Second Quarter Diluted Earnings Per Share
From Continuing Operations of $0.83, Which Includes A One-Time,
Non-Cash Benefit Of Recently Passed Federal Tax Reform Legislation;
Second Quarter Adjusted Diluted Earnings Per Share Of $0.06
Increased $0.02 Versus Prior Year
Adjusted EBITDA of $18.2 million is $1.0
million, or 6.0% Favorable Year-Over-Year;
Year-To-Date Adjusted EBITDA of $42.1
million Increased $2.2 million, or 5.5% Year-Over-Year
During the Quarter, the Company Executed
Upon Two Major Transformative Events -
The Sale and Subsequent Franchising of
Substantially All of Its Mall-Based Salons and U.K. Businesses and
the Restructuring of its Company-Owned SmartStyle® Portfolio
By Committing to Close Approximately 597 Cash Flow Negative
Salons
Regis Corporation (NYSE: RGS):
Three Months Ended Six Months Ended
December 31, December 31, (Dollars in thousands)
2017 2016(1) 2017 2016(1)
Consolidated Revenue $308,515 $315,249 $618,388 $634,080
Consolidated Same-Store Sales Comps (0.7)% (2.5)% (0.2)% (1.1 )%
Net Income From Continuing Operations $39,321 $982 $50,113
$6,722 Diluted Earnings per Share From Continuing Operations $0.83
$0.02 $1.07 $0.14 EBITDA $(16,622) $13,299 $(20,372) $33,592
As Adjusted(2) Net Income, as Adjusted $2,886 $1,655 $7,598 $7,395
Diluted Earnings per Share, as Adjusted $0.06 $0.04 $0.16 $0.16
EBITDA, as Adjusted $18,198 $17,173 $42,135 $39,925
____________________________________
(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 second fiscal quarter 2018
net income from continuing operations of $39.3 million, or $0.83
per diluted share as compared to net income from continuing
operations of $1.0 million, or $0.02 per diluted share in the
second fiscal quarter of 2017. The Company’s reported results
include $68.9 million of non-cash, one-time, tax benefits related
to the enactment of the Tax Cuts and Jobs Act ("Tax Reform"),
partially offset by $37.6 million of one-time lease termination and
other non-recurring costs associated with the recently announced
restructuring of the Company's SmartStyle® salon portfolio, and
$3.5 million of other discrete costs. Excluding these tax benefits,
restructuring charges, discrete items, and the loss from
discontinued operations, the Company reported second quarter 2018
as adjusted net income of $2.9 million, or $0.06 earnings per
diluted share versus net income of $1.7 million, or $0.04 earnings
per diluted share, for the same period last year.
Total revenue in the quarter of $308.5 million decreased $6.7
million, or 2.1%, year-over-year driven primarily by the closure,
or re-franchising of 448 salons. Second quarter adjusted EBITDA of
$18.2 million was $1.0 million, or 6.0% favorable
year-over-year.
On a full year basis, the Company reported net income from
continuing operations of $50.1 million, or $1.07 per diluted share
as compared to net income from continuing operations of $6.7
million, or $0.14 per diluted share in the prior year. On an
adjusted basis, EBITDA of $42.1 million increased $2.2 million, or
5.5% versus the same period last year.
Hugh Sawyer, President and Chief Executive Officer, commented,
"Restructuring the non-performing elements of our company-owned
salon portfolio in order to focus on the performing core, and the
growth of our franchise business, has been a key element of our
strategy.” Mr. Sawyer continued, “The second quarter represents an
important milestone where we substantially completed the
restructuring phase of our strategic transformation and operational
turnaround. Moreover, we are pleased to report initial signs of
progress in both our quarterly and year-over-year adjusted EBITDA
results.”
Sale of Company’s Mall-based Salons and U.K. BusinessIn
October 2017, after a comprehensive process, the Company reached
the strategic conclusion to sell, and subsequently franchise,
substantially all of its mall-based salon business in North
America, representing 858 salons, and substantially all of its
International segment, representing approximately 250 salons in the
U.K. This transaction clarified the Company's strategy by focusing
its company-owned salon portfolio in North America on the value
segment. At the same time, this outcome was consistent with the
Company's previously stated strategic imperative to accelerate the
growth of its franchise portfolio.
