Market Overview

Regis® Reports Improved Fourth Quarter and Full Year 2018 Results

Share:

Regis® Announces Continued Progress With Its
Transformation Reporting Fourth Quarter Net Income from Continuing
Operations of $7.0 Million, a $2.8 Million, or 65% Increase Versus Prior
Year

Fourth Quarter Adjusted EBITDA of $31.2 Million Increased $1.8
Million, or 6.1% Year-Over-Year

Full Year Adjusted EBITDA of $94.1 Million Increased $6.9 Million, or
7.9% Year-Over-Year

The Company Reports Positive Same-Store Sales of 0.7% in the Quarter,
Which Includes An Estimated 0.9% Negative Impact Due to Easter Shifting
Quarters, Full Year Positive Same-Store Sales of 0.5%

The Company Repurchased 883,000 Shares of Its Common Stock in the
Quarter

Regis Corporation (NYSE:RGS):

  Three Months Ended   Twelve Months Ended
June 30, June 30,
(Dollars in thousands) 2018   2017 (1) 2018   2017 (1)
Consolidated Revenue $294,885 $320,902 $1,214,074 $1,268,460
Consolidated Same-Store Sales Comps 0.7% 1.8% 0.5% (0.5)%
 
Net Income (Loss) From Continuing Operations $6,973 $4,222 $61,886 $(896)
Diluted Earnings (Loss) per Share From Continuing Operations $0.15 $0.09 $1.32 $(0.02)
EBITDA $25,714 $19,060 $11,964 $53,756
as a percent of revenue 8.7% 5.9% 1.0% 4.2%
 
As Adjusted(2)
Consolidated Revenue, as Adjusted $294,885 $320,902 $1,212,013 $1,268,460
Consolidated Same-Store Sales Comps, as Adjusted 0.7% 1.8% 0.3% (0.5)%
Net Income, as Adjusted $10,442 $11,576 $27,946 $17,328
Diluted Earnings per Share, as Adjusted $0.22 $0.25 $0.59 $0.37
EBITDA, as Adjusted $31,168 $29,383 $94,079 $87,224
as a percent of revenue, as adjusted 10.6% 9.2% 7.8% 6.9%
 
(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 fourth quarter 2018 net income from continuing operations of
$7.0 million, or $0.15 per diluted share as compared to $4.2 million or
$0.09 in the fourth quarter of 2017. The Company's reported results
include a net $1.4 million of one-time pre-tax costs associated with the
restructuring of the Company's SmartStyle® salon portfolio
and a net $2.1 million of other pre-tax discrete costs. Excluding
discrete items, and the losses from discontinued operations, the Company
reported fourth quarter 2018 adjusted net income of $10.4 million, or
$0.22 per diluted share as compared to $11.6 million, or $0.25 per
diluted share for the same period last year. The year-over-year decline
in adjusted net income was driven primarily by the impact of the
valuation allowance that previously existed against most of the
Company's deferred tax assets in place during last year's fourth
quarter. Normalizing the adjusted income tax rates, and valuation
allowance, in both the current and prior year periods to 25%, this
year's fourth quarter adjusted net income increased $4.0 million, or
$0.09 per diluted share when compared to the same period last year.

Total revenue in the quarter of $294.9 million decreased $26.0 million,
or 8.1%, year-over-year driven primarily by the closure of a net 701
salons and the conversion of 448 company-owned salons to franchised
locations, partially offset by positive same-store sales comps of 0.7%.
Management estimates the shift of the Easter holiday, from fourth
quarter last year to third quarter this year, negatively impacted fourth
quarter 2018 same-store sales comps by approximately 90 basis points.

Fourth quarter 2018 EBITDA of $25.7 million increased $6.7 million
versus the same period last year. As a percentage of sales, the
Company's fourth quarter EBITDA margin rate of 8.7% compares to 5.9% in
the fourth quarter last year. Fourth quarter 2018 adjusted EBITDA of
$31.2 million was 10.6% of adjusted sales and was $1.8 million, or 6.1%
favorable year-over-year. Last year's fourth quarter adjusted EBITDA
margin rate was 9.2%.

On a full year basis, the Company reported net income from continuing
operations of $61.9 million, or $1.32 per diluted share as compared to
net loss from continuing operations of $0.9 million, or $0.02 per share
in the prior year. On an adjusted basis, net income from continuing
operations was $27.9 million, an increase of $10.6 million
year-over-year. Adjusted EBITDA of $94.1 million increased $6.9 million,
or 7.9% versus the same period last year.

Hugh Sawyer, President and Chief Executive Officer, commented, "Although
we have more work to do, we are pleased to report signs of progress in
our financial performance and ongoing transformation efforts."

