Regis Reports Second Quarter 2016 Results

MINNEAPOLIS–(BUSINESS WIRE)–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 second fiscal quarter ended December 31, 2015
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 $450.5 million, a decline of ($5.4) million. Same-store
    sales increased 2.2%.

    • Same-store service and product sales increased 0.9% and
      7.2%, respectively.
  • GAAP net loss of ($14.0) million or ($0.29) per diluted share.

    • Includes ($0.32) per diluted share of discrete charges,
      mainly related to the impairment of the Company’s remaining
      investment in Empire Education Group and $0.04 per diluted share
      favorable impact due to the deferred tax valuation allowance on
      income tax expense.
  • EBITDA, as adjusted, of $17.5 million compares to $17.3 million
    in the prior year quarter.

    • Increase of $4.7 million from same-store sales improvement
      and franchise growth.
    • Decline of $(4.5) million mainly from stylist productivity,
      minimum wage and inflation, planned strategic investments and
      foreign exchange, partly offset by lapping certain costs in the
      prior year quarter and cost savings.
  • Diluted EPS, as adjusted, was $0.03 compared to ($0.14) in the
    prior year quarter.

    • Excluding the impact of the deferred tax valuation
      allowance, Diluted EPS, as adjusted, increased $0.02 per share
      compared to the prior year quarter.
    • Increase of $0.06 per share from same-store sales
      improvement and franchise growth.
    • Decrease of $(0.06) per share mainly due to stylist
      productivity, minimum wage and inflation, planned strategic
      investments, foreign exchange and non-cash losses from our equity
      investment in Empire Education Group, partly offset by lower
      depreciation, lapping certain costs in the prior year quarter and
      cost savings.
    • Increase of $0.02 per share due to reduced shares
      outstanding.
  • The current quarter GAAP net loss includes net discrete expenses
    of $15.3 million. The prior year quarter GAAP net loss includes net
    discrete expenses of $8.8 million. See non-GAAP reconciliations.

Dan Hanrahan, President and Chief Executive Officer, commented, “Our
focus on Leadership Development, Technical Education and Asset
Protection is continuing to improve our execution capability. In the
second quarter, same-store sales increased 220 basis points. Service
same-store sales increased 90 basis points and retail same-store sales
increased 720 basis points. We also allocated $77 million of excess
capital to maximize shareholder value by repurchasing six million shares
during the first half of our fiscal year.

“I am confident we are following the right strategies and I am proud of
the progress our field leaders are making to ensure Regis is the place
where stylists can have successful and satisfying careers. Our field
leadership talent and execution capabilities continue to improve. While
our progress is encouraging, it will not be linear. We have work to do
to drive sustainable growth in guest traffic which will enable us to
realize the potential of each of our salons and result in long-term
growth and shareholder value.”

The Company provided an update on its three key priorities to improve
execution and performance in fiscal 2016. These areas follow the theme
of people, process and metrics enabled by real-time information to make
good business decisions and drive improved execution.

Leadership Development. Our top priority continues to be the
development of our field operations leaders. Having strong field leaders
in place is critical to creating a solid foundation for recruiting,
coaching, developing and retaining our stylists. While ongoing
leadership training and development have become commonplace for our
Regional Vice Presidents and Regional Directors, we continued to extend
our reach to our District Leaders and Salon Managers.

During the second quarter, we completed a second round of training where
our more than 900 District Leaders attended regional training programs
integrating technical education with positive leadership. This training
emphasized multi-unit leadership and staffing and retention strategies.
We are providing additional training and development, or upgrading
talent as required, in order to strengthen our overall District Leader
team. Additionally, we achieved significant progress in training salon
managers. In the second quarter, over 97% of our salon managers
completed a 12-week online program focused on stylist retention and
salon staffing.

Technical Education. Technical education has the most significant
potential to affect our performance because it touches each of our
stylists. Making Regis a place where stylists can expect continued
technical, product and experiential training reinforces our commitment
to stylists’ ongoing development.

