Regis Corporation (NYSE:RGS), a leader in the haircare industry,
whose primary business is owning, operating and franchising hair
salons, today reported results for its fiscal second quarter ended
December 31, 2014 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.
- Sales of $455.9 million, a decline
of ($12.5) million. Same-store sales decreased 0.3%.
- Same-store service and product sales
decreased 0.2% and 0.6%, respectively.
- GAAP net loss of ($19.1) million or
($0.35) per diluted share.
- Includes ($0.19) per share of net
discrete charges.
- Includes ($0.13) per share due to
the impact of the valuation allowance on tax expense.
- EBITDA, as adjusted, of $17.2
million compares to $22.5 million in the prior year quarter.
- Decrease of ($0.5) million from
same-store sales declines.
- Decline of ($4.8) million mainly
from planned strategic investments, minimum wage and other
inflationary increases, higher field incentives as we anniversary
against an incentive-lite year and lapping of certain one-time
benefits, partly offset by improved salon productivity, higher
franchise royalties and fees, cost savings, and reduced health
insurance costs.
- Diluted EPS, as adjusted, was
($0.16) compared to ($0.03) in the prior year quarter.
- Represents decrease of ($0.01) per
share after excluding the ($0.12) per share impact of the valuation
allowance on tax expense; this decrease is mainly due to same-store
sales declines.
- Lower depreciation, improved salon
productivity, lower interest, higher franchise royalties and fees,
cost savings and reduced health insurance costs were offset by
planned strategic investments, minimum wage and other inflationary
increases, higher field incentives as we anniversary against an
incentive-lite year, lapping of certain one-time benefits and lower
non-cash equity in earnings of Empire Education Group.
- The current quarter GAAP net loss
includes net discrete expense of $10.3 million. The prior year
quarter GAAP net loss includes net discrete expenses of $107.2
million. See non-GAAP reconciliations.
Dan Hanrahan, President and Chief Executive Officer, commented,
“Second quarter results provide further signs of gaining traction
where we have strong leaders executing our strategy. Second quarter
same-store service sales remained relatively consistent with
results we posted over the previous two quarters, down 20 basis
points. SmartStyle and Supercuts, our core value businesses,
continued to be our best performers, posting combined service comps
of 2.0%. While more than half of our salons posted positive service
comps in the second quarter, we continue to see a wide range of
performance within our portfolio. Developing the leaders in the
underperforming districts and salons is key to delivering
sustainable improvement. Last quarter, our retail same-store sales
benefitted from lapping our most disruptive quarter when we
executed our plan-o-gram reset. During the second quarter, retail
same-store sales were down 60 basis points from the prior year
quarter. We recently completed our senior leadership team with the
hiring of Annette Miller, a retail veteran, as our Chief
Merchandising Officer and promoting Ken Warfield to Senior Vice
President of our Premium Division. Our ongoing focus on asset
protection, leadership development and technical education programs
has and will continue to contribute to improved execution.”
The Company provided an update on the three key priorities to
improve execution and performance in fiscal 2015. These areas
follow the theme of people, process and metrics enabled by
real-time information to make good business decisions and drive
improved execution.
Asset Protection. Our Asset Protection organization
remained focused on helping our stylists and salons improve their
sales performance and salon profitability. We continued to
implement our stylist asset protection awareness and training
program, conducting approximately 900 awareness training sessions
with field leaders and stylists during the second quarter. Early
results continue to be positive, as sales performance shows
improvement post training as we educate our employees and hold them
accountable for acceptable asset protection behaviors. Leveraging
exception reporting tools and risk ranking reports our team
developed has also helped the Asset Protection team prioritize its
efforts against our most compelling opportunities to grow
revenue.
Leadership Talent & Recruitment. As part of our
ongoing effort to build a leadership culture that provides an
environment for stylists to succeed, we continued our work to
develop, and where necessary, upgrade field leadership
capabilities. We developed a number of training programs that will
pilot or launch during the third quarter. This includes our next
phase of Regional Vice President and Regional Director leadership
training. We also developed our first educational programs tailored
to District Leaders and Salon Managers which integrate technical
education with positive leadership development. Ongoing work to
align Human Resource business partners to field leaders, leverage
our cosmetology school relationship with Empire Education Group,
and implement a national campus recruiting program all continued to
help us cultivate our talent pipeline.
