Regis Company (NASDAQ:RGS) Q2 2024 Earnings Convention Name January 31, 2024 8:30 AM ET
Firm Contributors
Biz McShane – VP, Company Controller
Matthew Physician – President and CEO
Kersten Zupfer – EVP and CFO
Convention Name Contributors
Biz McShane
Good morning, and thanks for becoming a member of the Regis Second Quarter Fiscal 2024 Earnings Convention Name. I am your host Biz McShane, Vice President, Company Controller.
All individuals are in listen-only mode. The ready remarks by our President and Chief Govt Officer, Matthew Physician and Govt Vice President and Chief Monetary Officer, Kersten Zupfer are accompanied by slides to assist individuals observe alongside. As a reminder, this convention is being recorded.
I want to remind everybody that the language on forward-looking statements included in our earnings launch, and 8-Ok submitting additionally apply to our feedback made on the decision immediately. These paperwork together with their presentation immediately could be discovered on our web site, www.regiscorp.com/investorrelations, together with reconciliation of any non-GAAP monetary measures talked about on immediately’s name with their corresponding GAAP measures.
At present’s slides are positioned within the investor shows and supplemental monetary statements part of the investor website.
With that, I’ll now flip the decision over to Matt.
Matthew Physician
Thanks, Biz. And good morning, everybody. On immediately’s name, I’ll focus on our Q2 fiscal 2024 outcomes and share my observations concerning the progress now we have made to stabilize Regis over the previous 2 years in addition to our ongoing work to reaccelerate progress and drive worth for all of our stakeholders.
Leaping proper into our outcomes for the quarter and first half of the yr. Identical-store gross sales rose 1.9% within the quarter and 1.8% year-to-date. Now whereas we ended the quarter 1.9% above final yr, we noticed a development in comparable gross sales all through the quarter with October being a bit more difficult coming in roughly flat year-over-year. Effectively, within the month of December, we had been up 4.5% versus December of 2022.
And from a gross sales perspective, we’re seeing notable disparity between our prime and backside quartile salons, and that is actually driving the general gross sales comp. We’re actually seeing some vivid spots in these prime quartile salons throughout all of our manufacturers as they’ve collectively demonstrated roughly 6% same-store gross sales for the quarter with constructive site visitors comps.
Adjusted Q2 EBITDA on a consolidated foundation was $6 million in comparison with $7.8 million within the prior yr’s quarter. A part of that hole between this quarter and Q2 fiscal 2023 is because of the onetime $1.1 million acquired from the state of North Carolina, with the remaining as a consequence of our decrease salon depend driving decrease revenues and timing of bills. For the primary half of fiscal 2024, our adjusted EBITDA of $13.5 million is a $1.8 million enchancment versus the primary half fiscal 2023 adjusted EBITDA of $11.7 million.
We reported working revenue of $4.8 million within the quarter versus $700,000 in Q2 fiscal ’23. This can be a $4.1 million enchancment. Working revenue for the primary half has improved by $9 million versus the prior yr at $12.2 million versus $3.2 million through the first half of fiscal 2023.
We ended Q2 with whole liquidity of $38 million. Kersten will go into the small print referring to our liquidity and money used which continues to enhance year-over-year on a normalized foundation. We challenge our money use to say no within the second half of the yr, assuming no dramatic adjustments to our enterprise. Moreover, our $2 million indemnity fee from Zenoti that we acknowledged from an accounting perspective in December ended up coming in as money to start with of January.
We proceed to see closures from a salon depend perspective, albeit at a decrease price than final yr with 148 web franchisee closures within the first half of fiscal 2024 versus 210 within the first half of fiscal 2023. The disparity in efficiency amongst salons I discussed earlier is predicted to proceed, and we anticipate to proceed to see salon counts lower within the quick to medium time period as a consequence of this as lease finish dates come up, particularly because the efforts required to considerably transfer the needle on these salons takes time away from the extra viable salons which are higher positioned with stronger fundamentals.
