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Regis Reports Fourth Quarter 2012 Results

- 4Q12 GAAP net loss of $63.6 million, or $1.11 per share -

- 4Q12 operational diluted earnings per share of $0.40, up 10.4% from $0.37 in 4Q11 -

Regis Corporation (NYSE:RGS), the global leader in the $160 billion haircare industry, today reported a fourth quarter net loss of $1.11 per share. These results include non-operational after-tax items of $89.2 million, primarily related to goodwill impairment in the Company's Regis salon division and the write-down of the equity investment in Empire Education. Excluding non-operational items, fourth quarter operational earnings increased to $0.40 per diluted share from $0.37 in the year-earlier quarter. Sales totaled $568.2 million versus $592.0 million in the 2011 fourth quarter.

"The gain in fourth quarter operational earnings amidst a negative sales trend reflects Regis' ongoing commitment to controlling costs, managing our business more efficiently and a decrease in the effective income tax rate," said Dan Hanrahan, President and Chief Executive Officer. "I have been on the job for less than three weeks and I believe there is significant opportunity to improve our performance. We are committed to improving the salon experience for our guests, hiring and retaining the best stylists, continuing our efforts to simplify our operating model and effectively leveraging our scale as North America's largest salon company."

Commenting on fiscal 2012, Hanrahan said, "Regis faced a number of challenges in the past year, but reported operational earnings per diluted share of $1.30, which was up 11.4% from fiscal 2011. We have lots of work ahead of us. The previously announced sale of non-core assets will allow us to focus on our core business."

FISCAL 2012 CONSOLIDATED FINANCIAL HIGHLIGHTS

Consolidated Highlights

  • Sales of $2,273.8 million, down 2.2% from $2,325.9 million in fiscal 2011.
  • Same-store sales declined 3.1% versus a decline of 1.7% in fiscal 2011.
  • Same-store transaction counts for our salon businesses declined 3.0% in fiscal 2012.
  • Gross margin decreased 10 basis points to 44.7% of sales from 44.8% in fiscal 2011.
  • Operational operating margins remained flat with fiscal year 2011 at 5.0% of sales.
  • Operational net income of $80.5 million increased 13.0%, from $71.2 million in fiscal 2011.
  • Operational diluted earnings per share of $1.30 increased 11.4%, from $1.16 in fiscal 2011.
  • Operational EBITDA of $220.4 million decreased 2.8%, from $226.6 million in fiscal 2011.
  • Net store base decreased by 54 units in fiscal 2012 for a total store count of 12,647 at June 30, 2012.
  • The reported income tax rate was 5.8%, which includes the impact of the non-operational charges. The operational income tax rate was 28.6%.
  • Total cash at June 30, 2012 grew to $111.9 million, an increase of $15.7 million since June 30, 2011.
  • Total debt at June 30, 2012 decreased to $287.7 million, a decline of $25.7 million since June 30, 2011.

FISCAL 2012 FOURTH QUARTER FINANCIAL HIGHLIGHTS

Consolidated Highlights

  • Sales of $568.2 million, down 4.0% from $592.0 million in the fourth quarter of fiscal 2011.
  • Same-store sales declined 3.0% versus a decline of 1.7% in the fourth quarter of fiscal 2011.
  • Same-store transaction counts for our salon businesses declined 4.0% in the fourth quarter of fiscal 2012.
  • Gross margin decreased 40 basis points to 44.6% of sales from 45.0% in the fourth quarter of fiscal 2011.
  • Operational operating margins remained flat with the fourth quarter of fiscal 2011 at 5.7% sales.
  • Operational net income of $25.6 million increased 11.8%, from $22.9 million in the fourth quarter of fiscal 2011.
  • Operational diluted earnings per share of $0.40 increased 10.4%, from $0.37 in the fourth quarter of fiscal 2011.
  • Operational EBITDA of $59.1 million decreased 4.1%, from $61.7 million in the fourth quarter of fiscal 2011.
  • Net store base decreased by 15 units in the fourth quarter for a total store count of 12,647 at June 30, 2012.
  • The reported income tax rate was 21.2%, which includes the impact of the non-operational charges. The operational income tax rate was 19.5%.

Segment Results:

North America Salons

Revenues: Fourth quarter 2012 revenues were $487.9 million, a decrease of 4.7% from the fiscal 2011 fourth quarter. Service revenues were $381.4 million, a decrease of 5.6% compared to the same period a year ago. Same-store service sales for the quarter declined 4.0%. Same-store service guest counts declined 3.6% and average ticket declined 0.4%. Retail product revenues were $96.7 million, a decrease of 1.5%. Retail product same-store sales declined 0.5%.

Service Margins: Service margin rate for the fourth quarter of fiscal 2012 was 42.5%, a decline of 10 basis points from the fourth quarter of fiscal 2011.

Retail Product Margins: Retail product margin rate for the fourth quarter of fiscal 2012 was 48.4%, a decline of 170 basis points compared to the fourth quarter of fiscal 2011. The decline in product margins was driven by a sales incentive program for stylists and higher fuel costs.

Site Operating Expense: Site operating expense was $44.4 million, or 9.1% of North American revenues, which included non-operational charges of $0.8 million related to an adjustment to self-insurance reserves. Operational site operating expense for the fourth quarter of 2012 was $0.5 million lower than the fourth quarter of 2011, coming in at $43.6 million, or 8.9% of North American revenue.

General and Administrative Expense: General and administrative expense was $28.5 million, or 5.8% of North American revenues, which included non-operational charges of $1.4 million related to our field restructuring. Operational general and administrative expense for the fourth quarter of 2012 was 20 basis points, or $2.1 million lower than the fourth quarter of 2011, coming in at $27.1 million, or 5.5% of North American revenues. Regis continued to see savings in travel expense due to implementing new portable technology for the field staff. In addition, general and administrative salaries and professional fees declined due to cost-saving initiatives.

Rent Expense: Rent expense was $72.2 million, or 14.8% of North American revenue. This represented an increase of 60 basis points over the same period a year ago, primarily the result of deleveraging due to negative same-store sales.

Depreciation and Amortization Expense: Depreciation and amortization was $16.6 million, or 3.4% of North American revenues, an increase of 10 basis points over the fourth quarter of fiscal 2011.

Operating Margins: Fourth quarter 2012 GAAP operating margin was -2.2% of North American revenues. Excluding non-operational items, operational operating margin was 12.1% of North American revenues, a decrease of 110 basis points compared to the fourth quarter of fiscal 2011.

International Salons

Revenues: Fourth quarter 2012 revenues were $41.0 million, a decrease of 3.7% from the fiscal 2011 fourth quarter. Service revenues were $30.4 million, a decrease of 2.4% compared to the same period a year ago. Same-store service sales for the quarter declined 5.2%. Retail product revenues were $10.5 million, a decrease of 7.5%. Retail product same-store sales declined 10.0%.

Service Margins: Service margin rate for the fourth quarter of fiscal 2012 was 47.3%, a decline of 130 basis points over the fourth quarter of fiscal 2011. The decline in service margin was primarily driven by lower salon productivity due to reduced sales levels.

Retail Product Margins: Retail product margin rate for the fourth quarter of fiscal 2012 was 54.1%, an improvement of 890 basis points compared to the fiscal 2011 fourth quarter. The increase in product margins resulted from a favorable book to physical count and vendor participation in special discounting to sell inventory.

Operating Margins: Fourth quarter 2012 operating margin was $1.1 million, or 2.8% of International revenues, an improvement of 110 basis points compared to the fourth quarter of fiscal 2011.

Hair Restoration Centers

Revenues: Fourth quarter 2012 revenues were $39.3 million, an increase of 4.3% from the fourth quarter of fiscal year 2011. Same-store sales for the quarter increased 4.4%.

Gross Margins: Gross margin rate for the fourth quarter of fiscal 2012 was 51.6%, a decline of 300 basis points over the fourth quarter of fiscal 2011. The decline in gross margin was primarily driven by increased hair system costs due to wage pressure in China.

Operating Margins: Fourth quarter 2012 GAAP operating margin was $4.1 million, or 10.4% of Hair Club revenues, which includes non-operational expense of $0.1 million. Operational operating margin was $4.2 million, or 10.6% of Hair Club revenues, a decrease of 40 basis points compared to the fourth quarter of fiscal 2011.

