EXHIBIT 99
CONTACTS: | ||||
Investors: | REGIS CORPORATION: | |||
Jack Nielsen – Director of Finance – Investor Relations (952) 947-7000 | ||||
Media: | BERNS COMMUNICATIONS GROUP: | |||
Melissa Jaffin (212) 994-4660 |
For Immediate Release
REGIS REPORTS FISCAL YEAR 2005 THIRD QUARTER RESULTS
-Net Loss of $16.6 Million Includes $38.3 Million Non-Cash Write-Down for Goodwill Impairment -
MINNEAPOLIS, April 27, 2005 — Regis Corporation (NYSE:RGS), the global leader in the $150 billion hair care industry, today reported financial results for its fiscal third quarter ended March 31, 2005.
Consolidated third quarter revenues increased 16 percent to a record $557 million compared to $481 million a year ago. Same-store sales increased 1.4 percent. As announced on April 13, 2005, the Company recorded a $38.3 million non-cash write-down for goodwill impairment associated with the Company’s European operations. As a result, the Company reported a third quarter net loss of $16.6 million, or $0.37 per diluted share.
“The write-down for goodwill impairment will reduce our third quarter earnings results by approximately $0.84 per diluted share,” commented Paul D. Finkelstein, chairman and chief executive officer. “These anticipated results for fiscal year 2005 are disappointing, but we have overcome challenging periods before. Specifically, in fiscal year 2001 we experienced relatively flat earnings growth. In the years that followed, we added several thousand new salons and significantly increased shareholder value.”
Mr. Finkelstein continued, “We remain the dominant player in the hair care industry with only two percent worldwide market share and significant growth opportunities. Let me assure you, we are not losing market share. Recent surveys suggest that the salon industry continues to be plagued by the long hair fashion cycle. Nevertheless, we remain highly confident in our strategy and continue to manage our business for long-term, compounded double-digit, top and bottom-line growth.”
During the quarter, Regis Corporation added a net total of 289 locations. The Company constructed 128 salons and franchisees built 62 salons. A total of 119 corporate and franchise locations were closed or relocated during the quarter. The Company acquired 273 locations, including 55 franchise buybacks and four beauty schools during the third quarter. Notable acquisitions included; 129 TGF Salons in Texas; 67 Head Start salons in Florida and Alabama; 52 Cost Cutter franchise salons in Pennsylvania and Illinois; and four beauty schools in Minnesota and Rhode Island. These acquisitions are expected to add $60 million in annualized revenue and $0.07 per diluted share of annual earnings accretion.
Revised Fourth Quarter 2005 Outlook
The following points pertain to changes in our financial outlook for the fiscal fourth quarter ending June 30, 2005:
• | Consolidated revenue is forecasted to increase 16 to 17 percent to a range of $592 million to $597 million |
• | Same-store sales are projected to increase 0.0 to 1.5 percent |
• | Earnings per diluted share are expected to increase to a range of $0.62 to $0.67 compared to $0.58 for the same period a year ago |
Revised Fiscal Year 2005 Outlook
The following points pertain to changes in our financial outlook for the fiscal year ending June 30, 2005:
• | Consolidated revenue is forecasted to grow to approximately $2.2 billion, an increase of 14 percent |
• | Consolidated same-store sales are projected to increase approximately one percent |
• | Earnings per diluted share are expected to be in a range of $1.38 to $1.43 versus $2.26 in fiscal year 2004 |
Fiscal Year 2006 Outlook
“As we have done in the past, we are providing our initial forecast for the upcoming fiscal year in conjunction with our third quarter press release,” commented Randy L. Pearce, executive vice president and chief financial officer. “We remind investors that our forecast excludes revenue and earnings from future acquisitions. While acquisitions are a key component of our overall growth strategy, uncertainty as to the size and timing of future acquisitions make it difficult to forecast the benefits we may realize in fiscal year 2006. In the upcoming year, we anticipate spending up to $100 million for acquisitions.”
Mr. Pearce continued, “Our initial outlook for fiscal year 2006 calls for earnings per diluted share to be $2.42, assuming a one percent same-store sales increase. Excluding the fiscal year 2005 write-off for goodwill impairment, this represents an earnings per share increase of seven to nine percent. While we are optimistic that our recent price increases could provide upside potential to our fiscal year 2006 same-store sales and earnings per share expectations, it is premature to include this in our initial outlook. However, as we experience the impact of the price increases on our business, we will update our guidance as necessary.”
