RGS
#Good morning, and thank you all for joining us.
On the call with me today are <UNK> <UNK>, our Chief Executive Officer; <UNK> <UNK>, our Chief Financial Officer; Eric Bakken, President of our Franchise Segment; and Amanda Rusin, our General Counsel.
Before turning the call over to <UNK>, there are a few housekeeping items to address.
First, today's earnings release and conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are not guarantees of performance and, by their nature, are subject to inherent risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.
Please refer to today's release and our SEC filings for more information on these risks and uncertainties.
The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.
Second, this morning's call must be considered in conjunction with both the 10-Q filing and earnings release we issued this morning.
In today's call, we will be discussing non-GAAP financial results that exclude the impact of certain business events.
These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons which should not be considered superior to, as a substitute for and should be read in conjunction with GAAP financial measures for the period.
A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in this morning's earnings release, which is available on our website at www.regiscorp.com/investor.
With that, I will now turn the call over to <UNK>.
Thank you, <UNK>, and good morning.
Thank you for joining us and thanks as well for your interest in Regis.
My brief comments today will focus on the strategic transformation underway and the results of certain operational initiatives executed during the second quarter and since our turnaround began last April.
<UNK> will then provide a recap of our financial results for the quarter.
So let\
Thanks, <UNK>, and good morning, everyone.
This morning, I\
Sure.
This is <UNK>.
So the impact of the tax reform is basically that the indefinite-lived NOLs going forward are able to ---+ the NOLs have been changed to indefinite-lived such that we can net that against some of our tax assets and liabilities.
The net impact is, just doing the math, we made the $70 million adjustment to our valuation allowance.
We still have a portion of the valuation allowance intact and I don't expect that we will be making adjustments until a future period.
At which point, we would release the valuation allowance that would help you with your modeling our income tax expense line.
Sure, <UNK>.
I'll let <UNK> take the portion of your question related to weather.
We ---+ <UNK> and I made a social commitment to each other that we try not to point at weather as it relates to the impact to our operations, but it's interesting, <UNK>.
I've been in other industries where weather has an impact, but it's striking how dramatic it can be in this industry where people just simply can't get out and cannot get into a salon to get their haircut.
So we're aware that in and around the ---+ particularly the holiday periods, we were impacted.
And <UNK> is probably going to give you some more data then I'll address the rest of your question.
Yes.
We're not in a position to give specific numbers, but as I'm sure other retailers have seen, that period between Christmas and New Year's was particularly difficult given the cold strip and the weather that came through the Midwest and the South and the Eastern seaboard.
So it certainly had an impact on that 70 basis points.
We're not at liberty and we just don't want to pin anything to the weather because weather is unpredictable, that's just part of our business, but it did certainly have a drag on that 70 basis point performance.
As to the rest of your question ---+ <UNK>, it's <UNK>.
The ---+ overall, I'm feeling good about Supercuts, particularly with the new MLB partnership.
The MLB relationship is just going to open up so many different channels for our content that I just ---+ I am very certain that it's going to be a home run for the company as I've said publicly.
As to SmartStyle, now that we've got the restructuring out of the way, we remain hopeful and believe that the changes we've made in simplifying our pricing boards and introducing new services are going to help us inside those Walmart locations.
The early data is encouraging, particularly as it relates to capturing some of those male customers that are inside the Walmart that historically we may not have always harvested.
And as to the rest of the portfolio, inside of Signature Style, it's a mixed bag, but we're working through that process as well based on essentially 5 core initiatives around growth, which you may have heard me talk about before, but it begins with improving the customer database and the insights and analytics we have related to our customers.
We think we're going to get a lot better at that with the Buxton relationship, which is industry-exclusive.
We have accelerated our investment in digital advertising, which predicts ---+ provides a bigger bang for the ---+ our investment dollars than TV advertising.
And we've really leveraged digital advertising with SmartStyle.
And I also think, <UNK>, the rollout of social media that we're going to make in February, which is initially targeted towards social media ---+ I mean, excuse me, towards SmartStyle will be helpful to us.
So as you think about these 2 large brands, Supercuts is our best-known brand and we're going to be riding the MLB train to move content into multiple channels.
And on our lesser-known brand on SmartStyle, we are raising awareness with digital advertising and with social media.
We're also investing in customer-facing technology to change the guest and stylist experience.
We have a number of pilots underway in our salons that will change the face of the guest experience and the stylist experience.
<UNK> has made great progress improving the sophistication of revenue management and our pricing programs which I think, over time, will help growth.
And then, finally, we're taking steps to upgrade our merchandising while leveraging the core competencies we already have in supply chain management.
So as you think about the 5 pillars of growth for Regis, now that the restructuring phase is behind us, it's essentially improving the customer insights through better database and analytics, accelerating the investment in digital and social media while leveraging channels of distribution for content for Supercuts through MLB, investing in customer-facing technology to upgrade the guest and stylist experience, improving the sophistication of our revenue management and pricing programs and upgrading our merchandising while leveraging the great supply chain management capabilities we already have.
Those are essentially the 5 foundational pillars of growth going forward now that the restructuring is behind us.
Sure.
Going forward, the 597 obviously was a drag on the portfolio from a revenue performance.
They have shown some health in the recent past as a result of the new service offerings that we have launched in the SmartStyle portfolio, specifically the $12.97 "Express Haircut" and the "Everyday Simple Pricing", the simplification of price menu, but that\
And I would ---+ I think, <UNK>, you would agree with this.
