Regis Reports Improved Third Quarter 2018 Results

Company Reports Net Income from Continuing Operations of $4.8 Million, a $16.6 Million Increase Versus Prior Year

Adjusted EBITDA of $20.8 Million is $2.9 Million, or 16.0% Favorable Year-Over-Year; Year-To-Date Adjusted EBITDA of $62.9 Million Increased $5.1 Million, or 8.8% Year-Over-Year

During the Quarter, the Company Successfully Restructured its Company-Owned SmartStyle® Portfolio by Closing 597 Cash Flow Negative Salons, Closed on a New Five-Year, Unsecured Revolving Credit Facility Subsequently Increased to $295 Million and Redemption of the Company’s 5.5% High-Yield Notes and Repurchased 586,000 Shares of Its Common Stock

MINNEAPOLIS - (BUSINESS WIRE) - May 01, 2018 - Regis Corporation (NYSE: RGS):

           
     

Three Months
Ended March 31,

   

Nine Months Ended
March 31,

(Dollars in thousands)     2018     2017 (1)     2018     2017 (1)
Consolidated Revenue     $300,801     $313,478     $919,189     $947,558
Consolidated Same-Store Sales Comps     1.6%     (1.7)%     0.4%     (1.3)%
                         
Net Income (Loss) From Continuing Operations     $4,799     $(11,840)     $54,912     $(5,118)
Diluted Earnings (Loss) per Share From Continuing Operations     $0.10     $(0.26)     $1.17     $(0.11)
EBITDA     $6,622     $1,104     $(13,750)     $34,696
as a percent of revenue     2.2%     0.4%     (1.5)%     3.7%
                         
As Adjusted(2)                        
Consolidated Revenue, as Adjusted     $298,740     $313,478     $917,128     $947,558
Consolidated Same-Store Sales Comps, as Adjusted     0.9%     (1.7)%     0.2%     (1.3)%
Net Income (Loss), as Adjusted     $9,909     $(1,644)     $17,505     $5,752
Diluted Earnings (Loss) per Share, as Adjusted     $0.21     $(0.04)     $0.37     $0.12
EBITDA, as Adjusted     $20,778     $17,915     $62,912     $57,841
as a percent of revenue, as adjusted     7.0%     5.7%     6.9%     6.1%
                         

(1) Amounts for fiscal year 2017 have been recast to account for mall-based business and International segment as discontinued operations.

(2) See GAAP to non-GAAP reconciliations, within the attached section titled "Non-GAAP Reconciliations".


Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose primary business is owning, operating and franchising hair salons, today reported third quarter 2018 net income from continuing operations of $4.8 million, or $0.10 per diluted share as compared to net loss from continuing operations of $11.8 million, or $0.26 per diluted share in the third quarter of 2017. The Company’s reported results include $3.0 million of costs associated with securing the new revolving credit facility and redemption of the Company’s 5.5% high-yield notes, a net $2.3 million of one-time costs associated with the restructuring of the Company's SmartStyle® salon portfolio and $1.3 million of other discrete costs, partially offset by $1.4 million of related tax benefits. Excluding discrete items, and the losses from discontinued operations, the Company reported third quarter 2018 as adjusted net income of $9.9 million, or $0.21 earnings per diluted share versus net loss of $1.6 million, or $0.04 earnings per diluted share, for the same period last year.

Total revenue in the quarter of $300.8 million decreased $12.7 million, or 4.0%, year-over-year driven primarily by the closure of 597 non-performing SmartStyle salons and the conversion of 376 company-owned salons to franchised locations, partially offset by positive same-store sales comps of 1.6%. Reported revenue includes $2.1 million of benefit related to discounted close-out product sales as part of the closure of the 597 non-performing SmartStyle salons. Excluding this one-time benefit, as adjusted sales were $298.7 million and related same-store sales comps were approximately 0.9%. Management estimates the shift of the Easter holiday benefited third quarter same-store sales comps by 90 basis points.

Third quarter EBITDA of $6.6 million increased $5.5 million versus the same period last year. As a percentage of sales, the Company's third quarter EBITDA margin rate of 2.2% compares to 0.4% in the third quarter last year. Third quarter adjusted EBITDA of $20.8 million was 7.0% of adjusted sales and was $2.9 million, or 16.0% favorable year-over-year. Last year's third quarter adjusted EBITDA margin rate was 5.7%.

On a full year basis, the Company reported net income from continuing operations of $54.9 million, or $1.17 per diluted share as compared to net loss from continuing operations of $5.1 million, or $0.11 per diluted share in the prior year. On an adjusted basis, net income from continuing operations was $17.5 million, an increase of $11.8 million. Adjusted EBITDA of $62.9 million increased $5.1 million, or 8.8% versus the same period last year.

Hugh Sawyer, President and Chief Executive Officer, commented, "We are pleased to report continued progress in our multi-year turnaround strategy, including improvement in both our quarterly and year-over-year adjusted EBITDA results. Mr. Sawyer continued, "During a busy quarter we closed on our new five-year revolving credit facility, accelerated the growth of our franchise platform and launched an industry-exclusive sponsorship of Major League Baseball through our Supercuts brand. We also began to consider options to further expand our franchise concept within our Supercuts company-owned salon portfolio where we believe it may support our strategy and potentially improve shareholder value."

Restructuring of Company-Owned SmartStyle® Portfolio

In January 2018, the Company closed 597 non-performing Company-owned SmartStyle® salons. The 597 non-performing salons generated negative cash flow of approximately $15 million during the twelve months ended September 30, 2017. The action delivered on the Company's commitment to restructure its salon portfolio to improve shareholder value and position the Company for long-term growth. The Company anticipates this action will allow the Company to reallocate capital and human resources to strategically grow its remaining SmartStyle® salons with creative new offerings.

