expense category were higher professional fees, largely due to the timing of costs incurred for tax, legal and other corporate initiatives. We continue to expect general and administrative expenses to be lower in the second half of the fiscal year than that incurred in the first six months.

Income Taxes

During the three months ended December 31, 2011, the Company recognized a tax benefit of $3.5 million with a corresponding effective tax rate of 5.2% utilizing the year-to-date method rather than utilizing its historical method of calculating an estimated annual effective tax rate. The Company's operational tax rate of 25.8% came in better than expected due to larger than planned job tax credits and the release of state income tax reserves.

Equity in Income of Affiliates

Income from equity method investments and affiliated companies was $5.3 million in the second quarter of 2012, an increase of $2.2 million over the second quarter of 2011. The majority of the improvement in this category relates to the increase in Regis' ownership percentage in Provalliance. In March 2011, Regis acquired an additional 17% percent of Provalliance and now owns 47% of the joint venture.

Updated Fiscal 2012 Outlook

• The Company expects fiscal 2012 same-store sales to be in the range of negative 3.5% to negative 2.5%.
• At these same-store levels, EBITDA is expected to be in a range of $210 million to $220 million and operational earnings are forecasted to be in a range of $1.11 to $1.21 per share.
• Regis plans to spend approximately $100 million for salon and corporate capital expenditures and up to $15 million for acquisitions.
• The Company expects to generate free cash flow of approximately $70 million to $80 million.
• As previously announced, the Company has identified a new third party point-of-sale software alternative, which it is now planning to implement in all of its company-owned salons over the next year. The new point-of-sale system will replace the current point-of-sale system and enable the Company to accelerate its strategies and initiatives. As a result, the Company expects to incur in the remainder of fiscal 2012 pre-tax, non-operational expense of approximately $2 million related to the acceleration of depreciation on the current point-of-sale system.

Second Quarter Non-Operational Items

Second quarter non-operational items, which netted to $77.0 million on an after-tax basis, consisted of the following items:

• As previously disclosed, the Company is reviewing alternatives for non-core assets and has retained an independent financial advisor. In connection with this review, the Company updated the Hair Restoration Centers projections used in the fiscal 2011 annual impairment test to reflect the impact of more recent industry developments including a slow down in revenue growth and increasing supply costs. As a result, the Company recorded a non-cash, after-tax goodwill impairment of $72.6 million.
• Accelerated depreciation expense of $4.0 million after-tax related the replacement of the current point-of-sale system with a new third party point-of-sale software system.
• $0.7 million of after-tax advisory fees and other costs related to the recent proxy contest.
• Senior management restructuring costs of $0.4 million after-tax.
• Legal settlement resulting in income of $0.7 million, after-tax.

A complete reconciliation of reported earnings to operational earnings is included in today's press release and is available on the Company's website at www.regiscorp.com.

Regis Corporation will host a conference call discussing second quarter results today, January 26, 2012 at 10 a.m., Central time. Interested parties are invited to listen by logging on to www.regiscorp.com or dialing 877-941-0843. A replay of the call will be available later that day. The replay phone number is 800-406-7325, access code 4504728#.

As of December 31, 2011 Regis Corporation owned, franchised, or held ownership interest in 12,777 worldwide locations.

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 December 31, 2011, the Company owned, franchised or held ownership interests in approximately 12,800 worldwide locations. Regis' corporate and franchised locations operate under concepts such as Supercuts, Sassoon Salon, Regis Salons, MasterCuts, SmartStyle, Cost Cutters, Cool Cuts 4 Kids 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 in the U.S. 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. 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. 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; the ability of the Company to implement its planned spending and cost reduction plan and to continue to maintain compliance with financial covenants in its credit agreements; 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 and financing for new salon development and to maintain satisfactory relationships with landlords and other licensors with respect to existing locations; 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; or other factors not listed above. The ability of the Company to meet its expected revenue target 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, 2011. 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)
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
as of December 31, 2011 and June 30, 2011
(In thousands, except per share data)
		December 31, 2011			June 30, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	83,099		$	96,263
Receivables, net			31,944			27,149
Inventories			170,551			150,804
Deferred income taxes			15,082			17,887
Income tax receivable			17,322			22,341
Other current assets			29,681			32,118
Total current assets			347,679			346,562
Property and equipment, net			327,381			347,811
Goodwill			604,097			680,512
Other intangibles, net			106,411			111,328
Investment in and loans to affiliates			251,573			261,140
Other assets			59,820			58,400
Total assets		$	1,696,961		$	1,805,753
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion		$	28,999		$	32,252
Accounts payable			52,541			55,107
Accrued expenses			175,105			167,321
Total current liabilities			256,645			254,680
Long-term debt and capital lease obligations			263,882			281,159
Other noncurrent liabilities			216,077			237,295
Total liabilities			736,604			773,134
Commitments and contingencies
Shareholders' equity:
Common stock, $0.05 par value; issued and outstanding 57,650,228 and 57,710,811 common shares at December 31, 2011 and June 30, 2011, respectively			2,883			2,886
Additional paid-in capital			345,827			341,190
Accumulated other comprehensive income			55,661			77,946
Retained earnings			555,986			610,597
Total shareholders' equity			960,357			1,032,619
Total liabilities and shareholders' equity		$	1,696,961		$	1,805,753