This forecast excludes revenue and earnings from future acquisitions. The following points pertain to the fiscal year ending June 30, 2006:
• | Earnings are forecasted to be $2.42 per diluted share, assuming a share count of 46.5 million shares. This forecast includes an incremental $0.035 per diluted share associated with the expensing of stock options |
• | Consolidated revenue is forecasted to grow to $2.42 billion, an increase of 10 percent |
• | Consolidated same-store sales are projected to increase one percent |
• | Service margins are forecasted to increase to the mid-43 percent range of service revenue |
• | Product margins are forecasted to increase to the mid-49 percent range of product revenue |
• | Site operating expenses are forecasted to be in the low-to-mid eight percent range of consolidated revenue |
• | General and administrative expenses are forecasted to be in the 12 percent range of consolidated revenue |
• | Rent expense is forecasted to be in the low 14 percent range of consolidated revenue |
• | Depreciation and amortization is forecasted to be in the low four percent range of consolidated revenue |
• | Operating income is forecasted to be in the mid-eight percent range of consolidated revenue |
• | Interest expense is forecasted to be $33 million to $34 million |
• | Effective income tax rate is forecasted to be in the low 35 percent range |
• | We plan to build 550 to 600 new corporate salons and we anticipate franchisees to build nearly 300 franchised salons, excluding salon closures |
• | We anticipate spending up to $100 million for acquisitions |
• | Net of salon closures, relocations and franchise buybacks, we anticipate adding over 1,000 salons |
• | Capital expenditures, excluding acquisitions, are projected to be $100 million to $115 million, which includes $35 to $40 million for salon maintenance |
• | Total debt as of June 30, 2006 is expected to be approximately $600 million, including acquisition expenditures, with debt-to-capitalization expected to improve to just over 40 percent |
On April 27, 2005, the Company will host a conference call discussing third quarter results at 10:00 a.m., Central Time. Interested parties are invited to listen by logging on towww.regiscorp.com.
Regis Corporation (RGS) is the beauty industry’s global leader in salons, hair restoration centers and education. As of March 31, 2005, the Company owned or franchised 10,698 beauty salons, 90 hair restoration centers and 19 beauty schools operating under concepts such as Supercuts, Jean Louis David, Vidal Sassoon, Regis Salons, MasterCuts, Trade Secret, SmartStyle, Cost Cutters and Hair Club for Men and Women. These and other concepts are located in the US and in ten other countries throughout North America and Europe. For additional information about the Company, including management’s current financial outlook and a reconciliation of non-GAAP financial information, please visit the Investor Information section of the corporate website atwww.regiscorp.com.
This press release contains “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 competition within the personal hair care industry, which remains strong, both domestically and
internationally, and price sensitivity; changes in economic condition; changes in consumer tastes and fashion trends; 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 for new salon development; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify and acquire salons and beauty schools that support its growth objectives; or other factors not listed above. The ability of the Company to meet its expected revenue growth is dependent on salon and beauty school 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 onForm 10-K for the year ended June 30, 2004 and included inForm S-3 Registration Statement filed with the Securities and Exchange Commission on June 4, 2004. 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.