Third Quarter Segment Results

                         

Company-Owned Salons

                       
     

Three Months Ended
March 31,

   

(Decrease)
Increase

   

Nine Months Ended
March 31,

   

(Decrease)
Increase

(Dollars in millions) (1)     2018     2017 (2)         2018     2017 (2)    
                                     
Total Revenue, as Adjusted     $ 269.8       $ 294.3       (8.3 )%     $ 838.6       $ 890.0       (5.8 )%
Same-Store Sales Comps, as Adjusted       0.9 %       (1.7 )%     260 bps       0.2 %       (1.3 )%     150 bps
Year-over-Year Ticket change       3.1 %                   3.1 %            
Year-over-Year Traffic change       (2.2 )%                   (2.9 )%            
                                     
Gross Profit, as Adjusted(3)       115.2         115.8       (0.5 )%       357.3         355.3       0.6 %

as a percent of revenue, as adjusted

      42.7 %       39.4 %     330 bps       42.6 %       39.9 %     270 bps
                                     
EBITDA, as Adjusted       28.7         27.7       3.6 %       88.5         87.6       1.0 %

as a percent of revenue, as adjusted

      10.6 %       9.4 %     120 bps       10.6 %       9.8 %     80 bps
                                     

(1) Variances calculated on amounts shown in millions may result in rounding differences.

(2) Amounts for fiscal year 2017 have been recast to account for mall-based business and International segment as discontinued operations.

(3) Gross profit, as Adjusted, excludes depreciation and amortization.

 

Third quarter revenue, as adjusted, for the Company-owned salon segment decreased 8.3% versus the prior year to $269.8 million. The year-over-year decline in revenue was driven by the closure of unprofitable salons and the sale of Company-owned salons to franchisees, partially offset by an increase in same-store sales of 0.9% driven by a 3.1% increase in average ticket, partially offset by a decrease in traffic of 2.2%.

Third quarter adjusted EBITDA of $28.7 million increased $1.0 million, or 3.6% versus the same period last year driven primarily by benefits from the Company's focus on cost reductions, the closing of unprofitable salons, and same-store sales comp increases, partially offset by salon-level compensation changes, investments in a strategic digital marketing campaign, health insurance costs, and the prior year inclusion of a more favorable self-insurance reserve adjustment. The EBITDA margin rate of the Company-owned salon segment of 10.6% increased 120 basis points compared to the third quarter of last year.

                         

Franchise

                       
     

Three Months Ended
March 31,

   

Increase
(Decrease)

   

Nine Months Ended
March 31,

   

Increase
(Decrease)

(Dollars in millions) (1)     2018     2017 (2)         2018     2017 (2)    
                                     
Revenue                                    
Product     $ 8.4       $ 7.5       12.0 %     $ 24.8       $ 22.5       10.2 %
Product sold to The Beautiful Group       6.5               N/A         12.9               N/A  
Total product     $ 14.9       $ 7.5       98.6 %     $ 37.7       $ 22.5       67.5 %
Royalties and fees       14.0         11.6       20.2 %       40.8         35.1       16.5 %
Total Revenue     $ 28.9       $ 19.2       51.0 %     $ 78.6       $ 57.6       36.4 %
                                     
EBITDA, as Adjusted       10.3         8.6       19.4 %       29.9         25.3       17.9 %
as a percent of revenue       35.5 %       44.9 %     (940) bps       38.0 %       44.0 %     (600) bps
                                     

(1) Variances calculated on amounts shown in millions may result in rounding differences.

(2) Amounts for fiscal year 2017 have been recast to account for mall-based business and International segment as discontinued operations.

 

Third quarter Franchise revenue was $28.9 million, a $9.8 million, or 51.0%, increase compared to the prior year quarter. Royalties and fees were $14.0 million, a $2.4 million, or 20.2% increase versus the same period last year. Royalties increased 11.0% driven primarily by positive same-store revenue and increased franchise salon counts. Initial franchise fees increased $1.4 million as the Company opened, or converted, a net 144 franchised locations in the quarter as compared to 46 in the prior year quarter. Product sales to franchisees were $14.9 million, an increase of $7.4 million. Product sales to The Beautiful Group accounted for $6.5 million of this year-over-year sales increase.

Franchise adjusted EBITDA of $10.3 million improved $1.7 million, or 19.4% year-over-year. The Franchise EBITDA margin rate of 35.5% was negatively impacted by roughly 960 basis points due to the low margin rate of product sales to The Beautiful Group in accordance with the terms of our agreement. Removing the dilutive impact of these sales, EBITDA margin rates in the Franchise segment of 45.1% improved 20 basis points when compared to the third quarter of last year.

Other Company Updates

Consolidated Year-Over-Year General & Administrative ("G&A") Comparability

The Company announced a realignment of its field leadership team by brand during the first fiscal quarter. An outcome of this reorganization is that the costs associated with senior district leaders have been moved out of cost of goods sold and site operating expense, where the expense has historically been recorded, and into G&A. The Company notes that this change does not impact the overall consolidated results but does result in an $8.5 million decrease in cost of goods sold and site expense, and a corresponding $8.5 million increase to G&A this quarter, when compared to the comparable period last year. On a year-to-date basis, this reclassification of expenses decreased cost of goods sold and site expense, and had a corresponding increase to G&A of $23.6 million versus the same period last year.

