RGS - Earnings call transcript Q2 2021

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Regis Corporation Second Quarter Fiscal Year 2021 Earnings Call. My name is Mary, and I will be your conference facilitator today. [Operator Instructions].

As a reminder, this call is being recorded for playback and will be available approximately 12:00 p.m. today. Time Central hand Finance. now over Biz to I the AVP, McShane, will conference Please go ahead.

Biz Murphy

everyone, for Good thank and morning, you joining us.

On have Felipe General Counsel. Kersten me Portfolio Brands; today Chief President Rusin, Executive with Financial Officer; our Amanda Lain, Chief Zupfer, the Executive our of Jim Vice and Athayde, call our Officer; we

X-K to found to included documents Before can measures our the to These with over With the along remind comments Relations, Felipe. with call I today's earnings in over will on reconciliations the be to the on financial our on non-GAAP the call apply I that language Felipe, website, GAAP measures. everyone filings turn release that, made on www.regiscorp.com/Investor and turn of our corresponding call forward-looking I statements any now mentioned call also would today. like

Felipe Athayde

about Biz. Thank which And pandemic of strength represents in year to XXXX Good thank us. X-month our are X joining at and X very my about confident QX why you, important recovery confident of you our results, the business, first focus the me like remain of on we're and our the our fiscal of the of brands. effects I tenure first morning, we would the Allow evident after business for to topics. months while Regis. cover

of typical and Customers salon is and which daily U.S. permanently impacting less Outside reorganization, our factors visiting corporate proprietary of Pro. hair incumbent using salon is confidence Consumer during heart solid than level disruption more concern chance than at home a closures, indeed mall, such service. ride working a salon that a coronavirus drivers when refranchising a According corporate to the fact December recent the our or our socializing the Sentiment is of give other At rather and Our are services. are for more, release our Americans staying visiting potential the hair the people and business main our both restaurants, to desire not to the their survey, salon the a salon around McKinsey's shopping from category way to activities habits. our of demand of you people's zero-based your the the comeback and the has process, restrictions haircuts services. retail booth, In in technology of of POS down budgeting government-imposed of sharing dining as OpenSalon hotel the are management in haircut to that few applied be home. at the willing is cannot get or receive online support, and progress

believe day we get better care daily Our as and wanting hair X When among as We're [indiscernible] slowed been market have XX list. resume, be routines points. anywhere been on less priorities goers salon top back are in people's teams to example, holding they a used such visiting customers are quickly. and to between their can comps where Florida, states hair are often, as every and continue year, for will reopened. An stylists to sales by products surveys of correcting be color or salons have and color down hair salon out cannot reopen the services research have throughout our do-it-yourself and home offices most that confident replaced at hair roll replicated

is strong first In with in supporting important economics. of on mentioned a economic that higher cost-effective unit business be a value during brand-led focus my brands earnings hope an provide the make strength salons. their company and times my believe alternative we priced a to franchisees I call, focus Regis's Regis will Lastly, to uncertain on will that

brand, their X Each with independent our our groups brand Supercuts, created innovation As brands well a teams. a costs. our largest Walmart-based growth portfolio corporate these slower are SmartStyle, through brand, main One representing went one dedicated early by December, that for president a of reorganization three and we third, for of and entities. core led

Before In other agnostics. salons, brands. was of was executive the into franco was broken individual for managing opco accountable down with franchise the Regis relations. and reorganization, managing group was words, working brand No our one specific while other any

our we President profitability. brands, respective Moving for performance We're leading, will ways and also actually in with fundamental forward, their our an to process each franchisees change accountability enormous and our update will partners changing our months. stance few wanted to franchise from create time. this to metrics underway nurturing brand individual for which growing over also a been strategies, which zero-based brand the have on has We shareholders engage value I including with past brands. the believe passive/reactive full you provide budgeting and