Corporate

General and Administrative Expense: Fourth quarter 2012 GAAP general and administrative expense was $33.8 million, or 6.0% of consolidated revenues, which includes non-operational charges of $6.5 million. Operational general and administrative expense for the fourth quarter of 2012 was $27.3 million, or 4.8% of consolidated revenue, a decrease of 100 basis points over the fourth quarter of 2011. The decrease in this expense category reflects the cost-saving initiatives Regis put in place to become more effective and efficient in supporting salon operations.

Income Taxes

During the three months ended June 30, 2012, the Company recognized a tax benefit of $10.5 million with a corresponding effective tax rate of 21.2% utilizing the year-to-date method. The Company's operational tax rate of 19.5% came in better than expected primarily due to the release of income tax reserves.

Equity in (Loss) Income of Affiliates

Loss from equity method investments and affiliated companies was $24.4 million in the fourth quarter of 2012, which included a non-operational impairment charge of $28.2 million related to the write-down of the Company's equity investment in Empire Education Group. Operational income from equity method investments and affiliated companies was $4.1 million, an increase of $0.7 million over the fourth quarter of 2011. The increase in this category primarily relates to increased same-store sales and lower than expected cost of goods sold in Provalliance.

Fourth Quarter Non-Operational Items

Fourth quarter non-operational items, which netted to $89.2 million on an after-tax basis, consisted of the following items:

  • Non-cash after-tax goodwill impairment of $55.2 million related to the Company's Regis salon division.
  • Non-cash after-tax impairment of $28.2 million related to the Company's investment in Empire Education Group.
  • After-tax expense of $1.8 million primarily associated with the field management restructuring.
  • After-tax expense of $1.4 million of fees related to the expected sale of the Company's investment in Hair Restoration Centers.
  • After-tax expense of $1.2 million associated with senior management restructuring and other severance costs.
  • After-tax expense of $1.1 million of deferred compensation expense associated with freezing the Company's deferred compensation plan.
  • After-tax expense of $0.6 million of prior year self insurance reserves.
  • Non-cash after-tax expense of $0.3 million related to the Company's 46.7% ownership interest in Provalliance. The expense relates to holding the investment at the purchase price of 80 million Euro.
  • After-tax benefit of $0.5 million related to the previously written-off note receivable with Pure Beauty.

A complete reconciliation of reported earnings to operational earnings is included in today's press release and is available on the Company's website at www.regiscorp.com.

On April 26, 2012 Regis announced that, effective with the first quarter of fiscal 2013, the Company will discontinue its current practice of reporting consolidated revenues and comparative same-store sales in advance of its quarterly earnings report. Revenues and same-store sales will be reported together in the quarterly earnings announcement.

Regis Corporation will host a conference call discussing fourth quarter results today, August 23, 2012, at 10 a.m., Central time. Interested parties are invited to listen by logging on to www.regiscorp.com or dialing 866-225-8754. A replay of the call will be available later that day. The replay phone number is 800-406-7325, access code 4560118#.

As of June 30, 2012, Regis Corporation owned, franchised, or held ownership interest in 12,647 worldwide locations.

About Regis Corporation

Regis Corporation (NYSE:RGS) is the beauty industry's global leader in beauty salons, hair restoration centers and cosmetology education. As of June 30, 2012, the Company owned, franchised or held ownership interests in approximately 12,600 worldwide locations. Regis' corporate and franchised locations operate under concepts such as Supercuts, Sassoon Salon, Regis Salons, MasterCuts, SmartStyle, Cost Cutters, Cool Cuts 4 Kids and Hair Club for Men and Women. In addition, Regis maintains an ownership interest in Provalliance, which operates salons primarily in Europe, under the brands of Jean Louis David, Franck Provost and Saint Algue. Regis also maintains ownership interests in Empire Education Group in the U.S. and the MY Style concepts in Japan. System-wide, these and other concepts are located in the U.S. and in over 30 other countries in North America, South America, Europe, Africa and Asia. 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. 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 impact of management and organizational changes; competition within the personal hair care industry, which remains strong, both domestically and internationally, price sensitivity; changes in economic conditions; changes in consumer tastes and fashion trends; the ability of the Company to implement its planned spending and cost reduction plan and to continue to maintain compliance with financial covenants in its credit agreements; labor and benefit costs; legal claims; risk inherent to international development (including currency fluctuations); the continued ability of the Company and its franchisees to obtain suitable locations and financing for new salon development and to maintain satisfactory relationships with landlords and other licensors with respect to existing locations; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify, acquire and integrate salons that support its growth objectives; the ability of the Company to maintain satisfactory relationships with suppliers; or other factors not listed above. The ability of the Company to meet its expected revenue target is dependent on salon acquisitions, new salon construction and same-store sales increases, all of which are affected by many of the aforementioned risks. 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, 2011. 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)

CONSOLIDATED BALANCE SHEET

as of June 30, 2012 and 2011

(In thousands, except per share data)

 
  June 30,
2012   2011
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 111,943 $ 96,263
Receivables, net 31,578 27,149
Inventories 148,441 150,804
Deferred income taxes 17,395 17,887
Income tax receivable 14,098 22,341
Other current assets   61,222   32,118
Total current assets 384,677 346,562
 
Property and equipment, net 323,060 347,811
Goodwill 536,655 680,512
Other intangibles, net 101,790 111,328
Investment in and loans to affiliates 166,176 261,140
Other assets   59,488   58,400
 
Total assets $ 1,571,846 $ 1,805,753
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Long-term debt, current portion $ 28,937 $ 32,252
Accounts payable 50,454 55,107
Accrued expenses   172,582   167,321
Total current liabilities 251,973 254,680
 
Long-term debt and capital lease obligations 258,737 281,159
Other noncurrent liabilities   171,979   237,295
Total liabilities   682,689   773,134
 
Commitments and contingencies
 
Shareholders' equity:
Common stock, $0.05 par value; issued and outstanding 57,415,241 and 57,710,811 common shares at June 30, 2012 and 2011, respectively 2,871 2,886
Additional paid-in capital 346,943 341,190
Accumulated other comprehensive income 55,114 77,946
Retained earnings   484,229   610,597
 
Total shareholders' equity   889,157   1,032,619
 
Total liabilities and shareholders' equity $ 1,571,846 $ 1,805,753
 
 

REGIS CORPORATION (NYSE: RGS)
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)

 

Three Months Ended
June 30,

Year Ended
June 30,

2012   20112012   2011
(Unaudited) (Unaudited) (Unaudited)
Revenues:
Service $ 429,502 $ 452,397 $ 1,712,703 $ 1,762,974
Product 128,325 129,415 520,467 523,194
Royalties and fees 10,341 10,173 40,609 39,701
568,168 591,985 2,273,779 2,325,869
Operating expenses:
Cost of service 246,423 258,288 985,154 1,012,868
Cost of product 62,377 61,910 249,655 249,979
Site operating expenses 49,010 47,594 198,725 197,722
General and administrative 74,564 103,545 302,572 339,857
Rent 86,517 87,552 340,805 342,286
Depreciation and amortization 25,561 25,942 118,071 105,109
Goodwill impairment 67,684 - 146,110 74,100
Total operating expenses 612,136 584,831 2,341,092 2,321,921
 
Operating (loss) income (43,968 ) 7,154 (67,313 ) 3,948
 
Other income (expense):
Interest expense (6,892 ) (8,390 ) (28,245 ) (34,388 )
Interest income and other, net 1,032 2,081 5,130 4,811
(Loss) income from continuing operations before income taxes and equity in (loss) income of affiliated companies (49,828 ) 845 (90,428 ) (25,629 )
Income taxes 10,549 (20,182 ) 5,279 9,496
Equity in (loss) income of affiliated companies, net of income taxes (24,355 ) 2,942 (30,043 ) 7,228
Loss from continuing operations $ (63,634 ) $ (16,395 ) $ (115,192 ) $ (8,905 )
 