Transformational Strategy Update

The Company continued to make progress implementing its transformational strategy and operational turnaround initiatives focused on improving the performance of Company-owned salons, while at the same time accelerating the growth of its franchise portfolio. During the quarter, the Company:

  • Closed 597 non-performing, cash flow negative Company-owned SmartStyle® salons in January 2018.
  • Repurchased 586,000 common shares at a total price of $9.6 million.
  • Converted 126 Company-owned salons to franchise substantially in its Supercuts and SmartStyle brands.
  • Closed on a new five-year, $260 million unsecured revolving credit facility and redeemed the Company’s 5.5% high-yield notes. The size of the credit facility has subsequently increased to $295 million as an additional bank joined the syndicate.
  • Executed a number of operational initiatives, building on its previously discussed management initiatives, to stabilize performance and establish a platform for longer-term revenue and earnings growth in Company-owned salons. The Company estimates the initiatives delivered benefit in a range of $8.0 million to $10.0 million in the third quarter of fiscal 2018.
  • Announced the appointment of Virginia Gambale to its Board of Directors, effective March 1, 2018.
  • Launched an e-commerce initiative to distribute the Company's DesignLine® brand of hair care products through Amazon and eBay to supplement existing in-salon sales and raise overall brand awareness.

Non-GAAP reconciliations:

For GAAP to non-GAAP reconciliations, please refer to attached section titled "Non-GAAP Reconciliations". A complete reconciliation of reported earnings to adjusted earnings is included in this press release and is available on the Company’s website at www.regiscorp.com.

Earnings Webcast

Regis Corporation will host a conference call via webcast discussing third quarter results today, May 1, 2018, at 9 a.m., Central time. Interested parties are invited to participate in the live webcast by logging on to www.regiscorp.com or participate via telephone by dialing (888) 394-8218 and entering access code 3375512. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 3375512.

About Regis Corporation

Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of March 31, 2018, the Company owned, franchised or held ownership interests in 8,228 worldwide locations. Regis’ corporate and franchised locations operate under concepts such as Supercuts®, SmartStyle®, MasterCuts®, Regis Salons®, Sassoon®, Cost Cutters®, Roosters® and First Choice Haircutters®. Regis maintains an ownership interest in Empire Education Group in the U.S. For additional information about the Company, including a reconciliation of certain non-GAAP financial information and certain supplemental financial information, please visit the Investor Information section of the corporate website at www.regiscorp.com. To join Regis Corporation’s email alert list, click on this link: http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1

This press release contains or may contain “forward-looking statements” within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management’s best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, “may,” “believe,” “project,” “forecast,” “expect,” “estimate,” “anticipate,” and “plan.” In addition, the following factors could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include the continued ability of the Company to implement its strategy, priorities and initiatives; our ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of certain salons to franchisees; the ability of the Company to maintain a satisfactory relationship with Walmart; the success of The Beautiful Group; marketing efforts to drive traffic; changes in regulatory and statutory laws including increases in minimum wages; our ability to manage cyber threats and protect the security of sensitive information about our guests, employees, vendors or Company information; reliance on information technology systems; reliance on external vendors; competition within the personal hair care industry; changes in tax exposure; changes in healthcare; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; consumer shopping trends and changes in manufacturer distribution channels; financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; changes in consumer tastes and fashion trends; exposure to uninsured or unidentified risks; ability to attract and retain key management personnel; reliance on our management team and other key personnel or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2017. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

REGIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
(Dollars in thousands, except share data)
             
      March 31, 2018     June 30, 2017
ASSETS            
Current assets:            
Cash and cash equivalents     $ 105,200     $ 171,044
Receivables, net       33,388       19,683
Inventories       81,131       98,392
Other current assets       46,488       48,114
Current assets held for sale             32,914
Total current assets       266,207       370,147
             
Property and equipment, net       104,127       123,281
Goodwill       415,503       416,987
Other intangibles, net       10,935       11,965
Other assets       60,433       61,756
Noncurrent assets held for sale             27,352
Total assets     $ 857,205     $ 1,011,488
             
LIABILITIES AND SHAREHOLDERS’ EQUITY            
Current liabilities:            
Accounts payable     $ 50,913     $ 54,501
Accrued expenses       101,928       110,435
Current liabilities related to assets held for sale             13,126
Total current liabilities       152,841       178,062
             
Long-term debt, net       90,000       120,599
Other noncurrent liabilities       101,093       197,374
Noncurrent liabilities related to assets held for sale             7,232
Total liabilities       343,934       503,267
Commitments and contingencies            
Shareholders’ equity:            
Common stock, $0.05 par value; issued and outstanding 46,126,249 and 46,400,367 common shares at March 31, 2018 and June 30, 2017 respectively       2,306       2,320
Additional paid-in capital       208,149       214,109
Accumulated other comprehensive income       10,407       3,336
Retained earnings       292,409       288,456
             
Total shareholders’ equity       513,271       508,221
             
Total liabilities and shareholders’ equity     $ 857,205     $ 1,011,488
                 
 
REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
For The Three and Nine Months Ended March 31, 2018 and 2017
(Dollars and shares in thousands, except per share data amounts)
             
     

Three Months Ended
March 31,

   

Nine Months Ended
March 31,

      2018     2017     2018     2017
Revenues:                        
Service     $ 221,926       $ 237,998       $ 680,699       $ 716,698  
Product       64,887         63,844         197,643         195,789  
Royalties and fees       13,988         11,636         40,847         35,071  
        300,801         313,478         919,189         947,558  
Operating expenses:                        
Cost of service       132,081         153,008         406,767         454,998  
Cost of product       37,139         30,989         107,165         96,388  
Site operating expenses       31,021         30,604         96,443         95,887  
General and administrative       45,727         45,694         129,485         118,305  
Rent       39,391         45,821         147,280         137,145  
Depreciation and amortization       9,558         13,576         46,764         38,331  
Total operating expenses       294,917         319,692         933,904         941,054  
                         