(TABLES TO FOLLOW)
REGIS CORPORATION (NYSE:RGS)
CONSOLIDATED BALANCE SHEET (Unaudited)
as of March 31, 2005 and June 30, 2004
(Dollars in thousands, except per share amounts)
March 31, | June 30, | |||||||
2005 | 2004 | |||||||
(as restated, | ||||||||
see Note 3) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 108,364 | $ | 73,567 | ||||
Receivables, net | 46,576 | 35,033 | ||||||
Inventories | 180,342 | 161,304 | ||||||
Deferred income taxes | 17,230 | 15,285 | ||||||
Other current assets | 29,443 | 28,210 | ||||||
Total current assets | 381,955 | 313,399 | ||||||
Property and equipment, net | 424,972 | 381,903 | ||||||
Goodwill | 630,394 | 457,140 | ||||||
Other intangibles, net | 210,285 | 79,174 | ||||||
Other assets | 53,522 | 40,200 | ||||||
Total assets | $ | 1,701,128 | $ | 1,271,816 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Long-term debt, current portion | $ | 18,944 | $ | 19,128 | ||||
Accounts payable | 68,713 | 53,112 | ||||||
Accrued expenses | 172,813 | 129,721 | ||||||
Total current liabilities | 260,470 | 201,961 | ||||||
Long-term debt | 523,402 | 282,015 | ||||||
Other noncurrent liabilities | 171,597 | 105,820 | ||||||
Total liabilities | 955,469 | 589,796 | ||||||
Shareholders’ equity: | ||||||||
Preferred stock, authorized 250,000 shares at December 31, 2004 and June 30, 2004 | ||||||||
Common stock, $.05 par value; issued and outstanding, 44,972,886 and 44,283,949 common shares at March 31, 2005 and June 30, 2004, respectively | 2,249 | 2,214 | ||||||
Additional paid-in capital | 237,463 | 220,204 | ||||||
Accumulated other comprehensive income | 55,729 | 40,615 | ||||||
Retained earnings | 450,218 | 418,987 | ||||||
Total shareholders’ equity | 745,659 | 682,020 | ||||||
Total liabilities and shareholders’ equity | $ | 1,701,128 | $ | 1,271,816 | ||||
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REGIS CORPORATION (NYSE:RGS)
CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
(Dollars in thousands, except per share amounts)
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(as restated, | (as restated, | |||||||||||||||
see Note 3) | see Note 3) | |||||||||||||||
Revenues: | ||||||||||||||||
Service | $ | 368,681 | $ | 318,297 | $ | 1,065,263 | $ | 927,879 | ||||||||
Product | 168,684 | 144,681 | 477,052 | 431,783 | ||||||||||||
Royalties and fees | 19,899 | 18,395 | 58,503 | 54,884 | ||||||||||||
557,264 | 481,373 | 1,600,818 | 1,414,546 | |||||||||||||
Operating expenses: | ||||||||||||||||
Cost of service | 211,907 | 181,799 | 608,097 | 523,652 | ||||||||||||
Cost of product | 87,116 | 75,462 | 249,092 | 226,677 | ||||||||||||
Site operating expenses | 46,267 | 41,981 | 134,319 | 119,682 | ||||||||||||
General and administrative | 68,827 | 53,179 | 190,633 | 161,052 | ||||||||||||
Goodwill impairment | 38,319 | — | 38,319 | — | ||||||||||||
Rent | 78,578 | 66,776 | 226,203 | 195,396 | ||||||||||||
Depreciation and amortization | 24,904 | 18,564 | 65,464 | 54,863 | ||||||||||||
Total operating expenses | 555,918 | 437,761 | 1,512,127 | 1,281,322 | ||||||||||||
Operating income | 1,346 | 43,612 | 88,691 | 133,224 | ||||||||||||
Other income (expense): | ||||||||||||||||
Interest | (7,027 | ) | (4,824 | ) | (16,802 | ) | (13,043 | ) | ||||||||
Other, net | 467 | 452 | 2,168 | 1,123 | ||||||||||||
(Loss) Income before income taxes | (5,214 | ) | 39,240 | 74,057 | 121,304 | |||||||||||
Income taxes | (11,336 | ) | (13,997 | ) | (38,931 | ) | (43,876 | ) | ||||||||
Net (loss) income | $ | (16,550 | ) | $ | 25,243 | $ | 35,126 | $ | 77,428 | |||||||
Net (loss) income per share: | ||||||||||||||||
Basic | $ | (0.37 | ) | $ | 0.57 | $ | 0.79 | $ | 1.76 | |||||||
Diluted | $ | (0.37 | ) | $ | 0.54 | $ | 0.76 | $ | 1.68 | |||||||
Weighted average common and common equivalent shares outstanding: | ||||||||||||||||
Basic | 44,770 | 44,241 | 44,538 | 43,920 | ||||||||||||
Diluted | 44,770 | 46,367 | 46,393 | 46,036 | ||||||||||||
Cash dividends declared per common share | $ | 0.04 | $ | 0.04 | $ | 0.12 | $ | 0.10 | ||||||||
A historical model of Regis Corporation’s quarterly results in this format is available in the Investor Information section of the corporate website atwww.regiscorp.com. Click on “Financial Reports”.