Due to this transaction, the Company has classified the results
of its mall-based business and its International segment as
discontinued operations for all periods presented in the Condensed
Consolidated Statement of Operations. Included within discontinued
operations are the impairment charges, results of operations, and
professional fees associated with the transaction, for the three
and six months ended December 31, 2017. The operations of the
mall-based business and International segment, which were
previously recorded in the North American Value, North American
Premium and International reporting segments, have been eliminated
from ongoing operations of the Company. The new Company-owned
segment is comprised of its SmartStyle®, Supercuts® and Signature
Style® concepts.
Restructuring of Company-Owned SmartStyle®
PortfolioIn December 2017, the Company committed to close
597 non-performing Company-owned SmartStyle® salons in January
2018. The 597 non-performing salons generated negative cash flow of
approximately $15 million during the twelve months ended September
30, 2017. The action delivers 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.
As part of the agreement, the Company recorded a net $24.0
million charge to rent expense in the second quarter driven
primarily by $27.3 million of one-time lease termination and other
related closure costs, partially offset by a $3.3 million reversal
of deferred rent for the impacted salons. The Company also
committed to return the salons to its pre-occupancy condition, or
“modified white boxes”, and recorded $7.5 million in depreciation
expense. Additionally, as part of the closures, the Company
recorded inventory and fixed asset impairments of $0.6 million and
$5.4 million, respectively.
Second Quarter Segment
ResultsCompany-Owned Salons
Three Months EndedDecember
31,
(Decrease)Increase
Six Months EndedDecember
31,
(Decrease)Increase
(Dollars in millions) (1)
2017 2016(2)
2017 2016(2) Total Revenue $ 280.0 $
296.2 (5.5)% $ 568.7 $ 595.6 (4.5)% Same-Store Sales Comps (0.7 )%
(2.5 )% 180 bps (0.2 )% (1.1 )% 90 bps Year-over-Year Ticket change
2.5 % 3.0 % Year-over-Year Traffic change (3.2 )% (3.2 )%
Gross Profit, as Adjusted(3) 117.7 116.3
1.2 %
242.1 239.5
1.1 %
as a percent of revenue 42.0 % 39.2 % 280 bps 42.6 % 40.2 % 240 bps
EBITDA, as Adjusted 26.5 26.9 (1.2)% 59.8 59.9 (0.2)% as a
percent of revenue 9.5 % 9.1 % 40 bps 10.5 % 10.1 % 40 bps
____________________________________
(1) Variances calculated on amounts shown in millions may
result in rounding differences. (2) Amounts for fiscal year 2017
have been revised for discontinued operations due to the October
sale of the mall-based business and the International segment. (3)
Gross profit, as Adjusted, excludes depreciation and amortization.
Second quarter revenue for the Company-owned salon segment
decreased 5.5% versus the prior year to $280.0 million. The
year-over-year decline in revenue was driven by the closure of
unprofitable salons, the refranchising of salons, and a decrease in
same-store sales of 0.7% partially offset by increase in average
ticket and a favorable foreign currency impact in the Company’s
Canadian business.
Second quarter adjusted EBITDA of $26.5 million declined $0.3
million, or 1.2% versus the same period last year driven primarily
by same-store sales declines and investments in a strategic digital
marketing campaign, partially offset by the closing of unprofitable
salons, benefits from the Company's strategic initiative plan, and
a one-time benefit related to the discontinuance of a limited
loyalty program test.