Operating income (loss)       5,884         (6,214 )       (14,715 )       6,504  
                         
Other (expense) income:                        
Interest expense       (5,095 )       (2,125 )       (9,402 )       (6,441 )
Interest income and other, net       1,785         357         5,174         2,136  
                         
Income (loss) from continuing operations before income taxes       2,574         (7,982 )       (18,943 )       2,199  
                         
Income tax benefit (expense)       2,225         (3,858 )       73,855         (7,317 )
                         
Income (loss) from continuing operations       4,799         (11,840 )       54,912         (5,118 )
                         
Loss from discontinued operations, net of taxes       (10,605 )       (6,615 )       (50,973 )       (12,275 )
                         
Net (loss) income     $ (5,806 )     $ (18,455 )     $ 3,939       $ (17,393 )
                         
Net (loss) income per share:                        
Basic:                        
Income (loss) from continuing operations     $ 0.10       $ (0.26 )     $ 1.18       $ (0.11 )
Loss from discontinued operations       (0.23 )       (0.14 )       (1.09 )       (0.27 )
Net (loss) income per share, basic (1)     $ (0.12 )     $ (0.40 )     $ 0.08       $ (0.38 )
Diluted:                        
Income (loss) from continuing operations     $ 0.10       $ (0.26 )     $ 1.17       $ (0.11 )
Loss from discontinued operations       (0.22 )       (0.14 )       (1.08 )       (0.27 )
Net (loss) income per share, diluted (1)     $ (0.12 )     $ (0.40 )     $ 0.08       $ (0.38 )
                         
Weighted average common and common equivalent shares outstanding:                        
Basic       46,612         46,360         46,684         46,304  
Diluted       47,153         46,360         47,093         46,304  
                                         

(1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.

 
 
REGIS CORPORATION (NYSE: RGS)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) INCOME (Unaudited)
(Dollars in thousands)
             
     

Three Months Ended
March 31,

   

Nine Months Ended
March 31,

      2018     2017     2018     2017
Net (loss) income     $ (5,806 )     $ (18,455 )     $ 3,939     $ (17,393 )
Other comprehensive (loss) income, net of tax:                        
Foreign currency translation adjustments during the period:                        
Foreign currency translation adjustments       (1,382 )       248         919       (4,590 )
Reclassification adjustments for losses included in net (loss) income                       6,152        
Net current period foreign currency translation adjustments       (1,382 )       248         7,071       (4,590 )
Recognition of deferred compensation               (22 )             (22 )
Other comprehensive (loss) income       (1,382 )       226         7,071       (4,612 )
Comprehensive (loss) income     $ (7,188 )     $ (18,229 )     $ 11,010     $ (22,005 )
                                       
 
REGIS CORPORATION (NYSE: RGS)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)
(Dollars in thousands)
       
      Nine Months Ended March 31,
      2018     2017
Cash flows from operating activities:            
Net income (loss)     $ 3,939       $ (17,393 )
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:            
Non-cash impairment related to discontinued operations       37,020          
Depreciation and amortization       29,736         30,709  
Depreciation related to discontinued operations       3,723         10,642  
Equity in loss of affiliated companies               50  
Deferred income taxes       (81,006 )       6,419  
Gain on life insurance       (7,986 )        
Gain from sale of salon assets to franchisees, net (1)       (255 )       (53 )
Salon asset impairments       11,099         7,622  
Accumulated other comprehensive income reclassification adjustments       6,152          
Stock-based compensation       6,483         9,498  
Amortization of debt discount and financing costs       4,011         1,054  
Other non-cash items affecting earnings       (286 )       150  
Changes in operating assets and liabilities, excluding the effects of asset sales       (35,268 )       (1,884 )
Net cash (used in) provided by operating activities       (22,638 )       46,814  
             
Cash flows from investing activities:            
Capital expenditures       (20,065 )       (20,296 )
Capital expenditures related to discontinued operations       (1,171 )       (5,124 )
Proceeds from sale of assets to franchisees (1)       5,620         594  
Change in restricted cash       (327 )       999  
Proceeds from company-owned life insurance policies       18,108         876  
Net cash provided by (used in) investing activities       2,165         (22,951 )
             
Cash flows from financing activities:            
Borrowings on revolving credit facility       90,000          
Repayments of long-term debt       (124,230 )        
Repurchase of common stock       (9,634 )        
Taxes paid for shares withheld       (2,279 )       (1,228 )
Cash settlement of equity awards       (550 )       (440 )
Net cash used in financing activities       (46,693 )       (1,668 )
             
Effect of exchange rate changes on cash and cash equivalents       (30 )       (852 )
             
(Decrease) increase in cash and cash equivalents       (67,196 )       21,343  
             
Cash and cash equivalents:            
Beginning of period       171,044         147,346  
Cash and cash equivalents included in current assets held for sale       1,352          
Beginning of period, total cash and cash equivalents       172,396         147,346  
End of period     $ 105,200       $ 168,689  
                     

(1) Excludes transaction with The Beautiful Group.

