Regis Reports First Quarter 2020 Operating Results and Continues to Make Significant Progress in Its Transiton to a Capital Light, High Growth and Technology Enabled Fully Franchised Model

During The First Quarter, The Company Successfully Sold and Converted 545 Company Owned Salons to Franchise Operations Generating $38 Million In Cash Proceeds

Approximately 900 Company Owned Salons, or Approximately 42% Of The Remaining Company Owned Salon Portfolio Are Now In Various Stages Of Negotiations To Be Purchased By New Or Existing Franchisees

MINNEAPOLIS–(BUSINESS WIRE)–Regis Corporation (NYSE: RGS):

Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose primary business is franchising, owning and operating technology enabled hair salons, today reported a first quarter 2020 loss from continuing operations of $14.2 million, or $0.39 per diluted share as compared to a loss from continuing operations of $0.5 million, or $0.01 per diluted share in the first quarter of 2019. The Company’s reported results include $32.1 million of non-cash goodwill derecognition associated with the sale of 545 salons to franchisees, and $3.9 million of other discrete costs. Excluding discrete items, and the income from discontinued operations, the Company reported increased first quarter 2020 adjusted net income of $13.9 million, or $0.37 earnings per diluted share as compared to adjusted net income of $11.3 million, or $0.25 earnings per diluted share for the same period last year. The year-over-year increase in adjusted net income was driven primarily by gains from the sale of salons to franchisees.

Total revenue in the quarter of $247.0 million decreased $40.8 million, or 14.2%, year-over-year driven primarily by the conversion of a net 1,143 company-owned salons to the Company’s asset-light franchise portfolio over the past 12 months. These reductions were partially offset by revenue growth of $34.5 million in the Company’s Franchise segment. The Company noted that in connection with the new leasing guidance, it now records franchise rental income and the corresponding rental expense on separate line items. The net impact is to gross up both revenue and expense with no impact to overall earnings. The impact during the first quarter was an increase in revenue and expense by $31.4 million with no impact on operating income.

First quarter adjusted EBITDA of $29.8 million increased $4.7 million, versus the same period last year. Excluding the $26.2 million and $7.1 million gain from the sale of company-owned salons during the current and prior year quarter, respectively, adjusted EBITDA of $3.6 million was $14.4 million unfavorable versus the same period last year driven primarily by the elimination of EBITDA that had been generated in the prior year period from the net 1,143 company-owned salons that were sold and converted to the Company’s asset-light franchise portfolio over the past 12 months.

Hugh Sawyer, President and Chief Executive Officer, commented, “We are pleased to report meaningful progress in our strategic transformation to a capital light, high growth, technology enabled franchise company.” Mr. Sawyer added, “We expect to utilize the cash proceeds we are generating from the sale of company-owned salons in various ways to maximize shareholder value. “Mr. Sawyer concluded, “Although we have more work to do before our transition is complete, we remain convinced that a fully franchised business that generates a higher return on its capital will prove to be in the best long-term interests of our shareholders.”

First Quarter Segment Results

Franchise

First quarter Franchise revenue was $72.5 million, a $34.5 million, or 90.8% increase compared to the prior year quarter and included franchise rental income of $31.4 million due to the adoption of the new lease accounting requirements. Royalties and fees of $28.0 million, were a $5.6 million, or 25.0% increase versus the same period last year driven by increased franchise salon counts. Product sales to franchisees of $13.1 million decreased $2.5 million versus the same period last year driven primarily by lower sales to TBG and lower same-store retail sales, partially offset by increased franchise salon counts.

Franchise adjusted EBITDA of $11.9 million improved $2.0 million, or 20.2% year-over-year primarily driven by the increase in salon counts, partially offset by planned strategic G&A investments to enhance the Company’s franchisor capabilities and support the increased volume and cadence of transactions and conversions into the franchise portfolio. Excluding the impact of TBG, Franchise adjusted EBITDA was $2.5 million favorable year-over-year.

Company-Owned Salons

First quarter revenue for the Company-Owned salon segment decreased $75.3 million, or 30.2%, versus the prior year to $174.5 million. The year-over-year decline in revenue was driven by the decrease of a net 1,143 salons sold and converted to the Company’s asset-light franchise portfolio over the past 12 months, the closure of 147 unprofitable salons over the past 12 months and by a 2.0% decline in Company-owned same-store sales.

First quarter EBITDA of $11.5 million decreased $16.1 million, or 58.4% versus the same period last year driven primarily by the elimination of EBITDA that had been generated in the prior year period from the net 1,143 company-owned salons that were sold and converted to the Company’s asset-light franchise portfolio over the past 12 months and strategic investments in marketing and advertising, including the launch of a new Supercuts advertising campaign, partially offset by management cost-saving initiatives.

Other Key Events

• The Company repurchased 1.5 million common shares, or approximately 4% of its total common stock, at an average price of $17.50 per share for a total of $26.3 million.
• The Company continued its efforts to eliminate non-essential, non-strategic G&A expense during the quarter reducing G&A costs by approximately $7 million versus the prior year quarter or $28 million on an annualized run-rate basis.
• During the first quarter, the Company reinvigorated its Supercuts® creative approach to marketing by launching a new and innovative Supercuts multi-channel brand campaign and World Series promotion.
• The Company continues to make forward leaning technology investments through its Opensalon^TM platform which now allows customers to seamlessly check-in for salon services over their Amazon Alexa device, Google and Facebook Messenger. The Company believes its Opensalonplatform complements its branded mobile apps.
• In an effort to continue to drive increased stylist engagement and retention, the Company launched its industry leading digital stylist training “Education Playground^TM” on a web-based platform.
• During the quarter, the Company continued to invest in the refresh, expansion and relaunch of its owned merchandise brands.
• The Company has executed a purchase agreement for the Company’s headquarters and anticipates it will close on the transaction during the second fiscal quarter.

• The Company continues to make meaningful progress on its previously disclosed effort to convert to a fully franchised model. During the quarter, it sold and transferred 545 company-owned salons to its asset-light franchise portfolio. In addition, the Company has a pipeline of approximately 900 salons to be transitioned in various stages of negotiation. The pipeline represents approximately 42% of the company-owned portfolio when taking into account expected closures of approximately 375 salon locations. The impact of the transactions closed in the quarter is as follows:

Adoption of New Accounting Standard

On July 1, 2019, the Company adopted amended lease guidance. The guidance was adopted on a prospective basis and results in an increase in franchise revenue and franchise rent expense. There is no impact on operating income.

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 first quarter results today, October 29, 2019, 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 (800) 353-6461 and entering access code 3231103. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 3231103.

About Regis Corporation

Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of September 30, 2019, the Company franchised, owned or held ownership interests in 7,092 worldwide locations. Regis’ franchised and corporate locations operate under concepts such as Supercuts^®, SmartStyle^®, 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.

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 and our franchisee’s ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of salons to franchisees; if our capital investments in improving technology do not achieve appropriate returns; our ability to manage cyber threats and protect the security of potentially sensitive information about our guests, employees, vendors or Company information; The Beautiful Group’s inability to operate its salons successfully, as well as maintain adequate working capital; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic; changes in regulatory and statutory laws including increases in minimum wages; our ability to maintain and enhance the value of our brands; premature termination of agreements with our franchisees; reliance on information technology systems; reliance on external vendors; consumer shopping trends and changes in manufacturer distribution channels; 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; 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; 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 under Item 1A on Form 10-K. 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.

Contacts

REGIS CORPORATION:
Andrew Lacko

investorrelations@regiscorp.com

Read full story here