10q10k10q10k.net

What changed in REGIS CORP's 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of REGIS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+273 added−311 removedSource: 10-K (2023-08-23) vs 10-K (2022-08-23)

Top changes in REGIS CORP's 2023 10-K

273 paragraphs added · 311 removed · 222 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

50 edited+10 added−13 removed35 unchanged
Biggest changeThe tables on the following pages set forth the number of system-wide locations (franchised and company-owned) and activity within the various salon concepts. 7 Table of Contents System-wide location counts June 30, 2022 2021 FRANCHISE SALONS: Supercuts 2,264 2,386 SmartStyle/Cost Cutters in Walmart stores 1,646 1,666 Portfolio Brands 1,344 1,357 Total North American salons 5,254 5,409 Total International salons (1) 141 154 Total Franchise salons 5,395 5,563 as a percent of total Franchise and Company-owned salons 98.1 % 95.3 % COMPANY-OWNED SALONS: Supercuts 18 35 SmartStyle/Cost Cutters in Walmart stores 49 91 Portfolio Brands 38 150 Total Company-owned salons 105 276 as a percent of total Franchise and Company-owned salons 1.9 % 4.7 % OWNERSHIP INTEREST LOCATIONS: Equity ownership interest locations 76 78 Grand Total, System-wide 5,576 5,917 Constructed locations (net relocations) Fiscal Years 2022 2021 FRANCHISE SALONS: Supercuts 15 21 SmartStyle/Cost Cutters in Walmart stores 1 — Portfolio Brands 5 10 Total North American salons 21 31 Total International salons (1) — 1 Total Franchise salons 21 32 COMPANY-OWNED SALONS: Supercuts — 4 SmartStyle/Cost Cutters in Walmart stores — — Portfolio Brands — — Total Company-owned salons — 4 8 Table of Contents Closed locations Fiscal Years 2022 2021 FRANCHISE SALONS: Supercuts (156) (273) SmartStyle/Cost Cutters in Walmart stores (49) (56) Portfolio Brands (81) (82) Total North American salons (286) (411) Total International salons (1) (13) (14) Total Franchise salons (299) (425) COMPANY-OWNED SALONS: Supercuts (6) (54) SmartStyle/Cost Cutters in Walmart stores (15) (252) Portfolio Brands (40) (307) Total Company-owned salons (61) (613) Conversions (including net franchisee transactions) (2) Fiscal Years 2022 2021 FRANCHISE SALONS: Supercuts 19 130 SmartStyle/Cost Cutters in Walmart stores 28 405 Portfolio Brands 63 212 Total Franchise salons 110 747 COMPANY-OWNED SALONS: Supercuts (11) (125) SmartStyle/Cost Cutters in Walmart stores (27) (408) Portfolio Brands (72) (214) Total Company-owned salons (110) (747) _______________________________________________________________________________ (1) Canadian and Puerto Rican salons are included in the North American salon totals.
Biggest changeSystem-wide location counts June 30, 2023 2022 2021 FRANCHISE SALONS: Supercuts 2,082 2,264 2,386 SmartStyle/Cost Cutters in Walmart stores 1,388 1,646 1,666 Portfolio Brands 1,223 1,344 1,357 Total North American salons 4,693 5,254 5,409 Total International salons (1) 102 141 154 Total Franchise salons 4,795 5,395 5,563 as a percent of total Franchise and Company-owned salons 98.6 % 98.1 % 95.3 % COMPANY-OWNED SALONS: Supercuts 7 18 35 SmartStyle/Cost Cutters in Walmart stores 48 49 91 Portfolio Brands 13 38 150 Total Company-owned salons 68 105 276 as a percent of total Franchise and Company-owned salons 1.4 % 1.9 % 4.7 % Total Franchise and Company-owned salons 4,863 5,500 5,839 7 Table of Conte n t s Constructed locations (net relocations) Fiscal Years 2023 2022 2021 FRANCHISE SALONS: Supercuts 11 15 21 SmartStyle/Cost Cutters in Walmart stores — 1 — Portfolio Brands 4 5 10 Total North American salons 15 21 31 Total International salons (1) — — 1 Total Franchise salons 15 21 32 COMPANY-OWNED SALONS: Supercuts — — 4 SmartStyle/Cost Cutters in Walmart stores — — — Portfolio Brands 1 — — Total Company-owned salons 1 — 4 Closed locations Fiscal Years 2023 2022 2021 FRANCHISE SALONS: Supercuts (196) (156) (273) SmartStyle/Cost Cutters in Walmart stores (258) (49) (56) Portfolio Brands (123) (81) (82) Total North American salons (577) (286) (411) Total International salons (1) (39) (13) (14) Total Franchise salons (616) (299) (425) COMPANY-OWNED SALONS: Supercuts (11) (6) (54) SmartStyle/Cost Cutters in Walmart stores (1) (15) (252) Portfolio Brands (25) (40) (307) Total Company-owned salons (37) (61) (613) 8 Table of Conte n t s Conversions (including net franchisee transactions) (2) Fiscal Years 2023 2022 2021 FRANCHISE SALONS: Supercuts 3 19 130 SmartStyle/Cost Cutters in Walmart stores — 28 405 Portfolio Brands (2) 63 212 Total Franchise salons 1 110 747 COMPANY-OWNED SALONS: Supercuts — (11) (125) SmartStyle/Cost Cutters in Walmart stores — (27) (408) Portfolio Brands (1) (72) (214) Total Company-owned salons (1) (110) (747) _______________________________________________________________________________ (1) Canadian and Puerto Rican salons are included in the North American salon totals.
All of the rights afforded to the Company with regard to franchised operations allow the Company to protect its brands, but do not allow the Company to control day-to-day franchise operations or make decisions that have a significant impact on the success of the franchised salons.
All the rights afforded to the Company with regard to franchised operations allow the Company to protect its brands, but do not allow the Company to control day-to-day franchise operations or make decisions that have a significant impact on the success of the franchised salons.
The Company believes it is operating in substantial compliance with applicable laws and regulations governing all of its operations. The Company maintains an ownership interest in Empire Education Group, Inc. Beauty schools derive a significant portion of their revenue from student financial assistance originating from the U.S. Department of Education's Title IV Higher Education Act of 1965.
The Company believes it is operating in substantial compliance with applicable laws and regulations governing all its operations. The Company maintains an ownership interest in Empire Education Group, Inc. Beauty schools derive a significant portion of their revenue from student financial assistance originating from the U.S. Department of Education's Title IV Higher Education Act of 1965.
Item 1. Business General: Regis Corporation franchises and owns hairstyling and hair care salons. The Company is listed on the NYSE under the ticker symbol "RGS." Unless the context otherwise provides, when we refer to the "Company," "we," "our," or "us," we are referring to Regis Corporation, the Registrant, together with its subsidiaries.
Item 1. Business General: Regis Corporation franchises and owns hair care salons. The Company is listed on the NYSE under the ticker symbol "RGS." Unless the context otherwise provides, when we refer to the "Company," "we," "our," or "us," we are referring to Regis Corporation, the Registrant, together with its subsidiaries.
We monitor state and local regulations carefully to ensure the safety of our stylists and guests. In the United States, the Company's franchise operations are subject to the Federal Trade Commission's Trade Regulation Rule on Franchising (the FTC Rule) and by state laws and administrative regulations that regulate various aspects of franchise operations and sales.
We monitor state and local regulations carefully to ensure the safety of our stylists and guests. In the United States, the Company's franchise operations are subject to the Federal Trade Commission's Trade Regulation Rule on Franchising (the FTC Rule) and to state laws and administrative regulations that regulate various aspects of franchise operations and sales.
At the end of fiscal year 2020, the majority of state and local governments where we operate temporarily mandated the closure of our salons in response to the COVID-19 global pandemic. These pandemic related government-mandated closures continued into fiscal year 2021 and even into fiscal year 2022 in parts of Canada.
At the end of fiscal year 2020, the majority of state and local governments where we operate temporarily mandated the closure of our salons in response to the COVID-19 global pandemic. These pandemic related government-mandated closures continued into fiscal year 2021 and into fiscal year 2022 in parts of Canada.
SmartStyle and Cost Cutters salons offer a full range of custom styling, cutting, and hair coloring, as well as professional hair care products and are currently located exclusively in Walmart Supercenters. This concept has primarily a "walk-in" guest base with value pricing.
SmartStyle and Cost Cutters salons offer a full range of custom styling, cutting, and hair coloring, as well as professional hair care products and are currently located in Walmart Supercenters. This concept has primarily a "walk-in" guest base with value pricing.
We survey our employees to provide them with an opportunity to share anonymous feedback with management in a variety of areas, including support from leadership, communication and collaboration, growth and career opportunities, available resources, and recognition. Leaders reviewed the results to determine opportunities and develop action plans for their teams to improve engagement and the overall employee experience.
We surveyed our employees to provide them with an opportunity to share anonymous feedback with management in a variety of areas, including support from leadership, communication and collaboration, growth and career opportunities, available resources, and recognition. Leaders reviewed the results to determine opportunities and develop action plans for their teams to improve engagement and the overall employee experience.
These salons offer similar levels of service as our North American salons. Salons are usually located in prominent high-traffic locations and offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 141 franchised International locations.
These salons offer similar levels of service as our North American salons. Salons are usually located in prominent high-traffic locations and offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 102 franchised international locations.
The Company provides new franchisees with training, focusing on the various aspects of salon management, including: operations, management training, marketing fundamentals and controls. Existing franchisees receive training, counseling and information from the Company on a regular basis. The Company provides franchisee salon managers and stylists with access to technical training resources.
The Company provides new franchisees with training, focusing on the various aspects of salon management, including operations, management training, marketing fundamentals and controls. Existing franchisees receive training, counseling and information from the Company on a regular basis. The Company provides franchise salon managers and stylists with access to technical training resources.
In addition, its short- and long-term incentive plans are aligned with its core values and key business objectives, which are intended to motivate strong performance. Development and Engagement Continuous employee development and engagement are essential to creating a high-performance culture. In fiscal year 2022, we increased our investment in learning and development.
In addition, its short- and long-term incentive plans are aligned with its core values and key business objectives, which are intended to motivate strong performance. Development and Engagement Continuous employee development and engagement are essential to creating a high-performance culture. In fiscal years 2023 and 2022, we increased our investment in learning and development.
Most concepts offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 1,344 franchised and 38 company-owned Portfolio Brands locations throughout North America. International Salons. International salons are locations operating in the United Kingdom, primarily under the Supercuts and Regis concept.
Most concepts offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 1,223 franchised and 13 company-owned Portfolio Brands locations throughout North America. International Salons. International salons are locations operating in the United Kingdom, primarily under the Supercuts and Regis concepts.
Supercuts salons provide consistent, high-quality hair care services and professional hair care products to its guests at convenient times and locations at value prices. This concept appeals to men, women, and children. The Company has 2,264 franchised and 18 company-owned Supercuts locations throughout North America. SmartStyle/Cost Cutters in Walmart stores.
Supercuts salons provide consistent, high-quality hair care services and professional hair care products to guests at convenient times and locations at value prices. This concept appeals to men, women, and children. The Company has 2,082 franchised and seven company-owned Supercuts locations throughout North America. SmartStyle/Cost Cutters in Walmart stores.
The Company faces competition from chains, such as Great Clips, Fantastic Sams, Sport Clips and Ulta Beauty, independently-owned salons, department store salons located within malls, in-home hair services, booth rentals and blow dry bars. The Company also faces competition from other franchise organizations outside of the hair salon industry in attracting new franchisees.
The Company faces competition from chains, such as Great Clips, Fantastic Sams, Sport Clips and Ulta Beauty, independently-owned salons, in-home hair services, booth rentals and blow dry bars. The Company also faces competition from other franchise organizations outside of the hair salon industry in attracting new franchisees.