led organizational Anheuser-Busch as our our an more zero-based companies we're As business. that for years [indiscernible] we're ZBB with products with internationally. during the capability will as need fully we have working I a is based of brand designing worked words, such mentioned consultant restaurant [indiscernible] component [indiscernible] brands from ground design. centric November entire The external main and a structure other for In up franchised process organizational many the on the call, who who personally and and I

the without items, sets right organization inefficiencies mix. would had the by as right consultants a work places accountable goals to being of and have the right doing Let organization our support [indiscernible] approach zero-based the an lot or first our process franchise the in goals for Historically, facilities, adjust franchise in and result me [indiscernible] nonvalue-added activities. example. people job the right resulting to description held thus consultants a The achieved processes. our establishing their use has franchise reactive work accordingly, and be the [indiscernible] processes This

completed. action not will identify we to the opportunities taking we ZBB than the we're in later until for QX, exercise Although waiting complete entire rather process as be

a international executive refranchising corporate our also spent now the have as banker. remaining in years X salons, investment an former a our leadership brands is that to Moving progress at JPMorgan restaurant process who on of under

the comes will of in purchaser of until in engage our to We corporate a an transaction. served and when brokers of transition of median approach buyers be Up salons profile have via made X-salon a the now, salons. would important the it network change our

Although which would to our entry working or portfolios them some consolidate either like of salon well coming new systems, which with match our of we're still and closely provide current to larger to prospects of them outside are with they territories in points organically. territories these that contiguous their grow are into many with capitalized franchisees from

our light pipeline buyers with portfolios XXX than market very current involve see their conditions current to vaccine the acceleration a salons prospective more opportunity an representing in business, of in attractive of in rollouts. Some transactions especially grow who individual as

want I some Pro. of management OpenSalon to our system, and salon Finally, progress share our on proprietary POS

salons towards We developing checkout. digital increasingly automate and to to that generation payments demand technologies manages to journey at look customer continue forward from the corporate bookings

past to X-wall Our of contribute goal will we variety believe that features in a the advanced release was the profitability quarter strongly [indiscernible]. to

from so example, the our the we that forms, product for automatically without aligned capability sales to are merchandising shipments [indiscernible] particular also manual a upon uploaded inventories better have loaders creates system have our be auto manual that released As can the our need our fully delivery work OSP which we location. unprotected of into integrated with with removing Through creating work salons. both merchandising, orders and an

With now these OSP more a place, we move of will capabilities rollout with into in salons. schedule forward aggressive our

follow. which OSP, about today, rest X,XXX of more for than with As contracts salons migration we live, with to the the signed of XXX are have of

beauty of the competitor are OpenSalon provide calendar capabilities. is software wreak havoc. wellness companies of begin substantial this December, our amounts and as the so leverage into brands working the process of closely in Regis watched we mandating opportunities market new We a technological service which and can of we Over growing family to course all OSP for will the the formidable year, X these our solutions Back industry, a beyond Pro brands. believe services

direction. initiative, Officer, move support you in will that to we're our you I choose very And Zupfer. to over For call. strategic this to Financial should it exploring on much. process appreciate the now this help being partnerships Kersten I Thank Chief we turn

Kersten Zupfer

open and December morning. currently and and quarter available afternoon, Yesterday one-off This Ontario coupled million result all in basis, to into is the to California, most for relaxed, primarily amount government of since California have mandating of January. locations, decrease a COVID-XX certain a Felipe, result closures represented California with revenues business. transition be Canada, XX% an model, which of we as restrictions small reported, and good are second for the of decrease on the pandemic. salons areas experienced natural prior levels, the lower primarily year. a consolidated of $XXX you, Thank the franchise traffic asset-light from

currently quarter on year. Monday, mostly by regarding We been an pandemic operating closed, has salons as and our fiscal have the the are February We the during reported million the Canada it of approximately by an of XXX $XX disruptions Xth. quarter, economic expecting we salons the driven these caused reopening loss in of update prior since last

was been have period and same year optimization and from Second unfavorable of EBITDA generated last and to company-owned million pressure with sold decline the portfolio had the the the sale the gain labor on the to million net been driven contributed year and $XX EBITDA. adjusted XXX quarter related primarily of the over quarter planned converted months. prior the to salons the past consolidated million the in $XX by associated of salons adjusted EBITDA that second in in franchise period the decrease was of company-owned $XX loss Rapid elimination declines XX the that also