REGIS CORPORATION (NYSE: RGS)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(In thousands, except per share data)
		Three Months Ended December 31,								Six Months Ended December 31,
		2011				2010				2011				2010
Revenues:
Service		$	421,299			$	430,939			$	852,999			$	870,468
Product		132,208				133,824				259,125				262,429
Royalties and fees		9,771				9,609				19,903				19,720
		563,278				574,372				1,132,027				1,152,617
Operating expenses:
Cost of service		242,341				249,705				488,352				499,206
Cost of product		63,469				63,926				123,448				125,001
Site operating expenses		48,425				50,597				100,880				99,606
General and administrative		75,066				75,848				153,745				149,922
Rent		85,473				85,235				169,920				170,343
Depreciation and amortization		31,695				26,197				65,801				52,241
Goodwill impairment		78,426				--				78,426				--
Total operating expenses		624,895				551,508				1,180,572				1,096,319
Operating (loss) income		(61,617		)		22,864				(48,545		)		56,298
Other income (expense):
Interest expense		(7,203		)		(8,738		)		(14,563		)		(17,661		)
Interest income and other, net		2,659				2,604				3,975				3,381
(Loss) income before income taxes and equity in income of affiliated companies		(66,161		)		16,730				(59,133		)		42,018
Income taxes		3,453				(5,345		)		730				(14,992		)
Equity in income of affiliated companies, net of income taxes		5,281				3,120				9,313				5,799
Net (loss) income		$	(57,427	)		$	14,505			$	(49,090	)		$	32,825
Net (loss) income per share:
Basic		$	(1.01	)		$	0.26			$	(0.86	)		$	0.58
Diluted		$	(1.01	)		$	0.24			$	(0.86	)		$	0.54
Weighted average common and common equivalent shares outstanding:
Basic		56,857				56,684				56,853				56,657
Diluted		56,857				68,136				56,853				68,053
Cash dividends declared per common share		$	0.06			$	0.04			$	0.12			$	0.08

REGIS CORPORATION (NYSE: RGS)
SELECTED CASH FLOW DATA (Unaudited)
(In thousands)
		Six Months Ended December 31,
		2011				2010
Net cash provided by operating activities		$	61,947			$	102,833
Net cash used in investing activities		(42,877		)		(38,750		)
Net cash used in financing activities		(28,942		)		(46,433		)
Effect of exchange rate changes on cash and cash equivalents		(3,292		)		4,769
(Decrease) increase in cash and cash equivalents		(13,164		)		22,419
Cash and cash equivalents:
Beginning of year		96,263				151,871
End of year		$	83,099			$	174,290