Roosters Men’s Grooming Center Roosters franchise agreements have a 10-year term with a 10-year option to renew (at the option of the franchisee). New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement with the right to open two additional locations. 5 Table of Contents Franchisee Training.
Roosters Men’s Grooming Center Roosters franchise agreements have a 10-year term with a 10-year option to renew (at the option of the franchisee). New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement with the right to open two additional locations. 5 Table of Conte n t s Franchisee Training.
For the students to receive financial assistance at the schools, the beauty schools must maintain eligibility requirements established by the U.S. Department of Education. In 2020, the Company signed an agreement to sell our ownership interest in EEG to the other owner. The transaction is expected to close after receipt of state ownership transfer approvals.
For the students to receive financial assistance at the schools, the beauty schools must maintain eligibility requirements established by the U.S. Department of Education. In 2020, the Company signed an agreement to sell our ownership interest in EEG to the other owner. The transaction is subject to state ownership transfer approvals.
Additionally, 67% of the Company's leadership positions are held by women. 10 Table of Contents Families First One hundred years ago, the Company began as a family business and its support of families continues today.
Additionally, 68% of the Company's leadership positions are held by women. 10 Table of Conte n t s Families First Over one hundred years ago, the Company began as a family business and its support of families continues today.
The Company has 1,646 franchised and 49 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenter locations throughout North American. Portfolio Brands.
The Company has 1,388 franchised and 48 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenter locations throughout North America. Portfolio Brands.
For more than 13 years before her promotion to Chief Financial Officer, Ms. Zupfer served in accounting and finance roles of increasing leadership at the Company. Ms.
Kersten Zupfer was appointed to Executive Vice President and Chief Financial Officer in November 2019. For more than 13 years before her promotion to Chief Financial Officer, Ms. Zupfer served in accounting and finance roles of increasing leadership at the Company. Ms.
Available Information The Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended (Exchange Act). The Company therefore files periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC).
Available Information The Company is subject to the informational requirements of the Securities and Exchange Act of 1934, as amended (Exchange Act). The Company therefore files periodic reports, proxy statements and other information with the Securities and Exchange Commission (SEC). All our reports, proxy and information statements and other information are available on the SEC's internet site ( www.sec.gov ).
Salons sell nationally recognized hair care and beauty products, as well as an assortment of corporate-owned brand products. Stylists are compensated and regularly trained to sell hair care and beauty products to their guests. Additionally, guests are encouraged to purchase products after stylists demonstrate their efficacy by using them in the styling of our guests' hair.
Stylists are compensated and regularly trained to sell hair care and beauty products to their guests. Additionally, guests are encouraged to purchase products after stylists demonstrate their efficacy by using them in the styling of our guests' hair.
The major services supplied by the salons are haircutting and styling (including shampooing and conditioning), hair coloring and other services. Salons also sell a variety of hair care and other beauty products. We earn royalty revenue based on service and product sales at our franchise locations and earn revenue for services and products sold at our company-owned salons.
Salons also sell a variety of hair care and other beauty products. We earn royalty revenue based on service and product sales at our franchise locations and earn revenue for services and products sold at our company-owned salons.
Matthew Doctor was appointed to President and Chief Executive Officer in May 2022, after holding such position on an interim basis since December 2021. Previously, he served as Executive Vice President and Chief Strategy Officer since February 2021. Prior to joining the Company, he was Chief Financial Officer of Kava Restaurants LLC, a Tim Horton's franchisee.
Matthew Doctor was appointed to President and Chief Executive Officer in May 2022, after holding such position on an interim basis since December 2021. Previously, he served as Executive Vice President and Chief Strategy Officer from February 2021 to December 2021, and as a consultant to the Company from December 2020 to February 2021.
Financial information about our segments and geographic areas for fiscal years 2022 and 2021 are included in Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We have substantially completed our multi-year transformation to an asset-light fully-franchised business. As of June 30, 2022, 98.1% of our salons are owned by franchisees.
Financial information about our segments and geographic areas for fiscal years 2023, 2022 and 2021 are included in Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. As of June 30, 2023, 98.6% of our salons are owned by franchisees.
Our franchise salons are located in high-traffic strip centers and Walmart Supercenters, with guest parking and easy access, and are generally open seven days per week to offer guests a variety of convenient ways to fulfill their beauty needs. Affordability. The Company strives to offer an exceptional value for its services.
Our franchise salons are located in high-traffic strip centers and Walmart Supercenters, with guest parking and easy access, and are generally open seven days per week to offer guests a variety of convenient ways to fulfill their beauty needs. Stylists. Our Company depends on the stylists in our system to help deliver great guest experiences.
Previously, he served as President of Portfolio Brands since December 2020, President of SmartStyle since June 2021, and Executive Vice President and Chief Operating Officer since November 2013. Before joining the Company, Mr. Lain served as Vice President at Gap, Inc. from August 2006 to November 2013.
Lain served as a consultant to the Company from July 2020 to December 2020 and as Executive Vice President and Chief Operating Officer from November 2013 to July 2020. Before joining the Company, Mr. Lain served as Vice President at Gap, Inc. from August 2006 to November 2013.
We aim to be an industry leader in stylist training, including the utilization of both live and digital training. Our stylists deliver a superior experience for our guests when they are well-trained technically and through years of experience. We employ trainers who provide new hire training for stylists joining the Company and train franchisee trainers.
We believe in the importance of the ongoing development of stylists' craft. We aim to be an industry leader in stylist training, including the utilization of both live and digital training. We believe stylists deliver a superior experience for guests when they are well-trained technically and through years of experience.
This exercise reduced Salon Support headcount in fiscal year 2022 and 2021. Location. Salon Support is primarily located in Minneapolis, Minnesota while allowing for hybrid and remote work. Salon Concepts: The Company's salon concepts focus on providing high-quality hair care services and professional hair care products. A description of the Company's salon concepts is listed below: Supercuts.
Salon Support is primarily located in Minneapolis, Minnesota while allowing for hybrid and remote work. 6 Table of Conte n t s Salon Concepts: The Company's salon concepts focus on providing high-quality hair care services and professional hair care products. Descriptions of the Company's salon concepts are listed below: Supercuts.
In addition to the resources available on our internal Learning Hub, we launched our Beauty of Series, which consists of interactive sessions designed to help our employees unleash their potential. This series included the following topics. The Beauty of Being Remarkable, where employees learned the importance of self-promotion in both their personal and professional lives.
In addition to the resources available on our internal Learning Hub, we launched our Beauty of Series , which consists of interactive sessions designed to help our employees unleash their potential.
(2) During fiscal years 2022 and 2021, the Company acquired 0 and 1 salon locations, respectively, from franchisees. During fiscal years 2022 and 2021, the Company sold 110 and 748 salon locations, respectively, to franchisees. 9 Table of Contents Affiliated Ownership Interest: The Company maintains a non-controlling 55.1% ownership interest in Empire Education Group, Inc.
During fiscal years 2023, 2022 and 2021, the Company sold 1, 110 and 748 salon locations, respectively, to franchisees. 9 Table of Conte n t s Affiliated Ownership Interest: The Company maintains a non-controlling 55.1% ownership interest in Empire Education Group, Inc. (EEG), which is accounted for as an equity method investment. EEG operates accredited cosmetology schools.
We supplement internal training with targeted vendor training and external trainers that bring specialized expertise to our stylists.
We employ trainers who provide new hire training for stylists joining the Company and train franchisee trainers. We supplement internal training with targeted vendor training and external trainers that bring specialized expertise to stylists in our system.
Our marketing is brand specific and funded primarily from contractual contributions, based on sales, to the brand's cooperative advertising funds. These funds are used largely in support of advertising and other efforts to increase guest traffic to our salons, grow online booking usage, and improve overall awareness of and affinity for our brands.
These funds are used largely in support of advertising and other efforts to increase guest traffic to our salons, grow online booking usage, and improve overall awareness of and affinity for our brands. A portion of our marketing funds are used in support of stylist recruitment and training to grow the number of active stylists in our system. Technology.
However, moving forward, for all new locations and some lease renewals, franchisees will seek to sign the salon leases directly with the landlords; however, there may be cases where we decide to stay on the lease. We have the right to approve salon leases. Standards of Operations.
However, moving forward, for new locations and some lease renewals, we will seek for franchisees to sign the salon leases directly with the landlords. We have the right to approve salon leases. The Company's salons range from 500 to 5,000 square feet, with the typical salon approximating 1,200 square feet. Standards of Operations.
The Company offers flexible work arrangements such as hybrid and remote work. Diversity and Inclusion The Company promotes diversity of thoughts, backgrounds, experiences, and ideas.
Our People As of June 30, 2023, the Company employed 435 employees. The Company offers flexible work arrangements such as hybrid and remote work. Diversity and Inclusion The Company promotes diversity of thoughts, backgrounds, experiences, and ideas. As of June 30, 2023, 86% of the Company's entire workforce are women and 14% are men.
In the value category, our guests expect outstanding service at competitive prices. These expectations are met with the average service price of transactions ranging from $20 to $28. Pricing decisions are considered on a salon-level basis and are established based on local conditions. Our franchisees control all pricing at their locations. Salon Safety, Appearance and Atmosphere.
These expectations are met with the average service price of transactions ranging from $24 to $30. Pricing decisions are considered on a salon-level basis and are established based on local conditions. Our franchisees control all pricing at their locations. Retail Assortments. Salons sell nationally recognized hair care and beauty products, as well as an assortment of company-owned brand products.
James Suarez was appointed to Senior Vice President, Merchandising and Education in February 2022. Prior to his promotion to Senior Vice President, Merchandising and Education, Mr. Suarez had 25 years of combined salon operations and education experience at the Company. Andra Terrell was appointed to Senior Vice President, General Counsel and Corporate Secretary in February 2022.
James Suarez was appointed to Senior Vice President, Merchandising and Education in February 2022. Prior to his promotion to Senior Vice President, Merchandising and Education, Mr.
See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We expect all of our salons will transition to the Zenoti salon management system in fiscal year 2023. We also use mobile applications to allow guests to view wait times and interact in other ways with salons. Marketing.
In fiscal year 2022, we sold our proprietary back-office salon management system, Opensalon ® Pro to a third party, Soham Inc. (Zenoti). See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We expect all our salons will transition to the Zenoti salon technology platform.
Zupfer served as Senior Vice President and Chief Accounting Officer since November 2017, prior to which she served as Vice President, Corporate Controller and Chief Accounting Officer since December 2014. 12 Table of Contents Governmental Regulations: The Company is subject to various federal, state, local and provincial laws affecting its business, as well as a variety of regulatory provisions relating to the conduct of its beauty-related business, including health and safety.
The Company also specifically condemns human trafficking and abuse of child labor. 11 Table of Conte n t s Governmental Regulations: The Company is subject to various federal, state, local and provincial laws affecting its business, as well as a variety of regulatory provisions relating to the conduct of its beauty-related business, including health and safety.
Earlier in his career, Mr. Doctor worked in business development at Restaurant Brands International and was in investment banking with J.P. Morgan. Michael Ferranti was appointed to Executive Vice President and Chief People Officer in December 2021. Previously, he served as Senior Vice President, People and Culture since March 2021. Before joining the Company, Mr.
Prior to joining the Company, he was Chief Financial Officer of Kava Restaurants LLC, a Tim Horton's franchisee, from May 2018 to December 2020. Earlier in his career, Mr. Doctor worked in business development at Restaurant Brands International and was in investment banking with J.P. Morgan.
We utilize training materials to help all levels of field employees navigate the operation of a salon and essential elements of guest service training within the context of brand positions. 6 Table of Contents Salon Support Our corporate headquarters is referred to as Salon Support.