$XX with operating in segment-specific traffic time, to same entirely million same store offset on and our decreased $X The versus primarily Franchise million is the which cooperative of the related $X second and advertising in impact quarter spend. store last year. sales no performance a has and sight million with fees were COVID-XX. decline year-over-year of segment, to due decline expense decline quarter impacted was advertising same in The income. XX.X%, franchise unfavorable Looking associated at and franchise sales operating royalties royalties cooperative majority XX% decreased starting or the

franchises, our franchisees the As royalty Offsetting also in contributed decline driven store these I of declines and traffic. the year-over-year our portfolio. primarily to now to Product same significantly mentioned million growth in represents earlier, government-mandated temporary revenue. XX% more decreased million, decline by in closures, $XX sales to in $X California with which the segment Canada,

$XX driven bad million debt franchise decline of the expense partially offset quarter as the and pandemic royalties a a in by noted, associated of $X COVID-XX EBITDA previously million quarter. year-over-year, activity the Second as declined adjusted approximately reduced in result by

segment. company-owned the salon at now Looking

with along the X revenue the was decrease past company-owned primary prior of quarter the million, The decrease decrease bucketed were of of the $XX X,XXX Second year-over-year versus over months can a be The company-owned XX% categories. XX or drivers year. in COVID-XX, into salons of million decline. impact salons $XX

company-owned salons XX the of during course to First, our the months, were platform conversion asset-light past XXX XXX of quarter. which the over of sold franchise the

XXX months, course salons of underperforming company-owned salons [indiscernible] over which of profitability. closure approximately a dilutive the were our last most the to Second, and XX of that

had the Second into quarter was period the company-owned the over XX by a the the unfavorable that $XX and franchise year to million. were platform past sold variance the company of the converted months. prior driven year-over-year segment year-over-year salon loss adjusted million total from been adjusted that salons generated Consistent EBITDA company-owned with elimination $XX consolidated results, EBITDA of primarily the decreased in

the the it adjusted decreased noncash decline is EBITDA million net to future conversion sale a million driven $XX noncore of [indiscernible] initiatives by of questions year second gains, and by million G&A. about net to eliminate of nonessential company-owned and G&A overhead, We've in prior of As partially the number excluding $XX been the from $XX to in the impact corporate expense. quarter salons, recognition offset relates management primarily receiving state

we QX take very bottoms-up to some in budgeting will detailed a complete. ZBB is This mentioned, time Felipe initiated that process. a approach As or zero-based

and process, G&A track during on and quarter ZBB able to XXXX. organization interstate of or are our both be We expect visibility ZBO to to we first provide fiscal strong year the with zero-based

However, me action. clarify, immediate as have let identified we we savings, have taken

and competitive future around was engaged a organization. as multiple process initiated This we including savings firms, November immediately our that resulted franchised process as in example, in took December. the action incumbent. proposal we in from audit PWC process state Thornton a centered The proposal fully For Grant on early

cash the flow overall our to now continue liquidity sheet, to balance and Turning position. positive we maintain

million the capacity includes As of our have liquidity believe prospectus months. cash. have position cash sales and available for partnership OpenSalon we and supplement to registration of opportunities December growth note, aftermarket proprietary the under the we sell $XXX if of best In things offer. facilitate based additional second used million working company million to repay on adequate this capital filed time. may acquisitions current of the $XX.X program, from alternatives investment have technology, Pro. To done through forecast, market strategies other industry least SEC, any, revolver with related we shares Yesterday, for potential we capabilities. common potential targeted of of we at requirements, business. our shelf and million. and among fund our Net liquidity shares under operating the of a expansion the proceeds to growth XXst, strategies and offer throughout our and to liquidity used continued This technology the positioning quarter, include $XX not of $XX requirements stock so may we Please support XX be at capital and may debt next which the and our we of knowledge fund Such