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REGIS CORPORATION (NYSE:RGS)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Nine Months Ended March 31, | ||||||||
2005 | 2004 | |||||||
(as restated, | ||||||||
see Note 3) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 35,126 | $ | 77,428 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation | 60,109 | 52,729 | ||||||
Amortization | 5,355 | 2,574 | ||||||
Deferred income taxes | (2,237 | ) | 5,163 | |||||
Goodwill impairment | 38,319 | — | ||||||
Other | 778 | 1,773 | ||||||
Changes in operating assets and liabilities*: | ||||||||
Receivables | (4,011 | ) | (626 | ) | ||||
Inventories | (14,325 | ) | (832 | ) | ||||
Other current assets | 581 | (2,125 | ) | |||||
Other assets | (4,912 | ) | (2,347 | ) | ||||
Accounts payable | 11,792 | 3,690 | ||||||
Accrued expenses | 29,637 | 16,688 | ||||||
Other noncurrent liabilities | 15,209 | 7,860 | ||||||
Net cash provided by operating activities | 171,421 | 161,975 | ||||||
Cash flows from investing activities: | ||||||||
Capital expenditures | (70,874 | ) | (52,356 | ) | ||||
Proceeds from sale of assets | 705 | 81 | ||||||
Business and salon acquisitions, net of cash acquired | (303,551 | ) | (52,494 | ) | ||||
Net cash used in investing activities | (373,720 | ) | (104,769 | ) | ||||
Cash flows from financing activities: | ||||||||
Borrowings on revolving credit facilities | 2,504,190 | 396,975 | ||||||
Payments on revolving credit facilities | (2,351,755 | ) | (407,950 | ) | ||||
Proceeds from issuance of long-term debt | 100,755 | 12,196 | ||||||
Repayments of long-term debt | (18,763 | ) | (22,685 | ) | ||||
Other, primarily increase (decrease) in negative book cash balances | 734 | (8,897 | ) | |||||
Dividends paid | (5,346 | ) | (4,400 | ) | ||||
Repurchase of common stock | (11,482 | ) | (8,200 | ) | ||||
Proceeds from issuance of common stock | 14,714 | 14,746 | ||||||
Net cash provided by (used in) financing activities | 233,047 | (28,215 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | 4,049 | 2,906 | ||||||
Increase in cash and cash equivalents | 34,797 | 31,897 | ||||||
Cash and cash equivalents: | ||||||||
Beginning of period | 73,567 | 55,454 | ||||||
End of period | $ | 108,364 | $ | 87,351 | ||||
* Changes in operating assets and liabilities do not include assets and liabilities assumed through acquisitions.
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REGIS CORPORATION (NYSE:RGS)
Salon / School/ Hair Restoration Center Counts and Revenues
March 31, | June 30, | |||||||
2005 | 2004 | |||||||
SYSTEM-WIDE LOCATIONS: | ||||||||
Company-owned salons | 6,818 | 6,227 | ||||||
Franchise salons | 3,880 | 3,924 | ||||||
Beauty career schools | 19 | 11 | ||||||
Company-owned hair restoration centers | 41 | — | ||||||
Franchise hair restoration centers | 49 | — | ||||||
10,807 | 10,162 | |||||||
SALON LOCATION SUMMARY
March 31, | June 30, | |||||||
2005 | 2004 | |||||||
NORTH AMERICAN SALONS: | ||||||||
REGIS SALONS | ||||||||
Open at beginning of period | 1,085 | 1,095 | ||||||
Salons constructed | 35 | 33 | ||||||
Acquired | — | 4 | ||||||
Less relocations | 14 | 10 | ||||||
Salon openings | 21 | 27 | ||||||
Conversions | (1 | ) | (2 | ) | ||||
Salons closed | (21 | ) | (35 | ) | ||||
Total, Regis Salons | 1,084 | 1,085 | ||||||
MASTERCUTS | ||||||||
Open at beginning of period | 604 | 590 | ||||||
Salons constructed | 30 | 34 | ||||||
Acquired | — | 3 | ||||||
Less relocations | 9 | 9 | ||||||
Salon openings | 21 | 28 | ||||||
Conversions | 1 | 1 | ||||||
Salons closed | (3 | ) | (15 | ) | ||||
Total, Mastercuts | 623 | 604 | ||||||
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March 31, | June 30, | |||||||