Fourth Quarter Segment Results

Company-Owned Salons

 

Three Months Ended
June 30,

 

(Decrease)
Increase

 

Twelve Months Ended
June 30,

 

(Decrease)
Increase

(Dollars in millions) (1) 2018   2017 (2) 2018   2017 (2)
 
Total Revenue, as Adjusted $ 263.4 $ 299.6 (12.1)% $ 1,102.0 $ 1,189.5 (7.4)%
Same-Store Sales Comps, as Adjusted 0.7 % 1.8 % (110) bps 0.3 % (0.5 )% 80 bps
Year-over-Year Ticket change 4.4 % 3.4 %
Year-over-Year Traffic change (3.7 )% (3.1 )%
 
Gross Profit, as Adjusted(3) $ 119.3 $ 125.2 (4.7)% $ 476.7 $ 480.5 (0.8)%

as a percent of revenue, as adjusted

45.3 % 41.8 % 350 bps 43.3 % 40.4 % 290 bps
 
EBITDA, as Adjusted $ 38.2 $ 38.3 (0.2)% $ 126.7 $ 125.9 0.6%

as a percent of revenue, as adjusted

14.5 % 12.8 % 170 bps 11.5 % 10.6 % 90 bps
 
(1)   Variances calculated on amounts shown in millions may result in
rounding differences.
(2) Amounts for fiscal year 2017 have been recast to account for
mall-based business and International segment as discontinued
operations.
(3) Gross profit, as Adjusted, excludes depreciation and amortization.
 

Company-owned salon fourth quarter 2018 revenue, as adjusted, decreased
12.1% versus the prior year to $263.4 million. The year-over-year
decline was driven primarily by the closure of unprofitable salons and
the sale of Company-owned salons to franchisees. The year-over-year
decline was partially offset by an increase in same-store sales of 0.7%
driven by a 4.4% increase in average ticket, partially offset by a 3.7%
decrease in traffic.

Fourth quarter 2018 adjusted EBITDA of $38.2 million was essentially
flat versus the same period last year driven primarily by salon-level
compensation changes, strategic marketing and advertising investments,
the prior year inclusion of a more favorable self-insurance reserve
adjustment, and the sale of 448 company-owned salons to franchisees,
partially offset by the closing of unprofitable salons, improved
variable labor management, management initiatives, and same-store sales
comp increases. The EBITDA margin rate of the Company-owned salon
segment of 14.5% increased 170 basis points compared to the fourth
quarter of last year.

Franchise

 

Three Months Ended
June 30,

 

Increase
(Decrease)

 

Twelve Months Ended
June 30,

 

Increase
(Decrease)

(Dollars in millions) (1) 2018   2017 (2) 2018   2017 (2)
 
Revenue
Product $ 9.8 $ 8.1 21.2% $ 34.6 $ 30.6 13.1%
Product sold to The Beautiful Group 6.2     N/A 19.1     N/A
Total product $ 16.0   $ 8.1   97.1% $ 53.7   $ 30.6   75.4%
Royalties and fees 15.5   13.2   17.3% 56.4   48.3   16.7%
Total Revenue $ 31.5   $ 21.3   47.6% $ 110.1   $ 78.9   39.5%
 
EBITDA, as Adjusted $ 11.9 $ 9.5 25.3% $ 41.8 $ 34.8 19.9%
as a percent of revenue 37.9 % 44.6 % (670) bps 38.0 % 44.1 % (610) bps
 
(1)   Variances calculated on amounts shown in millions may result in
rounding differences.
(2) Amounts for fiscal year 2017 have been recast to account for
mall-based business and International segment as discontinued
operations.
 

Fourth quarter 2018 Franchise revenue was $31.5 million, a $10.2
million, or 47.6% increase compared to the prior year quarter. Royalties
and fees were $15.5 million, a $2.3 million, or 17.3% increase versus
the same period last year. Royalties increased 13.1% driven primarily by
positive same-store revenue and increased franchise salon counts.
Initial franchise fees increased 40.5% as the Company opened, or
converted, a net 165 franchised locations in the quarter as compared to
113 in the prior year quarter. Product sales to franchisees were $16.0
million, an increase of $7.9 million. Product sales to The Beautiful
Group accounted for $6.2 million of this year-over-year sales increase.

Franchise adjusted EBITDA of $11.9 million improved $2.4 million, or
25.3% year-over-year. The Franchise EBITDA margin rate of 37.9% was
negatively impacted by roughly 820 basis points due to the low margin
rate of product sales to The Beautiful Group in accordance with the
terms of our transaction agreements. Removing the dilutive impact of
these sales, EBITDA margin rates in the Franchise segment of 46.1%
improved 150 basis points when compared to the fourth quarter of last
year.

Other Company Updates

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

The Company announced a realignment of its field
leadership team by brand during the first fiscal quarter of 2018. 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 $8.6 million decrease in cost
of goods sold and site expense, and a corresponding $8.6 million
increase to G&A during the fourth quarter of 2018, when compared to the
comparable period last year. On a fiscal 2018 full year basis, this
reclassification of expenses decreased cost of goods sold and site
expense by $32.3 million and had a corresponding increase to G&A expense
versus the same period last year.

