MINNEAPOLIS--(BUSINESS WIRE)--Aug 21, 2018--Regis Corporation (NYSE: RGS):

Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose primary business is owning, operating and franchising hair salons, today reported fourth quarter 2018 net income from continuing operations of $7.0 million, or $0.15 per diluted share as compared to $4.2 million or $0.09 in the fourth quarter of 2017. The Company's reported results include a net $1.4 million of one-time pre-tax costs associated with the restructuring of the Company's SmartStyle ® salon portfolio and a net $2.1 million of other pre-tax discrete costs. Excluding discrete items, and the losses from discontinued operations, the Company reported fourth quarter 2018 adjusted net income of $10.4 million, or $0.22 per diluted share as compared to $11.6 million, or $0.25 per diluted share for the same period last year. The year-over-year decline in adjusted net income was driven primarily by the impact of the valuation allowance that previously existed against most of the Company's deferred tax assets in place during last year's fourth quarter. Normalizing the adjusted income tax rates, and valuation allowance, in both the current and prior year periods to 25%, this year's fourth quarter adjusted net income increased $4.0 million, or $0.09 per diluted share when compared to the same period last year.

Total revenue in the quarter of $294.9 million decreased $26.0 million, or 8.1%, year-over-year driven primarily by the closure of a net 701 salons and the conversion of 448 company-owned salons to franchised locations, partially offset by positive same-store sales comps of 0.7%. Management estimates the shift of the Easter holiday, from fourth quarter last year to third quarter this year, negatively impacted fourth quarter 2018 same-store sales comps by approximately 90 basis points.

Fourth quarter 2018 EBITDA of $25.7 million increased $6.7 million versus the same period last year. As a percentage of sales, the Company's fourth quarter EBITDA margin rate of 8.7% compares to 5.9% in the fourth quarter last year. Fourth quarter 2018 adjusted EBITDA of $31.2 million was 10.6% of adjusted sales and was $1.8 million, or 6.1% favorable year-over-year. Last year's fourth quarter adjusted EBITDA margin rate was 9.2%.

On a full year basis, the Company reported net income from continuing operations of $61.9 million, or $1.32 per diluted share as compared to net loss from continuing operations of $0.9 million, or $0.02 per share in the prior year. On an adjusted basis, net income from continuing operations was $27.9 million, an increase of $10.6 million year-over-year. Adjusted EBITDA of $94.1 million increased $6.9 million, or 7.9% versus the same period last year.

Hugh Sawyer, President and Chief Executive Officer, commented, "Although we have more work to do, we are pleased to report signs of progress in our financial performance and ongoing transformation efforts."

Fourth Quarter Segment Results

Company-Owned Salons

Company-owned salon fourth quarter 2018 revenue, as adjusted, decreased 12.1% versus the prior year to $263.4 million. The year-over-year decline was driven primarily by the closure of unprofitable salons and the sale of Company-owned salons to franchisees. The year-over-year decline was partially offset by an increase in same-store sales of 0.7% driven by a 4.4% increase in average ticket, partially offset by a 3.7% decrease in traffic.

Fourth quarter 2018 adjusted EBITDA of $38.2 million was essentially flat versus the same period last year driven primarily by salon-level compensation changes, strategic marketing and advertising investments, the prior year inclusion of a more favorable self-insurance reserve adjustment, and the sale of 448 company-owned salons to franchisees, partially offset by the closing of unprofitable salons, improved variable labor management, management initiatives, and same-store sales comp increases. The EBITDA margin rate of the Company-owned salon segment of 14.5% increased 170 basis points compared to the fourth quarter of last year.


Fourth quarter 2018 Franchise revenue was $31.5 million, a $10.2 million, or 47.6% increase compared to the prior year quarter. Royalties and fees were $15.5 million, a $2.3 million, or 17.3% increase versus the same period last year. Royalties increased 13.1% driven primarily by positive same-store revenue and increased franchise salon counts. Initial franchise fees increased 40.5% as the Company opened, or converted, a net 165 franchised locations in the quarter as compared to 113 in the prior year quarter. Product sales to franchisees were $16.0 million, an increase of $7.9 million. Product sales to The Beautiful Group accounted for $6.2 million of this year-over-year sales increase.

Franchise adjusted EBITDA of $11.9 million improved $2.4 million, or 25.3% year-over-year. The Franchise EBITDA margin rate of 37.9% was negatively impacted by roughly 820 basis points due to the low margin rate of product sales to The Beautiful Group in accordance with the terms of our transaction agreements. Removing the dilutive impact of these sales, EBITDA margin rates in the Franchise segment of 46.1% improved 150 basis points when compared to the fourth quarter of last year.

Other Company Updates

Consolidated Year-Over-Year General & Administrative ("G&A") Comparability The Company announced a realignment of its field leadership team by brand during the first fiscal quarter of 2018. An outcome of this reorganization is that the costs associated with senior district leaders have been moved out of cost of goods sold and site operating expense, where the expense has historically been recorded, and into G&A. The Company notes that this change does not impact the overall consolidated results but does result in an $8.6 million decrease in cost of goods sold and site expense, and a corresponding $8.6 million increase to G&A during the fourth quarter of 2018, when compared to the comparable period last year. On a fiscal 2018 full year basis, this reclassification of expenses decreased cost of goods sold and site expense by $32.3 million and had a corresponding increase to G&A expense versus the same period last year.

Transformational Strategy Update The Company continued to make progress implementing its multi-year transformational strategy and operational turnaround focused on improving the performance of Company-owned salons, while at the same time selectively expanding its franchise portfolio where it supports the Company's strategic transformation and maximizes shareholder value. During the quarter, the Company:

Repurchased 883,000 common shares at a total price of $15.2 million. In August 2018, the Company's Board of Directors authorized an additional $200 million for share repurchases. Converted 144 Company-owned salons to franchise locations. Announced it would consider franchising the remaining Company-owned Supercuts salons where it facilitated strategic and financial objectives. Executed a number of operational initiatives to stabilize performance and establish a platform for longer-term revenue and earnings growth in Company-owned salons. The Company estimates the initiatives delivered a benefit in a range of $5.0 million to $7.0 million in the fourth quarter of fiscal 2018. Announced the addition of two key members of the Executive team. Chad Kapadia was named Executive Vice President, Chief Technology Officer, and Head of Product Engineering and Laura Alexander was promoted to the role of Senior Vice President, Merchandise.

Non-GAAP reconciliations:

For GAAP to non-GAAP reconciliations, please refer to attached section titled "Non-GAAP Reconciliations". A complete reconciliation of reported earnings to adjusted earnings is included in this press release and is available on the Company’s website at www.regiscorp.com.

Earnings Webcast

Regis Corporation will host a conference call via webcast discussing fourth quarter results today, August 21, 2018, at 9 a.m., Central time. Interested parties are invited to participate in the live webcast by logging on to www.regiscorp.com or participate via telephone by dialing (888) 204-4368 and entering access code 8520138. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 8520138.

About Regis Corporation Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of June 30, 2018, the Company owned, franchised or held ownership interests in 8,168 worldwide locations. Regis’ corporate and franchised locations operate under concepts such as Supercuts ®, SmartStyle ®, MasterCuts ®, Regis Salons ®, Sassoon ®, Cost Cutters ®, Roosters ® and First Choice Haircutters ®. Regis maintains an ownership interest in Empire Education Group in the U.S. For additional information about the Company, including a reconciliation of certain non-GAAP financial information and certain supplemental financial information, please visit the Investor Information section of the corporate website at www.regiscorp.com. To join Regis Corporation’s email alert list, click on this link: http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1

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