We utilize training materials to help all levels of field employees navigate the operation of a salon and essential elements of guest service training within the context of brand positions. Affordability. The Company strives to offer an exceptional value for its services. In the value category, our guests expect outstanding service at competitive prices.
The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. 13 Table of Contents
The Company makes available, free of charge, copies of its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. 12 Table of Conte n t s Executive Officers of the Registrant: Information relating to the Executive Officers of the Company follows: Name Age Position John Davi 45 Executive Vice President, Chief Digital Officer Michelle DeVore 39 Senior Vice President, Marketing Matthew Doctor 36 President and Chief Executive Officer Michael Ferranti 40 Executive Vice President, Chief People Officer Jim Lain 59 Executive Vice President, Chief Operating Officer James Suarez 48 Senior Vice President, Merchandising and Education Kersten Zupfer 48 Executive Vice President, Chief Financial Officer John Davi was appointed to Executive Vice President and Chief Digital Officer in July 2022.
The top selling brands within the Company's retail assortment include: L'Oreal Professional Brands, Regis Private Label Brand, Designline ® , and Paul Mitchell. We also distribute our Designline brand through distribution channels, including Amazon.com and Walmart.com. Technology. In fiscal year 2022, we sold our proprietary back-office salon management system, Opensalon ® Pro to a third party, Zenoti.
The top selling brands within the Company's retail assortment include: L'Oreal Professional Brands, Regis Private Label Brand, Designline ® , and Paul Mitchell. We also distribute our Designline brand through distribution channels, including Amazon.com and Walmart.com. Marketing. Our marketing is brand specific and funded primarily from contractual contributions, based on sales, to the brand's cooperative advertising funds.
The sale is not expected to have a significant impact on the Company's operations or financial position. Corporate Trademarks: The Company holds numerous trademarks, both in the United States. and in many foreign countries.
Corporate Trademarks: The Company holds numerous trademarks, both in the United States and in many foreign countries.
The remaining 105 company-owned salons will be sold or closed when the leases expire. Industry Overview: The hair salon market is highly fragmented, with the vast majority of locations independently-owned and operated. However, the influence of salon chains, both franchised and corporate-owned, continues to grow within this market.
The remaining 68 company-owned salons will be sold or closed when the related leases expire or terminate. Industry Overview: The hair salon market is highly fragmented, with the vast majority of locations independently-owned and operated. In nearly every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices.
The Company continually strives to improve its performance in each of these areas and to create additional points of brand differentiation versus the competition. 4 Table of Contents Salon Franchising Program: General. We have various franchise support functions our 5,395 franchised salons as of June 30, 2022, consisting mainly of Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters and Roosters salons.
The Company continually strives to improve its performance in each of these areas and to create additional points of brand differentiation versus the competition. 4 Table of Conte n t s Salon Franchising Program: General.
Ferranti served as Head of M&A and Franchising for Subway Restaurants U.S. and Canada on their Development team. Prior to Subway Restaurants, Mr. Ferranti held a variety of senior leadership roles with Le Pain Quotidien, KraftHeinz and Restaurant Brands International. Jim Lain was appointed to Executive Vice President and Chief Operating Officer in December 2021.
Michael Ferranti was appointed to Executive Vice President and Chief People Officer in December 2021. Previously, he served as Senior Vice President, People and Culture from March 2021 to December 2021. Before joining the Company, Mr. Ferranti served as Head of M&A and Franchising for Subway Restaurants U.S. and Canada, a restaurant brand, from September 2020 to March 2021.
Prior to joining the Company, he served as Chief Product Officer for BriteCore, Senior Vice President of Product at MINDBODY, Inc, founding Vice President of Product for Diffbot, and Head of Engineering for Cisco Systems' Media Solutions Group.
Davi served as an advisor at Apostrophe, a wellness and fitness services company, from July 2012 to October 2021, as Chief Product Officer for BriteCore, a cloud-based insurance solution for personal and commercial insurance providers, from November 2019 to November 2020, Senior Vice President of Product at MINDBODY, Inc, a wellness and fitness services company, from February 2018 to September 2019, founding Vice President of Product for Diffbot, and Head of Engineering for Cisco Systems' Media Solutions Group.
We take a service-oriented mentality to best support our franchisees and stylists in an effort to ensure guest satisfaction by helping our franchisees drive their business, as well as overseeing our company-owned operations. Organization. Salon Support and our associated priorities are aligned with our brands to enhance the effectiveness and efficiency of the service we provide. Simplification.
Salon Support and our associated priorities are aligned with our brands to enhance the effectiveness and efficiency of the service we provide.
(EEG), which is accounted for as an equity method investment. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. EEG operates accredited cosmetology schools. We entered into an agreement to sell our stake in EEG to the controlling owner in fiscal year 2020, the closing of which is pending state approvals.
We entered into an agreement to sell our stake in EEG to the controlling owner in fiscal year 2020, the closing of which is pending state approvals. The sale is not expected to have a significant impact on the Company's operations or financial position.
As of June 30, 2022, the Company franchised, owned or held ownership interests in 5,576 locations worldwide. The Company's locations consist of 5,395 franchised salons, 105 company-owned salons, and 76 locations in which we maintain a non-controlling ownership interest. Each of the Company's salon concepts generally offer similar salon products and services.
As of June 30, 2023, the Company franchised or owned 4,863 locations, primarily in North America. The Company's locations consist of 4,795 franchised salons and 68 company-owned salons. Each of the Company's salon concepts generally offer similar salon products and services. The major services supplied by the salons are haircutting and styling (including shampooing and conditioning) and hair coloring.
Removed
Management believes salon chains will continue to have significant influence on this market and will continue to increase their presence due to name recognition and benefits that come with scale. In nearly every area in which the Company has a salon, there are competitors offering similar hair care services and products at similar prices.
Added
We also use mobile applications to allow guests to view wait times and interact in other ways with salons. Salon Support. Our corporate headquarters is referred to as Salon Support. We take a service-oriented mentality to best support our franchisees and oversee our remaining company-owned locations.
Removed
Guest and stylist safety is our first priority and became even more important by the novel strain of coronavirus and all related variants (COVID-19). We have invested heavily in safety and personal protective equipment and training employees on safety measures.
Added
The tables below set forth the number of system-wide locations (Franchised and Company-owned) and activity within the various salon concepts.
Removed
Our salon repairs and maintenance program is designed to ensure we invest in salon cleanliness and safety, as well as in maintaining the normal operation of our company-owned salons. The Company's salons range from 500 to 5,000 square feet, with the typical salon approximating 1,200 square feet. Retail Assortments.
Added
(2) During fiscal years 2023, 2022 and 2021, the Company acquired 0, 0 and 1 salon locations, respectively, from franchisees.
Removed
A portion of our marketing funds are used in support of stylist recruitment to grow the number of active stylists in our system. Stylists Our Company depends on its stylists to help deliver great guest experiences. We believe in the importance of the ongoing development of our stylists' craft.
Added
Previously, he served as Executive Vice President and Chief Technology Officer from October 2021 to July 2022. Prior to joining the Company, Mr.
Removed
Our ongoing simplification efforts focus on aligning our cost structure with our transition to an asset-light franchise model and improving the way we plan and execute across our portfolio of brands.
Added
Michelle DeVore was appointed to Senior Vice President, Marketing in August 2022. Prior to joining the Company, Ms. DeVore was Vice President, Customer Experience at European Wax Center, a chain of hair removal salons, from November 2019 to August 2022. Prior to European Wax Center, Ms.
Removed
In fiscal year 2022 and 2021, we completed a corporate reorganization based on a zero-based budgeting philosophy to ensure each employee was performing the "right work," each team was the "right size" based on resources and priorities and overall, we have the "right structure" to succeed as a company.
Added
DeVore served as consultant at StudioMDV, LLC, an advertising services company, from March 2019 to August 2022, as Vice President E-commerce Marketing at Aerus LLC, an air and surface purification manufacturer, from October 2017 to March 2019, and she directed digital transformation and growth in a variety of roles and as a consultant focused on brand strategy, digital innovation and e-commerce.
Removed
Our People As of June 30, 2022, the Company employed approximately 630 employees; 122 of whom were corporate employees serving the Company's headquarters in Minnesota, 10 of whom served at its product engineering headquarters in California, 52 of whom provided artistic education to its hair care salons, and the remainder of whom served as field employees or at its company-owned salons.
Added
Prior to Subway Restaurants, Mr. Ferranti served as Global Head of Development, HR, IT - Chief Administrative Officer of Le Pain Quotidien, a chain of bakery restaurants, from October 2018 to November 2019, and held a variety of leadership roles with KraftHeinz and Restaurant Brands International previous to that.
Removed
As of June 30, 2022, racial minorities comprise over 32% of the Company's U.S. workforce, which is summarized below. • 68% White • 12% Hispanic or Latinx • 9% Asian • 6% Black or African American • 1% American Indian or Alaska Native • 1% Native Hawaiian • 3% Two or more races Also, 85% of the Company's entire workforce are women and 15% are men.
Added
Jim Lain was appointed to Executive Vice President and Chief Operating Officer in December 2021. Previously, he served as President of SmartStyle from June 2021 to December 2021 and President of Portfolio Brands from December 2020 to June 2021. Mr.
Removed
The Beauty of Wellness, which was designed to help employees manage stress more effectively and create healthy habits and coping skills. And The Beauty of Being Tech-Enabled, where panelists discussed how technology fueled and disrupted their industries.
Added
Suarez had 25 years of combined salon operations and education experience at the Company, including as Vice President of Merchandising and Education from October 2021 to February 2022 and as Vice President of Education from August 2017, and he also holds a seat on the board of directors of Empire Education Group, Inc.
Removed
The Company also specifically condemns human trafficking and abuse of child labor. 11 Table of Contents Executive Officers of the Registrant: Information relating to the Executive Officers of the Company follows: Name Age Position John Davi 44 Executive Vice President, Chief Digital Officer Matthew Doctor 35 President and Chief Executive Officer Michael Ferranti 39 Executive Vice President, Chief People Officer Jim Lain 58 Executive Vice President, Chief Operating Officer James Suarez 47 Senior Vice President, Merchandising and Education Andra Terrell 51 Senior Vice President, General Counsel and Corporate Secretary Kersten Zupfer 47 Executive Vice President, Chief Financial Officer John Davi was appointed to Executive Vice President and Chief Technology Officer in October 2021, and Executive Vice President and Chief Digital Officer in July 2022.
Added
Zupfer served as Senior Vice President and Chief Accounting Officer from November 2017 to November 2019, prior to which she served as Vice President, Corporate Controller and Chief Accounting Officer from December 2014 to November 2017. 13 Table of Conte n t s
Removed
Prior to joining the Company, she served as Deputy General Counsel and Assistant Secretary of Cajun Operating Company for the Church's Chicken and Texas Chicken brands. Ms.
Removed
Terrell also served as Assistant General Counsel - Franchise for Luxottica Retail, Assistant General Counsel for General Nutrition Centers Inc., Franchise Counsel for Precision Tune Auto Care, Inc. and General Counsel of Decorating Den Systems, Inc. Kersten Zupfer was appointed to Executive Vice President and Chief Financial Officer in November 2019.
Removed
Such reports may be obtained by visiting the Public Reference Room of the SEC at 100 F Street NE, Washington, DC 20549, or by calling the SEC at 1-800-SEC-0330. All of our reports, proxy and information statements and other information are available on the SEC's internet site ( www.sec.gov ).

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

70 edited+18 added−30 removed63 unchanged
Biggest changeFailure to control costs may adversely affect our operating results. We must continue to control our expense structure. Failure to manage our cost of product, labor and benefit rates, advertising and marketing expenses, operating lease costs, other store expenses, or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results.