Income from discontinued operations, net of tax - - 1,099 -
 
Net loss $ (63,634 ) $ (16,395 ) $ (114,093 ) $ (8,905 )
 
Net loss per share:
Basic:
Loss from continuing operations $ (1.11 ) $ (0.29 ) $ (2.02 ) $ (0.16 )
Income from discontinued operations, net of tax - - 0.02 -
Net loss per share, basic(1) $ (1.11 ) $ (0.29 ) $ (2.00 ) $ (0.16 )
Diluted:
Loss from continuing operations $ (1.11 ) $ (0.29 ) $ (2.02 ) $ (0.16 )
Income from discontinued operations, net of tax - - 0.02 -
Net loss per share, diluted(1) $ (1.11 ) $ (0.29 ) $ (2.00 ) $ (0.16 )
 
Weighted average common and common equivalent shares outstanding:
Basic 57,229 56,800 57,137 56,704
Diluted 57,229 56,800 57,137 56,704
 
Cash dividends declared per common share $ 0.06 $ 0.06 $ 0.24 $ 0.20
 

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

 
 

REGIS CORPORATION (NYSE: RGS)
SELECTED CASH FLOW DATA
(In thousands)

 
 

Year Ended
June 30,

2012

  2011

(Unaudited)

 
Net cash provided by operating activities $ 153,700 $ 229,178
Net cash used in investing activities

 

(90,859

)

 

(144,330

)
Net cash used in financing activities

 

(43,548

)

 

(148,431

)
Effect of exchange rate changes on cash and cash equivalents

 

(3,613

)

 

7,975

Increase (decrease) in cash and cash equivalents

 

15,680

 

(55,608

)
Cash and cash equivalents:
Beginning of year

 

96,263

 

151,871

End of year $ 111,943

$

96,263
 
 

REGIS CORPORATION (NYSE: RGS)
Salon and Hair Restoration Center Counts and Revenues

   
SYSTEM-WIDE LOCATIONS:

June 30,
2012

June 30,
2011

 
Company-owned salons 7,722 7,883
Franchise salons 2,016 1,936
Company-owned hair restoration centers 69 67
Franchise hair restoration centers 29 29
Ownership interest locations 2,811 2,786
Total, system-wide 12,647 12,701
 

SALON LOCATION SUMMARY

 
NORTH AMERICAN SALONS:

June 30,
2012

June 30,
2011

REGIS SALONS
Open at beginning of period 1,023 1,049
Salons constructed 12 12
Acquired - 9
Less relocations (9 ) (10 )
Salon openings 3 11
Conversions - (1 )
Salons closed (73 ) (36 )
Total, Regis Salons 953 1,023
 
MASTERCUTS
Open at beginning of period 588 600
Salons constructed 11 6
Acquired - -
Less relocations (9 ) (5 )
Salon openings 2 1
Conversions - 1
Salons closed (21 ) (14 )
Total, MasterCuts Salons 569 588
 
SMARTSTYLE/COST CUTTERS IN WALMART
Company-owned salons:
Open at beginning of period 2,393 2,374
Salons constructed 50 65
Acquired - -
Franchise buybacks - -
Less relocations (1 ) (1 )
Salon openings 49 64
Conversions - -
Salons closed (1 ) (45 )
Total company-owned salons 2,441 2,393
 
Franchise salons:
Open at beginning of period 120 119
Salons constructed 2 3
Acquired - -
Less relocations - -
Salon openings 2 3
Conversions - -
Franchise buybacks - -
Salons closed - (2 )
Total franchise salons 122 120
 
Total, SmartStyle/Cost Cutters in Walmart Salons 2,563 2,513
 

June 30,
2012

June 30,
2011

SUPERCUTS
Company-owned salons:
Open at beginning of period 1,158 1,100
Salons constructed 65 24
Acquired 1 -
Franchise buybacks 5 73
Less relocations (9 ) (3 )
Salon openings 62 94
Conversions 56 13
Salons closed (48 ) (49 )
Total company-owned salons 1,228 1,158
 
Franchise salons:
Open at beginning of period 987 1,034
Salons constructed 68 43
Acquired - -
Less relocations (3 ) (7 )
Salon openings 65 36
Conversions 5 10
Franchise buybacks (5 ) (73 )
Salons closed (12 ) (20 )
Total franchise salons 1,040 987
 
Total, Supercuts Salons 2,268 2,145
 
PROMENADE
Company-owned salons:
Open at beginning of period 2,321 2,382
Salons constructed 53 26
Acquired - 18
Franchise buybacks 6 5
Less relocations (10 ) (10 )
Salon openings 49 39
Conversions (56 ) (14 )
Salons sold to franchisees (7 ) -
Salons closed (174 ) (86 )
Total company-owned salons 2,133 2,321
 
Franchise salons:
Open at beginning of period 829 867
Salons constructed 40 21
Acquired (2) 31 -
Salons purchased from the Company 7 -
Less relocations (3 ) (7 )
Salon openings 75 14
Conversions (5 ) (9 )
Franchise buybacks (6 ) (5 )
Salons closed (39 ) (38 )
Total franchise salons 854 829
 
Total, Promenade Salons 2,987 3,150
 

June 30,
2012

June 30,
2011

INTERNATIONAL SALONS (1)
Company-owned salons:
Open at beginning of period 400 404
Salons constructed 18 13
Acquired 1 -
Franchise buybacks - -
Less relocations (5 ) (2 )
Salon openings 14 11
Conversions - -
Salons closed (16 ) (15 )
Total company-owned salons 398 400
   
Total franchise salons - -
 
Total, International Salons 398 400
 
TOTAL SYSTEM-WIDE SALONS:
Company-owned salons:
Open at beginning of period 7,883 7,909
Salons constructed 209 146
Acquired 2 27
Franchise buybacks 11 78
Less relocations (43 ) (31 )
Salon openings 179 220
Conversions - (1 )
Salons sold to franchisees (7 ) -
Salons closed (333 ) (245 )
Total company-owned salons 7,722 7,883
 
Franchise salons:
Open at beginning of period 1,936 2,020
Salons constructed 110 67
Acquired (2) 31 -
Salons purchased from the Company 7 -
Less relocations (6 ) (14 )
Salon openings 142 53
Conversions - 1
Franchise buybacks (11 ) (78 )
Salons sold - -
Salons closed (51 ) (60 )
Total franchise salons 2,016 1,936
 
Total Salons 9,738 9,819
 

June 30,
2012

June 30,
2011

HAIR RESTORATION CENTERS:
Company-owned hair restoration centers:
Open at beginning of period 67 62
Salons constructed 6 3
Acquired - -
Franchise buybacks - 4
Less relocations (3 ) (1 )
Salon openings 3 6
Conversions - -
Sites closed (1 ) (1 )
Total company-owned hair restoration centers 69 67
 
Franchise hair restoration centers:
Open at beginning of period 29 33
Salons constructed - -
Acquired - -
Less relocations - -
Salon openings - -
Franchise buybacks - (4 )
Sites closed - -
Total franchise hair restoration centers 29 29
 
Total Hair Restoration Centers 98 96
 
Ownership interest locations 2,811 2,786
   
Grand Total, System-wide 12,647 12,701
 
(1)   Canadian and Puerto Rican salons are included in the Regis Salons, MasterCuts, SmartStyle, Supercuts, and Promenade concepts and not included in the International salon totals.
(2) Represents the acquisition of a franchise network.
 
Relocations represent a transfer of location by the same salon concept.
Conversions represent the transfer of one salon concept to another concept.
 
 

REVENUES BY CONCEPT:

 

 

For the Periods Ended June 30,

Three Months

  Twelve Months
2012   20112012   2011
(Dollars in thousands)

(Unaudited)

(Unaudited) (Unaudited)
North American salons:
Regis $ 99,749 $ 108,227 $ 414,752 $ 434,249
MasterCuts

 

38,327

 

40,609

 

159,627

 

165,729

SmartStyle

 

125,872

 

131,820

 

514,050

 

531,090

Supercuts

 

88,432

 

84,165

 

343,764

 

321,881

Promenade

 

135,487

 

146,902

 

548,912

 

576,995

Total North American salons

 

487,867

 

511,723

 

1,981,105

 

2,029,944

 
International salons

 

40,975

 

42,567

 

141,122

 

150,237

Hair restoration centers

 

39,326

 

37,695

 

151,552

 

145,688

Consolidated revenues   568,168 $ 591,985 $ 2,273,779 $ 2,325,869
 
Percent change from prior year

 

(4.0

)%

 

0.3

%

 

(2.2

)%

 

(1.4

)%
 
Same-store sales decrease(1)

 

(3.0

)%

 

(1.7)

%

 

(3.1

)%

 

(1.7

)%
 
(1)   Same-store sales are calculated on a daily basis as the total change in sales for company-owned locations which were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date same-store sales are the sum of the same-store sales computed on a daily basis. Locations relocated within a one mile radius are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.
 