REGIS CORPORATION (NYSE: RGS)
Salon and Hair Restoration Center Counts and Revenues
SYSTEM-WIDE LOCATIONS:		December 31, 2011			June 30, 2011
Company-owned salons		7,851			7,883
Franchise salons		2,007			1,936
Company-owned hair restoration centers		68			67
Franchise hair restoration centers		29			29
Ownership interest locations		2,822			2,786
Total, system-wide		12,777			12,701
SALON LOCATION SUMMARY
NORTH AMERICAN SALONS:		December 31, 2011			June 30, 2011
REGIS SALONS
Open at beginning of period		1,023			1,049
Salons constructed		4			12
Acquired		―			9
Less relocations		(4	)		(10	)
Salon openings		―			11
Conversions		―			(1	)
Salons closed		(21	)		(36	)
Total, Regis Salons		1,002			1,023
MASTERCUTS
Open at beginning of period		588			600
Salons constructed		6			6
Acquired		―			―
Less relocations		(4	)		(5	)
Salon openings		2			1
Conversions		―			1
Salons closed		(3	)		(14	)
Total, MasterCuts Salons		587			588
SMARTSTYLE/COST CUTTERS IN WALMART
Company-owned salons:
Open at beginning of period		2,393			2,374
Salons constructed		32			65
Acquired		―			―
Franchise buybacks		―			―
Less relocations		(1	)		(1	)
Salon openings		31			64
Conversions		―			―
Salons closed		(1	)		(45	)
Total company-owned salons		2,423			2,393
Franchise salons:
Open at beginning of period		120			119
Salons constructed		2			3
Acquired		―			―
Less relocations		―			―
Salon openings		2			3
Conversions		―			―
Franchise buybacks		―			―
Salons closed		―			(2	)
Total franchise salons		122			120
Total, SmartStyle/Cost Cutters Salons in Walmart		2,545			2,513
		December 31, 2011			June 30, 2011
SUPERCUTS
Company-owned salons:
Open at beginning of period		1,158			1,100
Salons constructed		26			24
Acquired		1			―
Franchise buybacks		2			73
Less relocations		(5	)		(3	)
Salon openings		24			94
Conversions		56			13
Salons closed		(26	)		(49	)
Total company-owned salons		1,212			1,158
Franchise salons:
Open at beginning of period		987			1,034
Salons constructed		37			43
Acquired		―			―
Less relocations		(1	)		(7	)
Salon openings		36			36
Conversions		5			10
Franchise buybacks		(2	)		(73	)
Salons closed		(3	)		(20	)
Total franchise salons		1,023			987
Total, Supercuts Salons		2,235			2,145
PROMENADE
Company-owned salons:
Open at beginning of period		2,321			2,382
Salons constructed		20			26
Acquired		―			18
Franchise buybacks		6			5
Less relocations		(7	)		(10	)
Salon openings		19			39
Conversions		(56	)		(14	)
Salons sold to franchisees		(5	)		―
Salons closed		(57	)		(86	)
Total company-owned salons		2,222			2,321
Franchise salons:
Open at beginning of period		829			867
Salons constructed		19			21
Acquired (2)		31			―
Salons purchased from the Company		5			―
Less relocations		(2	)		(7	)
Salon openings		53			14
Conversions		(5	)		(9	)
Franchise buybacks		(6	)		(5	)
Salons closed		(9	)		(38	)
Total franchise salons		862			829
Total, Promenade Salons		3,084			3,150
		December 31, 2011			June 30, 2011
INTERNATIONAL SALONS (1):
Company-owned salons:
Open at beginning of period		400			404
Salons constructed		12			13
Acquired		―			―
Franchise buybacks		―			―
Less relocations		(1	)		(2	)
Salon openings		11			11
Conversions		―			―
Salons closed		(6	)		(15	)
Total company-owned salons		405			400
Total franchise salons		―			―
Total, International Salons		405			400
TOTAL SYSTEM-WIDE SALONS:
Company-owned salons:
Open at beginning of period		7,883			7,909
Salons constructed		100			146
Acquired		1			27
Franchise buybacks		8			78
Less relocations		(22	)		(31	)
Salon openings		87			220
Conversions		―			(1	)
Salons sold to franchisees		(5	)		―
Salons closed		(114	)		(245	)
Total company-owned salons		7,851			7,883
Franchise salons:
Open at beginning of period		1,936			2,020
Salons constructed		58			67
Acquired (2)		31			―
Salons purchased from the Company		5			―
Less relocations		(3	)		(14	)
Salon openings		91			53
Conversions		―			1
Franchise buybacks		(8	)		(78	)
Salons sold		―			―
Salons closed		(12	)		(60	)
Total franchise salons		2,007			1,936
Total, Salons		9,858			9,819
HAIR RESTORATION CENTERS:
Company-owned hair restoration centers:
Open at beginning of period		67			62
Salons constructed		3			3
Acquired		―			―
Franchise buybacks		―			4
Less relocations		(2	)		(1	)
Salon openings		1			6
Conversions		―			―
Sites closed		―			(1	)
Total company-owned hair restoration centers		68			67
		December 31, 2011			June 30, 2011
Franchise hair restoration centers:
Open at beginning of period		29			33
Salons constructed		―			―
Acquired		―			―
Less relocations		―			―
Salon openings		―			―
Franchise buybacks		―			(4	)
Sites closed		―			--
Total franchise hair restoration centers		29			29
Total, Hair Restoration Centers		97			96
Ownership interest locations		2,822			2,786
Grand Total, System-wide		12,777			12,701
(1) Canadian and Puerto Rican salons are included in the Regis, MasterCuts, SmartStyle, Supercuts, and Promenade salon totals and not included in the International salon totals.
(2) Represents the acquisition of a franchise network.
Relocations represent a transfer of location by the same salon concept.
Conversions represent the transfer of one salon concept to another concept.