Biggest changeFailure to manage our labor and benefit rates, advertising and marketing expenses, professional fees, operating lease costs, other expenses, or indirect spending could delay or prevent us from achieving increased profitability or otherwise adversely affect our operating results. 22 Table of Conte n t s If we are not able to successfully compete in our business markets, our financial results may be affected.
A number of U.S. states, Canadian provinces, and municipalities in which we do business with have recently increased, or are considering increasing, the minimum wage, with increases generally phased over several years depending upon the size of the employer.
A number of U.S. states, Canadian provinces, and municipalities in which we do business have recently increased, or are considering increasing, the minimum wage, with increases generally phased over several years depending upon the size of the employer.
In addition, we must comply with state employment laws, including the California Labor Code, which has stringent requirements and penalties for non-compliance. Various state and federal laws govern our relationships with our franchisees and our potential sale of a franchise.
In addition, we and our franchisees must comply with state employment laws, including the California Labor Code, which has stringent requirements and penalties for non-compliance. Various state and federal laws govern our relationships with our franchisees and our potential sale of a franchise.
Our ability to use our U.S. net operating loss carryforwards to offset future taxable income may be subject to certain limitations. Utilization of the net operating loss carryforwards may be subject to an annual limitation if an ownership change under Section 382 of the Internal Revenue Code of 1986 occurs.
Our ability to use our U.S. net operating loss carryforwards to offset future taxable income may be subject to certain limitations. Utilization of the net operating loss carryforwards may be subject to an annual limitation if an ownership change occurs under Section 382 of the Internal Revenue Code of 1986.
Operating SmartStyle salons adds complexity in overseeing franchise compliance and coordination with Walmart. Additionally, there are various remodel requirements of our franchisees, whether it be upon lease expiration or the remodeling of a Walmart location. To the extent Walmart accelerates the pace of their own store remodels, our stores in remodeled Walmart locations would be held to the same standard.
Operating SmartStyle salons adds complexity in overseeing franchise compliance and coordination with Walmart. Additionally, there are various remodel requirements of our franchisees, whether it be upon lease expiration or the remodeling of a Walmart location. To the extent Walmart accelerates the pace of their own store remodels, our salons in remodeled Walmart locations would be held to the same standard.
Our success depends, in part, on our ability to anticipate, gauge and react in a timely manner to changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns. If we do not timely identify and properly respond to evolving trends and changing consumer demands for hair care or services, our sales may decline.
Our success depends, in part, on our ability to anticipate, gauge and react in a timely manner to changes in consumer tastes, hair product innovation, fashion trends and consumer spending patterns. If we do not timely identify and properly respond to evolving trends and changing consumer demands for hair care or services, salon sales may decline.
In addition, labor shortages and increases in minimum wage requirements may impact the number of stylists considering careers outside the beauty industry. In most markets, we and our franchisees have experienced a shortage of qualified stylists or a reduction in the hours stylist will work.
In addition, labor shortages and increases in minimum wage requirements may impact the number of stylists considering careers outside the beauty industry. In most markets, we and our franchisees have experienced a shortage of qualified stylists or a reduction in the hours stylists will work.
All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products and packages we buy, for either use on a guest during a service or resale to the public, comply with all safety and quality standards.
All our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products and packages we buy, for either use on a guest during a service or resale to the public, comply with all safety and quality standards.
As laws and regulations rapidly evolve to govern the use of these platforms, the failure by us, our employees or third parties acting at our direction, to abide by applicable laws and regulations in the use of these platforms could adversely affect our business, financial condition and revenues.
As laws and regulations rapidly evolve to govern the use of these platforms, the failure by us, our employees, franchisees or third parties acting at our direction, to abide by applicable laws and regulations in the use of these platforms could adversely affect our business, financial condition and revenues.
Our dependence upon vendors exposes us to operational, reputational, financial and compliance risk. If our product offerings do not meet our guests' expectations regarding safety and quality, we could experience lost sales, increased costs, and exposure to legal and reputational risk.
Our dependence upon vendors exposes us to operational, reputational, financial and compliance risk. If salon product offerings do not meet guests' expectations regarding safety and quality, we could experience lost sales, increased costs, and exposure to legal and reputational risk.
Other incidents may arise from events that may be beyond our control and may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare or otherwise, litigation and claims, security breaches or other fraudulent activities associated with our back-office management or payment systems, and illegal activity targeted at us or others.
Other incidents may arise from events that may be beyond our control and may damage our brands, such as actions taken (or not taken) by one or more franchisees or their employees relating to health, safety, welfare, social issues or otherwise, litigation and claims, security breaches or other fraudulent activities associated with our back-office management or payment systems, and illegal activity targeted at us or others.
Our success depends substantially on the value of our brands. Our success depends, in large part, on our ability to maintain and enhance the value of our brands, our customers' connection to our brands and a positive relationship with our franchisees.
Our success depends, in large part, on our ability to maintain and enhance the value of our brands, our customers' connection to our brands and a positive relationship with our franchisees.
In addition, a growing number of states, provinces and municipalities have passed, or are considering passing, requirements for paid sick leave, family leave, predictive scheduling (which imposes penalties for changing an employee's shift as it nears), and other requirements that increase the administrative complexity of managing our workforce.
In addition, a growing number of states, provinces and municipalities have passed, or are considering passing, requirements for paid sick leave, family leave, predictive scheduling (which imposes penalties for changing an employee's shift as it nears), and other requirements that increase the administrative complexity and cost of managing a workforce.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results and prevent or detect material misstatement due to fraud, which could reduce investor confidence and adversely affect the value of our common stock.
If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to accurately report our financial results and prevent or detect material misstatements due to fraud, which could reduce investor confidence and adversely affect the value of our common stock.
Additionally, we plan to increase our digital marketing efforts, and the success of those efforts are dependent upon our franchisee's migration to the Zenoti salon technology platform and customers opting-in to receive marketing messages from us. Our success depends substantially on the migration of our Franchisees to the Zenoti salon technology platform.
Additionally, we plan to increase our digital marketing efforts, and the success of those efforts is dependent upon our franchisee's migration to the Zenoti salon technology platform and customers opting-in to receive marketing messages from us. Our success depends substantially on the migration of our franchisees to the Zenoti salon technology platform.
The franchise agreements require each franchisee to maintain specified insurance coverages and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks.
Our franchise agreements require each franchisee to maintain specified insurance coverages and levels. Certain extraordinary hazards, however, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and effectively prevent and detect material fraud. If we cannot provide reliable financial reports or prevent or detect material fraud, our operating results could be materially misstated.
Effective internal controls over financial reporting is necessary for us to provide reliable financial reports and effectively prevent and detect material fraud. If we cannot provide reliable financial reports or prevent or detect material fraud, our operating results could be materially misstated.
There has been a substantial increase in the use of social media platforms, which allow individuals to be heard by a broad audience of consumers and other interested persons. Negative or false commentary regarding us or the products or services we offer may be posted on social media platforms at any time.
There has been a substantial increase in the use of social media platforms, which allow individuals to be heard by a broad audience of consumers and other interested persons. Negative or false commentary regarding our brands or the products or services we offer may be posted on social media platforms at any time.
If we fail to comply with our existing financing arrangements, such a failure may cause a default under our financing arrangement, which could limit our ability to obtain new replacement financing or additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligation to repay our indebtedness.
If we fail to comply with the terms in our existing financing arrangements, such a failure may cause a default under our financing arrangement, which could limit our ability to obtain new replacement financing or additional financing under our existing credit facility, require us to pay higher levels of interest or accelerate our obligation to repay our indebtedness.
A deterioration in the financial results of our franchisees, a failure of our franchisees to renew their franchise agreements or closure of locations could adversely affect our operating results through decreased royalty payments and fees. We also must continue to attract qualified franchisees and work with them to make their businesses successful.
A deterioration in the financial results of our franchisees, a failure of our franchisees to renew their franchise agreements or closure of locations adversely affects our operating results through decreased royalty payments and fees. We also must continue to attract qualified franchisees and work with them to make their businesses successful.
We rely on external vendors for the manufacture, supply and distribution of our owned brand products, other retail products we sell, and products we use during salon services, such as color and chemical treatments. We also rely on external vendors for various services critical to our operations and the security of certain Company data.
We, along with our franchisees, rely on external vendors for the manufacture, supply and distribution of our owned brand products, other retail products we sell, and products we use during salon services, such as color and chemical treatments. We also rely on external vendors for various services critical to our operations and the security of certain Company data.
If we fail to comply with any present or future laws or regulations, we could be subject to future liabilities or a prohibition on the operation of our salons.
If we or our franchisees fail to comply with any present or future laws or regulations, we or they could be subject to future liabilities or a prohibition on the operation of salons.
As of June 30, 2022, we had 1,695 SmartStyle or Cost Cutters salons within Walmart locations. Walmart is our largest landlord. Our business within each of those 1,695 salons relies primarily on the traffic of visitors to the Walmart location, so our success is tied to Walmart's success in bringing shoppers into their stores.
As of June 30, 2023, we had 1,436 SmartStyle or Cost Cutters salons within Walmart locations. Walmart is our largest landlord. Business within each of those 1,436 salons relies primarily on the traffic of visitors to the Walmart location, so our success is tied to Walmart's success in bringing shoppers into their stores.
Financial and Economic Risks If we fail to comply with any of the covenants in our existing financing arrangement, we may not be able to access our existing revolving credit facility, and we may face an accelerated obligation to repay our indebtedness.
If we fail to comply with any of the covenants in our existing financing arrangement, we may not be able to access our existing revolving credit facility, and we may face an accelerated obligation to repay our indebtedness.
Our franchise agreements may be subject to premature termination in certain circumstances, such as failure of a franchisee to cure a default, monetary or otherwise, a franchisee bankruptcy, voluntary termination, or abandonment of the franchise.
Premature termination of franchise agreements can cause losses. Our franchise agreements may be subject to premature termination in certain circumstances, such as failure of a franchisee to cure a default, monetary or otherwise, a franchisee bankruptcy, voluntary termination, or abandonment of the franchise.
As of June 30, 2022, 98.1% of our salons were franchised locations. We derive revenues associated with our franchised locations primarily from royalties and fees. Our financial results are therefore substantially dependent upon the operational and financial success of our franchisees. As a franchise business, we are dependent on our franchisees.
As of June 30, 2023, 98.6% of our salons were franchised locations. We derive revenues associated with our franchised locations primarily from royalties and fees. Our financial results are therefore substantially dependent upon the operational and financial success of our franchisees. As a franchise business, we are dependent on our franchisees.
A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; limiting our ability to issue additional securities or obtain additional financing in the future; decreasing the amount of news and analyst coverage of us; and causing us reputational harm with investors, our employees, and parties conducting business with us. 17 Table of Contents Operating Risks We are now substantially dependent on franchise royalties and the overall success of our franchisees' salons.
A delisting of our common stock could negatively impact us by, among other things, reducing the liquidity and market price of our common stock; reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; limiting our ability to issue additional securities or obtain additional financing in the future; decreasing the amount of news and analyst coverage of us; and causing us reputational harm with investors, our employees, and parties conducting business with us. 16 Table of Conte n t s Operating Risks We are substantially dependent on franchise royalties and the overall success of our franchisees' salons.
However, franchisees may not have access to capital, labor, etc., to support their growth. 19 Table of Contents Data security and data privacy compliance requirements could increase our costs, and cybersecurity incidents could result in the compromise of potentially sensitive information about our guests, franchisees, employees, vendors or Company and expose us to business disruption, negative publicity, costly government enforcement actions or private litigation and our reputation could suffer.
However, franchisees may not have access to capital, labor, etc., to support their growth. 18 Table of Conte n t s Data security and data privacy compliance requirements could increase our costs, and cybersecurity incidents could result in the compromise of potentially sensitive information about our guests, franchisees, employees, vendors, or Company and expose us to business disruption, negative publicity, costly government enforcement actions or private litigation and our reputation could suffer.