Franchise Operations
Three Months EndedDecember
31,
Increase(Decrease)
Six Months EndedDecember
31,
Increase(Decrease)
(Dollars in millions) (1)
2017 2016(2)
2017 2016(2) Total Revenue $ 28.6 $
19.0 50.2% $ 49.6 $ 38.4 29.2% EBITDA, as Adjusted 9.8 8.2
19.5% 19.6 16.7 17.2% as a percent of revenue 34.3 % 43.1 % (880)
bps 39.4 % 43.5 % (410) bps
_____________________
(1) Variances calculated on amounts shown in millions may
result in rounding differences. (2) Amounts for fiscal year 2017
have been revised for discontinued operations due to the October
sale of the mall-based business and the International segment.
Second quarter Franchise revenue was $28.6 million, a $9.5
million, or 50.2%, increase compared to the prior year quarter.
Royalties and fees were $13.5 million, a $2.1 million, or 18.2%
increase versus the same period last year. Royalties increased 9.9%
driven primarily by positive same-store revenue and increased
franchise salon counts. Initial franchise fees increased $1.2
million as the Company opened, or converted, a net 108 franchised
locations in the quarter as compared to 41 in the prior year
quarter. Franchise adjusted EBITDA of $9.8 million improved $1.6
million, or 19.5% year-over-year.
Other Company
UpdatesConsolidated Year-Over-Year General &
Administrative ("G&A") ComparabilityThe Company announced
during the first fiscal quarter a realignment of its field
leadership team by brand. 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 $8.9 million decrease in
cost of goods sold and site expense, and a corresponding $8.9
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 $15.1
million versus the same period last year.
Transformational Strategy UpdateThe 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 on a transaction to sell, and
subsequently franchise, substantially all of its mall-based salon
business in North America and substantially all of its
International segment. This transaction moved approximately 1,100
salons from the company-owned segment to the franchise
segment.
- Committed to closing 597
non-performing, cash flow negative Company-owned SmartStyle® salons
in January 2018.
- Executed a number of operational
initiatives, building on its previously discussed 120-day plan, to
help 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 $7.0
million to $9.0 million in the second quarter of fiscal 2018.
- Initiated a review of non-core,
non-essential, G&A costs associated with the Company’s field
and corporate restructuring efforts.
- Announced its industry-exclusive
agreement with LSMx, a Buxton local store marketing application.
Buxton is a leading customer analytics provider for over 4,000
retailers. The Company currently intends to use LSMx, and its
advanced customer data insights, to drive hyper-local, targeted
marketing for its corporate and franchise salons.
- Entered into an industry-exclusive,
multi-year sponsorship with Major League Baseball ("MLB") for the
Supercuts® brand. The Supercuts® sponsorship will be implemented
throughout MLB’s core marketing platforms including broadcast,
digital, mobile and social.
- Greatly reduced the complexity of the
service offerings in its SmartSyle® portfolio with the introduction
of “Everyday Simple Pricing” while also introducing a new “Express
Haircut” service targeted toward male guests who shop at
Walmart®.
Tax UpdateAs a result of the recently enacted Tax Reform,
the Company recognized a one-time, non-cash, tax benefit of $68.9
million in the quarter related to impacts on its deferred tax
assets and liabilities. The reduction in U.S. Federal corporate
income tax rates, and a change in the net operating loss rules,
were the primary drivers of this benefit.
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 WebcastRegis
Corporation will host a conference call via webcast discussing
second quarter results today, February 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 (800) 239-9838 and entering access code
6862837. A replay of the presentation will be available later that
day. The replay phone number is (888) 203-1112, access code
6862837.