During the second quarter, we completed the build-out of our Technical
Education team and alignment of Artistic Directors with Regional
Directors. During the first half of the fiscal year, we conducted
technical training classes in approximately half of our salons and are
on track to deliver technical education to every salon during fiscal
2016. We continue to receive positive feedback from leaders and stylists
about the impact our Technical Education team is having across the field.

Asset Protection. Creating an environment where all stylists are
working together, positively contributing to the health of our salons
and salon teams, remains a key priority for our Asset Protection team.
Partnering with field leaders, our Asset Protection team continues to
see positive trends in salons where we have conducted awareness training
sessions and salon visits. During the second quarter, the Asset
Protection team conducted over 1,000 awareness training sessions and
salon visits, bringing our year-to-date total to approximately 1,900.
Not only did we continue to see sales trends improve due to these
visits, but our Asset Protection team also assisted our field leaders in
retaining high performing stylists and coaching stylists to grow their
businesses to earn commissions.

 
Comparable Profitability Measures
  (Unaudited)    
Three Months

Ended

December 31,

  Six Months

Ended

December 31,

Fiscal Years Ended

June 30,

2015   2014(1) 2015   2014(1) 2015(1) 2014(1)
(Dollars in millions)
Revenue $ 450.5 $ 455.9 $ 900.6 $ 920.4 $ 1,837.3 $ 1,892.4
 
Revenue decline % (1.2 ) (2.7 ) (2.2 ) (1.8 ) (2.9 ) (6.3 )
 
Same-Store Sales % 2.2 (0.3 ) 1.4 0.2 (0.3 ) (4.8 )
Same-Store Average Ticket % Change 3.9 1.4 3.0 1.6 1.6 1.3
Same-Store Guest Count % Change (1.7 ) (1.7 ) (1.6 ) (1.4 ) (1.9 ) (6.1 )
 
Cost of Service and Product %, U.S. GAAP reported and as adjusted (2) 60.9 60.2 60.2 59.7 59.3 59.1
Cost of Service %, U.S. GAAP reported and as adjusted (2) 63.6 62.6 62.9 61.9 61.8 61.3
Cost of Product %, U.S. GAAP reported (2) 51.3 51.6 50.2 51.1 49.7 50.3
Cost of Product %, as adjusted (2) 51.3 51.6 50.2 51.1 49.7 50.1
 
Site operating expense as % of total revenues, U.S. GAAP reported 10.5 10.0 10.6 10.5 10.5 10.8
Site operating expense as % of total revenues, as adjusted 10.5 10.6 10.6 10.9 10.6 10.9
 
General and administrative as % of total revenues, U.S. GAAP reported 10.5 10.2 10.2 10.0 10.1 9.1
General and administrative as % of total revenues, as adjusted 10.1 10.2 10.0 9.9 10.1 9.1
 
Operating (loss) income as % of total revenues, U.S. GAAP reported (0.6 ) (0.1 ) 0.2 (0.2 ) 0.2 (1.8 )
Operating (loss) income as % of total revenues, as adjusted (0.1 ) (0.7 ) 0.4 (0.4 ) 0.1 0.0
 
EBITDA 1.2 8.0 23.4 29.7 73.8 56.5
EBITDA, as adjusted 17.5 17.3 40.4 39.2 86.5 100.8

____________________________________

 

(1) Amounts for fiscal years 2015 and 2014 have been revised.

(2) Excludes depreciation and amortization.

 

Second Quarter Results:

Revenues. Revenue in the quarter of $450.5 million declined $5.4
million, or 1.2%, compared to the prior year quarter. Same-store sales
increased 2.2% compared to the prior year quarter.

Service revenues were $340.5 million, a $9.8 million decline, or 2.8%,
compared to the prior year quarter. During this period, same-store
service sales increased 0.9%, driven by an increase in average ticket
price of 2.9%, partly offset by a decline in guest traffic of 2.0%. The
offsetting 370 basis point decline in service revenues compared to the
prior year quarter was primarily due to a net reduction of 214 salons
and foreign currency.