Furthermore, Walmart has the right to (a) close up to 100 of our salons per year for any reason, upon payment of certain buyout fees; (b) terminate lease agreements for breach, such as if we failed to conform with required operating hours, subject to a notice and cure period; (c) non-renew the lease agreements if our salons fail to reach certain sales thresholds; and (d) to terminate the lease if the Walmart store is closed.
Furthermore, Walmart has the right to (a) close up to 100 salons per year for any reason, upon payment of certain buyout fees; (b) terminate lease agreements for breach, such as if we failed to conform with required operating hours, subject to a notice and cure period; (c) non-renew the lease agreements if salons fail to reach certain sales thresholds; (d) impose penalties for failing to meet required operation hours; and (e) terminate the lease if the Walmart store is closed.
The cost of these remodels may be prohibitive to our franchisees and could lead to the Company bearing a portion of the cost, or closures if the remodel requirement is not satisfied. 20 Table of Contents Our future growth and profitability may depend, in part, on our ability to build awareness and drive traffic with advertising and marketing efforts and on delivering a quality guest experience to drive repeat visits to our salons.
The cost of these remodels may be prohibitive to our franchisees and could lead to the Company bearing a portion of the cost, or closures if the remodel requirement is not satisfied. 19 Table of Conte n t s Our future growth and profitability may depend, in part, on our ability to build awareness and drive traffic with advertising and marketing efforts and on delivering a quality guest experience to drive repeat visits to our salons.
In addition, actual losses may be higher than the amount accrued for a certain matter or in the aggregate. Any resolution of litigation or other legal or regulatory proceedings as well as claims could adversely affect our business, financial condition or revenues. 25 Table of Contents Item 1B. Unresolved Staff Comments None.
In addition, actual losses may be higher than the amount accrued for a certain matter or in the aggregate. Any resolution of litigation or other legal or regulatory proceedings as well as claims could adversely affect our business, financial condition or revenues. 24 Table of Conte n t s Item 1B. Unresolved Staff Comments None.
In addition, challenges in supporting our expanding franchise system could cause our operating results to suffer. If we are unable to effectively select and train new franchisees and support our growing franchisee base, it could affect our brand standards, cause disputes between us and our franchisees, and potentially lead to material liabilities.
In addition, challenges in supporting our franchise system could cause our operating results to suffer. If we are unable to effectively select and train new franchisees and support our growing franchisee base, it could affect our brand standards, cause disputes between us and our franchisees, and potentially lead to material liabilities. Our business is dependent on franchisees continuing to operate.
Increases in minimum wages and overtime pay result in an increase in our costs, and our ability to offset these increases through price increases may be limited. In fact, increases in minimum wages have increased our costs over the last five years.
Increases in minimum wages, employment taxes and overtime pay result in an increase in salon operating costs, and the salons' ability to offset these increases through price increases may be limited. In fact, increases in minimum wages have increased salon operating costs over the last five years.
Further, economic instability and other impactful events and circumstances in the regions in which our supplier and their manufacturers are located, the financial instability of our supplier, our supplier's failure to meet our terms and conditions or our supplier standards, product safety and quality issues, disruption or delay in the transportation of products from our supplier and their manufacturers to our salons, transport availability and cost, transport security, inflation and other factors relating to the suppliers and the areas in which they are located are beyond our control.
Further, events or circumstances beyond our control, including economic instability and other impactful events and circumstances in the regions in which our supplier and its manufacturers are located, the financial instability of our supplier, our supplier's failure to meet our terms and conditions or our supplier standards, product safety and quality issues, disruption or delay in the transportation of products from our supplier and its manufacturers to our salons, transport availability and cost, transport security, inflation and other factors relating to the supplier and the areas in which it operates, may adversely impact our and our franchisees' profitability.
Changes to the U.S., Canada and U.K.'s economies have an impact on our business. General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orders and other casualty events that influence consumer confidence and spending, may impact our business and results of operations.
General economic factors that are beyond our control, such as recession, inflation, deflation, tax rates and policy, energy costs, unemployment trends, extreme weather patterns, viruses, pandemics, stay-at-home orders, and other casualty events that influence consumer confidence and spending, may impact our business and results of operations.
The impacts of significant business disruptions could ultimately impair our ability to comply with our covenants, which could preclude our ability to access our credit facility or accelerate our debt repayment obligation, which is secured by a lien on substantially all of the Company's assets.
The impacts of significant business disruptions could ultimately impair our ability to comply with our covenants, which could preclude our ability to access our credit facility or accelerate our debt repayment obligation, which is secured by a lien on substantially all of the Company's assets. We have limited resources to invest in our business and execute on our strategic plans.
Also, any such conduct with respect to our franchisees could also result in litigation. We rely on external vendors for products and services critical to our operations.
Any such conduct with respect to our franchisees could also result in litigation. 20 Table of Conte n t s We rely on external vendors for products and services critical to our operations.
If our strategies are not successful in attracting, training and retaining stylists or in staffing salons, our same-store sales or the performance of our franchise business could experience periods of volatility or sales could decline and our results of operations could be adversely affected. 18 Table of Contents Our continued success depends, in part, on the success of our franchisees, which operate independently.
If our strategies are not successful in attracting, training, and retaining stylists or in staffing salons, our system-wide sales or the performance of our business could experience periods of volatility or sales could decline and our results of operations could be adversely affected. 17 Table of Conte n t s Our continued success depends, in part, on the success of our franchisees, which operate independently.
If we are not able to successfully compete in our business markets, our financial results may be affected. Competition on a market-by-market basis remains challenging as many smaller chain competitors are franchise systems with local operating strength in certain markets and the hair salon industry, as a whole, is fragmented and highly competitive for customers, stylists and prime locations.
Competition on a market-by-market basis remains challenging as many smaller chain competitors are franchise systems with local operating strength in certain markets and the hair salon industry, as a whole, is fragmented and highly competitive for customers, stylists and prime locations.
We maintain an enterprise risk management program that is designed to identify, assess, mitigate and monitor the risks that we face.
Our enterprise risk management program may leave us exposed to unidentified or unanticipated risks. We maintain an enterprise risk management program that is designed to identify, assess, mitigate and monitor the risks that we face.
Our business is dependent on franchisees continuing to operate. If a franchisee exits the franchise system, we need to recruit an existing or new franchisee to run that salon location or our salon count would decline and our revenues would decline. A decline in salon count could also reduce the value of our brands.
When a franchisee exits the franchise system, and we are unable to recruit an existing or new franchisee to run that salon location, our salon count and revenues decline. A decline in salon count could also reduce the value of our brands. Additionally, we are dependent on our franchisees to grow their business in order for our business to grow.
There can be no assurances that we will be able to prevent control deficiencies from occurring, which could cause us to incur unforeseen costs, reduce investor confidence, cause the market price of our common stock to decline or have other potential adverse consequences. 24 Table of Contents We could be subject to changes in tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.
There can be no assurances that we will be able to prevent control deficiencies from occurring, which could cause us to incur unforeseen costs, reduce investor confidence, cause the market price of our common stock to decline or have other potential adverse consequences.
In addition, with many of our brands, we remain liable under the lease and, therefore, will be obligated to pay rent or enter into a settlement with the landlord, and we may not be made whole by the franchisee.
In addition, with many of our brands, we remain liable under the lease and, therefore, will be obligated to pay rent or enter a settlement with the landlord, and we may not be made whole by the franchisee. A significant loss of franchisee agreements due to premature terminations could hurt our financial performance or our ability to grow our business.
In addition, any non-compliance with laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial condition and results of operations. 16 Table of Contents Changes in the general economic environment may impact our business and results of operations.
In addition, any non-compliance with laws or regulations could result in penalties, fines, product recalls and enforcement actions or otherwise restrict our ability to market certain products or attract or retain employees, which could adversely affect our business, financial condition and results of operations. We may be responsible for Empire Education Group, Inc.'s liabilities.
Also, product manufacturers may decide to utilize these other distribution channels to a larger extent than in the past and they generally have the right to terminate relationships with us with little advance notice. These trends could reduce the volume of foot traffic around our salons, and in turn, our revenues may be adversely affected.
Also, product manufacturers may decide to utilize these other distribution channels to a larger extent than in the past and they generally have the right to terminate relationships with us with little advance notice.
In 2020, we entered into an agreement to sell to the other owner our 55.1% ownership stake in Empire Education Group, Inc. (EEG), an operator of accredited cosmetology schools. The transaction is subject to regulatory approval before it can close, and there is no guarantee that the regulatory approval will occur, which has been delayed, in part, due to COVID-19.
Empire Education Group, Inc. may be unsuccessful, which could adversely affect our financial results. In 2020, we entered into an agreement to sell to the other owner our 55.1% ownership stake in EEG. The transaction is subject to regulatory approval before it can close, and there is no guarantee that the regulatory approval will occur.
The recent trend to work remotely reduces foot traffic in downtowns, city centers, and other business districts where our salons are located, causing a reduction in our revenue. As of June 30, 2022, we were not in compliance with New York Stock Exchange listing requirements.
Remote work arrangements reduce foot traffic in downtowns, city centers, and other business districts where our salons are located, causing a reduction in our revenue. We currently are not in compliance with New York Stock Exchange listing requirements.
Litigation and other legal or regulatory proceedings or claims and the outcome of such litigation, proceedings or claims, including possible fines and penalties, could have an adverse effect on our business and any loss contingency accruals may be inadequate to cover actual losses.
An ownership change could be triggered by subsequent sales of securities by us, or our shareholders and such a change of ownership may limit our utilization of net operating losses. 23 Table of Conte n t s Litigation and other legal or regulatory proceedings or claims and the outcome of such litigation, proceedings or claims, including possible fines and penalties, could have an adverse effect on our business and any loss contingency accruals may be inadequate to cover actual losses.
In order to profitably grow our business, it is important for our salons to attract, train and retain talented stylists and salon leaders and to adequately staff our salons. Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is typically highly competitive.
In order to profitably grow our business, it is important for our salons to attract, train and retain talented stylists and salon leaders and to adequately staff our salons.
Consumer demand for our products and services and our brands' value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products or services.
Consumer demand for our products and services and our brands' value could diminish significantly if any such incidents or other matters erode consumer confidence in us or our products or services. This could result in lower sales and, ultimately, lower royalty income, which could materially and adversely affect our business and operating results.
Increases in minimum wages, administrative requirements and unionization could also have an adverse effect on the performance of our franchisees, especially if the National Labor Relations Board (NLRB) treats our franchisees as "joint employers" with us or if our franchisees are classified as large employers under minimum wage statutes because of their affiliations with us.
If the National Labor Relations Board (NLRB) were to decide to treat our franchisees as "joint employers" with us or if our franchisees are classified as large employers under minimum wage statutes because of their affiliations with us, this could have an adverse impact on our business.
The success of our digital marketing efforts discussed previously, as well as providing franchisees with back-office and salon management, including walk-in or advanced appointments, is dependent upon our franchisees' adoption of the Zenoti point-of-sale software. We previously developed a mobile application, platform and salon management system called Opensalon Pro, which we sold to Soham, Inc. ("Zenoti"), in fiscal year 2022.
The success of our digital marketing efforts discussed previously, as well as our ability to provide franchisees with back-office and salon management support, including walk-in or advanced appointments, is dependent upon our franchisees' adoption of the Zenoti point-of-sale software.
As a result of a security incident or breach in our systems, our systems could be interrupted or damaged, and/or sensitive information could be accessed by third parties.
We have, from time to time, experienced threats to, and incidents involving, our systems and information, none of which have been material to date. As a result of a security incident or breach in our systems, our systems could be interrupted or damaged, and/or sensitive information could be accessed by third parties.