Transformational Strategy Update
The Company continued to
make progress implementing its multi-year transformational strategy and
operational turnaround focused on improving the performance of
Company-owned salons, while at the same time selectively expanding its
franchise portfolio where it supports the Company's strategic
transformation and maximizes shareholder value. During the quarter, the
Company:

  • Repurchased 883,000 common shares at a total price of $15.2 million.
    In August 2018, the Company's Board of Directors authorized an
    additional $200 million for share repurchases.
  • Converted 144 Company-owned salons to franchise locations.
  • Announced it would consider franchising the remaining Company-owned
    Supercuts salons where it facilitated strategic and financial
    objectives.
  • Executed a number of operational initiatives to stabilize performance
    and establish a platform for longer-term revenue and earnings growth
    in Company-owned salons. The Company estimates the initiatives
    delivered a benefit in a range of $5.0 million to $7.0 million in the
    fourth quarter of fiscal 2018.
  • Announced the addition of two key members of the Executive team. Chad
    Kapadia was named Executive Vice President, Chief Technology Officer,
    and Head of Product Engineering and Laura Alexander was promoted to
    the role of Senior Vice President, Merchandise.

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
fourth quarter results today, August 21, 2018, at 9 a.m., Central time.
Interested parties are invited to participate in the live webcast by
logging on to www.regiscorp.com
or participate via telephone by dialing (888) 204-4368 and entering
access code 8520138. A replay of the presentation will be available
later that day. The replay phone number is (888) 203-1112, access code
8520138.

About Regis Corporation
Regis Corporation (NYSE:RGS) is a
leader in beauty salons and cosmetology education. As of June 30, 2018,
the Company owned, franchised or held ownership interests in 8,168
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 Beautiful
Group's ability to transition and 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; 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, 2018. 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

(Dollars in thousands, except per share data)

   
June 30, 2018 June 30, 2017
ASSETS
Current assets:
Cash and cash equivalents $ 110,399 $ 171,044
Receivables, net 52,430 19,683
Inventories 79,363 98,392
Other current assets 47,867 48,114
Current assets held for sale 32,914
Total current assets 290,059 370,147
 
Property and equipment, net 105,860 123,281
Goodwill 412,643 416,987
Other intangibles, net 10,557 11,965
Other assets 37,616 61,756
Long-term assets held for sale 27,352
Total assets $ 856,735 $ 1,011,488
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 57,738 $ 54,501
Accrued expenses 97,630 110,435
Current liabilities related to assets held for sale 13,126
Total current liabilities 155,368 178,062
 
Long-term debt, net 90,000 120,599
Other noncurrent liabilities 107,875 197,374
Noncurrent liabilities related to assets held for sale 7,232
Total liabilities 353,243 503,267
 
Commitments and contingencies
Shareholders' equity:
Common stock, $0.05 par value; issued and outstanding, 45,258,571
and 46,400,367 common shares at June 30, 2018 and 2017, respectively
2,263 2,320
Additional paid-in capital 194,436 214,109
Accumulated other comprehensive income 9,568 3,336
Retained earnings 297,225 288,456
   
Total shareholders' equity

503,492

508,221

   
Total liabilities and shareholders' equity $ 856,735 $ 1,011,488
 

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

For The Three and Twelve Months Ended June 30, 2018 and 2017

(Dollars in thousands, except per share data)

   

Three Months Ended June 30,

Twelve Months Ended June 30,

2018   2017 2018   2017
Revenues:
Service $ 218,352 $ 243,649 $ 899,051 $ 960,347
Product 61,023 64,033 258,666 259,822
Royalties and fees 15,510   13,220   56,357   48,291  
294,885 320,902 1,214,074 1,268,460
Operating expenses:
Cost of service 123,815 155,386 530,582 610,384
Cost of product 33,458 29,909 140,623 126,297
Site operating expenses 30,806 31,910 127,249 127,797
General and administrative 44,561 39,030 174,045 157,335
Rent 35,816 43,333 183,096 180,478
Depreciation and amortization 11,441   13,757   58,205   52,088  
Total operating expenses 279,897   313,325   1,213,800   1,254,379  
 
Operating income 14,988 7,577 274 14,081
 
Other (expense) income:
Interest expense (1,090 ) (2,143 ) (10,492 ) (8,584 )
Interest income and other, net 1,496   695   6,670   2,831  
 
Income (loss) from continuing operations before income taxes 15,394 6,129 (3,548 ) 8,328
 
Income tax (expense) benefit (8,421 ) (1,907 ) 65,434   (9,224 )
 
Income (loss) from continuing operations 6,973   4,222   61,886   (896 )
 
Loss from discontinued operations, net of income taxes (2,211 ) (2,969 ) (53,185 ) (15,244 )
 
Net income (loss) $ 4,762   $ 1,253   $ 8,701   $ (16,140 )
 
Net income (loss) per share:
Basic:
Income (loss) from continuing operations $ 0.15 $ 0.09 $ 1.33 $ (0.02 )
Loss from discontinued operations (0.05 ) (0.06 ) (1.14 ) (0.33 )
Net income (loss) per share, basic (1) $ 0.10   $ 0.03   $ 0.19   $ (0.35 )
Diluted:
Income (loss) from continuing operations $ 0.15 $ 0.09 $ 1.32 $ (0.02 )
Loss from discontinued operations (0.05 )   (0.06 ) (1.13 )   (0.33 )
Net income (loss) per share, diluted (1) $ 0.10     $ 0.03   $ 0.18     $ (0.35 )
Weighted average common and common equivalent shares outstanding:
Basic 46,014   46,527   46,517   46,359  
Diluted 46,633   46,762   47,035   46,359  
 

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

REGIS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (LOSS)

(Dollars in thousands)