These salons, as I discussed, the highest quartile efficiency throughout our system averaged roughly $440,000 in gross sales volumes, and these salons are up 6% in gross sales year-over-year for the quarter, and they’re the robust contributors to our and our franchisees’ profitability. There will probably be continued focus transferring ahead on optimizing the footprint now we have and driving extra out of a smaller, a lot robust base.
And after I assume again to 2 years in the past, after I grew to become CEO, we confronted a tough scenario the place there was an pressing have to take motion to rebuild the muse of the corporate. Our profitability, money stream profile, upcoming debt maturity, noncore enterprise strains, franchisee assist processes, G&A, quite a few organizational changes and a quickly altering business panorama had been all issues we wanted to deal with and wanted to deal with rapidly.
Now the precedence was to make sure the soundness and longevity of this firm. And over the course of final 2 years this has actually been our main focus. And as we consider the scenario immediately, now we have made important progress in stabilizing the enterprise and growing the corporate’s profitability.
Nevertheless, work stays to be executed. Our comp gross sales are on a decrease base of salons as a consequence of these closures of underperformers, and our money is being deployed primarily to service the curiosity expense on our debt.
Now because the Board continues to judge strategic options for Regis, I imagine we’re at a key inflection level and have an enormous alternative to additional advance our manufacturers and our enterprise. As we glance forward and assess the place we’re immediately, the next 6 areas are what we imagine will actually set Regis up for long-term sustainable progress.
Now initially, we have to deal with our capital construction, which is the aim of our beforehand introduced strategic options course of. Bettering our steadiness sheet is vital for us to have the ability to function our enterprise as a franchise or from a place of energy. Now at the moment, given our monetary place, this requires a balancing act, as we should use our restricted sources, each to make sure that we keep in debt [ph] complaints and drive the enterprise ahead.
And if we are able to deal with our steadiness sheet challenges, it is going to additionally give us the flexibility to develop and deploy a capital allocation technique that maximizes the worth of our belongings and generates larger returns for our stakeholders. Our strategic assessment is aimed toward this vital part of Regis’ future, and we can have an replace on this course of sooner or later.
Now our subsequent main space of focus is bettering the shopper expertise throughout all of our manufacturers. It has grow to be clear to us by means of information, buyer suggestions and salon visits {that a} return to fundamentals and an intense deal with the shopper expertise is vital. Now everyone knows that there isn’t any substitute for high quality haircuts and a very good buyer expertise and now could be the time to return to being extra intentional in our and our franchisees strategy.
We will probably be bringing extra rigor to the standardization, analysis and execution between us, our prospects and our franchisees. It is very important be constant in how current and potential prospects work together and schedule providers with our salons. The service choices themselves, anticipated service instances, the in-salon expertise, interactions pre and publish go to and what’s most likely finally extra a longer-term focus salon picture and modernization. We absolutely admire the truth that unhealthy haircut or a poor expertise can have on our manufacturers. And with the value will increase which were taken over the previous couple of years, we have to defend the worth proposition of our salons.
The flexibility to draw and retain new and current prospects actually begins right here, and we’re within the early phases concerning the methods, steering and processes to implement the change administration required to correctly execute on this core tenant of our enterprise.
Along with renewing our dedication to the shopper expertise and different focus areas, growing salon productiveness. Now key to this effort will probably be finalizing the adoption of Zenoti as our new point-of-sale methods throughout all of our salons and using the native CRM and loyalty capabilities constructed into the software program to profit from the size of our platform.
Now now we have been break up throughout a number of point-of-sale methods far too lengthy. Persevering with to extend digital engagement with our prospects is a serious alternative for our manufacturers as we have seen an natural shift to on-line reserving versus walk-ins and name forward’s.