 

FINANCIAL INFORMATION BY SEGMENT:

Financial information concerning the Company's salon and hair restoration businesses is shown in the following tables.
 
For the Three Months Ended June 30, 2012 (Unaudited)
    Hair      
SalonsRestorationUnallocated
(Dollars in thousands)North America   InternationalCentersCorporateConsolidated
Revenues:
Service $ 381,431 $ 30,445 $ 17,626 $ - $ 429,502
Product 96,692 10,530 21,103 - 128,325
Royalties and fees 9,744 - 597 - 10,341
487,867 40,975 39,326 - 568,168
Operating expenses:
Cost of service 219,249 16,050 11,124 - 246,423
Cost of product 49,908 4,833 7,636 - 62,377
Site operating expenses 44,448 2,854 1,708 - 49,010
General and administrative 28,474 3,163 9,111 33,816 74,564
Rent 72,204 11,452 2,343 518 86,517
Depreciation and amortization 16,573 1,476 3,299 4,213 25,561
Goodwill impairment 67,684 - - - 67,684
Total operating expenses 498,540 39,828 35,221 38,547 612,136
 
Operating (loss) income (10,673 ) 1,147 4,105 (38,547 ) (43,968 )
 
Other income (expense):
Interest expense - - - (6,892 ) (6,892 )
Interest income and other, net - - - 1,032 1,032
(Loss) income from continuing operations before income taxes and equity in (loss) income of affiliated companies $ (10,673 ) $ 1,147 $ 4,105 $ (44,407 ) $ (49,828 )
 
 
For the Three Months Ended June 30, 2011 (Unaudited)
    Hair      
SalonsRestorationUnallocated
(Dollars in thousands)North America     InternationalCentersCorporateConsolidated
Revenues:
Service $ 403,982 $ 31,187 $ 17,228 $ - $ 452,397
Product 98,160 11,380 19,875 - 129,415
Royalties and fees   9,581   -   592   - 10,173
  511,723   42,567   37,695   - 591,985
Operating expenses:
Cost of service 232,086 16,018 10,184 - 258,288
Cost of product 48,996 6,235 6,679 - 61,910
Site operating expenses 43,552 2,825 1,217 - 47,594
General and administrative 29,147 3,504 9,676 61,218 103,545
Rent 72,830 11,844 2,352 526 87,552
Depreciation and amortization   16,761   1,433   3,451   4,297 25,942
Total operating expenses   443,372   41,859   33,559   66,041 584,831
 
Operating income (loss) 68,351 708 4,136 (66,041 ) 7,154
 
Other income (expense):
Interest expense - - - (8,390 ) (8,390 )
Interest income and other, net   -   -   -   2,081 2,081
Income (loss) from continuing operations before income taxes and equity in income of affiliated companies $ 68,351 $ 708 $ 4,136 $ (72,350 ) $ 845
 
 
For the Twelve Months Ended June 30, 2012 (Unaudited)
    Hair    
SalonsRestorationUnallocated
(Dollars in thousands)North America     InternationalCentersCorporateConsolidated
Revenues:
Service $ 1,541,491 $ 102,400 $ 68,812 $ - $ 1,712,703
Product 401,326 38,722 80,419 - 520,467
Royalties and fees   38,288   -   2,321   - 40,609
  1,981,105   141,122   151,552   - 2,273,779
Operating expenses:
Cost of service 888,777 53,684 42,693 - 985,154
Cost of product 201,625 20,010 28,020 - 249,655
Site operating expenses 182,524 9,722 6,479 - 198,725
General and administrative 113,952 12,024 36,436 140,160 302,572
Rent 292,192 37,880 9,036 1,697 340,805
Depreciation and amortization 68,983 5,297 13,101 30,690 118,071
Goodwill impairment   67,684   -   78,426   - 146,110
Total operating expenses   1,815,737   138,617   214,191   172,547 2,341,092
 
Operating income (loss) 165,368 2,505 (62,639 ) (172,547 ) (67,313 )
 
Other income (expense):
Interest expense - - - (28,245 ) (28,245 )
Interest income and other, net   -   -   -   5,130 5,130
Income (loss) from continuing operations before income taxes and equity in (loss) income of affiliated companies $ 165,368 $ 2,505 $ (62,639 ) $ (195,662 ) $ (90,428 )
 
 
For the Twelve Months Ended June 30, 2011
    Hair      
SalonsRestorationUnallocated
(Dollars in thousands)North America     InternationalCentersCorporateConsolidated
Revenues:
Service $ 1,588,690 $ 106,734 $ 67,550 $ - $ 1,762,974
Product 403,962 43,503 75,729 - 523,194
Royalties and fees   37,292   -   2,409   - 39,701
  2,029,944   150,237   145,688   - 2,325,869
Operating expenses:
Cost of service 919,526 54,213 39,129 - 1,012,868
Cost of product 201,560 23,631 24,788 - 249,979
Site operating expenses 183,552 9,852 4,318 - 197,722
General and administrative 122,281 12,630 37,038 167,908 339,857
Rent 292,479 38,423 9,227 2,157 342,286
Depreciation and amortization 69,763 4,750 12,958 17,638 105,109
Goodwill impairment   74,100   -   -   - 74,100
Total operating expenses   1,863,261   143,499   127,458   187,703 2,321,921
 
Operating income (loss) 166,683 6,738 18,230 (187,703 ) 3,948
 
Other income (expense):
Interest expense - - - (34,388 ) (34,388 )
Interest income and other, net   -   -   -   4,811 4,811
Income (loss) from continuing operations before income taxes and equity in income of affiliated companies $ 166,683 $ 6,738 $ 18,230 $ (217,280 ) $ (25,629 )
 

Non-GAAP Reconciliations
We believe our presentation of non-GAAP operating income, net income and net income per diluted share 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 business from the same perspective as management and Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors' analysis and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe that the non-GAAP measures are useful to investors because they provide supplemental information that 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 the 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, 2012 and 2011:

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.

Self-insurance reserves adjustments We have excluded the self-insurance reserves adjustments associated with our prior year reserves from our non-GAAP results. During the three and twelve months ended June 30, 2012, we incurred expense of $0.9 million. During the three and twelve months ended June 30, 2011, we incurred expense of $1.2 million.

Sales and use tax audit accrual adjustment We have excluded a sales and use tax audit accrual adjustment from our non-GAAP results. During the three and twelve months ended June 30, 2011, we recorded a benefit of $1.7 million.

Senior management restructure and severance charges We have excluded expense associated with senior management restructuring and other related severance charges from our non-GAAP results. During the three and twelve months ended June 30, 2012 and 2011, we incurred expense of $1.9 and $9.8 million and $2.4 and $4.3 million, respectively, associated with senior management restructuring and other severance charges.

Professional fees We have excluded expenses associated with the pending sale of the Hair Restoration Centers and our fiscal year 2011 contested proxy from our non-GAAP results. During the three and twelve months ended June 30, 2012, we incurred $2.2 and $4.9 million, respectively, of expense associated with the pending sale of the Hair Restoration Centers and advisory fees and other costs associated with the fiscal year 2011 contested proxy.

Field restructure and other We have excluded expenses associated with other one-time field restructuring charges from our non-GAAP results. During the three and twelve months ended June 30, 2012, we incurred expense of $2.8 million associated with our field restructuring.

Deferred compensation We have excluded expense associated with amending our deferred compensation plan from our non-GAAP results. During the three and twelve months ended June 30, 2012, we incurred expense of $1.8 million associated with amending our deferred compensation plan such that the benefits are based on years of service and the employees' compensation as of June 30, 2012.