As we have moved out of the mall locations and moved out of international and also eliminated these 597, the underlying performance of the company-owned salons will become much clearer.
You'll have much greater visibility in the days and weeks ahead now that the ---+ those 1,450 salons have been removed from the portfolio.
<UNK>, I think, that the categories of opportunity going forward are, I think, are substantially in 3 areas.
And <UNK> can add onto this.
I think there ---+ we will run across opportunities related to closing nonperforming or underperforming, but it will ---+ the major components of closing nonperforming or underperforming salons, I think, is now, in fact, complete.
And we ---+ at this point, we are satisfied with our portfolio of company-owned salons.
Now, having said that, it is imperative that we continue to accelerate the growth of our franchise platform, which Eric and I fully intend to do.
It is imperative that we continue to pull down G&A costs, particularly nonessential or nonperforming G&A costs, which we intend to do.
It is imperative that we invest in the growth of our business around those 5 key pillars that I identified a moment ago.
And it is imperative that we upgrade the technology platform at Regis, and that review is underway as well.
So as to the much more work to do comment, I think you're right, <UNK>.
It relates to continuing to address G&A where there are opportunities to do so.
It's growth and acceleration of franchise.
It's investments around same-store sales and traffic.
And it's investment in the technology platform as we continue to transform the company in the years ahead.
And when I ---+ when you hear me articulate that we have much more work to do, it's around those core areas of the business.
We think part of the G&A load resides in the procurement area of the business and we believe the company has opportunities to take a more aggressive stance in our approach to procurement.
<UNK>, because of the ---+ because Regis was essentially a roll-up that occurred over 20 or 30 years, it doesn't act like a large $1.5 billion company.
It behaves as if it's a small regional or local business and so the leverage we have through scale has not always been fully utilized at Regis.
And we are fortunate that we were able to attract Amanda.
You will really enjoy meeting her, <UNK>, when we have a chance to get together again.
She's both a JD, MBA and is a very competent executive.
So we have moved procurement.
We have actually invested in a Procurement Officer, which we have not done historically at Regis.
I know that's hard to believe, but the procurement area was disbursed throughout the functional lines of the company rather than being consolidated under one expert.
So we now have that one expert in place and he reports to Amanda as the General Counsel.
So we think one of the G&A opportunities we have going forward relates to a more sophisticated, fact-based and aggressive approach to our procurement activities here at Regis.
And I think there will also be opportunities for efficiencies inside the company as we invest in a better and upgraded IT platform in the months and years ahead.
Those opportunities are clearly there at Regis and we have a number of initiatives underway that should enable a more efficient approach ---+ the way we run the back office of the business.
So when I think about G&A, we've already done a lot in that area, some of this masked by the ---+ some of the things <UNK> talked about earlier, but visibility on the G&A downturn or takeouts will improve in the months ahead.
And then, going forward, I'm still pretty optimistic, <UNK>, we're going to be able to do a lot more in the G&A area, particularly through procurement and smart investments in IT, which will just improve the overall efficiency of the company.
And then, <UNK> and I, our HR team and Eric, we're very disciplined about our approach to measuring the economic return of every program and, frankly, every human asset in the company.
Setting aside regulatory compliance issues, if the employee generates income, then ---+ in excess of the investment we make, it's a great opportunity for Regis.
If the program or employee doesn't, then we need to disinvest.
And that's the right way to think about it in any business and we are doing those things as well.
So I think you'll ---+ we're optimistic that we continue to have opportunities in the G&A area.
I'll take the first part of that and then I'll let <UNK> take the hard part of that question.
Just simply remove ---+ if you can imagine, <UNK>, when you take out those terrible 597 cash-negative salons, we're going to get some expansion in margin simply by doing that, by removing the bleed that was occurring in those salons.
Now, having said that, I still ---+ <UNK>, I still don't know yet how high up is in opco.
I'm going to find out, but I don't know how far we can push those margins and growth acceleration in the operating side of the business.
I've got a pretty good idea.
I think Eric and I have got a pretty good idea of the franchise.
We've got that walked through and dialed in and I don't see anything that stands in the way of the continued growth of franchise.
On opco, we'll be very disciplined in terms of what works and what doesn't work and we're going to push that envelope to see how high up is and particularly now that we've shed those nonperforming salons.
I guess, we have said that the shareholders ---+ or we'd give the shareholders greater visibility, but <UNK>, as you know, it will give us greater visibility, too.
So we don't have to waste any time screwing around with a bunch of salons that aren't adding to earnings.
Yes, <UNK>.
This is <UNK>.
Absolutely, the math will work out that way, but I'd also like to just kind of point you back to your prior question that as we become more efficient with our G&A load, our cost structure should become much ---+ not much, but potentially lower.
And as such, you would expect to see margin expansion as well as part of becoming more efficient with some of the investments that we're making in improving technology and then the corresponding flow-through to be more efficient on the backup.
That's a really good point that <UNK> is making, <UNK>, because there were 2 ends to the bookshelf on those nonperforming salons.
It was both the inherent poor performance of the local salon, but it was also the G&A load associated with those nonperforming salons.
And that G&A load has been removed as part of the 597.
Correct.
It's not in the numbers yet, but it's gone.
Thank you, operator, and thanks to all for your continued support.
And we look forward to speaking with you again next quarter.
Thanks, everyone.