Technical Education Programs. Providing meaningful
technical education to our stylists is critical to satisfy their
desire to develop their craft and make Regis their career choice.
We are in the early stages of becoming more localized in the way we
deliver and execute technical and experiential training, by
expanding our Technical Education team. To that end, we recently
hired a new Creative Director to develop and oversee all of our
salon technical education programs. As a result we have on boarded
a new group of Artistic Directors focused at the local level.
Leveraging work from recent technical training pilots, we will
begin expanding training programs regionally during the back half
of fiscal 2015. These will strengthen core technical skills and
promote collaboration, best practice sharing and teamwork within
each region.
Mr. Hanrahan concluded, “The investments we are making to
develop our leaders is creating a difference in our results. Our
best leaders are responding to the training and driving the
cultural transformation needed to turn Regis. I am grateful for the
sense of urgency and work ethic of our people and am pleased we
have maintained our performance over the past three quarters. I am
confident our strategy and related tactics will generate
sustainable growth in revenue and profitability over the long-term.
We are gaining measurable traction in terms of the breadth and
depth of improved performance. However, keep in mind this
turnaround impacts seven thousand salons and more than forty
thousand employees. We have significant work ahead of us before we
are executing consistently across the entire portfolio, driving
performance and realizing improved profitability from investments
we are making today to turn around our business. As a result, I
want to reiterate our turnaround will not be linear. We will
continue to have variability in the operating results of individual
salons, districts and regions. This variability should smooth over
time as we continue to develop and upgrade our leaders.”
Comparable Profitability Measures (Unaudited)
Three Months Ended Six Months Ended Fiscal Years
Ended December 31, December 31, June 30, 2014 2013 2014
2013 2014 2013 (Dollars in millions) Revenue $ 455.9
$ 468.4 $ 920.4 $ 937.0 $ 1,892.4 $ 2,018.7 Revenue decline
% (2.7 ) (7.5 ) (1.8 ) (7.4 ) (6.3 ) (4.9 ) Same-Store Sales
% (0.3 ) (6.2 ) 0.2 (5.8 ) (4.8 ) (2.4 ) Same-Store Average Ticket
% Change 1.4 1.2 1.6 1.5 1.3 0.6 Same-Store Guest Count % Change
(1.7 ) (7.4 ) (1.4 ) (7.3 ) (6.1 ) (3.0 ) Cost of Service
and Product % (1) 60.2 59.7 59.7 59.2 59.1 58.6 Cost of Service and
Product %, as re-casted (1) (2) N/A N/A N/A N/A N/A 59.6 Cost of
Service and Product %, as adjusted (1) 60.2 59.7 59.7 59.1 59.1
59.0 Cost of Service % (1) 62.6 61.9 61.9 61.2 61.3 59.5 Cost of
Service %, as re-casted (1) (2) N/A N/A N/A N/A N/A 60.9 Cost of
Product % (1) 51.6 51.6 51.1 51.2 50.4 55.0 Cost of Product %, as
adjusted (1) 51.6 51.6 51.1 50.7 50.2 52.0 Site operating
expense as % of total revenues, U.S. GAAP reported 10.3 10.7 10.7
10.8 10.7 10.1 Site operating expense as % of total revenues, as
re-casted (2) N/A N/A N/A N/A N/A 10.5 Site operating expense as %
of total revenues, as adjusted 10.6 10.9 10.9 10.9 10.8 10.6
General and administrative as % of total revenues, U.S. GAAP
reported 10.2 8.6 10.0 9.0 9.1 11.2 General and administrative as %
of total revenues, as re-casted (2) N/A N/A N/A N/A N/A 9.8 General
and administrative as % of total revenues, as adjusted 10.2 9.0 9.9
9.2 9.1 9.4 Operating (loss) income as % of total revenues,
U.S. GAAP reported (0.5 ) (7.4 ) (0.3 ) (3.5 ) (1.8 ) 0.6 Operating
(loss) income as % of total revenues, as adjusted (0.7 ) (0.5 )
(0.4 ) 0.1 0.0 1.7 EBITDA 6.4 (6.9 ) 28.3 20.9 57.4 148.5
EBITDA, as adjusted 17.2 22.5 39.4 49.9 101.8 125.4
____________________________________
1) Excludes depreciation and amortization. 2) During
the fourth quarter of fiscal year 2013, the Company reorganized its
field organization, excluding salons within the North American
Premium segment. Beginning in the first quarter of fiscal year
2014, costs associated with field leaders that were previously
recorded within General and Administrative expenses are now
reported within Cost of Service and Site Operating expenses.