Product revenues were $98.3 million, an increase of $3.6 million, or
3.8%, compared to the prior year quarter. Product same-store sales for
the quarter increased 7.2%, driven by a strong holiday promotion and
improved execution as more of our service guests purchased retail
product, resulting in an increase to average ticket of 2.6% and an
increase in guest transactions of 4.6%. The offsetting 340 basis point
decline in product revenues compared to the prior year quarter was
primarily due to a net reduction of 214 salons and foreign currency.

Royalties and fees were $11.7 million, an increase of $0.8 million, or
7.2% compared to the prior year quarter. Franchisees posted positive
same-store sales during the quarter and the Company added 181 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 70 basis points to
60.9% when compared to the prior year quarter.

Cost of service as a percent of service revenues for the quarter
increased 100 basis points versus the prior year quarter, to 63.6%. The
primary drivers were stylist productivity and state minimum wage
increases.

Cost of product as a percent of product revenues improved 30 basis
points to 51.3% when compared to the prior year quarter. Favorable
inventory management, lapping prior year commissions and vendor cash
discounts were partly offset by planned holiday promotional activities.

Site Operating Expenses. Site operating expenses of $47.4 million
increased $2.0 million compared to the prior year quarter. Excluding the
impact of discrete items in the current and prior periods, site
operating expenses decreased $1.2 million. This was primarily driven by
a net reduction of 214 salons and foreign currency, partly offset by
inflation.

General and Administrative. General and administrative expenses
of $47.4 million increased $0.7 million compared to the prior year
quarter. Excluding the impact of discrete items in the current and prior
periods, general and administrative expenses decreased $1.1 million
compared to the prior year quarter. The decrease was a result of lapping
certain costs in the prior year quarter, cost savings and foreign
currency, partly offset by planned strategic investments.

Rent. Rent expense of $74.5 million decreased $2.4 million
compared to the prior year quarter. This decrease was primarily the
result of a net reduction of 214 salons and foreign exchange, partly
offset by rent inflation.

Depreciation and Amortization. Depreciation and amortization was
$17.0 million compared to $19.6 million in the prior year quarter, a
decrease of $2.6 million. The decrease was primarily due to salon
closures and reduced salon impairment charges compared to the prior year
quarter.

Income Taxes. During the three months ended December 31, 2015 the
Company recognized an income tax benefit of $4.2 million, at an
effective tax rate of 98.6%. During the three months ended December 31,
2014, the Company recognized income tax expense of $2.6 million, at an
effective tax rate of (123.5%).

Income taxes for all periods presented were different from what would
normally be expected and will continue to vary from quarter to quarter.
This variation results from the valuation allowance impact on tax
benefits related to certain indefinite-lived assets.

This non-cash impact will continue as long as the Company has a
valuation allowance against most of its deferred tax assets and is
expected to approximate $8.0 million of expense for the year ending June
30, 2016. Income tax benefit for the quarter and year-to-date period
includes non-cash benefits of $3.6 million and $1.9 million,
respectively, related to this matter.

Equity in Affiliates. Loss from equity method investments and
affiliated companies was $13.9 million, compared to loss of $12.0
million in the prior year quarter. The increased loss of $2.0 million
was comprised of an increased non-cash impairment charge on the
Company’s investment in EEG and higher non-cash losses as compared to
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 $17.5 million, an increase of $0.2 million compared
to the prior year quarter.

Discrete Items. Discrete items for the current quarter were $15.3
million of expense, comprised of the following items:

  • Legal fees of $1.2 million.
  • Fees associated with modification of senior term notes of $0.8 million.
  • Prior years’ self-insurance reserves adjustment of $0.2 million, net.
  • Professional fees of $0.1 million.
  • Non-cash impairment charge on the Company’s remaining investment in
    EEG of $13.0 million.