On-line reserving throughout all of our manufacturers is up roughly greater than 20% year-over-year in Q2 fiscal ’24. And taking Supercuts for instance, these salons demonstrating 40% or better bookings by means of digital channels, demonstrated constructive site visitors comps for the quarter and total same-store gross sales of 8.1%. And with solely roughly 15% of Supercuts at 40% plus on-line reserving there was clear runway right here. And there’s additional alternative after we take into consideration combining Zenoti with the standardization strategy I discussed earlier as a part of the shopper expertise to essentially drive a rise in digital in a deliberate approach.
We at the moment have roughly 1,600 salons on the Zenoti platform with one other 900 anticipated emigrate by March 31 and the rest by June 30 of this yr. Now finishing this transition will mark a serious milestone in what has been an extended know-how journey Regis. And finally, I imagine now we have landed on the best sustainable know-how resolution for our firm and our franchisees for the long run.
Along with Zenoti, we have begun to check and use focused promotions and loyalty methods in an effort to drive site visitors and gross sales. These have been principally by means of pilots to search out that proper mixture that not solely drive gross sales but in addition will increase franchisee profitability. After observing outcomes, now we have some examples of these pilots which are able to be rolled out on a broader scale.
They’re: one, our Supercuts loyalty program, Supercut rewards. Now this has been piloting for the final 8 months in 5 metro areas, and we’re seeing success with this program in driving elevated frequency and retention. And now with over 50% of gross sales coming by means of these members who’re on loyalty program, we’re additionally seeing 90-day retention charges round 3 instances larger for members versus non-members.
One other instance of a pilot that’s to be rolled out extra broadly as Supercuts Tuesdays during which prospects on Tuesdays acquired $3 off a haircut. We piloted this throughout roughly 60 salons in late 2023 and noticed greater than 4% weekly site visitors elevated by shifting considerably extra gross sales to Tuesday and subsequently liberating up these extra busy days of the week. And simply as of yesterday, we started our nationwide rollout of Supercuts Tuesdays and we imagine this can be a promotion that our model can uniquely personal.
And one final spotlight right here in our SmartStyle model is our partnership with the Walmart Plus subscription program. We launched this promotion in August 2023, in a subset of places providing Walmart Plus members reductions on SmartStyle providers and merchandise. Having seen that three quarters of provide redemptions had been both from new or reactivated visitors and constructive site visitors impacts for taking part salons, we are actually extra extensively rolling this out at the side of the Walmart Plus staff.
And we have additionally taken steps not too long ago to lean heavier into earn media to lift consciousness consideration and trial. A great instance of this, which a few of you might have seen is our Supercuts excessive rating promotion is happening at the moment across the huge sport on February 11, the place if the mixed rating of the sport is 75 factors or larger, entrants can obtain a free haircut. Now we see this as a chance to drive trial round a serious occasion in an economical method, and we are going to look to discover extra alternatives like this sooner or later.
Our core part of with the ability to enhance our buyer expertise and salon productiveness would be the continued assist of stylists. We are going to proceed to assist stylists by means of our community of company and franchisee employed trainers to make sure they’ve the instruments and coaching to efficiently ship high quality hair providers and a horny value level.
On our franchisees stylist assist system is vital and is commonly cited as the rationale why franchisees select to be a part of our franchise system. And we are going to proceed to enrich these efforts given the hands-on nature of our business with our proprietary digital coaching platform, the Regis Training playground that receives over 31,000 views per thirty days from the stylist group, in addition to the salon chief digital coaching modules that now we have developed and deployed final yr.
Now by means of addressing our capital construction, bettering the shopper expertise, growing salon productiveness and supporting the stylist group, the correct elements will probably be in place to pursue an accelerated tempo of recent salon openings and advance our improvement efforts.
A powerful enterprise case is foundational to unit growth and extra potential capital would allow accelerated entry into worldwide markets in addition to the scaling of our present manufacturers. Along with permitting for potential transform incentive program to boost the picture of our current salon base at a a lot bigger scale.
