Regis Corporation (NYSE:RGS) Q3 2024 Earnings Call Transcript

Regis Corporation (NYSE:RGS) Q3 2024 Earnings Call Transcript May 1, 2024

Regis Corporation beats earnings expectations. Reported EPS is $-0.99573, expectations were $-1.28. RGS isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Biz McShane: Good morning, and thank you for joining the Regis Third Quarter Fiscal 2024 Earnings Conference Call. I’m your host Biz McShane, Vice President, Corporate Controller. All participants are in listen-only mode and this conference is being recorded. The prepared remarks by our President and Chief Executive Officer, Matthew Doctor and Executive Vice President and Chief Financial Officer, Kersten Zupfer are accompanied by slides to help participants follow along. I would like to remind everyone that the language on forward-looking statements included in our earnings release, and 8-K filing also apply to our comments made on the call today. These documents along with their presentation today can be found on our website, www.regiscorp.com/investorrelations, along with reconciliation of any non-GAAP financial measures mentioned on today’s call with their corresponding GAAP measures.

Today’s slides are located in the investor presentations and supplemental financial statements section of the investor site. With that, I will now turn the call over to Matt.

Matthew Doctor: Thank you, Biz. Good morning, everyone. Before I jump into our Q3 fiscal 2024 results. Just a quick note about our strategic review process. As I’ve noted on prior calls, this effort is aimed towards improving the health of our balance sheet and best position the business for long term profitable growth. We are making progress on the review and will not be otherwise be disclosing any new developments on the call today. As Kersten and I will discuss, we will remain focused on executing our strategic plan as this process continues. Now with that, let’s turn to the quarter. Same-store sales rose 0. 5% in the quarter and 1.4% year-to-date. We saw a similar progression in comparable sales throughout the quarter, just as we did in our last quarter, which is our fiscal Q2.

Weather had a significant impact to the start of our fiscal Q3 as the first three weeks ending January 21st demonstrated comps down 6.2%. Our salons did a good job during the rest of the quarter making up for that lost ground, as we ended the month of January with a negative 3% sales comp, followed by positive 1.3% comps in February and a 2.8% positive comp in March. The disparity I mentioned last quarter between our top and bottom quartile salons that has been a recurring theme is still a factor here, which is driving the overall sales comp as well. With our top quartile salons by sales volume across all of our brands, collectively demonstrating approximately 5% same-store sales growth for the quarter. Adjusted Q3 EBITDA on a consolidated basis was $5 million compared to $4.2 million in the prior year’s quarter putting us back on track for year-over-year progress and profitability.

For the first three quarters of fiscal 2024, our adjusted EBITDA of $18.5 million is a $2.7 million improvement versus the first three quarters of fiscal 2023 adjusted EBITDA of $15.8 million. We continue to make progress on our reported operating income with $4.1 million in the quarter versus $2.1 million in Q3, fiscal 2023. A $2.1 million improvement. Operating income for the first three quarters has improved by $11.1 million versus the prior year at $16.3 million versus $5.2 million during the first three quarters of fiscal 2023. From a liquidity perspective, we continue to have ample liquidity and have made progress in limiting our cash use despite the headwinds that remain in our business. We ended the quarter with approximately $37 million in liquidity and a roughly breakeven regarding cash from operations for the quarter.

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Q&A Session

From a salon count perspective, we continue to see declines in our franchisee store count. Over the quarter, we had net closures of a 124 versus a 139 during Q3 2023. On a year-to-date basis, we’ve had net closures of 268 versus 339 during the first three quarters of fiscal 2023. I’ve discussed on each of our calls that this is a dynamic that is ongoing and unfortunately, one that is fairly unavoidable. With these closure salons averaging a $131,000 in sales for the last 12 months of being open, which is less than half of the system average. And one-third of the top quartile average of close to $400,000 for the last 12 months. We expect this trend to continue. And we will ultimately get to a point where we reestablish a foundation with a lower salon count.