2005 | 2004 | |||||||
TRADE SECRET | ||||||||
Company-owned salons: | ||||||||
Open at beginning of period | 549 | 517 | ||||||
Salons constructed | 44 | 26 | ||||||
Acquired | 7 | 12 | ||||||
Franchise buybacks | — | 2 | ||||||
Less relocations | 12 | 5 | ||||||
Salon openings | 39 | 35 | ||||||
Conversions | — | 1 | ||||||
Salons closed | (12 | ) | (4 | ) | ||||
Total company-owned salons | 576 | 549 | ||||||
Franchise salons: | ||||||||
Open at beginning of period | 24 | 25 | ||||||
Salons constructed | — | 1 | ||||||
Acquired | — | — | ||||||
Salon openings | — | 1 | ||||||
Franchise buybacks | — | (2 | ) | |||||
Salons closed | — | — | ||||||
Total franchise salons | 24 | 24 | ||||||
Total, Trade Secret | 600 | 573 | ||||||
SMARTSTYLE/COST CUTTERS IN WAL-MART | ||||||||
Company-owned salons: | ||||||||
Open at beginning of period | 1,263 | 1,033 | ||||||
Salons constructed | 127 | 174 | ||||||
Acquired | — | — | ||||||
Franchise buybacks | 37 | 61 | ||||||
Less relocations | 1 | — | ||||||
Salon openings | 163 | 235 | ||||||
Conversions | — | — | ||||||
Salons closed | (2 | ) | (5 | ) | ||||
Total company-owned salons | 1,424 | 1,263 | ||||||
Franchise salons: | ||||||||
Open at beginning of period | 201 | 230 | ||||||
Salons constructed | 19 | 33 | ||||||
Acquired | — | — | ||||||
Less relocations | — | — | ||||||
Salon openings | 19 | 33 | ||||||
Conversions | — | — | ||||||
Franchise buybacks | (37 | ) | (61 | ) | ||||
Salons closed | — | (1 | ) | |||||
Total franchise salons | 183 | 201 | ||||||
Total, SmartStyle/Cost Cutters in Wal-Mart | 1,607 | 1,464 | ||||||
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March 31, | June 30, | |||||||
2005 | 2004 | |||||||
STRIP CENTERS | ||||||||
Company-owned salons: | ||||||||
Open at beginning of period | 2,310 | 1,928 | ||||||
Salons constructed | 119 | 166 | ||||||
Acquired | 251 | 162 | ||||||
Franchise buybacks | 85 | 133 | ||||||
Less relocations | 18 | 8 | ||||||
Salon openings | 437 | 453 | ||||||
Conversions | (3 | ) | (8 | ) | ||||
Salons closed | (54 | ) | (63 | ) | ||||
Total company-owned salons | 2,690 | 2,310 | ||||||
Franchise salons: | ||||||||
Open at beginning of period | 2,105 | 2,172 | ||||||
Salons constructed | 111 | 146 | ||||||
Acquired (2) | 7 | — | ||||||
Less relocations | 12 | 10 | ||||||
Salon openings | 106 | 136 | ||||||
Conversions | 4 | 8 | ||||||
Franchise buybacks | (85 | ) | (133 | ) | ||||
Salons closed | (46 | ) | (78 | ) | ||||
Total franchise salons | 2,084 | 2,105 | ||||||
Total, Strip Centers | 4,774 | 4,415 | ||||||
INTERNATIONAL SALONS (1) | ||||||||
Company-owned salons: | ||||||||
Open at beginning of period | 416 | 395 | ||||||
Salons constructed | 18 | 19 | ||||||
Acquired | 16 | 18 | ||||||
Franchise buybacks | — | 10 | ||||||
Salon openings | 34 | 47 | ||||||
Conversions | (1 | ) | — | |||||
Salons closed | (28 | ) | (26 | ) | ||||
Total company-owned salons | 421 | 416 | ||||||
Franchise salons: | ||||||||
Open at beginning of period | 1,594 | 1,627 | ||||||
Salons constructed | 73 | 88 | ||||||
Acquired (2) | — | — | ||||||
Salon openings | 73 | 88 | ||||||
Conversions | — | — | ||||||
Franchise buybacks | — | (10 | ) | |||||
Salons closed | (78 | ) | (111 | ) | ||||
Total franchise salons | 1,589 | 1,594 | ||||||
Total international salons | 2,010 | 2,010 | ||||||
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March 31, | June 30, | |||||||
2005 | 2004 | |||||||
TOTAL SYSTEM-WIDE LOCATIONS | ||||||||
Company-owned salons: | ||||||||
Open at beginning of period | 6,227 | 5,558 | ||||||
Salons constructed | 373 | 452 | ||||||
Acquired | 274 | 199 | ||||||
Franchise buybacks | 122 | 206 | ||||||