Pure Beauty note receivable (recovery) reserve We have excluded the bad debt recovery and valuation reserve associated with the outstanding note receivable with Pure Beauty from our non-GAAP results. During the three and twelve months ended June 30, 2012, we recorded $0.8 million for the recovery of bad debt previously recorded on the outstanding note receivable with Pure Beauty. We recorded valuation reserves of $22.2 and $31.2 million, respectively, during the three and twelve months ended June 30, 2011.

Legal settlements We have excluded income and expense associated with legal settlements from our non-GAAP results. During the twelve months ended June 30, 2012 we recorded income of $1.1 million associated with a legal settlement. During the three and twelve months ended June 30, 2011, we incurred expense of $2.4 million associated with a legal settlement.

Strategic alternative costs We have excluded the fees associated with our exploration of strategic alternatives during our second quarter of fiscal year 2011 from our non-GAAP results. During the twelve months ended June 30, 2011, we incurred $1.3 million of expense related to the exploration of strategic alternatives.

Point-of-sale system accelerated depreciation We have excluded the accelerated depreciation we recorded related to our point-of-sale system from our non-GAAP results. During the twelve months ended June 30, 2012, we recorded $16.1 million in accelerated depreciation related to our point-of-sale system.

Goodwill impairment We have excluded the goodwill impairment charges we recorded related to our Hair Restoration Centers reportable segment, our Regis salon concept, and our Promenade salon concept from our non-GAAP results. The Company recorded goodwill impairment charges of $67.7 million related to our Regis salon concept during the three months ended June 30, 2012. The Company recorded goodwill impairment charges of $67.7 million and $78.4 million related to our Regis salon concept and Hair Restoration Centers' reportable segment, respectively, during the twelve months ended June 30, 2012. The Company recorded a goodwill impairment charge of $74.1 million related to our Promenade salon concept during the twelve months ended June 30, 2011.

Tax provision adjustments The non-GAAP tax provision adjustments 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.

Empire Education Group ("EEG") impairment and non-operational charges recorded by EEG We have excluded the impairment recorded on our investment in EEG and non-operational charges recorded by EEG from our non-GAAP results. The Company recorded an other than temporary impairment charge of approximately $19.4 million during the three and twelve months ended June 30, 2012 as a result of a decrease in the fair value of the Company's investment in EEG. In addition, the Company recorded an additional $8.7 million of expense primarily related to non-operational charges recorded by EEG for intangible asset impairments.

Provalliance impairment, equity put liability, and non-operational charges recorded by Provalliance We have excluded the impairment recorded on our investment in Provalliance, partially offset by the gain recorded for the reduction in the fair value of the equity put option associated with our Provalliance equity method investment and non-operational charges recorded by Provalliance from our non-GAAP results. The Company recorded an other than temporary impairment charge of approximately $0.3 and $37.4 million during the three and twelve months ended June 30, 2012, respectively, as a result of the Company entering into an agreement to sell its 46.7 percent interest in Provalliance for EUR 80 million. As a result of the expected sale, the Company recorded a gain of approximately $20.2 million during the twelve months ended June 30, 2012 for the decrease in the fair value of the equity put option associated with the Provalliance. In addition, the Company recorded an additional $0.8 million of expense primarily related to non-operational charges recorded by Provalliance. The Company recorded a gain of approximately $3.6 million during the twelve months ended June 30, 2011 for the settlement of a portion of an equity put option associated with our Provalliance equity method investment from our non-GAAP results.

MY Style impairment We have excluded the impairment recorded for our investment in MY Style from our non-GAAP results. Due to the natural disasters in Japan that occurred in March 2011, we recorded an other than temporary impairment for our investment in MY Style of $0.5 and $9.2 million, respectively, during the three and twelve months ended June 30, 2011.

Release of income tax reserve related to discontinued operations We have excluded the tax benefit for the release of income tax reserves related to our previous ownership in Trade Secret, Inc. operations from our non-GAAP results. The Company recorded income of approximately $1.1 million during the twelve months ended June 30, 2012.

Weighted average shares adjustments 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 includes the dilutive effect of common stock and convertible share equivalents.

       

REGIS CORPORATION

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

(In thousands, except per share data)

(unaudited)

             

Reconciliation of U.S. GAAP operating income and net income to equivalent non-GAAP measures

Three Months Ended
June 30,

U.S. GAAP financial line item2012   2011
U.S. GAAP revenue$568,168$591,985
 
U.S. GAAP operating (loss) income$(43,968 ) $7,154
 
Non-GAAP operating expense adjustments:
Self-insurance reserves adjustments Site operating expense 918 1,185
Sales and use tax audit accrual adjustment Site operating expense - (1,748 )
Field restructure and other General and administrative 2,807 -
Professional fees General and administrative 2,204 -
Senior management restructure General and administrative 1,866 2,393
Deferred compensation General and administrative 1,808 -
Self-insurance reserves adjustments General and administrative 22 -
Pure Beauty note receivable (recovery)/reserve General and administrative (805 ) 22,227
Legal settlements General and administrative - 2,433
Goodwill impairment Goodwill impairment 67,684 -
Total non-GAAP operating expense adjustments 76,504 26,490
Non-GAAP operating income (2)$32,536$33,644
 
U.S. GAAP net loss$(63,634 ) $(16,395 )
 
Non-GAAP net income adjustments:
Non-GAAP operating expense adjustments 76,504 26,490
Tax provision adjustments (1) Income taxes (15,759 ) 12,297
Empire Education Group impairment Equity in (loss) income of affiliated companies, net of tax 28,157 -
Provalliance impairment, equity put liability and non-operational charges recorded by Provalliance Equity in (loss) income of affiliated companies, net of tax 338 -
MY Style impairment Equity in (loss) income of affiliated companies, net of tax - 516
Total non-GAAP net income adjustments 89,240 39,303
Non-GAAP net income$25,606$22,908
 

Notes:

(1)

Based on a year-to-date tax rate analysis, the non-GAAP tax provision was calculated to be approximately 37% for the three months ended June 30, 2012 for all non-GAAP operating expense adjustments, except the goodwill impairment. The goodwill impairment had a tax benefit of approximately $12.5 million for the three months ended June 30, 2012, as the charge is only partially deductible for income tax purposes. The non-GAAP tax rate for the three months ended June 30, 2012 was 19.5%. Based on a projected statutory effective tax rate analysis, the non-GAAP tax provision was calculated to be approximately 38% for the three months ended June 30, 2011 for all non-GAAP operating expense adjustment, except the goodwill impairment. The goodwill impairment had a tax benefit of approximately $22.4 million for the three months ended June 30, 2011, as the charge is only partially deductible for income tax purposes.

(2)

Operational operating margins for the three months ended June 30, 2012, and 2011, were 5.7% for both respective periods and are calculated as non-GAAP operating income divided by U.S. GAAP revenue for each respective period.
 
 
REGIS CORPORATION
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
(In thousands, except per share data)
(unaudited)
 
Reconciliation of U.S. GAAP net income per diluted share to non-GAAP net income per diluted share
 

Three Months Ended
June 30,

2012   2011

U.S. GAAP net loss per diluted share

$(1.112 ) $(0.289 )
Self-insurance reserves adjustments (1) 0.009 0.011
Sales and use tax audit accrual adjustment (1) - (0.016 )
Field restructure and other (1) 0.026 -
Professional fees (1) 0.020 -
Senior management restructure (1) 0.017 0.022
Deferred compensation (1) 0.017 -
Pure Beauty note receivable (recovery)/reserve (1) (0.007 ) 0.201
Legal settlements (1) - 0.022
Goodwill impairment (1) 0.805 0.329
Empire Education Group impairment (1) 0.411 -
Provalliance impairment, equity put liability and non-operational charges recorded by Provalliance (1) 0.005 -
MY Style impairment (1) - 0.008
Dilutive effect under if-converted method (4) 0.213 0.078
Non-GAAP net income per diluted share (2) (3)$0.404$0.366
 
U.S. GAAP weighted average shares basic57,22956,800
U.S. GAAP weighted average shares - diluted57,22956,800
Non-GAAP weighted average shares diluted (3)68,56268,271
 

Notes:

(1)

Based on a year-to-date tax rate analysis, the non-GAAP tax provision was calculated to be approximately 37% for the three months ended June 30, 2012 for all non-GAAP operating expense adjustments, except the goodwill impairment. The goodwill impairment had a tax benefit of approximately $12.5 million for the three months ended June 30, 2012, as the charge is only partially deductible for income tax purposes. The non-GAAP tax rate for the three months ended June 30, 2012 was 19.5%. Based on a projected statutory effective tax rate analysis, the non-GAAP tax provision was calculated to be approximately 38% for the three months ended June 30, 2011 for all non-GAAP operating expense adjustment, except the goodwill impairment. The goodwill impairment had a tax benefit of approximately $22.4 million for the three months ended June 30, 2011, as the charge is only partially deductible for income tax purposes.
 