 
       

SAME-STORE SALES (1):

     
      For the Three Months Ended
      March 31, 2018     March 31, 2017
      Service    

 Retail 

   

  Total  

    Service    

 Retail 

   

  Total  

SmartStyle     (1.0 )     4.4       0.6       (1.9 )     (0.7 )     (1.5 )
Supercuts     4.0       (2.2 )     3.5       (0.5 )     (6.3 )     (1.0 )
Signature Style     1.8       (0.9 )     1.5       (2.8 )     0.8       (2.5 )
Consolidated     1.4 %     2.5 %     1.6 %     (1.8 )%     (1.1 )%     (1.7 )%
                                     
      For the Nine Months Ended
      March 31, 2018     March 31, 2017
      Service    

 Retail 

   

  Total  

    Service    

 Retail 

   

  Total  

SmartStyle     (0.9 )     1.6       (0.1 )     (1.0 )     (1.8 )     (1.2 )
Supercuts     2.9       (4.3 )     2.2       0.1       (4.9 )     (0.4 )
Signature Style     0.2       (3.3 )     (0.2 )     (2.1 )     (1.7 )     (2.1 )
Consolidated     0.5 %     %     0.4 %     (1.1 )%     (2.1 )%     (1.3 )%
                                                 

(1) Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations that 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. Same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.

 
 
REGIS CORPORATION (NYSE: RGS)
System-wide location counts
             
      March 31, 2018     June 30, 2017
COMPANY-OWNED SALONS:            
             
SmartStyle/Cost Cutters in Walmart Stores     1,782     2,652
Supercuts     946     980
Signature Style     1,387     1,468
Mall locations (Regis and MasterCuts)     13     898
Total North American Salons     4,128     5,998
Total International Salons (1)         275
Total Company-owned Salons     4,128     6,273
as a percent of total Company-owned and Franchise salons     50.7%     70.3%
             
FRANCHISE SALONS:            
             
SmartStyle in Walmart Stores     322     62
Cost Cutters in Walmart Stores     120     114
Supercuts     1,732     1,687
Signature Style     755     770
Total non-mall franchise locations     2,929     2,633
Mall franchise locations (Regis and MasterCuts)     821    
Total North American Salons     3,750     2,633
Total International Salons (1)     262     13
Total Franchise Salons     4,012     2,646
as a percent of total Company-owned and Franchise salons     49.3%     29.7%
             
OWNERSHIP INTEREST LOCATIONS:            
             
Equity ownership interest locations     88     89
             
Grand Total, System-wide     8,228     9,008
             

(1) Canadian and Puerto Rican salons are included in the North American salon totals.

 

Non-GAAP Reconciliations

We believe our presentation of non-GAAP operating income, net income (loss), net income (loss) per diluted share, and other non-GAAP financial measures provides meaningful insight into our ongoing operating performance and an alternative perspective of our results of operations. Presentation of the non-GAAP measures allows investors to review our core ongoing operating performance from the same perspective as management and the Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors’ analyses and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe the non-GAAP measures are useful to investors because they provide supplemental information research analysts frequently use to analyze financial performance.

The method we use to produce non-GAAP results is not in accordance with U.S. GAAP and may differ from methods used by other companies. These non-GAAP results should not be regarded as a substitute for corresponding U.S. GAAP measures but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with U.S. GAAP and the reconciliation of the selected U.S. GAAP to non-GAAP financial measures, which are located in the Investor Information section of the corporate website at www.regiscorp.com.

Non-GAAP reconciling items for the three and nine months ended March 31, 2018 and 2017:

The following information is provided to give qualitative and quantitative information related to items impacting comparability. Items impacting comparability are not defined terms within U.S. GAAP. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies. We determine which items to consider as “items impacting comparability” based on how management views our business, makes financial, operating and planning decisions and evaluates the Company’s ongoing performance. The following items have been excluded from our non-GAAP results:

  • SmartStyle restructuring discounting and costs.
  • Executive transition costs.
  • Professional fees.
  • Severance expense for former executive officers.
  • Legal fees.
  • Gain on life insurance proceeds.
  • Debt refinancing.
  • Goodwill derecognition.
  • Impact of tax reform.
  • Discontinued operations.
 
REGIS CORPORATION
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
(Dollars in thousands, except per share data)
(unaudited)
 
Reconciliation of U.S. GAAP operating income (loss) and U.S. GAAP net (loss) income to equivalent non-GAAP measures
         

Three Months Ended
March 31, 2018

   

Nine Months Ended
March 31, 2018

    U.S. GAAP financial line item     2018     2017     2018     2017
U.S. GAAP revenue         $ 300,801       $ 313,478       $ 919,189       $ 947,558  
                             
Non-GAAP revenue adjustments                            
SmartStyle restructuring discounting   Product Sales       (2,061 )               (2,061 )        
Non-GAAP revenue         $ 298,740       $ 313,478       $ 917,128       $ 947,558  
                             
U.S. GAAP operating income (loss)         $ 5,884       $ (6,214 )     $ (14,715 )     $ 6,504  
                             
Non-GAAP revenue adjustments           (2,061 )               (2,061 )        
                             
Non-GAAP operating expense adjustments (1)                            
SmartStyle restructuring discounting   Cost of Service       190                 190          
SmartStyle restructuring and discounting costs   Cost of Product       2,407                 2,992          
SmartStyle restructuring discounting   Site operating expenses       487                 487          
SmartStyle restructuring costs   General and administrative       1,218                 1,334          
Executive transition costs   General and administrative       146                 564          
Professional fees   General and administrative       (8 )       1,037         1,628         1,711  
Severance   General and administrative               7,854         2,828         7,854  
Legal fees   General and administrative               1,405                 1,405  
Gain on life insurance proceeds   General and administrative               (100 )       (7,986 )       (100 )
SmartStyle restructuring costs   Rent                       23,999          
SmartStyle restructuring costs   Depreciation and amortization       43                 12,922          
Total non-GAAP operating expense adjustments           4,483         10,196         38,958         10,870  
                             
Non-GAAP operating income (1)         $ 8,306       $ 3,982       $ 22,182       $ 17,374  
                             