About Regis CorporationRegis Corporation (NYSE:RGS) is a
leader in beauty salons and cosmetology education. As of
December 31, 2017, the Company owned, franchised or held
ownership interests in 8,883 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, our largest franchisee; 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)
December 31, June 30, 2017
2017 ASSETS Current assets: Cash and cash equivalents
$ 163,300 $ 171,044 Receivables, net 31,895 19,683 Inventories
87,347 98,392 Other current assets 47,814 48,114 Current assets
held for sale — 32,914 Total current assets 330,356 370,147
Property and equipment, net 109,448 123,281 Goodwill 417,709
416,987 Other intangibles, net 11,416 11,965 Other assets 52,958
61,756 Noncurrent assets held for sale — 27,352 Total assets
$ 921,887 $ 1,011,488
LIABILITIES AND
SHAREHOLDERS’ EQUITY Current liabilities: Accounts payable $
52,738 $ 54,501 Accrued expenses 107,198 110,435 Current
liabilities related to assets held for sale — 13,126 Total
current liabilities 159,936 178,062 Long-term debt, net
121,096 120,599 Other noncurrent liabilities 112,284 197,374
Noncurrent liabilities related to assets held for sale —
7,232 Total liabilities 393,316 503,267 Commitments and
contingencies Shareholders’ equity: Common stock, $0.05 par value;
issued and outstanding 46,688,423 and 46,400,367 common shares at
December 31, 2017 and June 30, 2017, respectively 2,335 2,320
Additional paid-in capital 216,301 214,109 Accumulated other
comprehensive income 11,789 3,336 Retained earnings 298,146
288,456 Total shareholders’ equity 528,571 508,221
Total liabilities and shareholders’ equity $ 921,887
$ 1,011,488
REGIS CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS (Unaudited)
For The Three and Six Months Ended
December 31, 2017 and 2016
(Dollars and shares in thousands,
except per share data amounts)
Three Months Ended Six Months Ended
December 31, December 31, 2017
2016 2017 2016 Revenues: Service $
223,214 $ 235,609 $ 458,773 $ 478,700 Product 71,816 68,229 132,756
131,945 Royalties and fees 13,485 11,411 26,859
23,435 308,515 315,249 618,388
634,080 Operating expenses: Cost of service 134,850 151,193
274,686 301,990 Cost of product 39,864 34,584 70,026 65,399 Site
operating expenses 32,119 32,638 65,422 65,283 General and
administrative 48,592 36,695 83,758 72,611 Rent 65,473 45,091
107,889 91,324 Depreciation and amortization 24,951 12,646
37,206 24,755 Total operating expenses 345,849
312,847 638,987 621,362
Operating (loss) income (37,334 ) 2,402 (20,599 ) 12,718
Other (expense) income: Interest expense (2,169 ) (2,153 ) (4,307 )
(4,316 ) Interest income and other, net 2,362 1,452
3,389 1,779 (Loss) income from continuing
operations before income taxes (37,141 ) 1,701 (21,517 ) 10,181
Income tax benefit (expense) 76,462 (719 ) 71,630
(3,459 ) Income from continuing operations 39,321
982 50,113 6,722 Loss from
discontinued operations, net of taxes (6,601 ) (3,201 ) (40,368 )
(5,660 ) Net income (loss) $ 32,720 $ (2,219 ) $
9,745 $ 1,062 Net income (loss) per share:
Basic: Income from continuing operations $ 0.84 $ 0.02 $ 1.07 $
0.15 Loss from discontinued operations (0.14 ) (0.07 ) (0.86 )
(0.12 ) Net income (loss) per share, basic (1) $ 0.70 $
(0.05 ) $ 0.21 $ 0.02 Diluted: Income from continuing
operations $ 0.83 $ 0.02 $ 1.07 $ 0.14 Loss from discontinued
operations (0.14 ) (0.07 ) (0.86 ) (0.12 ) Net income (loss) per
share, diluted (1) $ 0.69 $ (0.05 ) $ 0.21 $ 0.02
Weighted average common and common equivalent shares
outstanding: Basic 46,821 46,327 46,719 46,277
Diluted 47,314 46,774 47,053 46,751
_______________________________________________________________
(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 INCOME (LOSS) (Unaudited)
(Dollars in thousands)
Three Months Ended Six Months Ended
December 31, December 31, 2017
2016 2017 2016 Net income (loss) $
32,720 $ (2,219 ) $ 9,745 $ 1,062 Foreign currency translation