And lastly, I needed to the touch on managing our G&A. Huge strides have been made right here so far. And over the previous couple of years, our G&A went from $96 million on the finish of fiscal yr ’21 to our at the moment – present run price of roughly $47 million, equating near $50 million or 50% in financial savings.
Transferring ahead, we are going to proceed to handle the scale of our group and be certain that any additional strikes don’t adversely have an effect on our enterprise as we proceed in direction of long-term progress and sustainability. We are going to proceed to observe our G&A simply as now we have been and modify as acceptable.
I wish to shut by thanking you all on your continued curiosity in Regis and thanking our staff, franchisees, stylists, distributors and companions for your entire laborious work and contributions. I’m happy with the progress that we have revamped the course of the previous 2 years, however our work is barely getting began. And I’m trying ahead to executing on these initiatives as I’ve laid out immediately as a part of the following chapter of Regis’ progress.
And earlier than wrapping up, I simply wish to reiterate as soon as once more that we’re within the midst of a complete strategic different course of, and our feedback associated to this course of will proceed to be restricted till its completion.
I’ll now flip the decision over to Kersten to offer extra element on our Q2 and first half outcomes. Kersten?
Kersten Zupfer
Thanks, Matt, and good morning. For this morning’s name, I’ll assessment our second quarter outcomes. The second quarter noticed constructive system-wide identical retailer gross sales, elevated working revenue, constructive web revenue, constructive earnings per share and robust adjusted EBITDA. General, we’re persevering with to see stability in our enterprise.
Reviewing the second quarter in additional element and starting with the revenue assertion, the second quarter revenues had been $51.1 million and declined $8.9 million from the prior yr. This income decline was anticipated and relates primarily to a discount in franchise rental revenue, which is a gross up of income and expense and has no affect on profitability.
Moreover, transitioning out of company-owned salons and product gross sales lowered income with minimal affect on profitability. Royalty and price income of $18.3 million, which represents our core enterprise income was down $1.1 million versus the prior yr second quarter because of the variety of salons closures over the course of the final 12 months.
One other reflection of our income efficiency is our system-wide same-store gross sales, which grew to 1.9% within the quarter. We posted GAAP working revenue of $4.8 million within the quarter in comparison with $700,000 within the prior yr quarter. The rise in GAAP working revenue of $4.1 million was pushed by decrease depreciation and a listing reserve cost within the prior yr interval. We proceed to provide working revenue every quarter and we anticipate that pattern to proceed.
We reported constructive web revenue of $1 million and earnings per share of $0.43 within the second quarter in comparison with a lack of $2.4 million a yr in the past and a loss per share of $1.04 a yr in the past. The development pertains to the development in working revenue beforehand talked about and a $2 million acquire in discontinued operations associated to the sale of Opensalon Professional in June of ’22. As Matt talked about, we acquired the $2 million in January.
Now let’s flip to our adjusted outcomes. On an adjusted foundation, second quarter consolidated EBITDA was $6 million in comparison with $7.8 million within the prior yr’s quarter. The $1.8 million lower was due primarily to the corporate receiving a $1.1 million grant from the State of North Carolina associated to COVID-19 aid with the remaining as a consequence of decrease income and timing of bills.
Our adjusted G&A was $11.7 million for the second quarter, a rise of $600,000 from the prior yr quarter. We do see some variability in our G&1 / 4-to-quarter, which is primarily because of the timing of bills. We’ve got lowered our annual run price G&A expectations to $46 million to $48 million versus our view final quarter, which was $47 million to $50 million.
Our core franchise enterprise achieved adjusted EBITDA of $6.4 million within the quarter, a $1.2 million decline in comparison with $7.5 million within the prior yr. The decline is primarily associated to the timing of G&A spend.