REVENUES BY CONCEPT:
		Three Months Ended December 31,								Six Months Ended December 31,
(Dollars in thousands)		2011				2010				2011				2010
North American salons:
Regis		$	104,629			$	108,928			$	209,496			$	216,433
MasterCuts		40,293				41,295				80,751				83,335
SmartStyle		125,980				129,671				254,464				262,224
Supercuts		85,031				78,310				168,634				157,633
Promenade		136,136				143,245				276,581				288,757
Total North American salons		492,069				501,449				989,926				1,008,382
International salons		34,069				37,077				67,558				72,135
Hair restoration centers		37,140				35,846				74,543				72,100
Consolidated revenues		$	563,278			$	574,372			$	1,132,027			$	1,152,617
Percentage change from prior year		(1.9		)%		(0.2		)%		(1.8		)%		(2.4		)%
Same-store sales decrease (1)		(3.0		)%		(1.3		)%		(3.1		)%		(1.4		)%

(1)		Same-store sales 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. Quarterly and year-to-date same-store sales are the sum of the same-store sales computed on a daily basis. Locations relocated within a one mile radius 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 to remove foreign currency fluctuations from the calculation. Management believes that same-store sales, a component of organic growth, are useful in order to help determine the increase in revenues attributable to its organic growth (new locations construction and same-store sales growth) versus growth from acquisitions.

FINANCIAL INFORMATION BY SEGMENT:

Financial information concerning the Company's salon and hair restoration businesses is shown in the following tables.

		For the Three Months Ended December 31, 2011
		Salons						Hair Restoration			Unallocated
(Dollars in thousands)		North America			International			Centers			Corporate			Consolidated
Revenues:
Service		$	379,694		$	24,331		$	17,274		$ ―			$	421,299
Product			103,162			9,738			19,308		―				132,208
Royalties and fees			9,213		―				558		―				9,771
			492,069			34,069			37,140		―				563,278
Operating expenses:
Cost of service			218,547			13,122			10,672		―				242,341
Cost of product			51,753			5,254			6,462		―				63,469
Site operating expenses			44,466			2,359			1,600		―				48,425
General and administrative			28,584			2,956			8,060			35,466			75,066
Rent			73,686			9,060			2,224			503			85,473
Depreciation and amortization			17,692			1,112			3,249			9,642			31,695
Goodwill impairment		―			―				78,426		―				78,426
Total operating expenses			434,728			33,863			110,693			45,611			624,895
Operating income (loss)			57,341			206			(73,553	)		(45,611	)		(61,617	)
Other income (expense):
Interest expense		―			―			―				(7,203	)		(7,203	)
Interest income and other, net		―			―			―				2,659			2,659
Income (loss) before income taxes and equity in income of affiliated companies		$	57,341		$	206		$	(73,553	)	$	(50,155	)	$	(66,161	)

		For the Three Months Ended December 31, 2010
		Salons						Hair Restoration			Unallocated
(Dollars in thousands)		North America			International			Centers			Corporate			Consolidated
Revenues:
Service		$	388,656		$	25,634		$	16,649		$	―		$ 430,939
Product			103,775			11,443			18,606		―			133,824
Royalties and fees			9,018		―				591		―			9,609
			501,449			37,077			35,846		―			574,372
Operating expenses:
Cost of service			226,739			13,314			9,652		―			249,705
Cost of product			51,622			6,266			6,038		―			63,926
Site operating expenses			46,739			2,593			1,265		―			50,597
General and administrative			32,485			3,259			8,276			31,828		75,848
Rent			73,454			8,903			2,314			564		85,235
Depreciation and amortization			17,423			1,161			3,169			4,444		26,197
Total operating expenses			448,462			35,496			30,714			36,836		551,508
Operating income (loss)			52,987			1,581			5,132			(36,836	)	22,864
Other income (expense):
Interest expense		―			―			―				(8,738	)	(8,738		)
Interest income and other, net		―			―			―				2,604		2,604
Income (loss) before income taxes and equity in income of affiliated companies		$	52,987		$	1,581		$	5,132		$	(42,970	)	$ 16,730

		For the Six Months Ended December 31, 2011
		Salons						Hair Restoration			Unallocated
(Dollars in thousands)		North America			International			Centers			Corporate			Consolidated
Revenues:
Service		$	769,858		$	49,184		$	33,957		$	―		$	852,999
Product			201,299			18,374			39,452		―				259,125
Royalties and fees			18,769			--			1,134		―				19,903
			989,926			67,558			74,543		―				1,132,027
Operating expenses:
Cost of service			441,826			25,812			20,714		―				488,352
Cost of product			100,197			9,833			13,418		―				123,448
Site operating expenses			92,762			5,034			3,084		―				100,880
General and administrative			58,290			5,881			17,333			72,241			153,745
Rent			146,901			17,824			4,495			700			169,920
Depreciation and amortization			35,662			2,418			6,558			21,163			65,801
Goodwill impairment		―			―				78,426		―				78,426
Total operating expenses			875,638			66,802			144,028			94,104			1,180,572
Operating income (loss)			114,288			756			(69,485	)		(94,104	)		(48,545	)
Other income (expense):
Interest expense		―			―			―				(14,563	)		(14,563	)
Interest income and other, net		―			―			―				3,975			3,975
Income (loss) before income taxes and equity in income of affiliated companies		$	114,288		$	756		$	(69,485	)	$	(104,692	)	$	(59,133	)