If our marketing, advertising, and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our company-owned and franchise-owned salons, our business, financial condition, and results of operations may be adversely affected.
We are focusing on improving guest experiences to provide brand differentiation and preference as well as ensure our guests' needs are met. If our marketing, advertising, and improved guest experience efforts do not generate sufficient customer traffic and repeat visits to our salons, our business, financial condition, and results of operations may be adversely affected.
We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies. We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes and payroll tax accruals.
We regularly assess the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of our provision for income taxes and payroll tax accruals. There can be no assurances as to the outcome of these examinations.
If we are not able to identify the right level of support and effectively deliver those resources to our franchisees, our results of operations and business may be adversely affected.
If we are not able to identify the right level of support and effectively deliver those resources to our franchisees, our results of operations and business may be adversely affected. Furthermore, as a fully-franchised business, we may be exposed to additional legal, compliance and operational risks specific to this business model, including the business failure of unproven new salon owners.
Our salons are partly dependent on the volume of customer foot traffic around their locations to generate both service and product revenues. Customer foot traffic may be adversely affected by changing consumer shopping trends that favor internet-based shopping or alternative shopping methods or locations.
Because many of our salons are located in shopping centers, customer foot traffic may be adversely affected by changing consumer shopping trends that favor internet-based shopping or alternative shopping methods or locations.
That agreement requires us to receive certain payments based upon the migration of our salons to the Zenoti software. Additionally, some of our technology capabilities will require development by Zenoti, and thus if not developed, may adversely affect our digital marketing efforts as well as providing our franchisees with critical functionality and information.
Additionally, some of our technology capabilities will require development by Zenoti, and thus if not developed, may adversely affect our digital marketing efforts and our ability to provide our franchisees with critical functionality and information. Our success depends substantially on the value of our brands.
The results of an audit or litigation could have a material effect on our Consolidated Financial Statements in the period or periods where that determination is made.
Although we believe our tax estimates are reasonable, the final determination of tax audits, and any related litigation, could be materially different from our historical tax provisions and employment taxes. The results of an audit or litigation could have a material effect on our Consolidated Financial Statements in the period or periods where that determination is made.
We are subject to income taxes in the U.S. and other foreign jurisdictions. Significant judgment is required in determining our tax provision for income taxes. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain.
In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are subject to the examination of our income tax returns, payroll taxes and other tax matters by the Internal Revenue Service and other tax authorities and governmental bodies.
We exited our wholesale distribution business and entered into a preferred supplier agreement with a supplier. This change has and will continue to reduce our future revenue. If our new supplier is unable to source the products at the prices expected by our franchisees, our franchisees' profitability and our profitability may be adversely impacted.
If our new supplier is unable to source the products at the prices expected by our franchisees, our franchisees' profitability and our profitability may be adversely impacted.
This could result in lower sales and, ultimately, lower royalty income, which could materially and adversely affect our business and operating results. 21 Table of Contents We rely heavily on our information technology systems for our key business processes. If we experience an interruption in their operation, our results of operations may be affected.
We rely heavily on our information technology systems for our key business processes. If we experience an interruption in their operation, our results of operations may be affected. The efficient operation of our business is dependent on our management information systems.
If we are unable to improve our stock price to over $1.00 by December 13, 2022 and our market capitalization to greater than $50.0 million by December 13, 2023, we will be subject to the NYSE’s suspension and delisting procedures. We are closely monitoring the closing share price of our common stock and are considering all available options.
On September 1, 2022, we were notified we cured the minimum average closing price of $1.00 per share, but our average market capitalization was still non-compliant. If our average market capitalization is not greater than $50.0 million on December 13, 2023, we will be subject to the NYSE’s suspension and delisting procedures.
Moreover, any loss incurred could exceed policy limits and policy payments made to franchisees may not be made on a timely basis. Any such loss or delay in payment could have a material and adverse effect on a franchisee's ability to satisfy its obligations under its franchise agreement, including its ability to make royalty payments.
Moreover, any loss incurred could exceed policy limits and policy payments made to franchisees may not be made on a timely basis.
In addition, our management information systems are developed and maintained by external vendors and we are transitioning our franchisees onto the Zenoti salon technology platform beginning in fiscal year 2023.
Certain capabilities or entire systems may become outdated which could limit functionality. These management information systems may require upgrades or replacements periodically, which involve implementation and other operational risks. In addition, our management information systems are developed and maintained by external vendors, and we are transitioning our franchisees onto the Zenoti salon technology platform.
Franchisees may decide to close their salons and there may not be another franchisee willing to take over the business, which would decrease the size of our fleet and our revenues. We have exited our wholesale distribution business and entered into a preferred supplier agreement with a third party.
Franchisees who decide to close their salons when there is not another franchisee willing to take over their business decreases the size of our fleet and our royalty revenues.
Finally, changes in labor laws designed to facilitate union organizing, could increase the likelihood of some of our employees being subjected to greater organized labor influence. If a significant portion of our employees were to become unionized, it would have an adverse effect on our business and financial results.
If a significant portion of stylists were to become unionized, it would have an adverse effect on salon operations which adversely impacts our business and financial results.
Due to the number of people we or our franchisees employ, laws that increase minimum wage rates, employment taxes, overtime requirements or costs to provide employee benefits or administration may result in additional costs to our Company or our franchisees. 15 Table of Contents We are subject to laws and regulations that could require us to modify our current business practices and incur increased costs, which could have an adverse effect on our business, financial condition and revenues.
These changes in distribution channels could also reduce the volume of foot traffic around our salons, and in turn, our revenues may be adversely affected. 14 Table of Conte n t s We are subject to laws and regulations that could require us to modify our current business practices and incur increased costs, which could have an adverse effect on our business, financial condition and revenues.
The efficient operation of our business is dependent on our management information systems. We rely heavily on our management information systems to collect daily sales information and guest demographics, generate payroll information, monitor salon performance, manage salon staffing and payroll costs, and other functions.
We rely heavily on our management information systems to collect daily sales information and guest demographics, monitor salon performance, generate payroll information, and other functions. Such systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, hacker attempts, security breaches and natural disasters.
We could experience greater risks as the scale of our franchised salons increases. Further, some franchise owners may not successfully execute the rebranding and/or turnaround of under-performing salons that we have transferred to them.
We could experience greater risks as the scale of our franchised salons increases.
Removed
Item 1A. Risk Factors Business and Industry Risks The impact of the COVID-19 pandemic, including variants, and the measures implemented to contain the spread of the virus have had, and may continue to have, a material adverse impact on our business and results of operations.
Added
Item 1A. Risk Factors Business and Industry Risks Changes in consumer shopping trends and manufacturer choice of distribution channels may negatively affect both service and product revenues. Our salons are partly dependent on the volume of customer foot traffic around their locations to generate both service and product revenues.
Removed
Our operations expose us to risks associated with public health crises and epidemics/pandemics, such as COVID-19, that has spread globally. COVID-19 has had, and may continue to have, an adverse impact on our operations. The pandemic may affect the health and welfare of our stylist community, customers, franchise partners or Salon Support personnel.
Added
Increases in costs for our franchisees could lead to reduced profitability of salons, which may lead to salon closures. Finally, changes in labor laws designed to facilitate union organizing, could increase the likelihood of stylists being subjected to greater organized labor influence.
Removed
As of the date of this filing, our salons across essentially all geographies are allowed to be open; however, states may again decide to require the closure of salons as the level of COVID-19 cases continue to fluctuate.
Added
We have a majority ownership interest in Empire Education Group, Inc. (EEG), an operator of accredited cosmetology schools. EEG students receive significant federal financial aid through the U.S. Department of Education. The Department of Education has released proposed rules related to gainful employment that could be detrimental to EEG's business model.
Removed
Some of our franchisees, many of whom were in the early stages of developing their businesses prior to the onset of the pandemic, have chosen, or may choose, not to resume operation of their salons and/or are facing challenges rehiring employees, reestablishing operations with their landlords and other vendors, and attracting customers back to their salons.
Added
If EEG were to become insolvent, the Department of Education could hold the Company responsible for EEG's liabilities. 15 Table of Conte n t s Changes in the general economic environment may impact our business and results of operations. Changes to the U.S., Canada and U.K.'s economies have an impact on our business.
Removed
As a result, many of our franchisees requested reductions or other modifications to their royalty payments or other amounts due to us, which may be critical to their ability to reestablish operations, and they may simply be unable or unwilling to make lease, royalty or other payments to us and may be unable to continue to operate or may need to close their salons.
Added
We are closely monitoring the closing share price of our common stock and are considering all available options.

… 38 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

3 edited+2 added−2 removed1 unchanged
Biggest changeThe Company also leases the premises in which approximately 88% of its franchisees operate and has entered into corresponding sublease arrangements with these franchisees. Generally, these leases have a five-year initial term and one or more five-year renewal options. All lease costs are passed through to the franchisees.
Biggest changeGenerally, these leases have a five-year initial term and one or more five-year renewal options. All lease costs are passed through to the franchisees. Remaining franchisees who do not enter into sublease arrangements with the Company negotiate and enter into leases on their own behalf.
In fiscal year 2022, the Company exited its distribution centers located in Chattanooga, Tennessee and Salt Lake City, Utah and signed agreements to sublease the facilities in the short-term before a full lease novation in fiscal years 2023 and 2024.
Item 2. Properties The Company leases its corporate headquarters in Minneapolis, Minnesota, and the lease expires in 2030. In fiscal year 2022, the Company exited its distribution centers located in Chattanooga, Tennessee and Salt Lake City, Utah and signed agreements to sublease the facilities in the short-term before a full lease novation in fiscal years 2023 and 2024.
The Company operates all of its company-owned salons under lease agreements with original terms of at least five years, generally with the ability to renew at the Company's option, for one or more additional five-year periods.
As leases renew, the Company intends for franchisees to sign the non-Walmart leases directly so it will no longer be the primary tenant. The Company operates all its company-owned salons under lease agreements with original terms of at least five years, generally with the ability to renew at the Company's option, for one or more additional five-year periods.
Removed
Item 2. Properties The Company leases its corporate headquarters in Minneapolis, Minnesota and the lease expires in 2030. The Company also operated an office in Fremont, California related to its product engineering business, which it will exit in fiscal year 2023.
Added
The Company also exited its Fremont, California office in fiscal year 2023 and is actively trying to sublet the space that has a lease obligation through September 30, 2024. The Company leases the premises in which approximately 87% of its franchisees operate and has entered into corresponding sublease arrangements with these franchisees.
Removed
Remaining franchisees who do not enter into sublease arrangements with the Company negotiate and enter into leases on their own behalf. As leases renew, the Company intends for franchisees to sign the non-Walmart leases directly so it will no longer be the primary tenant.
Added
Approximately half of our company-owned salons have leases that expire in January 2024, which the Company does not intend to renew.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed3 unchanged
Biggest changeSee Note 9 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Item 4. Mine Safety Disclosures Not applicable. 26 Table of Contents PART II
Biggest changeSee Note 9 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+1 added−6 removed0 unchanged
Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Regis common stock is listed and traded on the New York Stock Exchange under the symbol "RGS." As of August 15, 2022, Regis had approximately 1,125 shareholders of record. The closing stock price was $1.27 per share on August 15, 2022.
Biggest changeItem 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Market Information The Company's common stock is listed and traded on the New York Stock Exchange under the symbol "RGS." Holders As of August 16, 2023, the Company had approximately 1,126 shareholders of record.
The Company issued the following common stock through its share issuance program: Fiscal Years 2022 2021 Issued Shares 9,295,618 — Average Price (per share) $4.13 $— Price range (per share) $3.76 - $5.99 $— Total $38.4 million $— Share Repurchase Program In May 2000, the Company's Board of Directors (Board) approved a stock repurchase program with no stated expiration date.