Less relocations | 54 | 32 | ||||||
Salon openings | 715 | 825 | ||||||
Conversions | (4 | ) | (8 | ) | ||||
Salons closed | (120 | ) | (148 | ) | ||||
Total company-owned salons | 6,818 | 6,227 | ||||||
Franchise salons: | ||||||||
Open at beginning of period | 3,924 | 4,054 | ||||||
Salons constructed | 203 | 268 | ||||||
Acquired (2) | 7 | — | ||||||
Less relocations | 12 | 10 | ||||||
Salon openings | 198 | 258 | ||||||
Conversions | 4 | 8 | ||||||
Franchise buybacks | (122 | ) | (206 | ) | ||||
Salons closed | (124 | ) | (190 | ) | ||||
Total franchise salons | 3,880 | 3,924 | ||||||
Beauty career schools: | ||||||||
Open at beginning of period | 11 | 5 | ||||||
Acquired | 8 | 6 | ||||||
Site openings | 8 | 6 | ||||||
Total beauty career schools | 19 | 11 | ||||||
Company-owned hair restoration centers: | ||||||||
Acquired | 42 | — | ||||||
Site openings | 42 | — | ||||||
Sites closed | (1 | ) | — | |||||
Total company-owned hair restoration centers | 41 | — | ||||||
Franchise hair restoration centers: | ||||||||
Acquired | 49 | — | ||||||
Site openings | 49 | — | ||||||
Total franchise hair restoration centers | 49 | — | ||||||
Grand total, system-wide | 10,807 | 10,162 | ||||||
(1) | Canadian and Puerto Rican salons are included in the Regis Salons, Strip Center, MasterCuts and Trade Secret concepts and not included in the International salon totals. |
(2) | Represents primarily the acquisition of franchise networks. |
Relocations represent a transfer of location by the same salon concept.
Conversions represent the transfer of one salon concept to another concept.
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NOTE 1. REVENUES BY CONCEPT:
For the Periods Ended March 31, | ||||||||||||||||
Three Months | Nine Months | |||||||||||||||
(Dollars in thousands) | 2005 | 2004 | 2005 | 2004 | ||||||||||||
Revenues: | ||||||||||||||||
North American salons: | ||||||||||||||||
Regis Salons | $ | 120,947 | $ | 120,867 | $ | 361,456 | $ | 357,553 | ||||||||
MasterCuts | 41,841 | 43,630 | 125,348 | 130,847 | ||||||||||||
Trade Secret* | 59,666 | 58,867 | 190,259 | 182,858 | ||||||||||||
SmartStyle | 89,906 | 77,344 | 254,419 | 215,755 | ||||||||||||
Strip Center Salons* | 155,550 | 127,220 | 450,173 | 376,385 | ||||||||||||
Total North American Salons | 467,910 | 427,928 | 1,381,655 | 1,263,398 | ||||||||||||
International salons* | 54,257 | 49,581 | 161,592 | 140,534 | ||||||||||||
Beauty schools | 10,158 | 3,864 | 24,246 | 10,614 | ||||||||||||
Hair restoration centers* | 24,939 | — | 33,325 | — | ||||||||||||
Consolidated revenues | $ | 557,264 | $ | 481,373 | $ | 1,600,818 | $ | 1,414,546 | ||||||||
Percent change from prior year | 15.8 | % | 14.0 | % | 13.2 | % | 14.4 | % |
* | Includes aggregate franchise royalties and fees of $19.9 and $18.4 million for the three months ended March 31, 2005 and 2004, respectively, and $58.5 and $54.9 million for the nine months ended March 31, 2005 and 2004, respectively. North American franchise revenues (including franchise revenues hair restoration centers) represented 54.9 and 55.7 percent of total franchise revenues in the three months ended March 31, 2005 and 2004, respectively, and 54.2 and 56.6 percent of total franchise revenues in the nine months ended March 31, 2005 and 2004, respectively. |
NOTE 2. FINANCIAL INFORMATION BY SEGMENT:
Financial information concerning the Company’s salon, school and hair restoration businesses is shown in the following tables. A historical model of Regis Corporation’s quarterly results in this format is available in the Investor Information section of the corporate website atwww.regiscorp.com. Click on “Financial Reports”.
