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

Business Wire 30-Apr-2019 6:00 AM

The Company Recorded The Profitable Sale And Conversion Of An Additional 245 Company Owned Salons To Its Asset-Light Franchise Portfolio During The Quarter; Year-To-Date, The Company Has Profitably Sold And Converted 502 Company Owned Salons To Its Franchise Portfolio

Third Quarter EBITDA Loss Of $1.4 Million Is $6.4 Million Unfavorable Year-Over-Year Including Gains From The Sale of Salons To Franchisees And A $20.7 Million Non-Cash Restructuring Charge; Year-To-Date EBITDA Of $25.3 Million Is $43.9 Million, Or 236.4% Favorable Year-Over-Year Including Gains From The Sale Of Salons To Franchisees And A Non-Cash Restructuring Charge

Third Quarter Adjusted EBITDA Of $37.2 Million Is $18.0 Million, Or 93.7% Favorable Year-Over-Year Including Gains From The Sale Of Salons To Franchisees; Year-To-Date Adjusted EBITDA Of $82.9 Million Is $24.8 Million, Or 42.7% Favorable Year-Over-Year Including Gains From The Sale Of Salons To Franchisees

The Company Repurchased 2.1M Shares, Or Approximately 5% 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 a third quarter 2019 net loss from continuing operations of $14.8 million, or $0.37 per diluted share as compared to net income from continuing operations of $3.6 million, or $0.08 per diluted share in the third quarter of 2018. The Company's reported results include $15.9 million of non-cash goodwill derecognition associated with the sale of 245 salons to franchisees, $20.7 million of TBG mall location non-cash restructuring costs and $2.1 million of other discrete costs, partially offset by $8.5 million of related tax benefits. Excluding discrete items, and the income from discontinued operations, the Company reported third quarter 2019 as adjusted net income of $15.4 million, or $0.37 earnings per diluted share versus adjusted net income of $8.7 million, or $0.18 earnings per diluted share, for the same period last year.

Total revenue in the quarter of $258.3 million decreased $47.4 million, or 15.5%, year-over-year driven primarily by the net closure of 117 salons and the conversion of 635 company-owned salons to the Company's asset-light franchise portfolio over the past 12 months and a 250 basis point decline in company-owned same-store sales. The Company estimates that the shift of the lead up to the Easter holiday into the fourth quarter this fiscal year negatively impacted third quarter company-owned same store sales by approximately 90 basis points. In addition, prior year same-store-sales included 70 basis points of one-time discounted close-out product sales as part of the closure of 597 non-performing SmartStyle salons. Excluding the lead up to the Easter holiday shift and the one-time SmartStyle impact in the prior year, the Company estimates that company-owned same-store sales declined approximately 90 basis points during the quarter. The negative company-owned same-store sales performance was the result of a 6.1% decline in year-over-year transactions, partially offset by a 3.6% increase in ticket. These reductions were partially offset by revenue growth in the Company's Franchise segment.

Third quarter adjusted EBITDA of $37.2 million was $18.0 million, or 93.7% favorable versus the same period last year. Excluding the $27.4 million and $1.4 million gain from the sale of company-owned salons during the current and prior year quarter, respectively, adjusted EBITDA of $9.7 million was $8.0 million, or 45.2% 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 635 company-owned salons that were profitably sold and converted to the Company's asset-light franchise portfolio over the past 12 months.

On a full year basis, adjusted EBITDA of $82.9 million was $24.8 million, or 42.7% favorable versus the same period last year. Excluding the $43.9 million and $2.0 million gain from the sale of company-owned salons during the current and prior year, respectively, adjusted EBITDA of $39.0 million was $17.1 million, or 30.5% 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 635 company-owned salons that were profitably sold and converted to the Company's asset-light franchise portfolio over the past 12 months.

Hugh Sawyer, President and Chief Executive Officer, commented, "We remain focused on the ongoing transformation of our business and maximizing shareholder value. Among other items, this includes initiatives underway in technology, marketing and advertising, merchandise, data science, stylist recruiting and training, real estate and new capabilities to establish frictionless relationships with customers and franchisees. As in prior quarters, the gains generated from the sale and conversion of our company-owned salons met our financial objectives for these transactions" Mr. Sawyer added, "Given our success, we expect to consider additional opportunities to franchise company-owned salons in circumstances where we believe it will add to shareholder value and support an evolving strategy for our business."

Third Quarter Segment Results

Third quarter revenue, as adjusted, for the Company-owned salon segment decreased $48.7 million, or 18.0%, versus the prior year to $221.2 million. The year-over-year decline in revenue was driven by the decrease of 635 salons profitably sold and converted to the Company's asset-light franchise portfolio over the past 12 months, the closure of 117 unprofitable salons over the past 12 months and by a decline in Company-owned same-store sales of 2.5%. The year-over-year decline in company-owned same store sales was driven by a 6.1% decrease in transactions, partially related to the shift of the lead up to the Easter holiday into the fourth quarter this year, partially offset by a 3.6% increase in average ticket.

Third quarter adjusted EBITDA of $17.2 million decreased $11.6 million, or 40.2% versus the same period last year driven primarily by the elimination of EBITDA that had been generated in the prior year period from the 635 company-owned salons that were profitably sold and converted to the Company's asset-light franchise portfolio over the past 12 months and strategic investments in marketing and advertising, including the support of the Company's Supercuts MLB sponsorship partially offset by management initiatives.

Third quarter Franchise revenue was $37.1 million, a $3.3 million, or 9.8% increase compared to the prior year quarter. Royalties and fees were $22.8 million, a $3.9 million, or 20.8% increase versus the same period last year. Royalties and fees increased due to increased franchise salon counts. Product sales to franchisees of $14.3 million decreased $0.6 million versus the same period last year driven primarily by lower sales to TBG, partially offset by increased franchise salon counts.

Franchise adjusted EBITDA of $9.8 million improved $1.2 million, or 13.5% year-over-year primarily driven by the increase in salon counts, partially offset 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.

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 nine months ended March 31, 2018. 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 repurchased 2,100,000 common shares, which is approximately 5% of its total common stock, at an average price of $18.47 per share for a total of $37.9 million.
• The Company profitably sold and transferred 245 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:

• The appointment of Mr. James Townsend as Executive Vice President and Chief Marketing Officer
• 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 third quarter results today, April 30, 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 (800) 667-5617 and entering access code 6867095. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 6867095.

About Regis Corporation

Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of March 31, 2019, the Company owned, franchised or held ownership interests in 7,838 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.

COMPANY-OWNED SAME-STORE SALES (1):

FRANCHISE SAME-STORE SALES (2):

Non-GAAP Reconciliations

We believe our presentation of non-GAAP operating (loss) 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 nine ended months ended March 31, 2019 and 2018:

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.
• SmartStyle restructuring costs.
• Executive transition costs.
• Professional fees.
• Severance expense.
• Legal fees.
• Gain on life insurance proceeds.
• TBG restructuring.
• Debt refinancing.
• Goodwill derecognition.
• Impact of tax reform.
• TBG discontinued operations.