January 28, 2016 // Franchising.com // Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose primary business is owning, operating and franchising hair salons, reported results for its second fiscal quarter ended December 31, 2015 versus the prior year as noted below.
As a result of the Company's valuation allowance against most of its deferred tax assets, associated reported and, as adjusted, after-tax results of operations are not comparable to prior periods.
Dan Hanrahan, President and Chief Executive Officer, commented, "Our focus on Leadership Development, Technical Education and Asset Protection is continuing to improve our execution capability. In the second quarter, same-store sales increased 220 basis points. Service same-store sales increased 90 basis points and retail same-store sales increased 720 basis points. We also allocated $77 million of excess capital to maximize shareholder value by repurchasing six million shares during the first half of our fiscal year.
"I am confident we are following the right strategies and I am proud of the progress our field leaders are making to ensure Regis is the place where stylists can have successful and satisfying careers. Our field leadership talent and execution capabilities continue to improve. While our progress is encouraging, it will not be linear. We have work to do to drive sustainable growth in guest traffic which will enable us to realize the potential of each of our salons and result in long-term growth and shareholder value."
The Company provided an update on its three key priorities to improve execution and performance in fiscal 2016. These areas follow the theme of people, process and metrics enabled by real-time information to make good business decisions and drive improved execution.
Leadership Development. Our top priority continues to be the development of our field operations leaders. Having strong field leaders in place is critical to creating a solid foundation for recruiting, coaching, developing and retaining our stylists. While ongoing leadership training and development have become commonplace for our Regional Vice Presidents and Regional Directors, we continued to extend our reach to our District Leaders and Salon Managers.
During the second quarter, we completed a second round of training where our more than 900 District Leaders attended regional training programs integrating technical education with positive leadership. This training emphasized multi-unit leadership and staffing and retention strategies. We are providing additional training and development, or upgrading talent as required, in order to strengthen our overall District Leader team. Additionally, we achieved significant progress in training salon managers. In the second quarter, over 97% of our salon managers completed a 12-week online program focused on stylist retention and salon staffing.
Technical Education. Technical education has the most significant potential to affect our performance because it touches each of our stylists. Making Regis a place where stylists can expect continued technical, product and experiential training reinforces our commitment to stylists' ongoing development.
During the second quarter, we completed the build-out of our Technical Education team and alignment of Artistic Directors with Regional Directors. During the first half of the fiscal year, we conducted technical training classes in approximately half of our salons and are on track to deliver technical education to every salon during fiscal 2016. We continue to receive positive feedback from leaders and stylists about the impact our Technical Education team is having across the field.
Asset Protection. Creating an environment where all stylists are working together, positively contributing to the health of our salons and salon teams, remains a key priority for our Asset Protection team. Partnering with field leaders, our Asset Protection team continues to see positive trends in salons where we have conducted awareness training sessions and salon visits. During the second quarter, the Asset Protection team conducted over 1,000 awareness training sessions and salon visits, bringing our year-to-date total to approximately 1,900. Not only did we continue to see sales trends improve due to these visits, but our Asset Protection team also assisted our field leaders in retaining high performing stylists and coaching stylists to grow their businesses to earn commissions.
For spreadsheet please go to: [http://www.regiscorp.com/investor/pressrelease/default.asp].
Revenues. Revenue in the quarter of $450.5 million declined $5.4 million, or 1.2%, compared to the prior year quarter. Same-store sales increased 2.2% compared to the prior year quarter.
Service revenues were $340.5 million, a $9.8 million decline, or 2.8%, compared to the prior year quarter. During this period, same-store service sales increased 0.9%, driven by an increase in average ticket price of 2.9%, partly offset by a decline in guest traffic of 2.0%. The offsetting 370 basis point decline in service revenues compared to the prior year quarter was primarily due to a net reduction of 214 salons and foreign currency.
Product revenues were $98.3 million, an increase of $3.6 million, or 3.8%, compared to the prior year quarter. Product same-store sales for the quarter increased 7.2%, driven by a strong holiday promotion and improved execution as more of our service guests purchased retail product, resulting in an increase to average ticket of 2.6% and an increase in guest transactions of 4.6%. The offsetting 340 basis point decline in product revenues compared to the prior year quarter was primarily due to a net reduction of 214 salons and foreign currency.
Royalties and fees were $11.7 million, an increase of $0.8 million, or 7.2% compared to the prior year quarter. Franchisees posted positive same-store sales during the quarter and the Company added 181 net franchised locations in the last twelve months.
Cost of Service and Product. Cost of service and product, as a percent of service and product revenues, increased 70 basis points to 60.9% when compared to the prior year quarter.
Cost of service as a percent of service revenues for the quarter increased 100 basis points versus the prior year quarter, to 63.6%. The primary drivers were stylist productivity and state minimum wage increases.
Cost of product as a percent of product revenues improved 30 basis points to 51.3% when compared to the prior year quarter. Favorable inventory management, lapping prior year commissions and vendor cash discounts were partly offset by planned holiday promotional activities.
Site Operating Expenses. Site operating expenses of $47.4 million increased $2.0 million compared to the prior year quarter. Excluding the impact of discrete items in the current and prior periods, site operating expenses decreased $1.2 million. This was primarily driven by a net reduction of 214 salons and foreign currency, partly offset by inflation.