Second Quarter Results:
Revenues. Revenue in the quarter of $455.9 million
declined $12.5 million, or 2.7%, compared to the prior year
quarter. Same-store sales declined 0.3% compared to the prior year
quarter.
Service revenues were $350.3 million, a $10.6 million decline,
or 2.9%, compared to the prior year quarter. During this period,
same-store service sales declined 0.2%, driven by a decline in
guest traffic of 0.9%, partly offset by an increase in average
ticket price of 0.7%. The remaining 270 basis point decline in
service revenues compared to the prior year quarter was primarily
due to a net reduction of 245 North American salons.
Product revenues were $94.7 million, a decrease of $3.1 million,
or 3.1%, compared to the prior year quarter. Product same-store
sales for the quarter declined 0.6%, driven by a decrease in
average ticket of 2.4%, reflecting increased promotional activity
this holiday season, partly offset by an increase in guest traffic
of 1.8%. The remaining 250 basis point decline in product revenues
compared to the prior year quarter was primarily due to a net
reduction of 245 North American salons.
Royalties and fees were $10.9 million, an increase of $1.2
million, or 12.8% compared to the prior year quarter. Franchisees
posted positive same-store sales during the quarter and the Company
added 123 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 to 60.2% or
50 basis points compared to the prior year quarter.
Cost of service as a percent of service revenues for the quarter
increased 70 basis points versus the prior year quarter, to 62.6%.
The primary drivers were higher field incentives as we anniversary
an incentive-lite year, state minimum wage increases, payroll taxes
and the lapping of certain one-time benefits partly offset by
improved stylist productivity and reduced health insurance
costs.
Cost of product as a percent of product revenues was 51.6%, or
flat when compared to the prior year quarter. The rate impact of
higher promotional activity in the current quarter was offset by
certain one-time costs associated with salon closures in the prior
year quarter.
Site Operating Expenses. Site operating expenses of $46.9
million decreased $3.3 million compared to the prior year quarter.
Excluding impacts of discrete items in both periods, site operating
expenses, as adjusted, decreased $2.5 million compared to the prior
year quarter. The decrease was primarily driven by the timing of
marketing expenses, a favorable adjustment to self-insurance
reserves and lower freight costs.
General and Administrative. General and administrative
expenses of $46.7 million increased $6.5 million compared to the
prior year quarter. Excluding the impact of discrete items in both
periods, general and administrative expenses increased $4.1 million
compared to the prior year quarter. $1.4 million of this increase
represents timing of certain expenses and the reversal of incentive
accruals in the prior year quarter. The remaining $2.7 million of
this increase is driven by higher incentive compensation levels as
we anniversary against an incentive-lite year, and planned
strategic investments in Asset Protection and Human Resource
initiatives, partly offset by cost savings.
Rent. Rent expense was $76.9 million, or 16.9% of
revenues. As a percentage of revenues, rent was flat versus the
prior year quarter as negative leverage due to the decline in
same-store sales was offset by the net reduction of 245 North
American salons.
Depreciation and Amortization. Depreciation and
amortization was $19.6 million compared to $24.6 million in the
prior year quarter, a decrease of $5.0 million. This decrease was
primarily driven by the lapping of higher non-cash impairment
charges in the prior year quarter and lower expense due to salon
closures.
Equity in Affiliates. Loss from equity method investments
and affiliated companies was ($12.0) million, compared to income of
$2.7 million in the prior year quarter, a decrease of $14.7 million
compared to the prior year quarter. Excluding the impact of
discrete items in both periods, loss from equity method investments
and affiliated companies was $0.4 million compared to income of
$0.7 million in the prior year quarter, primarily due to Empire
Education Group's current loss compared to income in 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 $17.2 million, a decrease of
$5.3 million compared to the prior year quarter.