On an adjusted EBITDA foundation, our company-owned section misplaced $300,000 for the quarter, a decline of $600,000 from the identical quarter final yr. This decline is because of the $1.1 million North Carolina COVID grant beforehand mentioned, partially offset by having fewer loss-generating company-owned salons within the present interval as we’re closing salons both at lease finish or negotiating a Bio [ph] when it makes financial sense to take action.
Numerous our remaining company-owned salons will come to lease finish in our third fiscal quarter. So our company-owned salon section can have much less affect within the second half of fiscal yr 2024.
Revenues for the primary half of the yr had been $104 million in comparison with $122 million within the first half of fiscal yr 2023. Much like the second quarter income decline, this decline was anticipated and relates primarily to a discount in franchise rental revenue and the wind down of our company-owned salons, in addition to decrease product gross sales to franchisees.
Adjusted EBITDA for the primary half of the yr was $13.5 million, a $1.8 million enchancment in comparison with $11.7 million within the first half of fiscal yr 2023. Adjusted EBITDA improved primarily as a consequence of our decrease G&A and franchise lease, partially offset by the $1.1 million grant from the state of North Carolina acquired in 2023.
Turning to liquidity. As of December 31, we had $38.1 million of liquidity together with $31 million of obtainable revolver capability and $7.2 million of money. At December 31, 2023, our debt excellent, excluding deferred financing charges was $188.9 million. We’re in compliance with our debt covenants at the moment and we don’t anticipate to violate any of the covenants through the time period of our credit score facility assuming no main impacts to the enterprise. Moreover, we imagine now we have sufficient liquidity to function the enterprise.
As a reminder, as a consequence of accounting requirements, our steadiness sheet reveals roughly $334 million of working lease liabilities associated to liabilities related to sub-leasing salons to our franchisees over your entire lifetime of their respective leases. These liabilities are serviced by our franchisees and shouldn’t be factored into Regis’ debt place as long as the franchisees proceed to pay their obligations as they’ve been. These liabilities have decreased $229 million during the last 3 years because of the discount in salon depend and in addition as a consequence of Regis transferring off of franchise leases.
Having our franchisees signal the leases accounted for about $85 million of the discount, Regis is solely chargeable for lease liabilities for our company workplace area and remaining company-owned salons, which quantities to $9.9 million over the lifetime of the leases.
Within the first half of the yr, we used $6.9 million of money from operations which has similarities to the prior yr. Excluding the $1.1 million grant mentioned earlier, acquired in fiscal yr 2023, money utilized in working actions improved $1.1 million due primarily to our decrease price construction, partially offset by elevated curiosity expense of roughly $2.6 million as a consequence of larger variable rates of interest on our financial institution debt. We do anticipate to make use of much less money within the second half of the fiscal yr, and administration stays dedicated to continued money administration and returning to money stream era.
Earlier than wrapping up my remarks, I’ve just a few extra gadgets I needed to spotlight. On January 9, Regis’ inventory started buying and selling on the NASDAQ. We’re happy to have the ability to make the transfer to NASDAQ and to proceed buying and selling on a nationwide securities alternate. Moreover, yesterday, we introduced that Regis has adopted a tax advantages preservation plan designed to protect the supply of its NOL carryforwards and sure different tax attributes.
Regis has roughly $646 million of U.S. federal NOLs, which signify a worthwhile asset to the corporate and can be found to offset the corporate’s present or future taxable revenue. The plan is designed to guard shareholder worth by mitigating the chance of possession adjustments that will end in important limitations on Regis’ potential to make use of its NOLs or sure different tax attributes to offset present or future taxable revenue.
This concludes my ready remarks. I want to thanks on your continued assist and curiosity in Regis.
I’ll flip it again to Biz to wrap up the decision.
Query-and-Reply Session
Finish of Q&A
Thanks for becoming a member of. This may conclude immediately’s earnings name. When you’ve got any questions on our monetary outcomes, please contact Kersten by means of our Investor Relations e-mail at investorrelations@regiscorp.com. Thanks, and have an important day.