(2)

For the three months ended June 30, 2012 and 2011 non-GAAP net income per share, diluted has been calculated under the if-converted method. For the three months ended June 30, 2012 and 2011, $2.1 and $2.0 million, respectively, of after-tax interest on the convertible debt is added to the non-GAAP net income to determine the non-GAAP net income for diluted earnings per share.
 

(3)

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 and convertible share equivalents. The earnings per share impact of the adjustments for the three months ended June 30, 2012 included 0.1 million of common stock equivalents and convertible share equivalents of 11.2 million of additional shares under the if-converted method. The earnings per share impact of the adjustments for the three months ended June 30, 2011 included 0.3 million of common stock equivalents and 11.2 million of convertible share equivalents of additional shares under the if-converted method.
 
       
REGIS CORPORATION
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
(In thousands, except per share data)
(unaudited)
             
Reconciliation of U.S. GAAP operating income and net income to equivalent non-GAAP measures

Twelve Months Ended
June 30,

U.S. GAAP financial line item2012   2011
U.S. GAAP revenue$2,273,779$2,325,869
 
U.S. GAAP operating (loss) income$(67,313 ) $3,948
 
Non-GAAP operating expense adjustments:
Self-insurance reserves adjustments Site operating expense 918 1,185
Sales and use tax audit accrual adjustment Site operating expense - (1,748 )
Senior management restructure General and administrative 9,810 4,299
Professional fees General and administrative 4,920 -
Field restructure and other General and administrative 2,807 -
Deferred compensation General and administrative 1,808 -
Pure Beauty note receivable (recovery)/reserve General and administrative (805 ) 31,227
Self-insurance reserves adjustments General and administrative 22 -
Legal settlements General and administrative - 2,433
Strategic alternative costs General and administrative - 1,253
Point-of-sale accelerated depreciation Depreciation and amortization 16,149 -
Goodwill impairment Goodwill impairment 146,110 74,100
Total non-GAAP operating expense adjustments 181,739 112,749
Non-GAAP operating income (2)$114,426$116,697
 
U.S. GAAP net loss$(114,093 ) $(8,905 )
 
Non-GAAP net income adjustments:
Non-GAAP operating expense adjustments 181,739 112,749
Legal settlements Interest income and other, net (1,098 ) -
Tax provision adjustments (1) Income taxes (31,066 ) (38,167 )
Empire Education Group impairment Equity in (loss) income of affiliated companies, net of tax 28,157 -
Provalliance impairment, equity put liability and non-operational charges recorded by Provalliance Equity in (loss) income of affiliated companies, net of tax 17,927 (3,625 )
MY Style impairment Equity in (loss) income of affiliated companies, net of tax - 9,173
Release of income tax reserve related to discontinued operations Income from discontinued operations, net of tax (1,099 ) -
Total non-GAAP net income adjustments 194,560 80,130
Non-GAAP net income$80,467$71,225
 

Notes:

(1)

Based on a year-to-date tax rate analysis, the non-GAAP tax provision was calculated to be approximately 37% for the twelve months ended June 30, 2012 for all non-GAAP operating expense adjustments, except the goodwill impairment charges. The goodwill impairment charges had a tax benefit of approximately $18.4 million for the twelve months ended June 30, 2012, as the charge is only partially deductible for income tax purposes. The non-GAAP tax rate for the twelve months ended June 30, 2012 was 28.6%. Based on a projected statutory effective tax rate analysis, the non-GAAP tax provision was calculated to be approximately 38% for the twelve months ended June 30, 2011 for all non-GAAP operating expense adjustment, except the goodwill impairment. The goodwill impairment had a benefit of approximately $23.3 million for the three months ended June 30, 2011, as the charge is only partially deductible for income tax purposes.

(2)

Operational operating margins for the twelve months ended June 30, 2012, and 2011, were 5.0% for both respective periods and are calculated as non-GAAP operating income divided by U.S. GAAP revenue for each respective period.
 
 
REGIS CORPORATION
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
(In thousands, except per share data)
(unaudited)
 
Reconciliation of U.S. GAAP net income per diluted share to non-GAAP net income per diluted share
 

Twelve Months Ended
June 30,

2012   2011
U.S GAAP net (loss) income per diluted share$(1.997 ) $(0.157 )
Self-insurance reserves adjustments (1) 0.009 0.011
Sales and use tax audit accrual adjustment (1) - (0.016 )
Senior management restructure (1) 0.090 0.039
Professional fees (1) 0.045 -
Field restructure and other (1) 0.026 -
Deferred compensation (1) 0.017 -
Pure Beauty note receivable (recovery)/reserve (1) (0.007 ) 0.281
Legal settlements (1) (0.010 ) 0.022
Strategic alternative costs (1) - 0.011
Point-of-sale accelerated depreciation (1) 0.149 -
Goodwill impairment (1) 1.864 0.745
Empire Education Group impairment (1) 0.411 -
Provalliance impairment, equity put liability and non-operational charges recorded by Provalliance (1) 0.262 (0.053 )
MY Style impairment (1) - 0.134
Release of income tax reserve related to discontinued operations(1) (0.016 ) -
Dilutive effect under if-converted method (4) 0.453 0.146
Non-GAAP net income per diluted share (2) (3)$1.296$1.163
 
U.S. GAAP weighted average shares basic57,13756,704
U.S. GAAP weighted average shares - diluted57,13756,704
Non-GAAP weighted average shares diluted (3)68,52868,201
 

Notes:

(1)

Based on a year-to-date tax rate analysis, the non-GAAP tax provision was calculated to be approximately 37% for the twelve months ended June 30, 2012 for all non-GAAP operating expense adjustments, except the goodwill impairment charges. The goodwill impairment charges had a tax benefit of approximately $18.4 million for the twelve months ended June 30, 2012, as the charge is only partially deductible for income tax purposes. The non-GAAP tax rate for the twelve months ended June 30, 2012 was 28.6%. Based on a projected statutory effective tax rate analysis, the non-GAAP tax provision was calculated to be approximately 38% for the twelve months ended June 30, 2011 for all non-GAAP operating expense adjustment, except the goodwill impairment. The goodwill impairment had a benefit of approximately $23.3 million for the three months ended June 30, 2011, as the charge is only partially deductible for income tax purposes.
 

(2)

For the twelve months ended June 30, 2012 and 2011 non-GAAP net income per share, diluted has been calculated under the if-converted method. For the twelve months ended June 30, 2012 and 2011, $8.3 and $8.1 million, respectively, of after-tax interest on the convertible debt is added to the non-GAAP net income to determine the non-GAAP net income for diluted earnings per share.
 

(3)

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 and convertible share equivalents. The earnings per share impact of the adjustments for the twelve months ended June 30, 2012 included 0.2 million of common stock equivalents and convertible share equivalents of 11.2 million of additional shares under the if-converted method. The earnings per share impact of the adjustments for the twelve months ended June 30, 2011 included 0.3 million of common stock equivalents and 11.2 million of convertible share equivalents of additional shares under the if-converted method.
 