		For the Six Months Ended December 31, 2010
		Salons						Hair Restoration			Unallocated
(Dollars in thousands)		North America			International			Centers			Corporate			Consolidated
Revenues:
Service		$	785,977		$	50,997		$	33,494		$	―		$ 870,468
Product			203,895			21,138			37,396		―			262,429
Royalties and fees			18,510			--			1,210		―			19,720
			1,008,382			72,135			72,100		―			1,152,617
Operating expenses:
Cost of service			454,036			26,042			19,128		―			499,206
Cost of product			101,355			11,511			12,135		―			125,001
Site operating expenses			93,068			4,783			1,755		―			99,606
General and administrative			62,363			6,211			16,855			64,493		149,922
Rent			147,072			17,573			4,578			1,120		170,343
Depreciation and amortization			34,655			2,248			6,312			9,026		52,241
Total operating expenses			892,549			68,368			60,763			74,639		1,096,319
Operating income (loss)			115,833			3,767			11,337			(74,639	)	56,298
Other income (expense):
Interest expense		―			―			―				(17,661	)	(17,661	)
Interest income and other, net		―			―			―				3,381		3,381
Income (loss) before income taxes and equity in income of affiliated companies		$	115,833		$	3,767		$	11,337		$	(88,919	)	$ 42,018

Non-GAAP Reconciliations

We believe our presentation of non-GAAP operating income, net income and net income per diluted share 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 business from the same perspective as management and Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors' analysis and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe that the non-GAAP measures are useful to investors because they provide supplemental information that 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 the 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 six months ended December 31, 2011 and 2010:

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.

Senior management restructure - We have excluded expense associated with senior management restructuring from our non-GAAP results. During the three and six months ended December 31, 2011, we incurred expense of $0.7 and $2.3 million, respectively, associated with senior management restructuring.

Proxy fees - We have excluded the advisory fees and other costs associated with the recent contested proxy from our non-GAAP results. During the three and six months ended December 31, 2011, we incurred $1.1 and $2.2 million, respectively, of advisory fees and other costs associated with the recent contested proxy.

Strategic alternative costs - We have excluded the fees associated our exploration of strategic alternatives during our second quarter of fiscal year 2011 from our non-GAAP results. During the three and six months ended December 31, 2010, we incurred $1.3 million, respectively, of expense related to the exploration of strategic alternatives.

Point-of-sale system accelerated depreciation - We have excluded the accelerated depreciation we recorded related to our point-of-sale system from our non-GAAP results. During the three and six months ended December 31, 2011, we recorded $6.3 and $15.0 million, respectively, in accelerated depreciation related to our point-of-sale system.

Goodwill impairment - We have excluded the goodwill impairment charge we recorded related to our Hair Restoration Centers reportable segment from our non-GAAP results. The Company recorded a goodwill impairment charge of $78.4 million related to our Hair Restoration Centers' reportable segment during the three and six months ended December 31, 2011.

Legal settlement - We have excluded income associated with a legal settlement from our non-GAAP results. During the three and six months ended December 31, 2011 we recorded income of $1.1 million associated with a legal settlement.

Tax provision adjustments - The non-GAAP tax provision adjustments are due to the change in non-GAAP taxable income as compared to U.S. GAAP taxable income or loss, resulting from the non-GAAP reconciling items addressed herein. The non-GAAP tax provision adjustments are made to reflect the year-to-date non-GAAP tax rate for each period.

Weighted average shares adjustments - The non-GAAP weighted average shares adjustments are due to the change in non-GAAP net income as compared to the U.S. GAAP net income or loss, resulting from the non-GAAP reconciling items addressed herein. Non-GAAP net income per share reflects the weighted average shares associated with non-GAAP net income, which includes the dilutive effect of common stock and convertible share equivalents.