U.S. GAAP net (loss) income         $ (5,806 )     $ (18,455 )     $ 3,939       $ (17,393 )
                             
Non-GAAP net income (loss) adjustments:                            
Non-GAAP revenue adjustments           (2,061 )               (2,061 )        
Non-GAAP operating expense adjustments           4,483         10,196         38,958         10,870  
Debt refinancing   Interest expense       2,957                 2,957          
Goodwill derecognition   Interest income and other, net       1,172                 1,714          
Income tax impact on Non-GAAP adjustments (2)   Income taxes       (1,441 )               (10,072 )        
Impact of tax reform   Income taxes                       (68,903 )        
Discontinued operations, net of income tax   Loss from discontinued operations, net of tax       10,605         6,615         50,973         12,275  
Total non-GAAP net income (loss) adjustments           15,715         16,811         13,566         23,145  
Non-GAAP net income (loss)         $ 9,909       $ (1,644 )     $ 17,505       $ 5,752  
                             

Notes:

                           

(1) Adjusted operating margins for the three months ended March 31, 2018, and 2017, were 2.8% and 1.3%, respectively, and were 2.4% and 1.8% for the nine months ended March 31, 2018 and 2017, respectively, and are calculated as non-GAAP operating income divided by non-GAAP revenue for each respective period.

 

 

(2) Based on projected statutory effective tax rate analyses, the non-GAAP tax provision was calculated to be approximately 22% for the three and six months ended March 31, 2018, for all non-GAAP operating expense adjustments. Non-GAAP operating expense adjustments recognized during the first quarter of fiscal year 2018 were not tax effected as a result of the valuation allowance. As a result of the valuation allowance, non-GAAP adjustments were not tax effected for the three and nine months ended March 31, 2017.

 
 
REGIS CORPORATION
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
(Dollars in thousands, except per share data)
(Unaudited)
 
Reconciliation of U.S. GAAP net (loss) income per diluted share to non-GAAP net income (loss) per diluted share
   

Three Months Ended
March 31,

   

Nine Months Ended
March 31,

    2018     2017     2018     2017
U.S. GAAP net (loss) income per diluted share     $ (0.123 )     $ (0.398 )     $ 0.084       $ (0.376 )
SmartStyle restructuring discounting and costs (1) (2)       0.038                 0.668          
Executive transition costs (1) (2)       0.002                 0.011          
Severance (1) (2)               0.169         0.050         0.168  
Legal fees (1) (2)               0.030                 0.030  
Professional fees (1) (2)               0.022         0.031         0.037  
Gain on life insurance proceeds (1) (2)               (0.002 )       (0.170 )       (0.002 )
Debt refinancing (1) (2)       0.049                 0.049          
Goodwill derecognition (1) (2)       0.019                 0.030          
Impact of tax reform                       (1.463 )        
Discontinued operations, net of tax       0.225         0.143         1.082         0.262  
Impact of change in weighted average shares (2)                               0.004  
Non-GAAP net income (loss) per diluted share (2) (3)     $ 0.210       $ (0.035 )     $ 0.372       $ 0.123  
                         
U.S. GAAP Weighted average shares - basic       46,612         46,360         46,684         46,304  
U.S. GAAP Weighted average shares - diluted       47,153         46,360         47,093         46,304  
Non-GAAP Weighted average shares - diluted (3)       47,153         46,360         47,093         46,851  
                                         

Notes:

(1) Based on projected statutory effective tax rate analyses, the non-GAAP tax provision was calculated to be approximately 22% for the three and six months ended March 31, 2018, for all non-GAAP operating expense adjustments. Non-GAAP operating expense adjustments recognized during the first quarter of fiscal year 2018 were not tax effected as a result of the valuation allowance. As a result of the valuation allowance, non-GAAP adjustments were not tax effected for the three and nine months ended March 31, 2017.

 

(2) Non-GAAP net income (loss) per share reflects the weighted average shares associated with non-GAAP net income (loss), which includes the dilutive effect of common stock equivalents. The earnings per share impact of the adjustments for the nine months ended March 31, 2017 included additional shares for common stock equivalents of 0.5 million. The impact of the adjustments described above result in the effect of the common stock equivalents to be dilutive to the non-GAAP net income (loss) per share.

 

(3) 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 Impact for Q3 FY18 Discrete Items
(Dollars in thousands)
(Unaudited)
                   
      Pre-Tax     Income Taxes     Net Income
SmartStyle restructuring discounting and costs, net     $ 2,284       $ (503 )     $ 1,781  
Executive transition costs       146         (32 )       114  
Professional fees       (8 )       2         (6 )
Debt refinancing       2,957         (650 )       2,307  
Goodwill derecognition       1,172         (258 )       914  
      $ 6,551       $ (1,441 )     $ 5,110  
                   
Discontinued operations, net of tax     $       $       $ 10,605  
                   
Total     $ 6,551       $ (1,441 )     $ 15,715  
                               

REGIS CORPORATION
Reconciliation of reported U.S. GAAP net income (loss) to adjusted EBITDA, a non-GAAP financial measure
(Dollars in thousands)
(unaudited)

Adjusted EBITDA
EBITDA represents U.S. GAAP net income (loss) for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines adjusted EBITDA, as EBITDA excluding identified items impacting comparability for each respective period. For the three and nine months ended March 31, 2018 and 2017, the items impacting comparability consisted of the items identified in the non-GAAP reconciling items for the respective periods. The impacts of the debt refinancing, income tax provision adjustments associated with the above items, impact of tax reform and the SmartStyle restructuring costs included within depreciation and amortization are already included in the U.S. GAAP reported net income (loss) to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to adjusted EBITDA.