 
REGIS CORPORATION

Summary of Pre-Tax, Income Taxes, and Net Income Impact for Q4 FY12 Non-Operational Items

 

     

 Pre-Tax

 Income Taxes

 Net Income

 
Self-insurance accrual adjustments $ 940 $ (346 ) $ 594
Field restructure and other 2,807 (1,035 ) 1,772
Professional fees 2,204 (812 ) 1,392
Senior management restructure 1,866 (688 ) 1,178
Deferred compensation 1,808 (666 ) 1,142
Pure Beauty note receivable recovery (805 ) 296 (509 )
Goodwill impairment 67,684 (12,508 ) 55,176
Empire Education Group impairment and non-operational charges recorded by EEG 28,157 - 28,157
Provalliance impairment 338 - 338
Total $ 104,999 $ (15,759 ) $ 89,240
 

REGIS CORPORATION
Reconciliation of reported U.S. GAAP net loss to operational EBITDA, a non-GAAP financial measure
($ In thousands)
(unaudited)

Operational EBITDA

EBITDA represents U.S. GAAP net (loss) income for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines operational EBITDA, as EBITDA excluding equity in (loss) income of affiliated companies, and identified items impacting comparability for each respective period. For the three months ended June 30, 2012, the items impacting comparability consisted of $2.8 million of pre-tax expense associated our field restructuring, $2.2 million of pre-tax professional fees expense associated with the pending sale of the hair restoration business, $1.9 million of pre-tax expense associated with senior management restructuring and severance charges, $1.8 million pre-tax expense associated with amending our deferred compensation contracts, $0.9 million of pre-tax expense associated with prior year's self-insurance reserves adjustments, $67.7 million goodwill impairment charge related to our Regis salon concept, and $0.8 million of income associated with the recovery of bad debt on the Pure Beauty note receivable. The impact of the income tax provision adjustments associated with the above items are already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. The impact of the $28.2 million impairment and non-operational charges recorded by EEG and the $0.3 million Provalliance impairment is already included by excluding the impact of the Company's equity in (loss) income of affiliated companies, net of taxes, as reported. For the three months ended June 30, 2011, the items impacting comparability consisted $2.4 million of pre-tax expense associated with senior management restructuring and severance charges, $1.2 million of million of pre-tax expense associated with prior year's self-insurance reserves adjustments, $22.2 million of pre-tax expense associated with the Pure Beauty note receivable reserve, $2.4 million of pre-tax expense associated with a legal settlement and $1.7 million benefit for a sales and use tax audit accrual adjustment. The impact of the income tax provision adjustments associated with the above items are already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. The impact of the $0.5 million MY Style impairment is already included by excluding the impact of the Company's equity in (loss) income of affiliated companies, net of taxes, as reported.

 
  Three Months Ended
June 30, 2012   June 30, 2011
(Dollars in thousands)
Consolidated reported net loss, as reported (U.S. GAAP) $ (63,634) $ (16,395)
Interest expense, as reported 6,892 8,390
Income taxes, as reported (10,549 ) 20,182
Depreciation and amortization, as reported 25,561 25,942
EBITDA (as defined above) $ (41,730 ) $ 38,119
 
 
Equity in loss (income) of affiliated companies, net of income taxes, as reported 24,355 (2,942 )
Field restructure and other 2,807 -
Professional fees 2,204 -
Senior management restructuring and severance charges 1,866 2,392
Deferred compensation 1,808 -
Self-insurance reserve adjustments 940 1,185
Pure Beauty note receivable (recovery) reserve (805 ) 22,227
Goodwill impairment, as reported 67,684 -
Sales and use tax audit accrual adjustment - (1,748 )
Legal settlements - 2,433
Operational EBITDA, non-GAAP financial measure $ 59,129 $ 61,666
 

REGIS CORPORATION
Reconciliation of reported U.S. GAAP net loss to operational EBITDA, a non-GAAP financial measure
($ In thousands)
(unaudited)

Operational EBITDA

EBITDA represents U.S. GAAP net loss for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines operational EBITDA, as EBITDA excluding equity in (loss) income of affiliated companies, and identified items impacting comparability for each respective period. For the twelve months ended June 30, 2012, the items impacting comparability consisted of $9.8 million of pre-tax expense associated with senior management restructuring and severance charges, $4.9 million of pre-tax professional fees expense associated with the pending sale of the hair restoration business and our fiscal year 2011 contested proxy, $2.8 million of pre-tax expense associated our field restructuring, $1.8 million pre-tax expense associated with amending our deferred compensation contracts, $0.9 million of pre-tax expense associated with prior year's self-insurance reserves adjustments, $146.1 million goodwill impairment charges related to our Regis salon concept and our Hair Restoration Centers, $0.8 million of income associated with the recovery of bad debt on the Pure Beauty note receivable, $1.1 million of income associated with a legal settlement, and $1.1 million tax benefit for the release of income tax reserves related to our previous ownership in Trade Secret, Inc. operations. The impact of the income tax provision adjustments associated with the above items and the $16.1 million of accelerated depreciation related to our point-of-sale system are already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. The impact of the $28.2 million impairment and non-operational charges recorded by EEG and the net $17.9 million Provalliance impairment is already included by excluding the impact of the Company's equity in (loss) income of affiliated companies, net of taxes, as reported. For the twelve months ended June 30, 2011, the items impacting comparability consisted $4.3 million of pre-tax expense associated with senior management restructuring and severance charges, $1.2 million of million of pre-tax expense associated with prior year's self-insurance reserves adjustments, $31.2 million of pre-tax expense associated with the Pure Beauty note receivable reserve, $2.4 million of pre-tax expense associated with a legal settlement, $74.1 million goodwill impairment charge related to our Promenade salon concept, $1.7 million benefit for a sales and use tax audit accrual adjustment and $1.3 million of expense associated with our exploration of strategic alternatives. The impact of the income tax provision adjustments associated with the above items is already included in the U.S. GAAP reported net loss income to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to operational EBITDA. The impact of the $9.2 million MY Style impairment and $3.6 million gain for the settlement of a portion of the Provalliance equity put is already included by excluding the impact of the Company's equity in (loss) income of affiliated companies, net of taxes, as reported.

 
 
Twelve Months Ended
June 30, 2012   June 30, 2011
(Dollars in thousands)
Consolidated reported net loss, as reported (U.S. GAAP) $ (114,093) $ (8,905)
Interest expense, as reported 28,245 34,388
Income taxes, as reported (5,279 ) (9,496 )
Depreciation and amortization, as reported 118,071 105,109
EBITDA (as defined above) $ 26,944 $ 121,096
 
 
Equity in loss (income) of affiliated companies, net of income taxes, as reported 30,043 (7,228 )
Senior management restructuring and severance charges 9,810 4,299
Professional fees 4,920 -
Field restructure and other 2,807 -
Deferred compensation 1,808 -
Self-insurance reserve adjustments 940 1,185
Pure Beauty note receivable (recovery) reserve (805 ) 31,227
Legal settlements (1,098 ) 2,433
Goodwill impairment, as reported 146,110 74,100
Sales and use tax audit accrual adjustment - (1,748 )
Strategic alternative costs - 1,253
Release of income tax reserve related to discontinued operations (1,099 ) -
Operational EBITDA, non-GAAP financial measure $ 220,380 $ 226,617
 
 
REGIS CORPORATION'S NORTH AMERICA REPORTABLE SEGMENT
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
     
As Reported

Non-Operational
Adjustments (1)

Non-GAAP

Three
Months
Ended
June 30, 2012

 

% of
Revenues

Three
Months
Ended
June 30, 2012

   

% of
Revenues

 
Service $ 381,431 78.2 % $ - $ 381,431 78.2 %
Product 96,692 19.8 - 96,692 19.8
Royalties and fees 9,744 2.0 - 9,744 2.0
Total revenues $ 487,867 100.0 $ - $ 487,867 100.0
 
Cost of service (2) 219,249 57.5 - 219,249 57.5
Cost of product (3) 49,908 51.6 - 49,908 51.6
Site operating expenses 44,448 9.1 (839 ) 43,609 8.9
General and administrative 28,474 5.8 (1,401 ) 27,073 5.5
Rent 72,204 14.8 - 72,204 14.8
Depreciation and amortization 16,573 3.4 - 16,573 3.4
Goodwill impairment 67,684 13.9 (67,684 ) - -
Total operating expenses $ 498,540 102.2 $ (69,924 ) $ 428,616 87.9
 
Operating (loss) income $ (10,673 ) (2.2 ) $ 69,924 $ 59,251 12.1

____________________

    (1)     The three months ended June 30, 2012 included $0.8 million pre-tax expense for self-insurance reserves adjustments, $1.4 million pre-tax expense associated with our field restructuring and $67.7 million pre-tax non-cash goodwill impairment charge related to the Company's Regis salon concept.
(2) Computed as a percent of service revenues and excludes depreciation expense.
(3) Computed as a percent of product revenues and excludes depreciation expense.
 