Capital Allocation. During the second quarter, the Company
repurchased 2.5 million shares for $33.2 million at an average price of
$13.07 per share, excluding transaction costs. At December 31, 2015,
approximately $34 million remained outstanding under the Company’s
existing share repurchase authorization. In January 2016, the Company’s
Board of Directors authorized an additional $50 million for share
repurchases.

In December 2015, the Company exchanged its $120.0 million 5.75% senior
unsecured notes due December 2017 for $123 million 5.5% senior unsecured
notes due December 2019.

In January 2016, the Company amended its $400.0 million revolving credit
facility primarily reducing the borrowing capacity from $400.0 to $200.0
million. Unused available credit under the facility at January
28, 2016 was $198.4 million.

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 28, 2016, 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 by phone by dialing (800) 505-9573 and entering access
code 9714235. A replay of the presentation will be available later in
the day. The replay phone number is (888) 203-1112, access code 9714235.

About Regis Corporation

Regis Corporation (NYSE:RGS) is the leader in beauty salons and
cosmetology education. As of December 31, 2015, the Company owned,
franchised or held ownership interests in 9,561 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 continued ability of the Company to execute on our
strategy and build on the foundational initiatives that we have
implemented; the success of our stylists and our ability to attract,
train and retain talented stylists; changes in regulatory and statutory
laws; changes in tax rates; the effect of changes to healthcare laws;
our ability to manage cyber threats and protect the security of
sensitive information about our guests, employees, vendors or Company
information; reliance on management information systems; reliance on
external vendors; changes in distribution channels of manufacturers;
financial performance of our franchisees; internal control over the
accounting for leases; competition within the personal hair care
industry; changes in interest rates and foreign currency exchange rates;
failure to standardize operating processes across brands; the ability of
the Company to maintain satisfactory relationships with certain
companies and suppliers; the continued ability of the Company to
implement cost reduction initiatives; compliance with debt covenants;
changes in economic conditions; financial performance of Empire
Education Group; 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, 2015.
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

(Dollars in thousands, except per share data)

   

December 31,
2015
(Unaudited)

June 30,
2015

ASSETS
Current assets:
Cash and cash equivalents $ 130,153 $ 212,279
Receivables, net 27,705 24,631
Inventories 141,934 128,610
Other current assets   63,497   62,762
Total current assets 363,289 428,282
 
Property and equipment, net 196,714 218,157
Goodwill 414,895 418,953
Other intangibles, net 15,677 17,069
Investment in affiliates 520 15,321
Other assets   63,737   64,233
 
Total assets $ 1,054,832 $ 1,162,015
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Long-term debt and capital lease obligations, current $ $ 2
Accounts payable 60,515 63,302
Accrued expenses   144,346   153,362
Total current liabilities 204,861 216,666
 
Long-term debt 120,060 120,000
Other noncurrent liabilities   197,037   197,905
Total liabilities   521,958   534,571
Commitments and contingencies (Note 6)
Shareholders’ equity:
Common stock, $0.05 par value; issued and outstanding 47,839,093 and
53,664,366 common shares at December 31, 2015 and June 30, 2015,
respectively
2,392 2,683
Additional paid-in capital 226,597 298,396
Accumulated other comprehensive income 2,899 9,506
Retained earnings   300,986   316,859
 
Total shareholders’ equity   532,874   627,444
 
Total liabilities and shareholders’ equity $ 1,054,832 $ 1,162,015
 
   

REGIS CORPORATION (NYSE: RGS)

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)

(Dollars and shares in thousands, except per share data)