I higher of a second usage calendar anticipated As used earlier last in cash quarter management call, strategies the the to we in due our in year. mentioned cash

franchise unprofitable $XX used and on This fiscal leases. year bonuses, XXXX quarter, executive vendor we and premiums payments pay to catch pay million to certain and terminate year the for up rent,

significantly. as in still relates have to year the half in that assuming do we fiscal levels rent second We the used calendar As continue use to half not traffic pay improve second cash earlier we related cash it some year. to of year, the in to expect the projected of [indiscernible], the fiscal

the be in use as approach QX. to half strategy We will intentional expect registered market to salons moving with this to consistent bundles with which positioning salons sequentially quarter, approach. the a a salons franchisees. each our a retail quarter. with used cash transition commissioned wholesale new second was process, of cash X we less XXX beginning we the franchisees and This our from median Since reviewed was We of improving XXX Under franchisee. approach, were the per approximately larger existing wholesale for

goal their pleased in with remains are fully fiscal We the current lease with the remaining being terms. by closed our orderly be pipeline, fashion year, salons to of end any and over remaining the franchised company-owned

of on it other portfolio, only salons through makes will work salons we earnings As portfolios. have year-to-date, we to we expect cannot company-owned orders In be to to XXX XXX their do towards fourth XXX so. before to the lease remaining to company-owned with low economic bundled if XXX end our leases that if prior would close sense close communicated company-owned salons. we be company-owned form sellable date certain or quarter salons and the XXX closed such remaining Fiscal And end the release, we we appropriately range. believe

on our by Approximately the to liabilities both our balance is lease corporate guaranteed locations. franchisees. and liability for sheet, our balance and by that XX% $XXX million remind represent want franchise serviced sheet the you I personally On of

the term for the Additionally, committed liability that the on leases, balance sheet the and lease for our one Supercut SmartStyle salons, overstates includes period current has which option of the plus to. Regis payments rent payments

step [indiscernible] the be To less Excluding approximately the salons. only exposure total company-owned $XXX the is further, lease on is it or lease $XXX million million, take approximately liability of on than which period, $XXX sheet. balance would the the million million our $XX option XX% our one

no as by the longer Regis's is you'll the leases estate model, million being quarter, Approximately real in a strategy fully liability. For to our franchised tenants we agreements. move discussion related directly of a where on franchise primary lease allowed last note to reduction $XX

and thought wrapping is on of seeing a related specifically I The health Before we up, the our and I of top terms. the would business, franchisees traffic franchisees health spend few minutes are with our mind. of business ongoing what

where step possible every taking expenses are help possible. We mitigate to

First at is and ability operate reopen and full capacity. to most important the

that closures are still the capacity both to stylists restrictions traffic business work the children now as restrictions, their mandated impacted are and fact are lifting, While on is some from pandemic school. return levels the by to struggling

inherent cost Regis are franchise mitigate measures includes and well that impact. as on as performance adjust for structures, as model the have there and However, many model components taken the sales funds such business SmartStyle to The to business advertising brand. franchisees the variable certain rent the fluctuating royalties, primarily

assist the hours reduced Regis adopted labor most traffic. control our that assist advertising labor certain cash the reduced a to While temporarily fund franchisees, questions higher with to we rates to expenses of timing brands and to adapt by payment deferred revenue. this have our of are in royalty percentage We've business collections many of also reduced of as not controllable do We've used largely franchisees has with time. brands our requirements during also franchisees in operation marketing brands about modifications models spend.