Discrete Items. Discrete items for the current quarter
netted to $10.3 million of expense, comprised of the following
items:
Expense:
- Legal fees of $0.3 million.
- Regis' portion of a deferred tax asset
valuation allowance established by Empire Education Group (EEG) and
a non-cash impairment charge on the Company's investment in EEG of
$11.5 million
Income:
- Prior years' self-insurance reserves
adjustment of $1.5 million, net.
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 29, 2015, at
10 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 (888) 215-7030 and entering
access code 3958293. A replay of the presentation will be available
later that day. The replay phone number is (888) 203-1112, access
code 3958293.
About Regis Corporation
Regis Corporation (NYSE:RGS) is the leader in beauty salons and
cosmetology education. As of December 31, 2014, the Company
owned, franchised or held ownership interests in 9,603 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 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. 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 impact of significant
initiatives, changes in our management and organizational structure
and our ability to attract and retain our executive management
team; the success of our stylists and our ability to attract, train
and retain talented stylists; negative same-store sales; our
ability to protect the security of sensitive information about our
guests, employees, vendors or Company information; changes in
regulatory and statutory laws; the effect of changes to healthcare
laws; financial performance of our investment with EEG, Inc.; the
Company's reliance on management information systems; the continued
ability of the Company to implement cost reduction initiatives;
reliance on external vendors; changes in distribution channels of
manufacturers; compliance with debt covenants; financial
performance of our franchisees; competition within the personal
hair care industry; changes in economic conditions; failure to
standardize operating processes across brands; the ability of the
Company to maintain satisfactory relationships with certain
companies and suppliers; changes in interest rates and foreign
currency exchange rates; 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, 2014. 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)
(Dollars in thousands, except per share
data)
December 31, 2014
June 30, 2014
ASSETS
Current assets: Cash and cash equivalents $ 195,820 $ 378,627
Receivables, net 27,253 25,808 Inventories 138,073 137,151 Other
current assets 66,345 71,680 Total current assets
427,491 613,266 Property and equipment, net 241,493 266,538
Goodwill 421,632 425,264 Other intangibles, net 18,271 19,812
Investment in affiliates 17,326 28,611 Other assets 64,223
62,458 Total assets $ 1,190,436 $ 1,415,949
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities: Long-term debt, current portion $ 9 $ 173,501
Accounts payable 63,284 68,491 Accrued expenses 147,258
142,720 Total current liabilities 210,551 384,712
Long-term debt and capital lease obligations 120,000 120,002 Other
noncurrent liabilities 195,168 190,454 Total
liabilities 525,719 695,168 Shareholders’
equity: Common stock, $0.05 par value; issued and outstanding
55,191,406 and 56,651,166 common shares at December 31, 2014 and
June 30, 2014, respectively 2,760 2,833 Additional paid-in capital
318,850 337,837 Accumulated other comprehensive income 13,806
22,651 Retained earnings 329,301 357,460 Total
shareholders’ equity 664,717 720,781 Total
liabilities and shareholders’ equity $ 1,190,436 $ 1,415,949
REGIS CORPORATION (NYSE: RGS)
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS (Unaudited)
(Dollars in thousands, except per share
data)
Three Months Ended December 31, Six
Months Ended December 31, 2014 2013
2014 2013
Revenues:
Service $ 350,322 $ 360,959 $ 715,064 $ 732,686 Product 94,691
97,769 183,453 184,512 Royalties and fees 10,874
9,639 21,921 19,752
455,887 468,367 920,438
936,950 Operating expenses: Cost of service 219,219
223,413 442,906 448,428 Cost of product 48,830 50,461 93,807 94,485
Site operating expenses 46,875 50,204 98,527 101,045 General and
administrative 46,667 40,205 91,852 84,638 Rent 76,928 79,164
154,397 158,174 Depreciation and amortization 19,583 24,641 41,771
48,472 Goodwill impairment — 34,939
— 34,939 Total operating expenses