   
Three Months Ended June 30, Twelve Months Ended June 30,
2018   2017 2018   2017
Net income (loss) $ 4,762 $ 1,253 $ 8,701 $ (16,140 )
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments during the period:
Foreign currency translation adjustments (1,175 ) 2,701 (256 ) (1,889 )
Reclassification adjustments for losses included in net income (loss)     6,152    
Net current period foreign currency translation adjustments (1,175 ) 2,701   5,896   (1,889 )
Recognition of deferred compensation 336   179   336   157  
Other comprehensive (loss) income (839 ) 2,880   6,232   (1,732 )
Comprehensive income (loss) $ 3,923   $ 4,133   $ 14,933   $ (17,872 )
 

REGIS CORPORATION (NYSE:RGS)

CONSOLIDATED STATEMENT OF CASH FLOW

(Dollars in thousands)

 
Twelve Months Ended June 30,
2018   2017
Cash flows from operating activities:
Net income (loss) $ 8,701 $ (16,140 )
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Non-cash impairment related to discontinued operations 38,826
Depreciation and amortization 39,433 40,722
Depreciation related to discontinued operations 3,738 14,239
Equity in loss of affiliated companies 81
Deferred income taxes (75,863 ) 7,962
Gain on life insurance proceeds (7,986 )
Gain from sale of salon assets to franchisees, net (2) (241 ) (492 )
Loss on write down of inventories 5,905
Salon asset impairments 11,092 11,366
Accumulated other comprehensive income reclassification adjustments 6,152
Stock-based compensation 8,269 13,142
Amortization of debt discount and financing costs 4,080 1,403
Other non-cash items affecting earnings (294 ) 935
Changes in operating assets and liabilities(1):
Receivables (12,081 ) 724
Inventories 13,940 4,010
Income tax receivable 527 (535 )
Other current assets (23 ) 820
Other assets (11,229 ) (2,586 )
Accounts payable (1,103 ) (684 )
Accrued expenses (12,526 ) (13,667 )
Other noncurrent liabilities (11,084 ) (7,150 )
Net cash provided by operating activities 2,328   60,055  
Cash flows from investing activities:
Capital expenditures (29,571 ) (26,572 )
Capital expenditures related to discontinued operations (1,171 ) (7,271 )
Proceeds from sale of salon assets to franchisees (2) 11,582 2,253
Change in restricted cash (524 ) 1,123
Proceeds from company-owned life insurance policies 18,108 876
Proceeds from sale of investment   500  
Net cash used in investing activities (1,576 ) (29,091 )
Cash flows from financing activities:
Borrowings on revolving credit facilities 90,000
Repayments of long-term debt and capital lease obligations (124,230 )
Repurchase of common stock (24,798 )
Employee taxes paid for shares withheld (2,413 ) (3,698 )
Settlement of equity awards (794 ) (3,151 )
Net cash used in financing activities (62,235 ) (6,849 )
Effect of exchange rate changes on cash and cash equivalents (514 ) 935  
(Decrease) increase in cash and cash equivalents (61,997 ) 25,050
Cash and cash equivalents:
Beginning of year 171,044 147,346
Cash and cash equivalents included in current assets held for sale 1,352    
Beginning of year, total cash and cash equivalents 172,396 147,346
End of year $ 110,399   $ 172,396  
 

(1) Changes in operating assets and liabilities exclude assets and
liabilities sold or acquired.

(2) Excludes transaction with The Beautiful Group.

SAME-STORE SALES (1):

  For the Three Months Ended
June 30, 2018   June 30, 2017
Service   Retail   Total Service   Retail   Total
SmartStyle 0.8 % 4.2 % 1.8 % 2.7 % 0.7 % 2.1 %
Supercuts 0.7 (5.7 ) 0.2 3.2 (2.3 ) 2.7
Signature Style 0.4 (4.3 ) 0.7 1.0 0.7
Consolidated same-store sales 0.6 % 1.0 % 0.7 % 2.1 % 0.4 % 1.8 %
 
For the Twelve Months Ended
June 30, 2018 June 30, 2017
Service Retail Total Service Retail Total
SmartStyle (0.5 )% 2.1 % 0.3 % (0.1 )% (1.2 )% (0.4 )%
Supercuts 2.3 (4.6 ) 1.7 0.9 (4.3 ) 0.4
Signature Style 0.2 (3.5 ) (0.2 ) (1.4 ) (1.1 ) (1.4 )
Consolidated same-store sales 0.5 % 0.2 % 0.5 % (0.3 )% (1.5 )% (0.5 )%
               

(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 fiscal year 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

   
June 30, 2018 June 30, 2017
COMPANY-OWNED SALONS:
 
SmartStyle/Cost Cutters in Walmart Stores 1,660 2,652
Supercuts 928 980
Signature Style 1,378 1,468
Mall locations (Regis and MasterCuts) 898
Total North American Salons 3,966 5,998
Total International Salons (1) 275
Total Company-owned Salons 3,966 6,273
as a percent of total Company-owned and Franchise salons 49.1% 70.3%
 
FRANCHISE SALONS:
 