The Company issued the following common stock through its share issuance program: Fiscal Years 2023 2022 2021 Issued shares — 9,295,618 — Average price (per share) $ — $4.13 $ — Price range (per share) $ — $3.76 - $5.99 $ — Total $ — $38.4 million $ — Share Repurchase Program In May 2000, the Company's Board of Directors (Board) approved a stock repurchase program with no stated expiration date.
Since that time and through June 30, 2022, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company.
Since that time and through June 30, 2023, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company.
On June 30, 2022, $11.6 million remains under the prospectus supplement, which equates to 10.7 million shares based on the share price as of June 30, 2022.
As of June 30, 2023, $11.6 million remains available under the prospectus supplement, which equates to 10.4 million shares based on the share price as of June 30, 2023.
The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. There were no shares repurchased in the fiscal year ended June 30, 2022. As of June 30, 2022, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase.
The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. During fiscal year 2023, the Company did not repurchase shares. As of June 30, 2023, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase.
The Company does not anticipate repurchasing shares of common stock for the forseeable future. Item 6. Reserved Not applicable. 29 Table of Contents
The Company does not anticipate repurchasing shares of common stock for the foreseeable future.
In accordance with its capital allocation policy, the Company does not pay dividends.
The closing stock price was $1.23 per share on August 16, 2023. Dividends In accordance with its capital allocation policy, the Company does not pay dividends.
Removed
The following graph compares the cumulative total shareholder return on the Company's stock for the last five years with the cumulative total return of the Standard and Poor's 500 Stock Index and the cumulative total return of a peer group index (the Peer Group) constructed by the Company.
Added
Share Issuance Program On February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings. During fiscal year 2023, the Company did not issue shares.
Removed
In addition, the Company has included the Standard and Poor's 400 Midcap Index and the Dow Jones Consumer Services Index in this analysis because the Company believes these two indices provide a comparative correlation to the cumulative total return of an investment in shares of Regis Corporation.
Removed
The Peer Group consists of the following companies: Brinker International, Inc., The Cheesecake Factory, Inc., Cracker Barrel Old Country Store, Inc., Dine Brands Global, Inc., Fossil Group, Inc., Franchise Group, Inc., Jack in the Box, Inc., Papa John's International, Inc., Penn National Gaming, Inc., Planet Fitness, Inc., Revlon, Inc., Sally Beauty Holdings, Inc., Service Corporation International, Ulta Beauty, Inc. and Winmark Corporation.
Removed
The Peer Group is a self-constructed peer group of companies that are in the franchise industry, beauty industry, or other industries where guest service, multi-unit expansion or franchise play a part. Information regarding executive compensation will be set forth in the 2022 Proxy Statement.
Removed
The comparison assumes the initial investment of $100 in the Company's common stock, the S&P 500 Index, the Peer Group, the S&P 400 Midcap Index and the Dow Jones Consumer Services Index on June 30, 2017 and that dividends, if any, were reinvested. 27 Table of Contents Comparison of Five Year Cumulative Total Return Assumes Initial Investment of $100 June 30, 2022 June 30, 2017 2018 2019 2020 2021 2022 Regis $ 100.00 $ 161.05 $ 161.64 $ 79.65 $ 91.14 $ 10.52 S & P 500 100.00 114.37 126.29 135.77 191.15 170.86 S & P 400 Midcap 100.00 113.50 115.05 107.35 164.49 140.41 Dow Jones Consumer Services Index 100.00 119.57 136.11 145.76 201.67 142.15 Peer Group 100.00 101.26 122.30 93.22 155.12 128.66 28 Table of Contents Share Issuance Program On February 3, 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.
Removed
During fiscal year 2022, the Company issued 9.3 million shares for proceeds of $38.4 million offset by fees of $1.2 million. There were no shares issued in the fiscal quarter ended June 30, 2022.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

87 edited+19 added−35 removed28 unchanged
Biggest changeFiscal Years 2022 2021 2022 2021 2022 (Dollars in millions) % of Total Revenues (1) Increase (Decrease) Royalties $ 65.8 $ 52.4 23.8 % 12.7 % 1,110 Fees 11.6 10.2 4.2 2.6 160 Product sales to franchisees 15.1 56.7 5.5 13.8 (830) Advertising fund contributions 32.6 22.0 11.8 5.3 650 Franchise rental income 130.8 127.4 47.4 30.9 1,650 Company-owned salon revenue 20.2 143.0 7.3 34.7 (2,740) Cost of product sales to franchisees (2) 17.4 43.8 115.2 77.2 3,800 Inventory reserve 7.7 — 2.8 — N/A General and administrative 65.3 96.4 23.7 23.4 30 Rent 9.4 40.8 3.4 9.9 (650) Advertising fund expense 32.6 22.0 11.8 5.3 650 Franchise rent expense 130.8 127.4 47.4 30.9 1,650 Company-owned salon expense 22.0 141.2 8.0 34.3 (2,630) Depreciation and amortization 6.2 21.7 2.2 5.3 (310) Long-lived asset impairment 0.5 13.0 0.2 3.2 (300) Goodwill impairment 13.1 — 4.7 — N/A Operating loss (3) (28.9) (94.7) (10.5) (23.0) 1,250 Interest expense (12.9) (13.2) (4.7) (3.2) (150) Loss from sale of salon assets to franchisees, net (2.3) (16.7) (0.8) (4.1) 330 Interest income and other, net (0.3) 15.9 (0.1) 3.9 (400) Income tax (expense) benefit (4) (2.0) 5.4 (4.5) 5.0 N/A Loss from discontinued operations, net of taxes (39.4) (10.1) (14.3) (2.5) (1,180) Net loss (3) (85.9) (113.3) (31.1) (27.5) (360) ____________________________________________________________________________ (1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees.
Biggest changeFiscal Years 2023 2022 2021 2023 2022 2021 2023 2022 (Dollars in millions) % of Total Revenues (1) Increase (Decrease) Royalties $ 66.0 $ 65.8 $ 52.4 28.4 % 23.8 % 12.7 % 460 1,110 Fees 11.3 11.6 10.2 4.8 4.2 2.6 60 160 Product sales to franchisees 2.8 15.1 56.7 1.2 5.5 13.8 (430) (830) Advertising fund contributions 31.7 32.6 22.0 13.6 11.8 5.3 180 650 Franchise rental income 111.4 130.8 127.4 47.7 47.4 30.9 30 1,650 Company-owned salon revenue 10.1 20.2 143.0 4.3 7.3 34.7 (300) (2,740) Cost of product sales to franchisees 3.5 17.4 43.8 125.0 115.2 77.2 980 3,800 Inventory reserve 1.2 7.7 — 0.5 2.8 — (230) N/A General and administrative 50.8 65.3 96.4 21.8 23.7 23.4 (190) 30 Rent 9.2 9.4 40.8 3.9 3.4 9.9 50 (650) Advertising fund expense 31.7 32.6 22.0 13.6 11.8 5.3 180 650 Franchise rent expense 111.4 130.8 127.4 47.7 47.4 30.9 30 1,650 Company-owned salon expense 8.8 22.0 141.2 3.8 8.0 34.3 (420) (2,630) Depreciation and amortization 7.7 6.2 21.7 3.3 2.2 5.3 110 (310) Long-lived asset impairment 0.1 0.5 13.0 — 0.2 3.2 (20) (300) Goodwill impairment — 13.1 — — 4.7 — (470) N/A Operating income (loss) (2) 8.8 (28.9) (94.7) 3.8 (10.5) (23.0) 1,430 1,250 Interest expense (22.1) (12.9) (13.2) (9.5) (4.7) (3.2) (480) (150) Loss from sale of salon assets to franchisees, net — (2.3) (16.7) — (0.8) (4.1) 80 330 Other, net 1.4 (0.3) 15.9 0.6 (0.1) 3.9 70 (400) Income tax benefit (expense) (3) 0.7 (2.0) 5.4 5.5 (4.5) 5.0 N/A N/A Income (loss) from discontinued operations 4.0 (39.4) (10.1) 1.7 (14.3) (2.5) 1,600 (1,180) Net loss (2) (7.4) (85.9) (113.3) (3.2) (31.1) (27.5) 2,790 (360) ____________________________________________________________________________ (1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees.
While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that we expect will result in a material liability. We do not have any unconditional purchase obligations or significant other commercial commitments such as standby repurchase obligations or other commercial commitments.
While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that we expect will result in a material liability. We do not have any unconditional purchase obligations or significant other commercial commitments such as standby repurchase obligations.
The impairment loss for each salon asset group that was recognized was allocated among the long-lived assets of the group on a pro-rata basis using their relative carrying amounts. Additionally, the impairment losses did not reduce the carrying amount of an individual asset below its fair value, including for the ROU assets included in the salon asset groups.
The impairment loss for each salon asset group that was recognized was allocated among the long-lived assets of the group on a pro-rata basis using their relative carrying amounts. Additionally, the impairment losses did not reduce the carrying amount of an individual asset below its fair value, including the ROU assets included in the salon asset groups.
Additionally, on February 3, 2021, the Company filed a $150 million shelf registration and $50 million prospectus supplement with the Securities and Exchange Commission under which it may offer and sell, from time to time, up to $50 million worth of its common stock in "at-the-market" offerings.
Additionally, on February 3, 2021, the Company filed a $150.0 million shelf registration and $50.0 million prospectus supplement with the Securities and Exchange Commission under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.
The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate impairment losses for its long-lived asset, including its ROU assets.
The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate impairment losses for its long-lived assets, including its ROU assets.
The Company has unfunded deferred compensation contracts covering certain management and executive personnel. We cannot predict the timing or amount of future payments related to these contracts. See Note 11 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. As of June 30, 2022, we have liabilities for uncertain tax positions.
The Company has unfunded deferred compensation contracts covering certain management and executive personnel. We cannot predict the timing or amount of future payments related to these contracts. See Note 11 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. As of June 30, 2023, we have liabilities for uncertain tax positions.
The carrying value of the reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or corporate balances among reporting units.
The carrying value of each reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or corporate balances among reporting units.
The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. During fiscal year 2022, the Company did not repurchase any shares. As of June 30, 2022, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase.
The timing and amounts of any repurchases depends on many factors, including the market price of the common stock and overall market conditions. During fiscal year 2023, the Company did not repurchase shares. As of June 30, 2023, 30.0 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase.
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes at June 30, 2022.
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes at June 30, 2023.
Non-current deferred benefits of $6.3 million includes $1.8 million related to a non-qualified deferred salary plan, a salary deferral program of $2.3 million and a bonus deferral plan of $2.2 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees.
Non-current deferred benefits of $6.0 million includes $1.8 million related to a non-qualified deferred salary plan, a salary deferral program of $2.0 million and a bonus deferral plan of $2.2 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees.
Since that time and through June 30, 2022, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company.
Since that time and through June 30, 2023, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company.
In fiscal years 2022 and 2021, the Company experienced the following charges related to the plan to exit the distribution centers: Fiscal Years 2022 2021 Financial Statement Caption (Dollars in thousands) Inventory reserve (1) Inventory reserve $ 7,655 $ — Inventory valuation adjustment (2) Company-owned salon expense 2,823 12,068 Gain from disposal of distribution center assets Interest income and other, net — (14,997) ____________________________________________________________________________ (1) Includes charges in the third and fourth quarter of fiscal year 2022 associated with the liquidation of distribution center inventory, which primarily related to reserving for personal protective equipment acquired as a result of the COVID-19 pandemic.