458,102 503,027 923,260
970,181 Operating loss (2,215 ) (34,660 )
(2,822 ) (33,231 ) Other (expense) income: Interest expense
(2,472 ) (5,166 ) (5,570 ) (9,657 ) Interest income and other, net
1,044 339 917 883
Loss before income taxes and equity in (loss) income
of affiliated companies (3,643 ) (39,487 ) (7,475 ) (42,005 )
Income taxes (3,456 ) (72,338 ) (9,068 ) (71,955 ) Equity in
(loss) income of affiliated companies, net of income taxes
(11,972 ) 2,740 (11,580 ) 4,739
Net loss $ (19,071 ) $ (109,085 ) $ (28,123 ) $ (109,221 )
Net loss per share: Basic and diluted $ (0.35 ) $ (1.93 ) $
(0.51 ) $ (1.94 ) Weighted average common and common
equivalent shares outstanding: Basic and diluted 55,135
56,437 55,449 56,427
Cash dividends declared per common share $ — $
0.06 $ — $ 0.12
REGIS CORPORATION (NYSE: RGS)
CONDENSED CONSOLIDATED STATEMENT OF
COMPREHENSIVE LOSS (Unaudited)
(Dollars in thousands)
Three Months Ended
Six Months Ended December 31, December
31, 2014 2013 2014
2013 Net loss $ (19,071 ) $ (109,085 ) $ (28,123 ) $
(109,221 ) Other comprehensive (loss) income, net of tax: Foreign
currency translation adjustments during the period (4,223 )
(2,052 ) (8,845 ) 983 Other
comprehensive (loss) income (4,223 ) (2,052 )
(8,845 ) 983 Comprehensive loss $ (23,294 ) $
(111,137 ) $ (36,968 ) $ (108,238 )
REGIS CORPORATION (NYSE: RGS)
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOW (Unaudited)
(Dollars in thousands)
Six Months Ended December 31,
2014 2013 Cash flows from operating
activities: Net loss $ (28,123 ) $ (109,221 ) Adjustments to
reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 34,819 42,119 Equity in loss (income)
of affiliated companies 11,580 (4,739 ) Deferred income taxes 6,542
67,741 Salon asset impairment 6,952 6,353 Gain on sale of salon
assets (529 ) — Loss on write down of inventories — 854 Goodwill
impairment — 34,939 Stock-based compensation 4,038 3,557
Amortization of debt discount and financing costs 1,001 3,933 Other
non-cash items affecting earnings 716 136 Changes in operating
assets and liabilities, excluding the effects of sales and
acquisitions 633 3,557 Net cash
provided by operating activities 37,629 49,229
Cash flows from investing activities: Capital
expenditures (22,493 ) (23,913 ) Proceeds from sale of assets
(Asset acquisitions, net of cash acquired), net 1,429 (7 ) Proceeds
from loans and investments — 5,056 Net
cash used in investing activities (21,064 ) (18,864 )
Cash flows from financing activities: Proceeds from issuance
of long-term debt, net of fees — 118,058 Repayments of long-term
debt and capital lease obligations (173,745 ) (3,452 ) Repurchase
of common stock (22,890 ) — Dividends paid —
(6,793 ) Net cash (used in) provided by financing activities
(196,635 ) 107,813 Effect of exchange rate
changes on cash and cash equivalents (2,737 ) 752
(Decrease) increase in cash and cash equivalents
(182,807 ) 138,930 Cash and cash equivalents: Beginning of
period 378,627 200,488 End of period $
195,820 $ 339,418
SAME-STORE SALES (1):
For the Three Months Ended December
31, 2014 December 31, 2013
Service Retail Total
Service Retail Total SmartStyle 3.6 (0.6 ) 2.2
(6.6 ) (10.2 ) (7.9 ) Supercuts 0.2 1.7 0.3 (0.5 ) (10.6 ) (1.6 )
MasterCuts (3.7 ) (5.5 ) (4.1 ) (10.0 ) (11.2 ) (10.3 ) Other Value
(0.7 ) 3.1 (0.3 ) (6.6 ) (10.1 ) (7.0 ) North American Value 0.5 %
(0.2 )% 0.4 % (5.5 )% (10.4 )% (6.5 )% North American
Premium (3.1 )% (3.4 )% (3.2 )% (6.3 )% (7.0 )% (6.4 )%
International 0.6 % 1.8 % 0.9 % (0.4 )% (2.6 )% (1.1 )%
Consolidated (0.2 )% (0.6 )% (0.3 )% (5.5 )% (9.2 )% (6.2 )%
For the Six Months Ended December 31, 2014
December 31, 2013 Service Retail
Total Service Retail Total SmartStyle
3.6 1.3 2.9 (3.7 ) (12.4 ) (6.7 ) Supercuts 1.0 4.0 1.2 (0.3 )
(13.6 ) (1.7 ) MasterCuts (3.6 ) (1.3 ) (3.2 ) (9.3 ) (18.7 ) (11.1
) Other Value (1.1 ) 6.3 (0.3 ) (5.2 ) (13.0 ) (6.0 ) North
American Value 0.6 % 2.2 % 0.9 % (4.0 )% (13.4 )% (5.9 )%
North American Premium (3.3 )% (1.0 )% (2.8 )% (6.1 )% (9.5 )% (6.8
)% International 1.1 % (1.5 )% 0.3 % (0.3 )% (3.4 )% (1.3 )%
Consolidated (0.1 )% 1.3 % 0.2 % (4.3 )% (11.9 )% (5.8 )%
____________________________________
(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. International same-store sales are
calculated in local currencies to remove foreign currency
fluctuations from the calculation.
