Regis Reports Improved Second Quarter 2019 Operating Results and the Continued Growth of Its Franchise Portfolio During the Period

Business Wire 29-Jan-2019 4:27 PM

The Company Recorded The Profitable Sale And Conversion Of An Additional 133 Company Owned Salons To Its Asset-Light Franchise Portfolio During The Quarter

Second Quarter Income Per Share From Continuing Operations of $0.01, Which Includes A Non-Cash Goodwill Derecognition Charge Related To The Sale and Conversion of Company Owned Salons; Adjusted Diluted Earnings Per Share Of $0.18 Increased $0.06 Versus Prior Year

Adjusted EBITDA of $20.6 Million is $4.0 Million, or 24.1% Favorable Year-Over-Year; Year-To-Date Adjusted EBITDA of $45.7 Million is $6.8 Million, or 17.5% Favorable Year-Over-Year Including Gains From The Sale of Salons to Franchisees

The Company Repurchased 2.9M Shares, or approximately 7% of Its Total Common Stock in the Quarter

Regis Corporation (NYSE:RGS):

Regis Corporation (NYSE:RGS), a leader in the haircare industry, whose primary business is franchising, owning and operating hair salons, today reported second quarter 2019 net income from continuing operations of $0.4 million, or $0.01 per diluted share as compared to net income from continuing operations of $42.1 million, or $0.89 per diluted share in the second quarter of 2018, which included a one-time tax benefit of $68.9 million, or $1.46 per diluted share, related to the Tax Reform Act. The Company's reported results include $6.5 million of non-cash goodwill derecognition associated with the sale of 133 salons to franchisees and $3.3 million of other discrete costs, partially offset by $2.2 million of related tax benefits. Excluding discrete items, and the income from discontinued operations, the Company reported second quarter 2019 as adjusted net income of $8.0 million, or $0.18 earnings per diluted share versus adjusted net income of $5.7 million, or $0.12 earnings per diluted share, for the same period last year.

Total revenue in the quarter of $274.7 million decreased $39.2 million, or 12.5%, year-over-year driven primarily by the net closure of 678 salons and the conversion of 520 company-owned salons to the Company's asset-light franchise portfolio over the past 12 months. These reductions were partially offset by revenue growth in the Company's Franchise segment and a 50 basis point improvement in company-owned same-store sales. The positive company-owned same-store sales performance was the result of a 5.2% increase in ticket partially offset by a 4.7% decline in year-over-year transactions.

Second quarter adjusted EBITDA of $20.6 million was $4.0 million, or 24.1% favorable versus the same period last year. Excluding the $9.4 million and $0.2 million gain from the sale of company-owned salons during the current and prior year quarter, respectively, adjusted EBITDA of $11.2 million was $5.2 million, or 31.6% unfavorable versus the same period last year driven primarily by the elimination of EBITDA that had been generated in the prior year period from the 520 company-owned salons that were profitably sold and converted to the Company's asset-light franchise portfolio over the past 12 months and the one-time benefit in the prior year period related to the discontinuance of the Company's limited loyalty program test.

On a full year basis, adjusted EBITDA of $45.7 million was $6.8 million, or 17.5% favorable versus the same period last year. Excluding the $16.5 million and $0.6 million gain from the sale of company-owned salons during the current and prior year quarter, respectively, adjusted EBITDA of $29.2 million was $9.1 million, or 23.8% unfavorable versus the same period last year driven primarily by the elimination of EBITDA that had been generated in the prior year period from the 520 company-owned salons that were profitably sold and converted to the Company's asset-light franchise portfolio over the past 12 months and the one-time benefit in the prior year period related to the discontinuance of the Company's limited loyalty program test.

Hugh Sawyer, President and Chief Executive Officer, commented, "We remain focused on the ongoing transformation of our business and maximizing shareholder value. The gains generated from the sale of our company-owned salons during the quarter met our financial objectives for these transactions when considering not only the cash proceeds received for these salons, but also the on-going growth in predictable royalty fees, anticipated product sales, lower ongoing capital requirements, expected reductions in G&A expense and other intended ancillary benefits including establishing a platform for sustainable organic growth." Mr. Sawyer added, "This quarter the 133 salon locations we added to our franchise portfolio were substantially from our Supercuts brand. Given our success transitioning elements of our company-owned Supercuts portfolio to franchise, we expect to consider opportunities to franchise our other company-owned brands in certain circumstances where we believe it will add to shareholder value and support an evolving strategy for our business."