Albeit with a base of higher sales volumes. And don’t get me wrong, while I have looked to lay out the potential benefits that come with shedding salons with significant losses borne by our franchisees, this is absolutely not a celebrated effort as even losing low volume salons means we lose revenue as a franchisor and the potential brand perception implications. However, these closures do ultimately strengthen the underlying franchisee base given the drag these salons have on their profitability, especially as our franchisees work hard to build their businesses back. It’s the reality that we face. And despite these closures. We have managed to operate the business in a manner, which allows us to continue to grow profitability. And it is this smaller base of stronger salons that our efforts will be pointed towards in order to drive performance going forward.

Now, in recent quarters, you’ve heard me speak about our six priority areas of focus, each of which will help ensure the stability and longevity of Regis. The first being addressing our capital structure. And as I alluded to earlier, we are in the midst of our strategic review process with the goal of addressing this for the long term. The other five priorities relate to the core business, and we will continue to make progress on these areas and I would like to share some developments related to these initiatives on the call today. I want to reiterate that many of these are foundational back to basics initiatives, and you’ll notice they’re a bit different from others that we’ve been speaking about in the past. And at this time, after trial and error, we strongly believe is what our system requires to unlock the potential of our brands and set them up for success going forward.

Our first and primary area of focus is customer experience, which we have been working to improve by honing our consistency and processes across our salons to revamp development, rollout, and enforcement of brand standards. I view this as the number one priority to drive salon operations going forward, and I am excited as this is a very much needed effort, having observed disparities and operations and procedures throughout our salons. These disparities are not the result of any singular event or reason, but rather a byproduct of various historical initiatives at Regis over the years in addition to the need for stabilization and survival during recent times. While it’s no doubt been a focus in the past, for the first time in many years, customer experience through service excellence will be the number one priority of our organization.

The initial rollout will start in our Supercuts brand, and this past quarter, we made good progress on that front by aligning on the revised set of standards, which will be accompanied by a complete overhaul of franchisee and stylist training materials. We are also narrowing in on the mayor in which we will be ensuring we have eyes on each one of our salons over the course of the year. Something we haven’t had for quite some time and frankly can no longer continue. Having clear views on each of our salons and where they land on the ability to deliver a quality environment and service excellence is critical, and we expect to start implementing this in full force towards the end of this calendar year. I view this as the next significant change management exercise for our system now that we’re coming up on the end of the Zenoti technology platform rollout.

Which I will speak about next. We’ve spoken about this transition of our salons to the Zenoti point-of-sale system for almost two years now. As this forms the foundation of yet another key to reviving the customer experience. We are pleased to have this finish line for this transition in sight, which will mark the end of what’s not only been a two-year journey to Zenoti, but really a seven-year technology journey for Regis when taking into account the development of OpenSalon Pro back in 2017. This transition will not only help increase digital engagement with our customers and ensure seamless and reliable user experience, but will also increase our data capture so we can better engage with our customers in a more personalized manner across the board.

We’re already seeing some early operational benefits that we plan on rallying around once the system is on the platform. By and large, our efforts to date really have been focused first and foremost on the migration itself. Once that is complete, the real work begins to put it to full use. That said, organic online booking continues to prove fruitful. Salons with more online booking availability continue to outpace the system from a sales and traffic perspective, and this notion of advanced booking is made simpler on Zenoti and is one of the many key benefits it brings. In addition, we’ve noticed a significant uptick in our Google review footprint just by being on the Zenoti platform and leveraging its post visit guest feedback capabilities, which in turn help drive search ranking and online presence.

Now, while these are just a few organic examples, we have not even scratched the surface with this platform, and we are excited to start utilizing it with intention as an execution tool for our customers and franchisee stylists. As of Friday, April 26, we had close to 2,600 salons migrate to the Zenoti platform. This is up from 1600 salons on our last earnings call, and we are on track to completing our migrations this summer, likely with the last salons migrating in July. We have completed the transition of all SuperSalon users to Zenoti. So all that is left now are those on OpenSalon Pro. And from a migration payment perspective, we will likely cross that salon count payment threshold this fiscal Q4 and receive payments in Q1 and Q2 fiscal 2025.