REGIS CORPORATION (NYSE: RGS)
System-wide location counts
December 31, 2014 June 30, 2014
COMPANY-OWNED SALONS: SmartStyle/Cost Cutters in
Walmart Stores 2,603 2,574 Supercuts 1,127 1,176 MasterCuts 488 505
Other Value 1,768 1,846 Regis salons 792 816 Total North American
Salons (1) 6,778 6,917 Total International Salons (2) 364 360 Total
Company-owned Salons 7,142 7,277
FRANCHISE SALONS:
SmartStyle/Cost Cutters in Walmart Stores 126 126 Supercuts
1,301 1,213 Other Value 819 840 Total North American Salons (1)
2,246 2,179 Total International Salons (2) — — Total Franchise
Salons 2,246 2,179
OWNERSHIP INTEREST LOCATIONS:
Equity ownership interest locations 215 218
Grand Total, System-wide 9,603 9,674
____________________________________
(1) The North American Value operating segment is
comprised primarily of the SmartStyle, Supercuts, MasterCuts and
Other Value salon brands. The North American Premium operating
segment is comprised primarily of the Regis salon brands. (2)
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
(loss) income, net (loss) income 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 six months ended
December 31, 2014 and 2013:
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:
- Inventory reserves attributed to our
inventory simplification program.
- Self-insurance reserves
adjustments.
- Deferred compensation adjustments.
- Expense associated with legal
cases.
- Professional fees associated with the
evaluation and sale of non-core assets.
- Accelerated depreciation related to our
corporate office consolidation.
- Goodwill impairment charge related to
our Regis salon concept reporting unit.
- Recovery of previously impaired
investments in an affiliate.
- Our portion of a deferred tax asset
valuation allowance established by Empire Education Group (EEG) and
other than temporary impairment associated with our investment in
EEG.
Non-GAAP tax provision adjustments primarily relate to changes
in taxable income or loss resulting from the non-GAAP reconciling
items addressed above. During the three and six months ended
December 31, 2013, the Company established a valuation allowance
against its U.S. deferred tax assets. As a result of the valuation
allowance, the Company did not record any tax effect for the
non-GAAP adjustments during the three and six months ended
December 31, 2014. The non-GAAP weighted average shares
adjustments are due to the change in non-GAAP net (loss) income as
compared to the U.S. GAAP net (loss) income, resulting from the
non-GAAP reconciling items addressed herein. Non-GAAP net (loss)
income per share reflects the weighted average shares associated
with non-GAAP net (loss) income, which may include the dilutive
effect of common stock and convertible share equivalents, if
applicable.