       
      Three Months Ended March 31, 2018
      Company-owned     Franchise (1)     Corporate     Consolidated (2)
Consolidated reported net income (loss), as reported (U.S. GAAP)     $ 19,222     $ 10,184     $ (35,212 )     $ (5,806 )
Interest expense, as reported                   5,095         5,095  
Income taxes, as reported                   (2,225 )       (2,225 )
Depreciation and amortization, as reported       7,276       92       2,190         9,558  
EBITDA (as defined above)     $ 26,498     $ 10,276     $ (30,152 )     $ 6,622  
                         
SmartStyle restructuring discounting and costs, net       2,218             23         2,241  
Executive transition costs                   146         146  
Professional fees                   (8 )       (8 )
Goodwill derecognition                   1,172         1,172  
Discontinued operations, net of tax                   10,605         10,605  
Adjusted EBITDA, non-GAAP financial measure     $ 28,716     $ 10,276     $ (18,214 )     $ 20,778  
                         
      Three Months Ended March 31, 2017
      Company-owned     Franchise     Corporate     Consolidated (1)
Consolidated reported net income (loss), as reported (U.S. GAAP)     $ 16,529     $ 8,518     $ (43,502 )     $ (18,455 )
Interest expense, as reported                   2,125         2,125  
Income taxes, as reported                   3,858         3,858  
Depreciation and amortization, as reported       11,195       89       2,292         13,576  
EBITDA (as defined above)     $ 27,724     $ 8,607     $ (35,227 )     $ 1,104  
                         
Severance                   7,854         7,854  
Legal fees                   1,405         1,405  
Professional fees                   1,037         1,037  
Gain on life insurance proceeds                   (100 )       (100 )
Discontinued operations, net of tax                   6,615         6,615  
Adjusted EBITDA, non-GAAP financial measure     $ 27,724     $ 8,607     $ (18,416 )     $ 17,915  
                         

Notes:

                       

(1) Franchise adjusted EBITDA margin for the three months ended March 31, 2018 was 35.5%, and is calculated as franchise EBITDA (as defined above) divided by U.S. GAAP franchise revenue for the period. Removing the dilutive impact of $6.5 million for the franchise product sales to The Beautiful Group, franchise adjusted EBITDA margin for the three months ended March 31, 2018 was 45.2%.

 

(2) Consolidated EBITDA margins for the three months ended March 31, 2018, and 2017, were 2.2% and 0.4%, respectively, and are calculated as EBITDA (as defined above) divided by U.S. GAAP revenue for each respective period. Consolidated adjusted EBITDA margins for the three months ended March 31, 2018, and 2017, were 7.0% and 5.7%, respectively, and are calculated as adjusted EBITDA divided by adjusted non-GAAP revenue for each respective period.

 
       
      Nine Months Ended March 31, 2018
      Company-owned     Franchise     Corporate     Consolidated
Consolidated reported net income (loss), as reported (U.S. GAAP)     $ 22,361     $ 29,583     $ (48,005 )     $ 3,939  
Interest expense, as reported                   9,402         9,402  
Income taxes, as reported                   (73,855 )       (73,855 )
Depreciation and amortization, as reported       39,224       275       7,265         46,764  
EBITDA (as defined above)     $ 61,585     $ 29,858     $ (105,193 )     $ (13,750 )
                         
SmartStyle restructuring discounting and costs, net       26,904             37         26,941  
Gain on life insurance proceeds                   (7,986 )       (7,986 )
Severance                   2,828         2,828  
Professional fees                   1,628         1,628  
Executive transition costs                   564         564  
Goodwill derecognition                   1,714         1,714  
Discontinued operations, net of tax                   50,973         50,973  
Adjusted EBITDA, non-GAAP financial measure     $ 88,489     $ 29,858     $ (55,435 )     $ 62,912  
                         
      Nine Months Ended March 31, 2017
      Company-owned     Franchise     Corporate     Consolidated
Consolidated reported net income (loss), as reported (U.S. GAAP)     $ 56,653     $ 25,053     $ (99,099 )     $ (17,393 )
Interest expense, as reported                   6,441         6,441  
Income taxes, as reported                   7,317         7,317  
Depreciation and amortization, as reported       30,993       268       7,070         38,331  
EBITDA (as defined above)     $ 87,646     $ 25,321     $ (78,271 )     $ 34,696  
                         
Severance                   7,854         7,854  
Legal fees                   1,405         1,405  
Professional fees                   1,711         1,711  
Gain on life insurance proceeds                   (100 )       (100 )
Discontinued operations, net of tax                   12,275         12,275  
Adjusted EBITDA, non-GAAP financial measure     $ 87,646     $ 25,321     $ (55,126 )     $ 57,841  
                                     
 
REGIS CORPORATION
Reconciliation by reportable segment of reported U.S. GAAP total revenue to adjusted total revenue, a
non-GAAP financial measure
(Dollars in thousands)
(Unaudited)
 

Total Revenue

Non-GAAP total revenue is U.S. GAAP revenue adjusted for items impacting comparability for each respective period.