adjustments (381 ) (2,322 ) 2,301 (4,838 ) Reclassification
adjustments for losses included in net income (loss) 6,152 —
6,152 — Comprehensive income (loss) $ 38,491
$ (4,541 ) $ 18,198 $ (3,776 )
REGIS CORPORATION (NYSE: RGS)
CONDENSED CONSOLIDATED STATEMENT OF
CASH FLOW (Unaudited)
(Dollars in thousands)
Six Months Ended December 31, 2017
2016 Cash flows from operating activities: Net income $
9,745 $ 1,062 Adjustments to reconcile net income to net cash (used
in) provided by operating activities: Non-cash impairment related
to discontinued operations 25,095 — Depreciation and amortization
20,492 20,369 Depreciation related to discontinued operations 3,038
7,220 Deferred income taxes (77,055 ) 3,297 Gain on life insurance
(7,986 ) — Gain from sale of salon assets to franchisees, net(1)
(18 ) (121 ) Salon asset impairments 16,714 4,386 Accumulated other
comprehensive income reclassification adjustments 6,152 —
Stock-based compensation 4,618 4,400 Amortization of debt discount
and financing costs 703 703 Other non-cash items affecting earnings
(104 ) 64 Changes in operating assets and liabilities, excluding
the effects of asset sales (13,647 ) (13,775 ) Net cash (used in)
provided by operating activities (12,253 ) 27,605
Cash flows from investing activities: Capital expenditures (13,773
) (15,510 ) Capital expenditures related to discontinued operations
(1,171 ) (2,893 ) Proceeds from sale of assets to franchisees(1)
2,696 335 Change in restricted cash (542 ) 738 Proceeds from
company-owned life insurance policies 18,108 — Net
cash provided by (used in) investing activities 5,318
(17,330 ) Cash flows from financing activities: Taxes paid
for shares withheld (2,039 ) (1,113 ) Cash settlement of equity
awards (375 ) — Net cash used in financing activities (2,414
) (1,113 ) Effect of exchange rate changes on cash and cash
equivalents 253 (866 ) (Decrease) increase in cash
and cash equivalents (9,096 ) 8,296 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 $ 163,300 $ 155,642
_____________________________
(1) Excludes transaction with The Beautiful Group.
SAME-STORE SALES (1):
For the Three Months Ended December 31,
2017 December 31, 2016 Service
Retail Total Service
Retail Total SmartStyle (2.5 ) 0.5 (1.5 ) (1.5
) (3.8 ) (2.3 ) Supercuts 2.1 (4.8 ) 1.4 (0.4 ) (7.1 ) (1.1 )
Signature Style (1.0 ) (3.4 ) (1.3 ) (3.3 ) (6.3 ) (3.7 )
Consolidated (0.7 )% (0.8 )% (0.7 )% (1.9 )% (4.7 )% (2.5 )%
For the Six Months Ended December 31, 2017
December 31, 2016 Service Retail Total
Service Retail Total SmartStyle (0.8 ) 0.4
(0.5 ) (0.5 ) (2.3 ) (1.1 ) Supercuts 2.3 (5.3 ) 1.6 0.4 (4.2 ) —
Signature Style (0.6 ) (4.4 ) (1.1 ) (1.8 ) (2.8 ) (1.9 )
Consolidated 0.1 % (1.2 )% (0.2 )% (0.7 )% (2.6 )% (1.1 )%
____________________________________
(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
December 31, 2017 June 30, 2017
COMPANY-OWNED SALONS: SmartStyle/Cost Cutters in
Walmart Stores (1) 2,497 2,652 Supercuts 954 980 Signature Style
1,414 1,468 Mall locations (Regis and MasterCuts) — 898
Total North American Salons 4,865 5,998 Total
International Salons (2) — 275 Total Company-owned
Salons 4,865 6,273 as a percent of total
Company-owned and Franchise salons 55.3 % 70.3 %
FRANCHISE SALONS: SmartStyle in Walmart Stores 210 62
Cost Cutters in Walmart Stores 116 114 Supercuts 1,730 1,687
Signature Style 754 770 Total non-mall franchise
locations 2,810 2,633 Mall franchise locations (Regis
and MasterCuts) 849 — Total North American Salons
3,659 2,633 Total International Salons (2) 270
13 Total Franchise Salons 3,929 2,646 as a
percent of total Company-owned and Franchise salons 44.7 % 29.7 %
OWNERSHIP INTEREST LOCATIONS: Equity ownership
interest locations 89 89 Grand Total, System-wide
8,883 9,008
____________________________________
(1) In January 2018, the Company closed 597 non-performing
Company-owned SmartStyle salons.