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 loss and net loss
to equivalent non-GAAP measures Three Months
Ended Six Months Ended December 31,
December 31, U.S. GAAP financial line item
2014 2013 2014 2013
U.S. GAAP revenue $ 455,887 $
468,367 $ 920,438 $ 936,950
U.S. GAAP operating loss $ (2,215
) $ (34,660 ) $ (2,822
) $ (33,231 ) Non-GAAP
operating expense adjustments: Inventory reserves Cost of
product — — — 854 Self-insurance reserves adjustments Site
operating expense (1,462 ) (673 ) (1,462 ) (673 ) Legal fees
General and administrative 295 1,590 954 1,913 Deferred
compensation adjustments General and administrative — (3,703 ) —
(3,703 ) Professional fees General and administrative — 37 — 489
Corporate office accelerated depreciation Depreciation and
amortization — — — 746 Goodwill impairment Goodwill impairment
— 34,939 — 34,939
Total non-GAAP operating expense adjustments
(1,167 ) 32,190 (508 ) 34,565
Non-GAAP operating (loss) income (1) $ (3,382
) $ (2,470 ) $ (3,330
) $ 1,334 U.S. GAAP net
loss $ (19,071 ) $ (109,085
) $ (28,123 ) $ (109,221
) Non-GAAP net loss adjustments: Non-GAAP operating
expense adjustments (1,167 ) 32,190 (508 ) 34,565 Tax provision
adjustments (2) Income taxes — 77,081 — 76,412 EEG deferred tax
asset valuation allowance and impairment Equity in (loss) income of
affiliated companies, net of taxes 11,510 — 11,510 — Recovery of
previously impaired
investments in affiliate
Equity in (loss) income of affiliated companies, net of taxes
— (2,088 ) — (3,077 )
Total non-GAAP net loss adjustments 10,343
107,183 11,002 107,900
Non-GAAP net loss $ (8,728 ) $
(1,902 ) $ (17,121 ) $
(1,321 )
____________________________________
Notes:
(1) Adjusted operating margins for the three months
ended December 31, 2014, and 2013, were (0.7%) and (0.5%),
respectively, and were (0.4%) and 0.1% for the six months ended
December 31, 2014 and 2013, respectively, and are calculated as
non-GAAP operating (loss) income divided by U.S. GAAP revenue for
each respective period. (2) During the three and six months
ended December 31, 2013, the Company recorded a valuation allowance
against its U.S. deferred tax assets. As a result of the valuation
allowance, the Company did not record any tax effect for the
non-GAAP adjustments during the three and six months ended December
31, 2014. Based on projected statutory effective tax rate analyses,
the non-GAAP tax provision was calculated to be approximately 37%
for the three and six months ended December 31, 2013, for all
non-GAAP operating expense adjustments except the goodwill
impairment. The goodwill impairment had a tax benefit of
approximately $6.3 million for the three and six months ended
December 31, 2013, as the charge was only partly deductible for
income tax purposes. The three months ended December 31, 2013, also
includes $0.3 million benefit for the impact of the discrete income
tax rate.
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
per diluted share to non-GAAP net loss per diluted share
Three Months Ended Six Months Ended
December 31, December 31, 2014
2013 2014 2013 U.S. GAAP net loss
per diluted share $ (0.346 ) $
(1.933 ) $ (0.507 ) $
(1.936
)
Inventory reserves (1) (2) — — — 0.009 Self-insurance reserves
adjustments (1) (2) (0.027 ) (0.008 ) (0.026 ) (0.008 ) Legal fees
(1) (2) 0.005 0.018 0.017 0.021 Deferred compensation adjustments
(1) (2) — (0.049 ) — (0.049 ) Professional fees (1) (2) — — — 0.006
Corporate office accelerated depreciation (1) (2) — — — 0.008
Goodwill impairment (1) (2) — 0.507 — 0.507 Deferred tax asset
valuation (1) (2) — 1.473 —
1.473
Impact of income tax rate difference (1) (2) — (0.006 ) —
(0.002
) EEG deferred tax asset valuation allowance and impairment (1) (2)
0.209 — 0.208 — Recovery of previously impaired investments in
affiliate (1) (2) — (0.037 ) —
(0.055 )
Non-GAAP net loss per diluted share (2) (3)
$ (0.158 ) $ (0.034 )
$ (0.309 ) $ (0.023 )
U.S. GAAP Weighted average shares - basic
55,135
56,437 55,449 56,427 U.S. GAAP Weighted
average shares - diluted
55,135 56,437 55,449
56,427 Non-GAAP Weighted average shares - diluted (2)
55,135 56,437 55,449 56,427
____________________________________
Notes:
(1) During the three and six months ended December
31, 2013, the Company recorded a valuation allowance against its
U.S. deferred tax assets. As a result of the valuation allowance,
the Company did not record any tax effect for the non-GAAP
adjustments during the three and six months ended December 31,
2014. Based on projected statutory effective tax rate analyses, the
non-GAAP tax provision was calculated to be approximately 37% for
the three and six months ended December 31, 2013, for all non-GAAP
operating expense adjustments except the goodwill impairment. The
goodwill impairment had a tax benefit of approximately $6.3 million
for the three and six months ended December 31, 2013, as the charge
was only partly deductible for income tax purposes. The three
months ended December 31, 2013, also includes $0.3 million benefit
for the impact of the discrete income tax rate. (2) Non-GAAP
net loss per share reflects the weighted average shares associated
with non-GAAP net loss, which may include the dilutive effect of
common stock and convertible share equivalents. (3) Total is
a recalculation; line items calculated individually may not sum to
total due to rounding.