Second quarter revenue for the Company-owned salon segment decreased $45.8 million, or 16.4%, versus the prior year to $234.3 million. The year-over-year decline in revenue was driven by the decrease of approximately 1,197 salons over the past 12 months and a one-time benefit associated with the termination of the limited loyalty program test in the prior year, partially offset by an increase in same-store sales of 0.5%. The year-over-year increase in company-owned same store sales was driven by a 5.2% increase in average ticket, partially offset by a decrease in transactions of 4.7%.

Second quarter adjusted EBITDA of $21.3 million decreased $5.3 million, or 20.1% versus the same period last year driven primarily by the elimination of EBITDA that had been generated in the prior year period from the 520 company-owned salons that were profitably sold and converted to the Company's asset-light franchise portfolio over the past 12 months, the one-time benefit associated with the termination of the limited loyalty program test in the prior year period and strategic investments in marketing and advertising, including the support of the Company's Supercuts MLB sponsorship partially offset by management initiatives.

Second quarter Franchise revenue was $40.4 million, a $6.6 million, or 19.6%, increase compared to the prior year quarter. Royalties and fees were $22.6 million, a $3.9 million, or 20.6% increase versus the same period last year. Royalties and fees increased 20.6% driven primarily by increased franchise salon counts. Product sales to franchisees of $17.8 million increased $2.8 million versus the same period last year driven primarily by increased franchise salon counts.

Franchise adjusted EBITDA of $8.5 million decreased $0.1 million, or 1.3% year-over-year driven primarily by planned strategic G&A investments to enhance the Company's franchisor capabilities and support the increased volume and cadence of transactions and conversions into the Franchise portfolio along with a decrease in margins on product sold to franchisees offset by the increase in revenue.

Other Company Updates

Adoption of New Accounting Standard

On July 1, 2018, the Company adopted amended revenue recognition guidance. For comparability the Company has adjusted prior reporting periods, including the three and six months ended December 31, 2017. As a result, future financial statements will be comparable to the prior year results, but they will not be comparable to the financial results issued previously.

Other Key Events

• The Company successfully closed on a sale and leaseback of its Salt Lake City, Utah Distribution Center resulting in $18 million of cash proceeds.
• The Company repurchased 2,900,000 common shares, which is approximately 7% of its total common stock, at an average price of $16.99 per share for a total of $48.9 million.
• The Company profitably sold and transferred 133 Company-owned salons to its asset-light franchise portfolio. The impact of these transactions is as follows:

Transformational Strategy Update

The Company continued to make progress during the quarter implementing elements of its transformational strategy which includes among other initiatives:

• Accelerating the growth of the Company's asset-light franchise portfolio where it believes it will add to shareholder value and support an evolving strategy for the business
• The elimination of non-core, non-essential G&A
• Investments in technology to establish a frictionless relationship with customers, franchisees and stylists
• Additional franchisor capabilities and services
• Trend-driven merchandise offerings
• Differentiated digital advertising and the Company's MLB relationship
• Customer data and analytics
• Stylist recruiting and training

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 second quarter results today, January 29, 2019, at 9 a.m., Central time. Interested parties are invited to participate in the live webcast by logging on to www.regiscorp.com or participate via telephone by dialing (888) 208-1711 and entering access code 2197163. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 2197163.

About Regis Corporation

Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of December 31, 2018, the Company owned, franchised or held ownership interests in 8,021 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.

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 ended months ended December 31, 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 costs.
• Professional fees.
• Legal fees.
• Severance expense.
• Executive transition costs.
• Gain on life insurance proceeds.
• Goodwill derecognition.
• Impact of tax reform.
• Discontinued operations.

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 six months ended December 31, 2018, 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 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.

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.

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