REGIS CORPORATION
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
(In thousands, except per share data)
(unaudited)
Reconciliation of U.S. GAAP operating (loss) income and net (loss) income to equivalent non-GAAP measures
				Three Months Ended								Six Months Ended
				December 31,								December 31,
		U.S. GAAP financial line item		2011				2010				2011				2010
U.S. GAAP revenue				$	563,278			$	574,372			$	1,132,027			$	1,152,617
U.S. GAAP operating (loss) income				$	(61,617	)		$	22,864			$	(48,545	)		$	56,298
Non-GAAP operating expense adjustments:
Senior management restructure		General and administrative			696				--				2,349				--
Proxy fees		General and administrative			1,096				--				2,225				--
Strategic alternative costs		General and administrative			--				1,253				--				1,253
Point-of-sale accelerated depreciation		Depreciation and amortization			6,338				--				15,037				--
Goodwill impairment		Goodwill impairment			78,426				--				78,426				--
Total non-GAAP operating expense adjustments					86,556				1,253				98,037				1,253
Non-GAAP operating income (5)				$	24,939			$	24,117			$	49,492			$	57,551
U.S. GAAP net (loss) income				$	(57,427	)		$	14,505			$	(49,090	)		$	32,825
Non-GAAP net (loss) income adjustments:
Non-GAAP operating expense adjustments					86,556				1,253				98,037				1,253
Legal settlement		Interest income and other, net			(1,098	)			--				(1,098	)			--
Tax provision adjustments (1)		Income taxes			(8,422	)			(481	)			(12,654	)			(481	)
Total non-GAAP net income adjustments					77,036				772				84,285				772
Non-GAAP net income				$	19,609			$	15,277			$	35,195			$	33,597
Reconciliation of U.S. GAAP net (loss) income per diluted share to non-GAAP net income per diluted share
				Three Months Ended								Six Months Ended
				December 31,								December 31,
				2011				2010				2011					2010
U.S. GAAP net (loss) income per diluted share (2)				$	(1.010	)		$	0.242			$	(0.863	)		$	0.542
Senior management restructure (1)					0.006				--				0.022				--
Proxy fees (1)					0.01				--				0.021				--
Strategic alternative costs (1)					--				0.011				--				0.011
Point-of-sale accelerated depreciation (1)					0.059				--				0.139				--
Goodwill impairment (1)					1.061				--				1.062				--
Legal settlement (1)					(0.010	)			--				(0.010	)			--
Dilutive effect under if-converted method (4)					0.201				--				0.204				--
Non-GAAP net income per diluted share (3) (6)				$	0.317			$	0.254			$	0.575			$	0.553
U.S. GAAP Weighted average shares - basic					56,857				56,684				56,853				56,657
U.S. GAAP Weighted average shares - diluted					56,857				68,136				56,853				68,053
Non-GAAP Weighted average shares - diluted (4)					68,417				68,136				68,354				68,053

			Notes:
			(1)	Based on a year-to-date tax rate analysis, the non-GAAP tax provision was calculated to be approximately 37% for the three and six months ended December 31, 2011 for all non-GAAP operating expense adjustments, except the goodwill impairment. The goodwill impairment had a tax benefit of approximately $5.9 million for both the three and six months ended December 31, 2011, as the charge is only partially deductible for income tax purposes. The non-GAAP tax rate for the three months ended December 31, 2011 was 25.8%. The difference between the non-GAAP effective tax rate of 25.8% for the three months ended December 31, 2011 and the rate used for the tax provision adjustments is primarily the result of application of work opportunity tax credits and the release of state tax reserves during the three months ended December 31, 2011. Based on a projected statutory effective tax rate analysis, the non-GAAP tax provision was calculated to be approximately 38% for the three and six months ended December 31, 2010 for all non-GAAP operating expense adjustments.
			(2)	For the three and six months ended December 31, 2010 U.S. GAAP net income per diluted share is calculated under the if-converted method. Under the if-converted method for the three and six months ended December 31, 2010, $2.0 and $4.0 million, respectively, of after tax interest expense on the convertible debt is added to net income to determine the net income for diluted earnings per share.
			(3)	For the three and six months ended December 31, 2011 and 2010 non-GAAP net income per diluted share, has been calculated under the if-converted method. For the three and six months ended December 31, 2011 and 2010, $2.1, $4.1, $2.0 and $4.0 million, respectively, of after tax interest on the convertible debt is added to the non-GAAP net income to determine the non-GAAP net income per diluted earnings per share.
			(4)	Non-GAAP net income per share reflects the weighted average shares associated with non-GAAP net income, which includes the dilutive effect of common stock and convertible share equivalents. The earnings per share impact of the adjustments for the three and six months ended December 31, 2011 included 0.4 and 0.3 million, respectively of common stock equivalents and convertible share equivalents of 11.2 million, for both periods, of additional shares under the if-converted method. The impact of the adjustments described above result in the effect of the common stock equivalents and convertible share equivalents to be dilutive to the non-GAAP net income per share.
			(5)	Operational operating margins for the three months ended December 31, 2011, and 2010, was 4.4% and 4.2 %, respectively, and is calculated as non-GAAP operating income divided by U.S. GAAP revenue for each respective period.
			(6)	Total is a recalculation; line items calculated individually may not sum to total due to rounding.