(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
income, net 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, 2017 and 2016:
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 costs.
- Severance expense for former executive
officers.
- Professional fees.
- Executive transition costs.
- Gain on life insurance proceeds.
- 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 (loss) income and
net income (loss) to equivalent non-GAAP measures
Three Months Ended Six Months Ended
December 31, December 31, U.S. GAAP financial line
item 2017 2016 2017
2016 U.S. GAAP revenue $ 308,515
$ 315,249 $ 618,388 $
634,080 U.S. GAAP operating (loss) income
$ (37,334 ) $ 2,402 $
(20,599 ) $ 12,718 Non-GAAP
operating adjustments (1) SmartStyle restructuring costs Cost
of product 585 — 585 — Severance General and administrative 2,295 —
2,828 — Professional fees General and administrative 806 673 1,636
673 Executive transition costs General and administrative 146 — 418
— SmartStyle restructuring costs General and administrative 117 —
117 — Gain on life insurance proceeds General and administrative —
— (7,986 ) — SmartStyle restructuring costs, net Rent 23,999 —
23,999 — SmartStyle restructuring costs Depreciation and
amortization 12,880 — 12,880 — Non-GAAP
operating adjustments 40,828 673 34,477 673
Non-GAAP operating income (1) $ 3,494
$ 3,075 $ 13,878 $
13,391 U.S. GAAP net income (loss) $
32,720 $ (2,219 ) $ 9,745
$ 1,062 Non-GAAP net (loss) income
adjustments: Non-GAAP operating adjustments 40,828 673 34,477 673
Goodwill derecognition Interest income and other, net 271 — 542 —
Tax impact of non-GAAP adjustments (2) Income taxes (8,631 ) —
(8,631 ) — Impact of tax reform Income taxes (68,903 ) — (68,903 )
— Discontinued operations
Loss from discontinuedoperations, net of
tax
6,601 3,201 40,368 5,660 Total non-GAAP net
income adjustments (29,834 ) 3,874 (2,147 ) 6,333
Non-GAAP net income $ 2,886 $
1,655 $ 7,598 $
7,395
____________________________________
Notes:
(1)
Adjusted operating margins for the three
months ended December 31, 2017, and 2016, were 1.1% and 1.0%,
respectively, and were 2.2% and 2.1% for the six months ended
December 31, 2017, and 2016, respectively, and are calculated as
non-GAAP operating income divided by U.S. 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 21% for
the three months ended December 31, 2017, 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 six months ended December 31, 2016.
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 income (loss) per diluted
share to non-GAAP net income per diluted share Three
Months Ended Six Months Ended December 31,
December 31, 2017 2016 2017
2016 U.S. GAAP net income (loss) per diluted
share $ 0.692 $ (0.047 )
$ 0.207 $ 0.023 SmartStyle
restructuring costs, net (1) 0.628 — 0.631 — Severance (1) 0.038 —
0.050 — Professional fees (1) 0.013 0.014 0.031 0.014 Executive
transition costs (1) 0.002 — 0.008 — Gain on life insurance
proceeds (1) — — (0.170 ) — Goodwill derecognition (1) 0.005 —
0.010 — Impact of tax reform (1.456 ) — (1.464 ) — Discontinued
operations, net of tax 0.140 0.068 0.858 0.121
Non-GAAP net income per diluted share (2) $
0.061 $ 0.035 $
0.161 $ 0.158 U.S. GAAP Weighted
average shares - basic
46,821 46,327 46,719
46,277 U.S. GAAP Weighted average shares - diluted
47,314 46,774 47,053 46,751
____________________________________
Notes:
(1)
Based on projected statutory effective tax
rate analyses, the non-GAAP tax provision was calculated to be
approximately 21% for the three months ended December 31, 2017, 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 six months
ended December 31, 2016.