For the Three Months Ended March 31, 2005 | ||||||||||||||||||||||||
Salons | Beauty | Hair Restoration | Unallocated | |||||||||||||||||||||
(Dollars in thousands) | North America | International | Schools | Centers | Corporate | Consolidated | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Service | $ | 319,176 | $ | 32,383 | $ | 9,486 | $ | 7,636 | $ | — | $ | 368,681 | ||||||||||||
Product | 138,936 | 12,903 | 672 | 16,173 | — | 168,684 | ||||||||||||||||||
Royalties and fees | 9,798 | 8,971 | — | 1,130 | — | 19,899 | ||||||||||||||||||
467,910 | 54,257 | 10,158 | 24,939 | — | 557,264 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of service | 185,724 | 17,963 | 3,396 | 4,824 | — | 211,907 | ||||||||||||||||||
Cost of product | 73,663 | 8,225 | 491 | 4,737 | — | 87,116 | ||||||||||||||||||
Site operating expenses | 41,539 | 2,380 | 912 | 1,436 | — | 46,267 | ||||||||||||||||||
General and administrative | 25,176 | 10,851 | 1,484 | 5,019 | 26,297 | 68,827 | ||||||||||||||||||
Goodwill impairment | — | 38,319 | — | — | — | 38,319 | ||||||||||||||||||
Rent | 66,267 | 10,085 | 761 | 1,298 | 167 | 78,578 | ||||||||||||||||||
Depreciation and amortization | 17,608 | 2,072 | 360 | 2,172 | 2,692 | 24,904 | ||||||||||||||||||
Total operating expenses | 409,977 | 89,895 | 7,404 | 19,486 | 29,156 | 555,918 | ||||||||||||||||||
Operating income (loss) | 57,933 | (35,638 | ) | 2,754 | 5,453 | (29,156 | ) | 1,346 | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest | — | — | — | — | (7,027 | ) | (7,027 | ) | ||||||||||||||||
Other, net | — | — | — | — | 467 | 467 | ||||||||||||||||||
Income (loss) before income taxes | $ | 57,933 | $ | (35,638 | ) | $ | 2,754 | $ | 5,453 | $ | (35,716 | ) | $ | (5,214 | ) | |||||||||
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For the Three Months Ended March 31, 2004 (as restated, see Note 3) | ||||||||||||||||||||||||
Salons | Beauty | Hair Restoration | Unallocated | |||||||||||||||||||||
(Dollars in thousands) | North America | International | Schools | Centers | Corporate | Consolidated | ||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Service | $ | 284,529 | $ | 30,122 | $ | 3,646 | $ | — | $ | — | $ | 318,297 | ||||||||||||
Product | 133,157 | 11,306 | 218 | — | — | 144,681 | ||||||||||||||||||
Royalties and fees | 10,242 | 8,153 | — | — | — | 18,395 | ||||||||||||||||||
427,928 | 49,581 | 3,864 | — | — | 481,373 | |||||||||||||||||||
Operating expenses: | ||||||||||||||||||||||||
Cost of service | 164,707 | 15,996 | 1,096 | — | — | 181,799 | ||||||||||||||||||
Cost of product | 67,961 | 7,374 | 127 | — | — | 75,462 | ||||||||||||||||||
Site operating expenses | 39,756 | 2,010 | 215 | — | — | 41,981 | ||||||||||||||||||
General and administrative | 22,185 | 9,736 | 356 | — | 20,902 | 53,179 | ||||||||||||||||||
Rent | 57,242 | 9,123 | 284 | — | 127 | 66,776 | ||||||||||||||||||
Depreciation and amortization | 14,664 | 1,652 | 94 | — | 2,154 | 18,564 | ||||||||||||||||||
Total operating expenses | 366,515 | 45,891 | 2,172 | — | 23,183 | 437,761 | ||||||||||||||||||
Operating income | 61,413 | 3,690 | 1,692 | — | (23,183 | ) | 43,612 | |||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||
Interest | — | — | — | — | (4,824 | ) | (4,824 | ) | ||||||||||||||||
Other, net | — | — | — | — | 452 | 452 | ||||||||||||||||||
Income before income taxes | $ | 61,413 | $ | 3,690 | $ | 1,692 | $ | — | $ | (27,555 | ) | $ | 39,240 | |||||||||||
NOTE 3. RESTATEMENT OF FINANCIAL STATEMENTS:
In light of recent restatements by other public companies related to lease accounting practices, the Company’s management performed a review of its lease accounting practices. As a result of such review, the Company will correct the manner in which it accounts for rent holiday peri ods associated with its operating leases. On April 13, 2005, the Company’s management and its Audit Committee determined that the Company’s previously issued financial statements, including those in the Company’s 2004 Annual Report on Form 10-K for the fiscal year ended June 30, 2004 and those in the Company’s Quarterly Reports on Form 10-Q for the quarters ended September 30, 2004 and December 31, 2004 should no longer be relied upon. The Company’s management has discussed its lease accounting practices for rent holiday periods with its independent registered public accounting firm.