REGIS CORPORATION
Summary of Pre-Tax, Income Taxes, and Net Income for Q2 FY12 Non-Operational Items
		Pre-Tax				Income Taxes				Net Income
Senior management restructuring		$	696			$	(254	)		$	442
Proxy fees		1,096				(404		)		692
Point-of-sale accelerated depreciation		6,338				(2,315		)		4,023
Goodwill impairment		78,426				(5,854		)		72,572
Legal settlement		(1,098		)		405				(693		)
Total		$	85,458			$	(8,422	)		$	77,036

REGIS CORPORATION
Reconciliation of reported U.S. GAAP net loss to operational EBITDA, a non-GAAP financial measure
($ In thousands)
(unaudited)
Operational EBITDA
EBITDA represents U.S. GAAP net (loss) income for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines operational EBITDA, as EBITDA excluding equity in income of affiliated companies, and identified items impacting comparability for each respective period. For the three months ended December 31, 2011, the items impacting comparability consisted of $0.7 million of pre-tax expense associated with our senior management restructuring, $1.1 million of pre-tax expense for advisory fees and other costs associated with the recent contested proxy, $78.4 million goodwill impairment charge related to our Hair Restoration Centers reportable segment, and $1.1 million of income associated with a legal settlement. The impact of the $6.3 million of pre-tax accelerated depreciation related to the point-of-sale system and the income tax provision adjustment is already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. For the three months ended December 31, 2010, the items impacting comparability consisted $1.3 million of pre-tax expense for fees associated our exploration of strategic alternatives. The impact of the income tax provision adjustment is already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA.
			Three Months Ended
			December 31, 2011				December 31, 2010
			(Dollars in thousands)
Consolidated reported net (loss) income, as reported (U.S. GAAP)			$	(57,427	)		$	14,505
Interest expense, as reported				7,203				8,738
Income taxes, as reported				(3,453	)			5,345
Depreciation and amortization, as reported				31,695				26,197
EBITDA (as defined above)			$	(21,982	)		$	54,785
Equity in income of affiliated companies, net of income taxes, as reported				(5,281	)			(3,120	)
Senior management restructuring				696				--
Proxy fees				1,096				--
Strategic alternatives costs				--				1,253
Goodwill impairment, as reported				78,426				--
Legal settlement				(1,098	)			--
Operational EBITDA, non-GAAP financial measure			$	51,857			$	52,918

REGIS CORPORATION'S NORTH AMERICA REPORTABLE SEGMENT
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
		As Reported						Non-Operational Adjustments (1)				Non-GAAP
		Three Months Ended December 31, 2011			% of Revenues							Three Months Ended December 31, 2011			% of Revenues
Service		$	379,694		77.1	%		$	--
Product		103,162			21.0			--
Royalties and fees		9,213			1.9			--
Total revenues		$	492,069		100.0			$	--			$	492,069		100.0	%
Cost of service (2)		218,547			57.6			--
Cost of product (3)		51,753			50.2			--
Site operating expenses		44,466			9.0			--
General and administrative		28,584			5.8			--
Rent		73,686			15.0			--
Depreciation and amortization		17,692			3.6			(828		)		16,864			3.4
Goodwill impairment		--			--			--
Total operating expenses		$	434,728		88.3			$	(828	)		$	433,900		88.2
Operating income		$	57,341		11.7			$	828			$	58,169		11.8

				(1)		The three months ended December 31, 2011 included $0.8 million pre-tax expense for the accelerated depreciation related to our point-of-sale system.
				(2)		Computed as a percent of service revenues and excludes depreciation expense.
				(3)		Computed as a percent of product revenues and excludes depreciation expense.

