Regis Corporation
Q1 2019 Earnings Call Transcript

Published: 30 Oct 2018

[Operator:]

Ladies and gentlemen, thank you for standing by. Welcome to the Regis Corporation Fiscal 2019 First Quarter Earnings Call. My name is Jacob, and I will be your conference facilitator today. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available by approximately 12

[Kersten Zupfer:]

Thank you, Jacob. Good morning, everyone, and thank you all for joining us. On the call with me today, we have Hugh Sawyer, our Chief Executive Officer; Andrew Lacko, our Executive Vice President and Chief Financial Officer; Eric Bakken, President of our Franchise segment; and Amanda Rusin, our General Counsel. Before turning the call over to Hugh, there are a couple of housekeeping items to address. First, today’s earnings release and conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance and by their nature are subject to inherent risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company’s current earnings release and recent SEC filings, including our most recent 10-Q and June 30, 2018 10-K, for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call. And second, this morning’s conference call must be considered in conjunction with the earnings release we issued this morning and our previous SEC filings, including our most recent 10-K. On today’s call, we will be discussing non-GAAP as adjusted financial results that exclude the impact of certain business events and other discrete items. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons, which should not be considered superior to, as a substitute for and should be read in conjunction with the GAAP financial measures for the period. A reconciliation of these financial measures to the most directly comparable GAAP financial measures can be found in this morning’s release, which is available on our website at www.regiscorp.com/investorrelations. With that, I will now turn the call over to Hugh.

[Hugh Sawyer:]

Thank you, Kersten, and good morning, everyone, and thanks as well for your interest in Regis. We are pleased to report this quarter continued signs of progress, progress in our multiyear strategic and operational transformation. All of us remain committed to the execution of initiatives that we believe will enhance shareholder value and help us build the company we can all be proud of. During the quarter, we continued to diversify our salon portfolio with the sale of 124 company-owned salons to the high-quality franchisees. At the close of the quarter, approximately 52% of our salon portfolio was franchised, including the salons that make up the Beautiful Group, and 48% of our portfolio is company-owned salons. Although we have more work to do, company-owned salons continue to perform as evidenced by a 50 basis point improvement in year-over-year same-store sales. The financial performance of the company continues to stabilize as today’s reported results marked the sixth consecutive quarter with year-over-year growth in adjusted EBITDA. And we are establishing a foundation for our technology transformation. Our baseball analogy from our Major League Baseball sponsorship, we are in the very early innings of this work. We are cautiously optimistic that the efforts we have underway to transform the manner in which we interact with our customers and the services and capabilities we are able to offer our franchisees will yield long-term shareholder value. I would like to thank our associates and franchisees for their many contributions to our business this quarter and each one of you for your continued interest and support for Regis. I will now turn the call over to Andrew to take you through some of the details and to provide additional clarity to our numbers. Andrew?

[Andrew Lacko:]

Thanks, Hugh, and good morning. As Hugh mentioned, we are pleased to see continued evidence of progress with our transformational efforts across multiple fronts. Before getting into the details of the quarter, I’d like to show with you a quick overview on the accounting changes related to revenue recognition that you likely noticed in this morning’s earnings release. While the new revenue recognition guidelines impact how we recognize franchise fees, gift card revenue and ad funds that support our franchise operations, they do not impact the company’s cash position as all of the adjustments related to the new guidance are noncash in nature. With regards to how the new guidelines affect the P&L, the changes to gift card and ad fund accounting do not have a meaningful impact on the company’s reported operating income. However, the new treatment of franchise fee does impact reported operating income. Specifically, prior to fiscal year 2019, we recognized franchise fee revenue when the franchisee opened a new salon. Under the new guidelines, initial franchise fees – initial fees from franchisees are recognized over the life of the related franchise agreement, which is typically 10 years. In fiscal years 2018, 2017 and 2016, we recognized $8.5 million, $4.3 million and $4.5 million of revenue related to initial fees from franchisees, respectively. These amounts will now be deferred and recognized over 10 years. The new revenue recognition guidance also requires ad fund contributions from franchisees to be recognized as revenue, with a corresponding expense recorded to site operating expense. This treatment results in reversal of revenue and expense on the income statement but has no impact on operating income. The prior year financial statements provided in our press release and 10-Q have been adjusted to reflect these changes. As a result, future financial statements we issue will be comparable to the prior year results, but they will not be comparable to the financial results issued previously. To better assist you with your modeling, we have provided a quarterly pro forma P&L on our website with adjusted historical financial statements. Additionally, independent of the new revenue recognition reporting requirements, I’d like to point out that in response to the increased diversification of our salon portfolio to franchisees, we have provided additional disclosures in both our earnings press release and 10-Q related to the sale of these salons during the quarter. The additional disclosure detail provided includes

[Operator:]

Thank you, Hugh and Andrew. The question-and-answer session will begin at this time. Q -

[Hugh Sawyer:]

Since we have no questions this morning, I just want to say thanks to everyone for attending the call, and we look forward to talking to you again next quarter. Thank you.

[Operator:]

Ladies and gentlemen, this concludes our conference call for today. If you wish to access the replay for this presentation, you may do so by visiting regiscorp.com in the Investor Relations section of the website or by dialing 1-888-203-1112, access code 8520138. Thank you all for participating, and have a nice day. All parties may now disconnect.