(2) 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 Q2 FY18 Discrete Items
(Dollars in thousands)
(Unaudited)
Pre-Tax Income Taxes Net
Income SmartStyle restructuring costs $ 37,581 $ (7,891 ) $
29,690 Severance 2,295 (483 ) 1,812 Professional fees 806 (169 )
637 Executive transition costs 146 (31 ) 115 Goodwill derecognition
271 (57 ) 214 Impact of tax reform — (68,903 ) (68,903 ) $
41,099 $ (77,534 ) $ (36,435 )
Discontinued operations, net of tax $ — $ — $ 6,601
Total $ 41,099 $ (77,534
) $ (29,834 )
REGIS CORPORATIONReconciliation of
reported U.S. GAAP net income (loss) to adjusted EBITDA, a non-GAAP
financial measure(Dollars in
thousands)(unaudited)
Adjusted EBITDAEBITDA 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 six months ended December 31, 2017 and 2016, the items
impacting comparability consisted of the items identified in the
non-GAAP reconciling items for the respective periods. The impacts
of the 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 December 31, 2017 Company-
owned Franchise Corporate
Consolidated Consolidated reported net income (loss), as
reported (U.S. GAAP) $ (20,211 ) $
9,703 $ 43,228 $ 32,720 Interest
expense, as reported — — 2,169 2,169 Income taxes, as reported — —
(76,462 ) (76,462 ) Depreciation and amortization, as reported
22,054 91 2,806 24,951
EBITDA (as defined above)
$ 1,843 $
9,794 $ (28,259 ) $
(16,622 ) SmartStyle restructuring costs, net
24,686 — 15 24,701 Severance — — 2,295 2,295 Professional fees — —
806 806 Executive transition costs — — 146 146 Goodwill
derecognition — — 271 271 Discontinued operations, net of tax
— — 6,601 6,601
Adjusted EBITDA, non-GAAP financial measure $
26,529 $ 9,794 $ (18,125
) $ 18,198 Three Months Ended
December 31, 2016 Company- owned Franchise
Corporate Consolidated Consolidated reported net
income (loss), as reported (U.S. GAAP) $ 16,658
$ 8,105
$
(26,982
)
$
(2,219
)
Interest expense, as reported — — 2,153 2,153 Income taxes, as
reported — — 719 719 Depreciation and amortization, as reported
10,203 89 2,354 12,646
EBITDA (as defined above)
$ 26,861 $
8,194
$
(21,756
)
$
13,299
Professional fees — — 673 673 Discontinued
operations, net of tax — — 3,201
3,201
Adjusted EBITDA, non-GAAP financial measure
$ 26,861 $ 8,194
$
(17,882
)
$
17,173
Six Months Ended December 31, 2017
Company- owned Franchise
Corporate Consolidated Consolidated reported net
income (loss), as reported (U.S. GAAP) $ 3,139
$ 19,399 $ (12,793 ) $
9,745 Interest expense, as reported — — 4,307 4,307 Income
taxes, as reported — — (71,630 ) (71,630 ) Depreciation and
amortization, as reported 31,948 183 5,075
37,206 EBITDA (as defined above)
$ 35,087
$ 19,582 $ (75,041 ) $
(20,372 ) SmartStyle restructuring costs, net
24,686 — 15 24,701 Severance — — 2,828 2,828 Professional fees — —
1,636 1,636 Executive transition costs — — 418 418 Gain on life
insurance proceeds — — (7,986 ) (7,986 ) Goodwill derecognition — —
542 542 Discontinued operations, net of tax — —
40,368 40,368
Adjusted EBITDA, non-GAAP financial
measure $ 59,773 $ 19,582 $
(37,220 ) $ 42,135 Six
Months Ended December 31, 2016 Company- owned
Franchise Corporate Consolidated
Consolidated reported net income (loss), as reported (U.S.