SmartStyle/Cost Cutters in Walmart Stores 561 176
Supercuts 1,739 1,687
Signature Style 745 770
Total non-mall franchise locations 3,045 2,633
Mall franchise locations (Regis and MasterCuts) 807
Total North American Salons 3,852 2,633
Total International Salons (1) 262 13
Total Franchise Salons 4,114 2,646
as a percent of total Company-owned and Franchise salons 50.9% 29.7%
 
OWNERSHIP INTEREST LOCATIONS:
 
Equity ownership interest locations 88 89
   
Grand Total, System-wide 8,168 9,008
 

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

Non-GAAP Reconciliations

We believe our presentation of non-GAAP operating income, net income,
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 twelve months ended
June 30, 2018 and 2017:

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

  • SmartStyle restructuring discounting and costs.
  • Salon tools write-off.
  • Severance expense for former executive officers.
  • Professional fees.
  • Executive transition costs.
  • Gain on life insurance proceeds.
  • Legal fees.
  • Debt refinancing.
  • Goodwill derecognition.
  • Impact of tax reform.
  • Discontinued operations.

The non-GAAP tax provision adjustments related to the amounts excluded
from our non-GAAP results are due to the change in non-GAAP taxable
income as compared to U.S. GAAP taxable income or loss, resulting from
the non-GAAP reconciling items addressed herein. The non-GAAP tax
provision adjustments are made to reflect the year-to-date non-GAAP tax
rate for each period. The non-GAAP weighted average shares adjustments
are due to the change in non-GAAP net income as compared to the U.S.
GAAP net income or loss, resulting from the non-GAAP reconciling items
addressed herein. Non-GAAP net income per share reflects the weighted
average shares associated with non-GAAP net income, which may include
the dilutive effect of common stock.

REGIS CORPORATION

Reconciliation of selected U.S. GAAP to non-GAAP financial
measures

(Dollars in thousands, except per share data)

 
Reconciliation of U.S. GAAP operating income and net income
(loss) to equivalent non-GAAP measures
    Three Months Ended   Twelve Months Ended
June 30, June 30,
U.S. GAAP financial line item 2018   2017 2018   2017
U.S. GAAP revenue $ 294,885 $ 320,902 $ 1,214,074 $ 1,268,460
 
Non-GAAP revenue adjustments
SmartStyle restructuring discounting Product Sales     (2,061 )  
Non-GAAP revenue $ 294,885   $ 320,902   $ 1,212,013   $ 1,268,460  
 
U.S. GAAP operating income $ 14,988 $ 7,577 $ 274 $ 14,081
 
Non-GAAP revenue adjustments (2,061 )
 
Non-GAAP operating expense adjustments (1)
SmartStyle restructuring discounting Cost of Service 636 826
Salon tools write-off Cost of Service 4,983 4,983
SmartStyle restructuring and discounting costs Cost of Product 1 2,993
SmartStyle restructuring discounting Site operating expenses 48 534
Salon tools write-off Site operating expenses 341 341
SmartStyle restructuring costs General and administrative 469 1,803
Severance General and administrative (176 ) 583 2,652 8,437
Professional fees General and administrative 80 1,125 1,707 2,836
Executive transition costs General and administrative 322 564 322
Gain on life insurance proceeds General and administrative (7,986 ) (100 )
Legal fees General and administrative 1,405
SmartStyle restructuring costs Rent 23,999
SmartStyle restructuring costs Depreciation and amortization 218     13,140    
Total non-GAAP operating expense adjustments 1,276   7,354   40,232   18,224  
       
Non-GAAP operating income (1) $ 16,264   $ 14,931   $ 38,445   $ 32,305  
 
U.S. GAAP net income (loss) $ 4,762 $ 1,253 $ 8,701 $ (16,140 )
 
Non-GAAP net income adjustments:
Non-GAAP revenue adjustments (2,061 )
Non-GAAP operating adjustments 1,276 7,354 40,232 18,224
Debt refinancing Interest expense 2,957
Goodwill derecognition Interest income and other, net 2,185 3,899
Income tax impact on Non-GAAP adjustments (2) Income taxes (761 ) (10,833 )
Impact of tax reform Income taxes 769 (68,134 )
Discontinued operations, net of income tax Loss from discontinued operations, net of tax 2,211   2,969   53,185   15,244  
Total non-GAAP net income adjustments $ 5,680   $ 10,323   $ 19,245   $ 33,468  
Non-GAAP net income $ 10,442   $ 11,576   $ 27,946   $ 17,328  
 

Notes:

(1)   Adjusted operating margins for the three months ended June 30, 2018,
and 2017, were 5.5% and 4.7%, respectively, and were 3.2% and 2.5%
for the twelve months ended June 30, 2018 and 2017, respectively,
and are calculated as non-GAAP operating income divided by non-GAAP
revenue for each respective period.
 
(2) Based on projected statutory effective tax rate analyses, the
non-GAAP tax provision was calculated to be approximately 22% for
the three and nine months ended June 30, 2018, for all non-GAAP
operating expense adjustments. Non-GAAP operating expense
adjustments recognized during the first quarter of fiscal year 2018
and during the three and twelve months ended June 30, 2017, were not
tax effected as a result of the valuation allowance.
 