REGIS CORPORATION'S INTERNATIONAL REPORTABLE SEGMENT
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
		As Reported						Non-Operational Adjustments (1)				Non-GAAP
		Three Months Ended December 31, 2011			% of Revenues							Three Months Ended December 31, 2011			% of Revenues
Service		$	24,331		71.4	%		$	--
Product		9,738			28.6			--
Royalties and fees		--			--			--
Total revenues		$	34,069		100.0			$	--			$	34,069		100.0	%
Cost of service (2)		13,122			53.9			--
Cost of product (3)		5,254			54.0			--
Site operating expenses		2,359			6.9			--
General and administrative		2,956			8.7			--
Rent		9,060			26.6			--
Depreciation and amortization		1,112			3.3			(95		)		1,017			3.0
Goodwill impairment		--			--			--
Total operating expenses		$	33,863		99.4			$	(95	)		$	33,768		99.1
Operating income		$	206		0.6			$	95			$	301		0.9

				(1)		The three months ended December 31, 2011 included $0.1 million pre-tax expense for the accelerated depreciation related to our point-of-sale system.
				(2)		Computed as a percent of service revenues and excludes depreciation expense.
				(3)		Computed as a percent of product revenues and excludes depreciation expense.

REGIS CORPORATION'S HAIR RESTORATION CENTERS REPORTABLE SEGMENT
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
		As Reported						Non-Operational Adjustments (1)				Non-GAAP
		Three Months Ended December 31, 2011			% of Revenues							Three Months Ended December 31, 2011			% of Revenues
Service		$	17,274		46.5	%		$	--
Product		19,308			52.0			--
Royalties and fees		558			1.5			--
Total revenues		$	37,140		100.0			$	--			$	37,140		100.0	%
Cost of service (2)		10,672			61.8			--
Cost of product (3)		6,462			33.5			--
Site operating expenses		1,600			4.3			--
General and administrative		8,060			21.7			--
Rent		2,224			6.0			--
Depreciation and amortization		3,249			8.7			--
Goodwill impairment		78,426			211.2			(78,426		)		--			--
Total operating expenses		$	110,693		298.0			$	(78,426	)		$	32,267		86.9
Operating (loss) income		$	(73,553	)	(198.0	)		$	78,426			$	4,873		13.1

				(1)		The three months ended December 31, 2011 included $78.4 million pre-tax expense for the goodwill impairment related to the Company's Hair Restoration Centers' reportable segment.
				(2)		Computed as a percent of service revenues and excludes depreciation expense.
				(3)		Computed as a percent of product revenues and excludes depreciation expense.

REGIS CORPORATION'S UNALLOCATED CORPORATE REPORTABLE SEGMENT
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
		As Reported							Non-Operational Adjustments (2)				Non-GAAP
		Three Months Ended December 31, 2011				% of Revenues (1)							Three Months Ended December 31, 2011				% of Revenues (1)
Service		$	--			--	%		$	--
Product		--				--			--
Royalties and fees		--				--			--
Total revenues		$	--			--			$	--			$	--			--	%
Cost of service (3)		--				--			--
Cost of product (4)		--				--			--
Site operating expenses		--				--			--
General and administrative		35,466				6.3			(1,792		)		33,674				6.0
Rent		503				0.1			--
Depreciation and amortization		9,642				1.7			(5,415		)		4,227				0.8
Goodwill impairment		--				--			--
Total operating expenses		$	45,611			8.1			$	(7,207	)		$	38,404			6.8
Operating loss		$	(45,611	)		(8.1	)		$	7,207			$	(38,404	)		(6.8	)

				(1)		Computed as a percent of consolidated revenues.
				(2)		The three months ended December 31, 2011 included $0.7 million of pre-tax expense associated with senior management restructuring, $1.1 million of pre-tax expense associated with advisory fees and other costs associated with the recent contested proxy, and $5.4 million pre-tax expense for the accelerated depreciation related to our point-of-sale system.
				(3)		Computed as a percent of service revenues and excludes depreciation expense.
				(4)		Computed as a percent of product revenues and excludes depreciation expense.

		As Reported							Non-Operational Adjustments (2)				Non-GAAP
		Three Months Ended December 31, 2010				% of Revenues (1)							Three Months Ended December 31, 2010				% of Revenues (1)
Service		$	--			--	%		$	--
Product		--				--			--
Royalties and fees		--				--			--
Total revenues		$	--			--			$	--			$	--			--	%
Cost of service (3)		--				--			--
Cost of product (4)		--				--			--
Site operating expenses		--				--			--
General and administrative		31,828				5.5			(1,253		)		30,575				5.3
Rent		564				0.1			--
Depreciation and amortization		4,444				0.8			--
Goodwill impairment		--				--			--
Total operating expenses		$	36,836			6.4			$	(1,253	)		$	35,583			6.2
Operating loss		$	(36,836	)		(6.4	)		$	1,253			$	(35,583	)		(6.2	)

				(1)		Computed as a percent of consolidated revenues.
				(2)		The three months ended December 31, 2010 included $1.3 million of pre-tax expense associated our exploration of strategic alternatives.
				(3)		Computed as a percent of service revenues and excludes depreciation expense.
				(4)		Computed as a percent of product revenues and excludes depreciation expense.

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