General and Administrative. General and administrative expenses of $47.4 million increased $0.7 million compared to the prior year quarter. Excluding the impact of discrete items in the current and prior periods, general and administrative expenses decreased $1.1 million compared to the prior year quarter. The decrease was a result of lapping certain costs in the prior year quarter, cost savings and foreign currency, partly offset by planned strategic investments.
Rent. Rent expense of $74.5 million decreased $2.4 million compared to the prior year quarter. This decrease was primarily the result of a net reduction of 214 salons and foreign exchange, partly offset by rent inflation.
Depreciation and Amortization. Depreciation and amortization was $17.0 million compared to $19.6 million in the prior year quarter, a decrease of $2.6 million. The decrease was primarily due to salon closures and reduced salon impairment charges compared to the prior year quarter.
Income Taxes. During the three months ended December 31, 2015 the Company recognized an income tax benefit of $4.2 million, at an effective tax rate of 98.6%. During the three months ended December 31, 2014, the Company recognized income tax expense of $2.6 million, at an effective tax rate of (123.5%).
Income taxes for all periods presented were different from what would normally be expected and will continue to vary from quarter to quarter. This variation results from the valuation allowance impact on tax benefits related to certain indefinite-lived assets.
This non-cash impact will continue as long as the Company has a valuation allowance against most of its deferred tax assets and is expected to approximate $8.0 million of expense for the year ending June 30, 2016. Income tax benefit for the quarter and year-to-date period includes non-cash benefits of $3.6 million and $1.9 million, respectively, related to this matter.
Equity in Affiliates. Loss from equity method investments and affiliated companies was $13.9 million, compared to loss of $12.0 million in the prior year quarter. The increased loss of $2.0 million was comprised of an increased non-cash impairment charge on the Company's investment in EEG and higher non-cash losses as compared to the prior year quarter.
EBITDA, as Adjusted. EBITDA, as adjusted, which excludes the impact of equity in earnings of affiliated companies and discrete items in both periods, was $17.5 million, an increase of $0.2 million compared to the prior year quarter.
Discrete Items. Discrete items for the current quarter were $15.3 million of expense, comprised of the following items:
Capital Allocation. During the second quarter, the Company repurchased 2.5 million shares for $33.2 million at an average price of $13.07 per share, excluding transaction costs. At December 31, 2015, approximately $34 million remained outstanding under the Company's existing share repurchase authorization. In January 2016, the Company's Board of Directors authorized an additional $50 million for share repurchases.
In December 2015, the Company exchanged its $120.0 million 5.75% senior unsecured notes due December 2017 for $123 million 5.5% senior unsecured notes due December 2019.
In January 2016, the Company amended its $400.0 million revolving credit facility primarily reducing the borrowing capacity from $400.0 to $200.0 million. Unused available credit under the facility atJanuary 28, 2016 was $198.4 million.
A complete reconciliation of reported earnings to adjusted earnings is included in this press release and is available on the Company's website at www.regiscorp.com.
Regis Corporation will host a conference call via webcast discussing second quarter results today, January 28, 2016, at 9 a.m., Central time. Interested parties are invited to participate in the live webcast by logging on to www.regiscorp.com or participate by phone by dialing (800) 505-9573 and entering access code 9714235. A replay of the presentation will be available later in the day. The replay phone number is (888) 203-1112, access code 9714235.
Regis Corporation (NYSE:RGS) is the leader in beauty salons and cosmetology education. As of December 31, 2015, the Company owned, franchised or held ownership interests in 9,561 worldwide locations. Regis' corporate and franchised locations operate under concepts such as Supercuts, SmartStyle, MasterCuts, Regis Salons, Sassoon Salon, Cost Cutters and First Choice Haircutters. Regis maintains ownership interests in Empire Education Group in the U.S. and the MY Style concepts in Japan. For additional information about the Company, including a reconciliation of certain non-GAAP financial information and certain supplemental financial information, please visit the Investor Information section of the corporate website atwww.regiscorp.com. To join Regis Corporation's email alert list, click on this link: http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1
This press release may contain "forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and "plan." In addition, the following factors could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include the continued ability of the Company to execute on our strategy and build on the foundational initiatives that we have implemented; the success of our stylists and our ability to attract, train and retain talented stylists; changes in regulatory and statutory laws; changes in tax rates; the effect of changes to healthcare laws; our ability to manage cyber threats and protect the security of sensitive information about our guests, employees, vendors or Company information; reliance on management information systems; reliance on external vendors; changes in distribution channels of manufacturers; financial performance of our franchisees; internal control over the accounting for leases; competition within the personal hair care industry; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; the ability of the Company to maintain satisfactory relationships with certain companies and suppliers; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; financial performance of Empire Education Group; changes in consumer tastes and fashion trends; or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth in the Company's Annual Report on Form 10-K for the year ended June 30, 2015. 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.
For Full Report, please go to: [http://www.regiscorp.com/investor/pressrelease/default.asp].
SOURCE Regis Corporation
SVP, Finance and Investor Relations