REGIS CORPORATION

Reconciliation of selected U.S. GAAP to non-GAAP financial
measures

(Dollars in thousands, except per share data)

 
Reconciliation of U.S. GAAP net income (loss) per diluted share
to non-GAAP net income per diluted share
  Three Months Ended   Twelve Months Ended
June 30, June 30,
2018   2017 2018   2017
U.S. GAAP net income (loss) per diluted share $ 0.102 $ 0.027 $ 0.185 $ (0.348 )
SmartStyle restructuring and discounting costs (1) (2) 0.023 0.692
Severance (1) (2) (0.003 ) 0.012 0.047 0.179
Professional fees (1) (2) 0.001 0.024 0.032 0.060
Salon tools write-off (1) (2) 0.114 0.113
Executive transition costs (1) (2) 0.007 0.011 0.007
Gain on life insurance proceeds (1) (2) (0.170 ) (0.002 )
Legal fees (1) (2) 0.030
Debt refinancing (1) (2) 0.049
Goodwill derecognition (1) (2) 0.037 0.066
Impact of tax reform 0.016 (1.449 )
Discontinued operations, net of tax (2) 0.047 0.063 1.131 0.324
Impact of change in weighted average shares (2)       0.005  
Non-GAAP net income per diluted share (2) (3) $ 0.224   $ 0.248   $ 0.594   $ 0.368  
 
U.S. GAAP Weighted average shares - basic 46,014 46,527 46,517 46,359
U.S. GAAP Weighted average shares - diluted 46,633 46,762 47,035 46,359
Non-GAAP Weighted average shares - diluted (2) 46,633 46,762 47,035 47,088
 

Notes:

(1)   Based on projected statutory effective tax rate analyses, the
non-GAAP tax provision was calculated to be approximately 22% for
the three and nine months ended June 30, 2018, for all non-GAAP
operating expense adjustments. Non-GAAP operating expense
adjustments recognized during the first quarter of fiscal year 2018
and during the three and twelve months ended June 30, 2017, were not
tax effected as a result of the valuation allowance.
 
(2) Non-GAAP net income per share reflects the weighted average shares
associated with non-GAAP net income, which includes the dilutive
effect of common stock equivalents. The earnings per share impact of
the adjustments for the twelve months ended June 30, 2017 included
additional shares for common stock equivalents of 0.7 million. The
impact of the adjustments described above result in the effect of
the common stock equivalents to be dilutive to the non-GAAP net
income per share.
 
(3) Total is a recalculation; line items calculated individually may not
sum to total due to rounding.
 

REGIS CORPORATION

Summary of Pre-Tax, Income Taxes and Net Income Impact for Q4
FY18 Discrete Items

(Dollars in thousands)

     
Pre-Tax Income Taxes Net Income
SmartStyle restructuring discounting and costs, net $ (1,372 ) $ 302 $ (1,070 )
Severance 176 (39 ) 137
Professional fees (80 ) 17 (63 )
Goodwill derecognition (2,185 ) 481 (1,704 )
Impact of tax reform   (769 ) (769 )
$ (3,461 ) $ (8 ) $ (3,469 )
 
Discontinued operations, net of tax $ (2,211 )
 
Total $ (5,680 )
 

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

(Dollars
in thousands)

(unaudited)

Adjusted EBITDA
EBITDA represents U.S. GAAP net income
(loss) for the respective period excluding interest expense, income
taxes and depreciation and amortization expense. The Company defines
adjusted EBITDA, as EBITDA excluding identified items impacting
comparability for each respective period. For the three and twelve
months ended June 30, 2018 and 2017, the items impacting comparability
consisted of the items identified in the non-GAAP reconciling items for
the respective periods. The impacts of the debt refinancing, income tax
provision adjustments associated with the above items, impact of tax
reform and the SmartStyle restructuring costs included within
depreciation and amortization are already included in the U.S. GAAP
reported net income (loss) to EBITDA reconciliation, therefore there is
no adjustment needed for the reconciliation from EBITDA to adjusted
EBITDA.

  Three Months Ended June 30, 2018
Company-      
owned (1) Franchise (2) Corporate Consolidated (3)
Consolidated reported net income (loss), as reported (U.S. GAAP) $ 27,787 $ 11,835 $ (34,860 ) $ 4,762
Interest expense, as reported 1,090 1,090
Income taxes, as reported 8,421 8,421
Depreciation and amortization, as reported   9,284     90     2,067     11,441  
EBITDA (as defined above) $ 37,071   $ 11,925   $ (23,282 ) $ 25,714  
 
SmartStyle restructuring discounting and costs, net 1,154 1,154
Severance (176 ) (176 )
Professional fees 80 80
Goodwill derecognition 2,185 2,185
Discontinued operations, net of tax           2,211     2,211  
Adjusted EBITDA, non-GAAP financial measure $ 38,225   $ 11,925   $ (18,982 ) $ 31,168  
 
Three Months Ended June 30, 2017
Company-
owned(1) Franchise (2) Corporate Consolidated (3)
Consolidated reported net income (loss), as reported (U.S. GAAP) $ 21,692 $ 9,425 $ (29,864 ) $ 1,253
Interest expense, as reported 2,143 2,143
Income taxes, as reported 1,907 1,907
Depreciation and amortization, as reported   11,280     89     2,388     13,757  
EBITDA (as defined above) $ 32,972   $ 9,514   $ (23,426 ) $ 19,060  
 
Salon tools write-off 5,324 5,324
Professional fees 1,125 1,125
Severance 583 583
Executive transition costs 322 322
Discontinued operations, net of tax           2,969     2,969  
Adjusted EBITDA, non-GAAP financial measure $ 38,296   $ 9,514   $ (18,427 ) $ 29,383  
 

Notes:

(1)   Company-owned adjusted EBITDA margin for the three ended June 30,
2018, and 2017, were 14.5% and 12.8%, respectively, and are
calculated as company-owned adjusted EBITDA (as defined above)
divided by company-owned adjusted revenue for each respective period.
 