  As Reported  

Non-Operational
Adjustments (1)

  Non-GAAP

Three
Months
Ended
June 30, 2011

   

% of
Revenues

Three
Months
Ended
June 30, 2011

   

% of
Revenues

 
Service $ 403,982 78.9 % $ - $ 403,982 78.9 %
Product 98,160 19.2 - 98,160 19.2
Royalties and fees 9,581 1.9 - 9,581 1.9
Total revenues $ 511,723 100.0 $ - $ 511,723 100.0
 
Cost of service (2) 232,086 57.4 - 232,086 57.4
Cost of product (3) 48,996 49.9 - 48,996 49.9
Site operating expenses 43,552 8.5 563 44,115 8.6
General and administrative 29,147 5.7 - 29,147 5.7
Rent 72,830 14.2 - 72,830 14.2
Depreciation and amortization 16,761 3.3 - 16,761 3.3
Goodwill impairment - - - - -
Total operating expenses $ 443,372 86.6 $ 563   443,935 86.8
 
Operating income $ 68,351 13.4 $ (563 ) $ 67,788 13.2

____________________

    (1)     The three months ended June 30, 2011 included $1.2 million pre-tax expense for self-insurance reserves adjustments and $1.7 million pre-tax benefit for a sales and use tax audit accrual adjustment.
(2) Computed as a percent of service revenues and excludes depreciation expense.
(3) Computed as a percent of product revenues and excludes depreciation expense.
 
     
REGIS CORPORATION'S HAIR RESTORATION CENTERS REPORTABLE SEGMENT
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
 
As Reported

Non-Operational
Adjustments (1)

Non-GAAP

Three
Months
Ended
June 30, 2012

   

% of
Revenues

Three
Months
Ended
June 30, 2012

   

% of
Revenues

 
Service $ 17,626 44.8 % $ - $ 17,626 44.8 %
Product 21,103 53.7 - 21,103 53.7
Royalties and fees 597 1.5 - 597 1.5
Total revenues $ 39,326 100.0 $ - $ 39,326 100.0
 
Cost of service (2) 11,124 63.1 - 11,124 63.1
Cost of product (3) 7,636 36.2 - 7,636 36.2
Site operating expenses 1,708 4.3 (78 ) 1,630 4.1
General and administrative 9,111 23.2 - 9,111 23.2
Rent 2,343 6.0 - 2,343 6.0
Depreciation and amortization 3,299 8.4 - 3,299 8.4
Goodwill impairment - - - - -
Total operating expenses $ 35,221 89.6 $ (78 ) $ 35,143 89.4
 
Operating income $ 4,105 10.4 $ 78 $ 4,183 10.6

____________________

    (1)     The three months ended June 30, 2012 included $0.1 million pre-tax expense for self-insurance reserves adjustments.
(2) Computed as a percent of service revenues and excludes depreciation expense.
(3) Computed as a percent of product revenues and excludes depreciation expense.
 
     
REGIS CORPORATION'S UNALLOCATED CORPORATE REPORTABLE SEGMENT
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
 
As Reported

Non-Operational
Adjustments (2)

Non-GAAP

Three
Months
Ended
June 30, 2012

 

% of
Revenues (1)

Three
Months
Ended
June 30, 2012

 

% of
Revenues (1)

 
Service $ - - % $ - $ - - %
Product - - - - -
Royalties and fees - - - - -
Total revenues $ - - $ - $ - -
 
Cost of service (3) - - - - -
Cost of product (4) - - - - -
Site operating expenses - - - - -
General and administrative 33,816 6.0 (6,500 ) 27,316 4.8
Rent 518 0.1 - 518 0.1
Depreciation and amortization 4,213 0.7 - 4,213 0.7
Goodwill impairment - - - - -
Total operating expenses $ 38,547 6.8 $ (6,500 ) $ 32,047 5.6
 
Operating loss $ (38,547 ) (6.8 ) $ 6,500 $ (32,047 ) (5.6 )

____________________

    (1)     Computed as a percent of consolidated revenues.
(2) The three months ended June 30, 2012 included $2.2 million pre-tax expense for professional fees primarily associated with the pending sale of the Company's Hair Restoration reportable segment, $1.9 million of pre-tax expense associated with senior management restructuring and severance charges, $1.8 million of pre-tax expense associated with amending our deferred compensation contracts, $1.4 million of pre-tax expense associated with our field restructure, and $0.8 million benefit for the recovery of bad debt on the Pure Beauty note receivable.
(3) Computed as a percent of service revenues and excludes depreciation expense.
(4) Computed as a percent of product revenues and excludes depreciation expense.
 
     
As Reported

Non-Operational
Adjustments (2)

Non-GAAP

Three
Months
Ended
June 30, 2011

 

% of
Revenues (1)

Three
Months
Ended
June 30, 2011

 

% of
Revenues (1)

 
Service $ - - % $ - $ - - %
Product - - - - -
Royalties and fees - - - - -
Total revenues $ - - $ - $ - -
 
Cost of service (3) - - - - -
Cost of product (4) - - - - -
Site operating expenses - - - - -
General and administrative 61,218 10.3 (27,053 ) 34,165 5.8
Rent 526 0.1 - 526 0.1
Depreciation and amortization 4,297 0.7 - 4,297 0.7
Goodwill impairment - - - - -
Total operating expenses $ 66,041 11.2 $ (27,053 ) $ 38,988 6.6
 
Operating loss $ (66,041 ) (11.2 ) $ 27,053 $ (38,988 ) (6.6 )

____________________

    (1)     Computed as a percent of consolidated revenues.
(2) The three months ended June 30, 2011 included $22.2 million of pre-tax expense associated with Pure Beauty note receivable reserve, $2.4 million pre-tax expense associated with legal settlements, and $2.4 million pre-tax expense related to senior management restructuring.
(3) Computed as a percent of service revenues and excludes depreciation expense.
(4) Computed as a percent of product revenues and excludes depreciation expense.
 
 
REGIS CORPORATION'S EQUITY IN (LOSS) INCOME OF AFFILIATED COMPANIES, NET OF TAXES
Reconciliation of selected U.S. GAAP to non-GAAP financial measures
($ In thousands)
(unaudited)
 
Three Months Ended
June 30, 2012   June 30, 2011
(Dollars in thousands)
Equity in (loss) income of affiliated companies, net of income taxes, as reported (U.S. GAAP) $ (24,355) $ 2,942
Empire Education Group impairment and non-operational charges recorded by EEG (1) 28,157 -
Provalliance impairment (2) 338 -
MY Style impairment (3) - 516
Operational equity in income of affiliated companies, net of income taxes, non-GAAP $ 4,140 $ 3,458

____________________

    (1)    

The Company recorded an other than temporary impairment charge of approximately $19.4 million during the three months ended June 30, 2012 as a result of a decrease in the fair value of the Company's investment in EEG. In addition, the Company recorded an additional $8.7 million of expense primarily related to non-operational charges recorded by EEG.

(2) The Company recorded an other than temporary impairment charge of approximately $0.3 million during the three months ended June 30, 2012 as a result of the Company entering into an agreement to sell its 46.7 percent interest in Provalliance for EUR 80 million.
(3) Due to the natural disasters in Japan that occurred in March 2011, we recorded an other than temporary impairment for our investment in MY Style of $0.5 million during the three months ended June 30, 2011.

REGIS CORPORATION:
Mark Fosland, 952-806-1707
SVP, Finance and Investor Relations
Andy Larew, 952-806-1425
Director, Finance-Investor Relations

Ask management a question.
Aug 23, 2012

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