Typically, the Company’s operating leases do not require rental payments to begin until the salon is opened. The leased space is made available to the Company prior to the commencement of salon operations in order to allow time for installing normal leasehold improvements and equipment necessary to operate a salon. The Company historically began to recognize rental expense on a straight-line basis at the earlier of the commencement of operations or the commencement of rental payments. A rent holiday is considered to be any period where the lessee has the right to control the use of the leased property but no rental payments are required under the lease during that period. FASB Technical Bulletin (FTB) 85-3,Accounting for Operating Leases with Scheduled Rent Increases, requires that rent holiday periods in an operating lease should be recognized by the lessee on a straight-line basis over the lease term, which includes any rent holiday period. Previously, the Company has not included the rent holiday period in its straight-line rent calculation. Therefore, the Company is restating its financial statements to appropriately account for rent holiday periods.
As a result of the above, the Company has restated its consolidated balance sheet as of June 30, 2004, and its consolidated statements of operations and cash flows for the three and nine months ended March 31, 2004. The restatement did not have any effect on the Company’s previously reported cash flow from operations or revenues. The Company is currently evaluating the effect of the lease accounting changes with respect to its internal control over financial reporting in order to determine whether a material weakness currently exists or existed in prior reporting periods.
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Following is a summary of the effects of the accounting corrections on the Company’s consolidated statements of operations for the three and nine months ended March 31, 2004 (in thousands, except share data):
Consolidated Statement of Operations | ||||||||||||||||||||||||
For the Periods Ended March 31, 2004 | ||||||||||||||||||||||||
Three Months | Nine Months | |||||||||||||||||||||||
As Previously | As | As Previously | As | |||||||||||||||||||||
Reported | Adjustment | Restated | Reported | Adjustment | Restated | |||||||||||||||||||
Rent | $ | 66,394 | $ | 382 | $ | 66,776 | $ | 194,212 | $ | 1,184 | $ | 195,396 | ||||||||||||
Operating income | 43,994 | (382 | ) | 43,612 | 134,408 | (1,184 | ) | 133,224 | ||||||||||||||||
Net income | 25,554 | (311 | ) | 25,243 | 78,174 | (746 | ) | 77,428 | ||||||||||||||||
Net income per share — basic | $ | 0.58 | $ | (0.01 | ) | $ | 0.57 | $ | 1.78 | $ | (0.02 | ) | $ | 1.76 | ||||||||||
Net income per share — diluted | $ | 0.55 | $ | (0.01 | ) | $ | 0.54 | $ | 1.70 | $ | (0.02 | ) | $ | 1.68 |
Following is a summary of the effects of the lease accounting corrections on the Company’s consolidated balance sheet as of June 30, 2004 (in thousands):
Consolidated Balance Sheet | ||||||||||||
As of June 30, 2004 | ||||||||||||
As Previously | As | |||||||||||
Reported | Adjustment | Restated | ||||||||||
Total assets | $ | 1,271,859 | $ | (43 | ) | $ | 1,271,816 | |||||
Total liabilities | 584,298 | 5,498 | 589,796 | |||||||||
Total shareholders’ equity | 687,561 | (5,541 | ) | 682,020 |
NOTE 4. GOODWILL IMPAIRMENT:
On April 13, 2005, in connection with the Company’s annual review of goodwill impairment, the Company and the Audit Committee concluded that a pre-tax, non-cash goodwill impairment charge for its European business would be recorded in the Company’s fiscal third quarter. After completing the testing, analysis and review of the forecast and valuation of the affected entity with its independent third-party valuation specialist, the Company finalized the exact amount of the impairment and recorded an expense of $38.3 million. This non-cash impairment charge does not impact the Company’s ability to generate cash flow in the future or its compliance with its debt covenants, nor are such charges tax deductible.
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