(2)

Franchise adjusted EBITDA margin for the three months ended
June 30, 2018 and 2017, were 37.9% and 44.6%, respectively and are
calculated as franchise adjusted EBITDA (as defined above) divided
by franchise adjusted revenue for each respective period. Removing
the dilutive impact of $6.2 million for the franchise product
sales to The Beautiful Group, franchise adjusted EBITDA margin for
the three months ended June 30, 2018 was 43.9%.

 

(3)

Consolidated EBITDA margins for the three months ended June 30,
2018, and 2017, were 8.7% and 5.9%, respectively, and are
calculated as EBITDA (as defined above) divided by U.S. GAAP
revenue for each respective period. Consolidated adjusted EBITDA
margin for the three months ended June 30, 2018, and 2017, were
10.6% and 9.2%, respectively, and are calculated as consolidated
adjusted EBITDA (as defined above) divided by consolidated
adjusted revenue for each respective period.

 
  Twelve Months Ended June 30, 2018
Company-      
owned(1) Franchise (2) Corporate Consolidated (3)
Consolidated reported net income (loss), as reported (U.S. GAAP) $ 50,148 $ 41,418 $ (82,865 ) $ 8,701
Interest expense, as reported 10,492 10,492
Income taxes, as reported (65,434 ) (65,434 )
Depreciation and amortization, as reported   48,508   365   9,332     58,205  
EBITDA (as defined above) $ 98,656 $ 41,783 $ (128,475 ) $ 11,964  
 
SmartStyle restructuring discounting and costs, net 28,057 37 28,094
Gain on life insurance proceeds (7,986 ) (7,986 )
Severance 2,652 2,652
Professional fees 1,707 1,707
Executive transition costs 564 564
Goodwill derecognition 3,899 3,899
Discontinued operations, net of tax       53,185     53,185  
Adjusted EBITDA, non-GAAP financial measure $ 126,713 $ 41,783 $ (74,417 ) $ 94,079  
 
Twelve Months Ended June 30, 2017
Company-
owned(1) Franchise (2) Corporate Consolidated (3)
Consolidated reported net income (loss), as reported (U.S. GAAP) $ 78,345 $ 34,478 $ (128,963 ) $ (16,140 )
Interest expense, as reported 8,584 8,584
Income taxes, as reported 9,224 9,224
Depreciation and amortization, as reported   42,273   357   9,458     52,088  
EBITDA (as defined above) $ 120,618 $ 34,835 $ (101,697 ) $ 53,756  
 
Salon tools write-off 5,324 5,324
Severance 8,437 8,437
Legal fees 1,405 1,405
Professional fees 2,836 2,836
Executive transition costs 322 322
Gain on life insurance proceeds (100 ) (100 )
Discontinued operations, net of tax       15,244     15,244  
Adjusted EBITDA, non-GAAP financial measure $ 125,942 $ 34,835 $ (73,553 ) $ 87,224  
 

Notes:

(1)   Company-owned adjusted EBITDA margin for the twelve ended June 30,
2018, and 2017, were 11.5% and 10.6%, respectively, and are
calculated as company-owned adjusted EBITDA (as defined above)
divided by company-owned adjusted revenue for each respective period.
 

(2)

Franchise adjusted EBITDA margin for the twelve months ended
June 30, 2018 and 2017, were 38.0% and 44.1%, respectively and are
calculated as franchise adjusted EBITDA (as defined above) divided
by franchise adjusted revenue for each respective period.

 

(3)

Consolidated EBITDA margins for the twelve months ended June 30,
2018, and 2017, were 1.0% and 4.2%, respectively, and are
calculated as EBITDA (as defined above) divided by U.S. GAAP
revenue for each respective period. Consolidated adjusted EBITDA
margin for the twelve months ended June 30, 2018, and 2017, were
7.8% and 6.9%, respectively, and are calculated as consolidated
adjusted EBITDA (as defined above) divided by consolidated
adjusted revenue for each respective period.