 
Three Months Ended December 31, Six Months Ended December 31,
2015   2014(1) 2015   2014(1)
Revenues:
Service $ 340,527 $ 350,322 $ 690,688 $ 715,064
Product 98,279 94,691 186,255 183,453
Royalties and fees   11,661     10,874     23,654     21,921  
  450,467     455,887     900,597     920,438  
Operating expenses:
Cost of service 216,672 219,219 434,440 442,906
Cost of product 50,384 48,830 93,420 93,807
Site operating expenses 47,405 45,369 95,233 96,941
General and administrative 47,400 46,667 91,948 91,852
Rent 74,459 76,890 149,278 154,586
Depreciation and amortization   17,030     19,583     34,885     41,771  
Total operating expenses   453,350     456,558     899,204     921,863  
 
Operating (loss) income (2,883 ) (671 ) 1,393 (1,425 )
 
Other (expense) income:
Interest expense (2,382 ) (2,472 ) (4,736 ) (5,570 )
Interest income and other, net   997     1,044     1,941     917  
 
Loss before income taxes and equity in loss of affiliated companies (4,268 ) (2,099 ) (1,402 ) (6,078 )
 
Income taxes 4,207 (2,592 ) 1,391 (8,848 )
Equity in loss of affiliated companies, net of income taxes   (13,925 )   (11,972 )   (14,783 )   (11,580 )
 
Net loss $ (13,986 ) $ (16,663 ) $ (14,794 ) $ (26,506 )
 
Net loss per share:
Basic and diluted $ (0.29 ) $ (0.30 ) $ (0.29 ) $ (0.48 )
 
Weighted average common and common equivalent shares outstanding:
Basic and diluted   48,050     55,135     50,422     55,449  

____________________________________

 

(1) Amounts for fiscal year 2015 have been revised.

 
   

REGIS CORPORATION (NYSE: RGS)

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
(Unaudited)

(Dollars in thousands)

 

Three Months Ended
December 31,

Six Months Ended
December 31,

2015   2014(1) 2015   2014(1)
Net loss $ (13,986 ) $ (16,663 ) $ (14,794 ) $ (26,506 )
Other comprehensive loss:
Foreign currency translation adjustments during the period   (2,335 )   (4,223 )   (6,607 )   (8,845 )
Other comprehensive loss   (2,335 )   (4,223 )   (6,607 )   (8,845 )
Comprehensive loss $ (16,321 ) $ (20,886 ) $ (21,401 ) $ (35,351 )

____________________________________

 

(1) Amounts for fiscal year 2015 have been revised.

 
 

REGIS CORPORATION (NYSE: RGS)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (Unaudited)

(Dollars in thousands)

 
Six Months Ended
December 31,
2015   2014(1)
Cash flows from operating activities:
Net loss $ (14,794 ) $ (26,506 )
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 29,844 34,819
Equity in loss of affiliated companies 14,783 11,580
Deferred income taxes (1,860 ) 6,359
Salon asset impairment 5,041 6,952
Gain on sale of salon assets (625 ) (529 )
Stock-based compensation 4,970 4,038
Amortization of debt discount and financing costs 782 1,001
Other non-cash items affecting earnings 235 716
Changes in operating assets and liabilities, excluding the effects
of asset sales
  (26,478 )   (801 )
Net cash provided by operating activities   11,898     37,629  
 
Cash flows from investing activities:
Capital expenditures (15,670 ) (22,493 )
Proceeds from sale of assets 1,190 1,429
Change in restricted cash   (943 )    
Net cash used in investing activities   (15,423 )   (21,064 )
 
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations (2 ) (173,745 )
Repurchase of common stock (77,033 ) (22,890 )
Purchase of noncontrolling interest   (684 )    
Net cash used in financing activities   (77,719 )   (196,635 )
 
Effect of exchange rate changes on cash and cash equivalents   (882 )   (2,737 )
 
Decrease in cash and cash equivalents (82,126 ) (182,807 )
 
Cash and cash equivalents:
Beginning of period   212,279     378,627  
End of period $ 130,153   $ 195,820  

____________________________________

 

(1) Amounts for fiscal year 2015 have been revised.

 

Contacts

REGIS CORPORATION:
Mark Fosland, 952-806-1707
SVP,
Finance and Investor Relations

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