building also to small the U.S. to in protocols and of developed marketing and quickly terms focused the beyond for in to franchisees closure safely our support. internally strong get listing we note addition easier support our all we franchisees information business navigating Additionally, Paycheck resource online both an process updates real-time our the where retrieve Protection new This process e-mail regarding franchisees as procedures. both Program to franchisees well can supported out detailed by communication center easy and and franchisees any mandates. easily internally it important quickly overviews in as that make Canadian QTC, up-to-date, includes COVID franchise It's are efforts of and to that's of directly recommended find, [indiscernible] a to our actively [indiscernible] our have providing

some the our portfolio the quarter, capacity. the in on salons second half were contract of XX% the to in of Moving Throughout trends first open business. in

traffic the operation the the first in still was average volume quarter reduced, steady. hours of was holding half of While

However, in faced couple half of the challenges. of the back business a the quarter,

and and due mandated and not First, social in California as primarily closures, gatherings reflected we reported The as were reflected business salon also is was closed. salons our holiday travel traffic which reported comps. reduced by family experienced impacted Canada, decreased weak to comps the in in

As now This end system XX% of the improved XXst, open. to the XX% has of approximately of was January. at December

late is in below stores January back revolving pre-pandemic levels, had While for months. summer levels, still are open we the traffic average to similar well those volumes seen

some recognize for of While trends. that second a been we historical is indication of quarter positive pandemic, halted this has the the seasonality

Additionally, mandated most your continued California and to interest mentioned and support earlier, I now volumes in continue our improve as we Regis. thank for I turn you been of And back will lifted the the operator. in that plans. call the would closures remain like have I to optimistic to restructuring will

Operator

We Champine question of our Instructions]. from can Loop now [Operator Capital. Laura take first

Laura Champine

that on many have the of selling you I you Kersten, It's is off that reliant the of the trajectory financing those How for conversions remaining plan for identified the locations. say the done conversions, have a the how prior schedule. Is buyer? still on company-owned on of heard, that many franchisees? to mostly

Kersten Zupfer

Laura. question, the for Thanks

As in pipeline to pipeline, at the the the point. it locations relates XX% stage we remaining of have about various some this of

Felipe Athayde

from and largest concern transaction growth. throughout had went, portfolios the Felipe future a that who which in Look, our we salon of ability can to then the when quarter to the organic new average the the already was franchisees consolidate a it here. So this allow comes having grow to X and acquire in get want portfolios to them in change from towards right? to steering Laura, robust they Kersten's direction more faster point, to system an process, past process refranchising main we

we the of of terms the So about of of pipeline, pipeline on size. north salons some deals opco XX% of for these on the Kersten's about transactions are the some point to portfolio, XXX have deals their in

hair franchisees incoming I who So operated also of I new the mean to broader growing, sure retail make people the other about more have right moves through. well, ability a less blood as right? the and about bringing have salons want we're system. or think us process slightly to franchisee it's wanting different that the brands bring transition So finance we in into type franchise outside in and of as to

Operator

next our Wissink from can now Stephanie Jefferies. We of take question

Stephanie Wissink

first follow-up could. two questions, have We if Kersten, for is we one the you.

a liabilities, where lease. you thank Help think just lease come you if salon may on to and franchisee for was off you And of master towards the minor direct and more that, be comments where that us landlord might to Can development secondly, we have hard a responsibility detail. of through still you, transitioned OpenSalon to and Pro. responsibility? merchandising, the product in Just some is up franchise this tenant the bring those for bit of then you on could rolling speed Felipe, it to little back are all maybe master rollout some help of you one the roles your on us the the on hear

many interest on could a you be support the the are there, and of DESIGNLINE go to and things those some salons the the or to talk the inventory systemizing How of lastly, and some rollout your just of key have Thank merchandising us then are services, remind for that. partners? actively where flow could test uptake of you Blossom, initial Maybe franchise you. some some in If bit that using planned more maybe you would in of merchandising, feedback and Pro, if areas you the back OpenSalon of great. just about salon And it?