 
REGIS CORPORATION

Reconciliation by reportable segment of reported U.S. GAAP
total revenue to adjusted total revenue, a non-GAAP financial
measure

(Dollars in thousands)
(Unaudited)
 
Total Revenue

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

 
Three Months Ended June 30, 2018
Company-      
owned Franchise Corporate Consolidated
Consolidated total revenue, as reported (U.S. GAAP) $ 263,393 $ 31,492 $ $ 294,885
 
Three Months Ended June 30, 2017
Company-
owned Franchise Corporate Consolidated
Consolidated total revenue, U.S. GAAP and non-GAAP $ 299,573 $ 21,329 $ $ 320,902
 
Twelve Months Ended June 30, 2018
Company-
owned Franchise Corporate Consolidated
Consolidated total revenue, as reported (U.S. GAAP) $ 1,104,014 $ 110,060 $ $ 1,214,074
SmartStyle restructuring discounting   (2,061 )       (2,061 )
Adjusted total revenue, non-GAAP financial measure $ 1,101,953   $ 110,060 $ $ 1,212,013  
 
Twelve Months Ended June 30, 2017
Company-
owned Franchise Corporate Consolidated
Consolidated total revenue, U.S. GAAP and non-GAAP $ 1,189,546 $ 78,914 $ $ 1,268,460
 

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

(Dollars in
thousands)

(Unaudited)

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

  Three Months Ended June 30, 2018
Company-      
owned Franchise Corporate Consolidated
Revenues:
Service $ 218,352 $ $ $ 218,352
Product   45,041   15,982     61,023
263,393 15,982 279,375
 
Cost of service 123,815 123,815
Cost of product   20,867   12,591     33,458
  144,682   12,591     157,273
 
U.S. GAAP gross profit(1) $ 118,711 $ 3,391 $ $ 122,102
 
Non-GAAP gross profit adjustments:
SmartStyle restructuring discounting   637       637
Non-GAAP gross profit(1) $ 119,348 $ 3,391 $ $ 122,739
 

(1) Gross profit excludes depreciation and amortization.

 
  Three Months Ended June 30, 2017
Company-      
owned Franchise Corporate Consolidated
Revenues:
Service $ 243,649 $ $ $ 243,649
Product   55,924   8,109     64,033
299,573 8,109 307,682
 
Cost of service 155,386 155,386
Cost of product   23,982   5,927     29,909
  179,368   5,927     185,295
 
U.S. GAAP gross profit(1) $ 120,205 $ 2,182 $ $ 122,387
 
Non-GAAP gross profit adjustments:
Salon tools write-off   4,983       4,983
Non-GAAP gross profit(1) $ 125,188 $ 2,182 $ $ 127,370
 

(1) Gross profit excludes depreciation and amortization.

 
 

Twelve Months Ended June 30, 2018

Company-      
owned Franchise Corporate Consolidated
Revenues:
Service $ 899,051 $ $ $ 899,051
Product   204,963     53,703     258,666  
1,104,014 53,703 1,157,717
SmartStyle restructuring discounting   (2,061 )       (2,061 )
Adjusted total revenue, non-GAAP financial measure $ 1,101,953   $ 53,703 $ $ 1,155,656  
 
Cost of service 530,582 530,582
Cost of product   98,495     42,128     140,623  
  629,077     42,128     671,205  
       
U.S. GAAP and Non-GAAP gross profit(1) $ 474,937   $ 11,575 $ $ 486,512  
 
Non-GAAP gross profit adjustments:
SmartStyle restructuring discounting and costs   1,758         1,758  
Non-GAAP gross profit(1) $ 476,695   $ 11,575 $ $ 488,270  
 

(1) Gross profit excludes depreciation and amortization.

 
  Twelve Months Ended June 30, 2017
Company-      
owned Franchise Corporate Consolidated
Revenues:
Service $ 960,347 $ $ $ 960,347
Product   229,199   30,623     259,822
1,189,546 30,623 1,220,169
 
Cost of service 610,384 610,384
Cost of product   103,611   22,686     126,297
  713,995   22,686     736,681
       
U.S. GAAP and Non-GAAP gross profit(1) $ 475,551 $ 7,937 $ $ 483,488
 
Non-GAAP gross profit adjustments:
Salon tools write-off   4,983       4,983
Non-GAAP gross profit(1) $ 480,534 $ 7,937 $ $ 488,471
 

(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

Twelve Months Ended

June 30,

June 30,

2018   2017 2018   2017
Revenue decline, as reported (U.S. GAAP) (8.1 )% (1.1 )% (4.3 )% (1.8 )%
Effect of new company-owned stores (0.5 ) (0.2 ) (0.5 )
Effect of closed salons 11.9 2.7 7.4 2.0
Franchise (3.2 ) (0.1 ) (2.4 )
Foreign currency (0.3 ) 0.3 (0.3 ) 0.1
Other 0.4   0.5   0.3   (0.3 )
Same-store sales, non-GAAP 0.7 % 1.8 % 0.5 % (0.5 )%
 
REGIS CORPORATION
Reconciliation of reported non-GAAP revenue change to same-store
sales, as adjusted
(unaudited)
   
Three Months Ended

Twelve Months Ended

June 30,

June 30,

2018   2017 2018   2017
Revenue decline, as adjusted (non-GAAP) (8.1 )% (1.1 )% (4.5 )% (1.8 )%
Effect of new company-owned stores (0.5 ) (0.2 ) (0.5 )
Effect of closed salons 11.9 2.7 7.4 2.0
Other 0.4 0.5 0.3 (0.3 )
Franchise (3.2 ) (0.1 ) (2.4 )
Foreign currency (0.3 ) 0.3   (0.3 ) 0.1  
Same-store sales, as adjusted non-GAAP 0.7 % 1.8 % 0.3 % (0.5 )%
 

View Comments and Join the Discussion!