GAAP) $ 40,124 $ 16,535 $
(55,597 ) $ 1,062 Interest expense, as
reported — — 4,316 4,316 Income taxes, as reported — — 3,459 3,459
Depreciation and amortization, as reported 19,798 179
4,778 24,755 EBITDA (as defined above)
$
59,922 $ 16,714 $ (43,044
) $ 33,592 Professional fees — —
673 673 Discontinued operations, net of tax — — 5,660
5,660
Adjusted EBITDA, non-GAAP financial
measure $ 59,922 $ 16,714 $
(36,711 ) $ 39,925
REGIS CORPORATIONReconciliation 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 profitThe 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 December 31, 2017 Company-
owned Franchise Corporate
Consolidated Revenues: Service $ 223,214 $ — $ — $ 223,214
Product 56,748 15,068 — 71,816
279,962 15,068
— 295,030 Cost of service 134,850 — — 134,850
Cost of product 28,044 11,820 — 39,864
162,894 11,820
— 174,714 U.S. GAAP gross profit(1)
$ 117,068 $ 3,248 $ —
$ 120,316 Non-GAAP gross profit adjustments:
SmartStyle restructuring costs 585 — — 585
Non-GAAP gross
profit(1) $ 117,653 $ 3,248
$ — $ 120,901
____________________________________
(1) Gross profit excludes depreciation and amortization.
Three Months Ended December 31, 2016 Company-
owned Franchise Corporate
Consolidated Revenues: Service $ 235,609 $ — $ — $ 235,609
Product 60,636 7,593 — 68,229
296,245
7,593 — 303,838 Cost of service 151,193
— — 151,193 Cost of product 28,783 5,801 —
34,584
179,976 5,801 —
185,777 U.S. GAAP and
Non-GAAP gross profit(1) $ 116,269
$ 1,792 $ — $
118,061
____________________________________
(1) Gross profit excludes depreciation and amortization.
Six Months Ended December 31, 2017 Company-
owned Franchise Corporate
Consolidated Revenues: Service $ 458,773 $ — $ — $ 458,773
Product 109,966 22,790 — 132,756
568,739 22,790
— 591,529 Cost of service 274,686 — — 274,686
Cost of product 52,491 17,535 — 70,026
327,177 17,535
— 344,712 U.S. GAAP
and Non-GAAP gross profit(1) $ 241,562 $
5,255 $ — $ 246,817
Non-GAAP gross profit adjustments: SmartStyle restructuring costs
585 — — 585
Non-GAAP gross profit(1) $ 242,147
$ 5,255 $ — $ 247,402
____________________________________
(1) Gross profit excludes depreciation and amortization.
Six Months Ended December 31, 2016 Company-
owned Franchise Corporate
Consolidated Revenues: Service $ 478,700 $ — $ — $ 478,700
Product 116,949 14,996 — 131,945
595,649 14,996
— 610,645 Cost of service 301,990 — — 301,990
Cost of product 54,130 11,269 — 65,399
356,120 11,269
— 367,389 U.S. GAAP
and Non-GAAP gross profit(1) $ 239,529 $
3,727 $ — $ 243,256
____________________________________
(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 Six Months Ended
December 31, December 31, 2017
2016 2017 2016 Revenue decline, as
reported (U.S. GAAP) (2.1 )% (2.2
)% (2.5 )% (1.7 )% Effect of new
stores and conversions (0.6 ) (0.5 ) (0.6 ) (0.5 ) Effect of closed
salons 4.8 1.5 4.2 1.7 Franchise (2.5 ) 0.1 (1.5 ) — Foreign
currency (0.4 ) — (0.3 ) — Other 0.1 (1.4 ) 0.5 (0.6
)
Same-store sales, non-GAAP (0.7 )%
(2.5 )% (0.2 )% (1.1 )%
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version on businesswire.com: http://www.businesswire.com/news/home/20180201005263/en/
Regis Corporation:Paul Dunn, 952-947-7915VP, Finance and
Investor Relations
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