Kersten Zupfer

Thanks, the Steph. Thanks for question.

the renewal. able relationship leases landlord. to allows I being lease Which being communication as the franchisee. relates that in the agreements So of our having and as as to Regis come as allow we executing happening the is them franchise that us, the leases it's lease their Corporation, said, and that flexibility name lease strategy are we're for change for, for more liability, with of making on in Like conversion up on renewal from negotiate that come terms the being it up in to and way leases

Felipe Athayde

here. Felipe

of little on the OSP. progress a bit So

the by past that fully an into algorithmic per non-value-added to of of this hours upload salon give launch the automate example, automated. automatically on is our manual to salons, So would the functionalities right? is quarter merchandising, that focus in merchandise ordered you some capability some have So a activities to So management taken was Still now system, month a replenishment. salon is that that many a have this the right? process now ability we

basically, franchisee system So looks order the specific places of in has an the salon ability to that AI into sales the then there's that ideal that in edit as they please.

wanted we over to improve that that make Pro we those have more would So sure that would before labor eliminating we pushed franchise by broadly OpenSalon just capabilities time nonproductive drastically hours. profitability

OSP manual important X,XXX OSP. are of instead One the this franchise be automation of can at contracts, XXX, profitability have system few Remember, committed by to weeks of which and in to just a point, live. the we that of installing it my buckets and is, when north So to point, work. comes automated months, X,XXX there's just activities salons the XXX, few next about

Our leverage ability to transactional level data.

that right? but if the an now So that cost from the and OpenSalon its we're much we've third-party these potential perspective. the have it's we brands here. can some can our tastes on had, going So it well, can all brands, can gather push on we're want single portfolio, be for of around more based incrementality merchandising X much So be all local has test by will the vary side, DESIGNLINE to only will but vary end as sort X, optimize also the individual us check. And from It for very traffic drive to and at understand to the example, It's label not for brands to So place but better a salon perspective, that. OpenSalon cost consumer all have and Fab capabilities days, point your to of will a capabilities demographics, behavior program in hence, the ability to our about and us right? and of traffic brands will loyalty it on our and are recently from loyalty, of a based lastly, able And we brand will launched Pro, early only consumer brand-specific private the especially standard top allow our And granularity and of optimistic transactions, now And better to look drive you not Blossom, year, the intelligence announce live, of cutters and aggressively. Pro in still that about brand saving for future mandate. right? more we our going powered platform. loyalty system-wide will become very through you

Stephanie Wissink

OpenSalon? that the the investment as fully an That's cover great. What's One to the covering look an Kersten, With annual where very comments stair-step quite follow-up maybe, term, of on in annual OpenSalon is of salons based towards front look terms but the on you, that on for several next like this best was here quarters on high. the over you end Pro. getting are And X,XXX you on basis? near investment potentially cost in out around the a cost pathway in system basis

Kersten Zupfer

continue of to invested we the as Pro. look OpenSalon we've question. has good outside that what incurred. within as to that Pro But of of amount we haven't to Yes, and Corporation been our OpenSalon out roll Unfortunately, actual Regis then out, investment majority in Corporation, Regis we disclosed roll locations in the OpenSalon even in, Pro here

with revenue EBITDA. drops Pro stream stream, net associated monthly to revenue of So down that majority going forward, the OpenSalon the

Operator

This now call. concludes the the of portion turn will I Q&A conference Felipe. back to

Felipe Athayde

to audio of from you the apologize have few on that progress. you, very there a website for look everyone. day. side. few issues technological webcast I on your QX to forward our been Thank have the heard obviously, And post, our Mary. I We're so and a Thank to a all I updating great and of in Regis, Thank you you, you interest much continued soon. going

Operator

call. concludes your for today's This participation. you Thank

disconnect. You may now

Regis (RGS) 5 Feb 212021 Q2 Earnings call transcript