REGIS CORPORATION
Reconciliation of reported U.S. GAAP
net loss to adjusted EBITDA, a non-GAAP financial measure
(Dollars in thousands)
(unaudited)
Adjusted EBITDA
EBITDA represents U.S. GAAP net loss for
the respective period excluding interest expense, income taxes and
depreciation and amortization expense. The Company defines EBITDA,
as adjusted, as EBITDA excluding equity in (loss) income of
affiliated companies, and identified items impacting comparability
for each respective period. For the three and six months ended
December 31, 2014 and 2013, the items impacting comparability
consisted of the items identified in the non-GAAP reconciling items
for the respective periods. The impact of the income tax provision
adjustments associated with the above items and accelerated
depreciation related to the corporate office consolidation are
already included in the U.S. GAAP reported net loss to EBITDA
reconciliation, therefore there is no adjustment needed for the
reconciliation from EBITDA to EBITDA, as adjusted. The impact of
the Company's portion of the deferred tax asset valuation allowance
established by EEG, the impairment on the Company's investment in
EEG, and the recovery of previously impaired investments in an
affiliate, are already included by excluding the impact of the
Company’s equity in (loss) income of affiliated companies, net of
taxes, as reported.
Three Months Ended
Six Months Ended December 31, December
31, 2014 2013 2014
2013 Consolidated reported net loss, as reported (U.S.
GAAP) $ (19,071 ) $ (109,085
) $ (28,123 ) $ (109,221
) Interest expense, as reported 2,472 5,166 5,570 9,657
Income taxes, as reported 3,456 72,338 9,068 71,955 Depreciation
and amortization, as reported 19,583 24,641
41,771 48,472 EBITDA (as defined
above)
$ 6,440 $ (6,940 )
$ 28,286 $ 20,863
Equity in loss (income) of affiliated companies, net of income
taxes, as reported 11,972 (2,740 ) 11,580 (4,739 ) Inventory
reserves — — — 854 Self-insurance reserves adjustments (1,462 )
(673 ) (1,462 ) (673 ) Legal fees 295 1,590 954 1,913 Deferred
compensation adjustment — (3,703 ) — (3,703 ) Professional fees —
37 — 489 Goodwill impairment — 34,939
— 34,939
Adjusted EBITDA, non-GAAP
financial measure $ 17,245 $
22,510 $ 39,358 $
49,943
REGIS CORPORATION
Reconciliation of reported U.S. GAAP
revenue change to same-store sales
(unaudited)
Three Months Ended December 31, Six
Months Ended December 31, 2014 2013
2014 2013 Revenue decline, as reported
(U.S. GAAP) (2.7 )% (7.5 )%
(1.8 )% (7.4 )% Effect of new stores
and conversions (0.6 ) (0.7 ) (0.7 ) (0.8 ) Effect of closed salons
2.7 2.7 2.5 2.9 Other 0.3 (0.7 ) 0.2 (0.5 )
Same-store sales, non-GAAP (0.3 )% (6.2
)% 0.2 % (5.8 )%
Regis Corporation:Mark Fosland, 952-806-1707SVP, Finance and
Investor Relations
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