       
      Three Months Ended March 31, 2018
      Company-owned     Franchise     Corporate     Consolidated
Consolidated total revenue, as reported (U.S. GAAP)     $ 271,882       $ 28,919     $     $ 300,801  
SmartStyle restructuring discounting       (2,061 )                   (2,061 )
Adjusted total revenue, non-GAAP financial measure     $ 269,821       $ 28,919     $     $ 298,740  
       
      Three Months Ended March 31, 2017
      Company-owned     Franchise     Corporate     Consolidated
Consolidated total revenue, U.S. GAAP and non-GAAP     $ 294,324       $ 19,154     $     $ 313,478  
       
      Nine Months Ended March 31, 2018
      Company-owned     Franchise     Corporate     Consolidated
Consolidated total revenue, as reported (U.S. GAAP)     $ 840,621       $ 78,568     $     $ 919,189  
SmartStyle restructuring discounting       (2,061 )                   (2,061 )
Adjusted total revenue, non-GAAP financial measure     $ 838,560       $ 78,568     $     $ 917,128  
       
      Nine Months Ended March 31, 2017
      Company-owned     Franchise     Corporate     Consolidated
Consolidated total revenue, U.S. GAAP and non-GAAP     $ 889,973       $ 57,585     $     $ 947,558  
                         

REGIS CORPORATION
Reconciliation by reportable segment of reported U.S. GAAP gross profit (excluding depreciation and amortization) to adjusted gross profit (excluding depreciation and amortization), a non-GAAP financial measure
(Dollars in thousands)
(Unaudited)

Gross profit
The Company defines gross profit as service and product revenues less cost of service and cost of product, excluding depreciation and amortization. Non-GAAP gross profit is gross profit, as defined by the Company, adjusted for items impacting comparability for each respective period.

     
    Three Months Ended March 31, 2018
    Company-owned   Franchise   Corporate   Consolidated
Revenues:                
Service   $ 221,926   $   $   $ 221,926
Product     49,956     14,931         64,887
      271,882     14,931         286,813
                 
Cost of service     132,081             132,081
Cost of product     25,137     12,002         37,139
      157,218     12,002         169,220
                 
U.S. GAAP gross profit(1)   $ 114,664   $ 2,929   $   $ 117,593
                 
Non-GAAP gross profit adjustments:                
SmartStyle restructuring discounting     536             536
Non-GAAP gross profit(1)   $ 115,200   $ 2,929   $   $ 118,129
     

(1) Gross profit excludes depreciation and amortization.

     
    Three Months Ended March 31, 2017
    Company-owned   Franchise   Corporate   Consolidated
Revenues:                
Service   $ 237,998   $   $   $ 237,998
Product     56,326     7,518         63,844
      294,324     7,518         301,842
                 
Cost of service     153,008             153,008
Cost of product     25,499     5,490         30,989
      178,507     5,490         183,997
                 
U.S. GAAP and Non-GAAP gross profit(1)   $ 115,817   $ 2,028   $   $ 117,845
                 

(1) Gross profit excludes depreciation and amortization.

 
       
      For the Nine Months Ended March 31, 2018
      Company-owned     Franchise     Corporate     Consolidated
Revenues:                        
Service     $ 680,699     $     $     $ 680,699
Product       159,922       37,721             197,643
        840,621       37,721             878,342
                         
Cost of service       406,767                   406,767
Cost of product       77,628       29,537             107,165
        484,395       29,537             513,932
                         
U.S. GAAP and Non-GAAP gross profit(1)     $ 356,226     $ 8,184     $     $ 364,410
                         
Non-GAAP gross profit adjustments:                        
SmartStyle restructuring discounting and costs       1,121                   1,121
Non-GAAP gross profit(1)     $ 357,347     $ 8,184     $     $ 365,531
       

(1) Gross profit excludes depreciation and amortization.

       
      For the Nine Months Ended March 31, 2017
      Company-owned     Franchise     Corporate     Consolidated
Revenues:                        
Service     $ 716,698     $     $     $ 716,698
Product       173,275       22,514             195,789
        889,973       22,514             912,487
                         
Cost of service       454,998                   454,998
Cost of product       79,629       16,759             96,388
        534,627       16,759             551,386
                         
U.S. GAAP and Non-GAAP gross profit(1)     $ 355,346     $ 5,755     $     $ 361,101
                         

(1) Gross profit excludes depreciation and amortization.

 
 
REGIS CORPORATION
Reconciliation of reported U.S. GAAP revenue change to same-store sales
(unaudited)
           
   

Three Months Ended
March 31,

   

Nine Months Ended
March 31,

    2018     2017     2018     2017
Revenue decline, as reported (U.S. GAAP)     (4.0 )%     (2.8 )%     (3.0 )%     (2.0 )%
Effect of new company-owned stores     (0.1 )     (0.5 )     (0.2 )     (0.5 )
Effect of closed salons     9.2       1.9       5.9       1.7  
Franchise     (3.0 )     0.1       (2.2 )      
Foreign currency     (0.3 )     (0.2 )     (0.3 )      
Other     (0.2 )     (0.2 )     0.2       (0.5 )
Same-store sales, non-GAAP     1.6 %     (1.7 )%     0.4 %     (1.3 )%
                                 
 
REGIS CORPORATION
Reconciliation of reported non-GAAP revenue change to same-store sales, as adjusted
(unaudited)
 
     

Three Months Ended
March 31,

   

Nine Months Ended
March 31,

      2018     2017     2018     2017
Revenue decline, as adjusted (non-GAAP)       (4.7 )%     (2.8 )%     (3.2 )%     (2.0 )%
Effect of new company-owned stores       (0.1 )     (0.5 )     (0.2 )     (0.5 )
Effect of closed salons       9.3       1.9       5.9       1.7  
Other       (0.3 )     (0.2 )     0.2       (0.5 )
Franchise       (3.0 )     0.1       (2.2 )      
Foreign currency       (0.3 )     (0.2 )     (0.3 )      
Same-store sales, as adjusted non-GAAP       0.9 %     (1.7 )%     0.2 %     (1.3 )%
                                   

Contact:

Paul Dunn
Regis Corporation
952-947-7915
VP, Finance and Investor Relations

SOURCE Regis Corporation

###

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