In fiscal years 2023, 2022 and 2021, the Company experienced the following charges related to the exit of the distribution centers: Fiscal Years 2023 2022 2021 Financial Statement Caption (Dollars in thousands) Inventory reserve (1) Inventory reserve $ 1,228 $ 7,655 $ — Inventory valuation adjustment (2) Company-owned salon expense — 2,823 12,068 Gain from disposal of distribution center assets Other, net — — (14,997) ____________________________________________________________________________ (1) Includes charges in the third and fourth quarter of fiscal year 2022 associated with the liquidation of distribution center inventory, which primarily related to reserving for personal protective equipment acquired as a result of the COVID-19 pandemic.
Under the amendment, the revolving credit facility was converted to a $180.0 million term loan and $55.0 million revolving credit facility with the minimum liquidity covenant reduced to $10.0 million from $75.0 million.
Under the amendment, the $295.0 million revolving credit facility was converted to a $180.0 million term loan and reduced commitments under the revolving credit facility to $55.0 million, with the minimum liquidity covenant reduced to $10.0 million from $75.0 million.
(2) Franchise same-store sales in fiscal year 2022 and 2021 are calculated as the total change in sales for franchise locations that were open on a specific day of the week during the current period and the corresponding prior period. Year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis.
(2) Franchise same-store sales are calculated as the total change in sales for franchise locations that were open on a specific day of the week during the current period and the corresponding prior period. Year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis.
In fiscal year 2022, the Company exited its distribution centers and ceased selling products to franchisees. Going forward, franchisees will source product from a third-party distribution partner and the Company receives a royalty payment based on franchisee purchases.
In fiscal year 2022, the Company exited its distribution centers and ceased selling products to franchisees. Franchisees source product from a third-party distribution partner and the Company receives a royalty payment based on franchisee purchases.
See Note 5 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Year-to-date system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales.
System-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales.
We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Goodwill As of June 30, 2022 and 2021, the Franchise reporting unit had $174.4 and $229.6 million of goodwill, respectively, and the Company-owned segment had no goodwill at either period.
We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Goodwill As of June 30, 2023 and 2022, the Franchise reporting unit had $173.8 and $174.4 million of goodwill, respectively, and the Company-owned segment had no goodwill at either period.
Income Tax (Expense) Benefit During fiscal year 2022, the Company recognized tax expense of $(2.0) million, with a corresponding effective tax rate of (4.5)%, compared to recognizing a tax benefit of $5.4 million, with a corresponding effective tax rate of 5.0% during fiscal year 2021.
Income Tax Benefit (Expense) During fiscal year 2023, the Company recognized an income tax benefit of $0.7 million, with a corresponding effective tax rate of 5.5%, compared to recognizing income tax expense of $2.0 million, with a corresponding effective tax rate of (4.5)% during fiscal year 2022.
While the determination of whether or not to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance. The Company has a valuation allowance on its deferred tax assets amounting to $201.7 and $192.5 million at June 30, 2022 and 2021, respectively.
While the determination of whether to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance. The Company has a valuation allowance on its deferred tax assets amounting to $202.2 and $201.7 million at June 30, 2023 and 2022, respectively.
Effective March 27, 2023, the margin will increase to 6.25%, of which 4.25% will be paid currently in cash and 2.00% will be paid in kind (PIK) interest (added to the principal balance and thereafter accruing interest).
Effective March 27, 2023, the margin increased to 6.25%, of which 4.25% is paid currently in cash and 2.00% is paid-in-kind (PIK) interest (added to the principal balance and thereafter accruing interest). Effective March 27, 2024, the margin will increase to 7.25%, of which 4.25% will be paid currently in cash and 3.00% will be PIK interest.
The Company has identified its asset groups at the individual salon level as this represents the lowest level that identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Poor salon performance in fiscal years 2022 and 2021, primarily due to the COVID-19 pandemic, resulted in ASC 360-10-35-21 triggering events.
The Company has identified its asset groups at the individual salon level as this represents the lowest level that identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Poor salon performance in fiscal years 2023, 2022 and 2021 resulted in ASC 360-10-35-21 triggering events.
(2) Due to the reduction in company-owned salons, the Company cannot redistribute inventory from closed salons causing an increase to the reserve. Also included in fiscal year 2021 was the write-off of marketing and promotional items. 30 Table of Contents RESULTS OF OPERATIONS The Company reports its operations in two operating segments: Franchise salons and Company-owned salons.
(2) Due to the reduction in company-owned salons, the Company cannot redistribute inventory from closed salons causing an increase to the reserve. Also included in fiscal year 2021 was the write-off of marketing and promotional items. 27 Table of Conte n t s RESULTS OF OPERATIONS The Company reports its operations in two operating segments: Franchise salons and Company-owned salons.
Cost of Product Sales to Franchisees The 3,800 basis point increase in cost of product as a percent of product revenue during fiscal year 2022 was primarily due to the Company reducing prices to liquidate distribution center inventory.
Cost of Product Sales to Franchisees The 980 basis point increase in cost of product sales to franchisees as a percent of product revenue during fiscal year 2023 was primarily due to the Company reducing prices to liquidate distribution center inventory.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 43 Table of Contents Long-Lived Assets, Excluding Goodwill The Company follows the guidance in ASC 360, Property, Plant, and Equipment and applies the guidance to property, plant, and equipment as well as right of use (ROU) assets.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 39 Table of Conte n t s Long-Lived Assets, Excluding Goodwill The Company follows the guidance in ASC 360, Property, Plant, and Equipment and applies the guidance to property, plant, and equipment as well as right of use (ROU) assets.
Regarding franchisee subleases, we generally retain the right to the related salon assets, net of any outstanding obligations, in the event of a default by a franchise owner. Recent trends in system-wide revenue over the past few years has increased the risk of default by franchisees, which may be material.
Regarding franchisee subleases, we generally retain the right to the related salon assets, net of any outstanding obligations, in the event of a default by a franchise owner. Declines in system-wide revenue in certain brands over the past few years have increased the risk of default by franchisees, which may be material.
Sources of Liquidity Funds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity. The Company believes it has sufficient liquidity, cash on hand and borrowing capacity, to meet its obligations in the next twelve months and beyond.
Sources of Liquidity Funds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity. The Company believes it has sufficient liquidity, cash on hand and borrowing capacity, to meet its obligations in the next twelve months and until maturity of the credit agreement in August 2025.
Share Issuance Program In February 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.
Share Issuance Program In February 2021, the Company filed a $150.0 million shelf registration statement and $50.0 million prospectus supplement with the SEC under which it may offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings. During fiscal year 2023, the Company did not issue shares under the prospectus supplement.
However, actual results may not be consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material. 44 Table of Contents Income Taxes Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns.
If actual results are not consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material. 40 Table of Conte n t s Income Taxes Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns.
In fiscal years 2022 and 2021, the Company received the following amounts in rent and wage assistance: Fiscal Years 2022 2021 Financial Statement Caption (Dollars in thousands) Canadian rent relief Rent $ 1,235 $ — Canadian wage relief Company-owned salon expense 1,966 1,629 U.S. employee retention payroll tax credit Company-owned salon expense — 1,547 Additionally, in December 2021, the Company paid $2.5 million of social security contributions that had been deferred under the CARES Act.
In fiscal years 2023, 2022 and 2021, the Company received the following financial assistance: Fiscal Years 2023 2022 2021 Financial Statement Caption (Dollars in thousands) Canadian rent relief Rent $ — $ 1,235 $ — Canadian wage relief Company-owned salon expense — 1,966 1,629 U.S. employee retention payroll tax credit Company-owned salon expense — — 1,547 North Carolina COVID-19 grant Other, net 1,106 — — Additionally, in both December 2022 and December 2021, the Company paid $2.5 million of social security contributions that had been deferred under the CARES Act.
Our debt to capitalization ratio, calculated as the principal amount of debt as a percentage of the principal amount of debt and shareholders' (deficit) equity at fiscal year-end, was as follows: As of June 30, Debt to Capitalization (1) 2022 120.8 % 2021 91.6 % _______________________________________________________________________________ (1) Excludes the long-term lease liability as that liability is offset by the ROU asset.
Our debt to capitalization ratio, calculated as the principal amount of debt, including paid-in-kind interest accrued, as a percentage of the principal amount of debt and shareholders' deficit at fiscal year-end, was as follows: As of June 30, Debt to Capitalization (1) 2023 125.1 % 2022 120.8 % 2021 91.6 % _______________________________________________________________________________ (1) Excludes the long-term lease liability as that liability is offset by the ROU asset.
(2) Excludes depreciation and amortization expense. (3) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (4) Computed as a percent of loss from continuing operations before income taxes.
(2) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (3) Computed as a percent of loss from continuing operations before income taxes.
Franchise salons that do not report daily sales are excluded from same-store sales. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. Fiscal Year Ended June 30, 2022 Compared with Fiscal Year Ended June 30, 2021 Franchise Revenues Franchise revenues decreased $12.9 million during fiscal year 2022.
Franchise salons that do not report daily sales are excluded from same-store sales. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. Fiscal Year Ended June 30, 2023 Compared with Fiscal Year Ended June 30, 2022 Franchise Revenue Franchise revenue decreased $32.6 million during fiscal year 2023.
Uses of Cash The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, capital expenditures, credit facilities and borrowing arrangements and working capital management.
The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, credit facilities and borrowing arrangements, and working capital management.
Franchise Salons Fiscal Years 2022 2021 2022 (Dollars in millions) Increase (Decrease) (1) Royalties $ 65.8 $ 52.4 $ 13.4 Fees 11.6 10.2 1.4 Product sales to franchisees 15.1 56.7 (41.6) Advertising fund contributions 32.6 22.0 10.6 Franchise rental income 130.8 127.4 3.4 Total franchise revenue (1) $ 255.8 $ 268.7 $ (12.9) Franchise same-store sales (2) 15.0 % (24.5) % Operating loss $ (11.8) $ (24.6) $ 12.8 _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.
Franchise Salons Fiscal Years 2023 2022 2021 2023 2022 (Dollars in millions) Increase (Decrease) (1) Royalties $ 66.0 $ 65.8 $ 52.4 $ 0.2 $ 13.4 Fees 11.3 11.6 10.2 (0.3) 1.4 Product sales to franchisees 2.8 15.1 56.7 (12.3) (41.6) Advertising fund contributions 31.7 32.6 22.0 (0.9) 10.6 Franchise rental income 111.4 130.8 127.4 (19.4) 3.4 Total franchise revenue (1) $ 223.2 $ 255.8 $ 268.7 $ (32.6) $ (12.9) Franchise same-store sales (2) 4.4 % 15.0 % (24.5) % Franchise adjusted EBITDA $ 22.8 $ 7.7 $ (29.4) $ 15.1 $ 37.1 Total franchise salons 4,795 5,395 5,563 (600) (168) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.
System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. 31 Table of Contents Consolidated Results of Operations The following table sets forth, for the periods indicated, certain information derived from our Consolidated Statement of Operations.
System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. 28 Table of Conte n t s Consolidated Results of Operations The following table sets forth, for the periods indicated, certain information derived from our Consolidated Statements of Operations.
System-wide same-store sales (1) by concept are detailed in the table below: Fiscal Years 2022 2021 SmartStyle 5.7 % (26.7) % Supercuts 22.1 (25.8) Portfolio Brands 11.2 (24.8) Total 14.8 % (25.8) % ____________________________________________________________________________ (1) Fiscal years 2022 and 2021 system-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period.
The following table summarizes system-wide revenue and system-wide same-store sales (1) by concept: Fiscal Years 2023 2022 2021 (Dollars in millions) System-wide revenue $ 1,230.5 $ 1,228.5 $ 1,086.0 Supercuts 6.9 % 22.1 % (25.8) % SmartStyle (2.5) 5.7 (26.7) Portfolio Brands 5.5 11.2 (24.8) Total system-wide same-store sales 4.4 % 14.8 % (25.8) % ____________________________________________________________________________ (1) System-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period.
Significant components of the valuation allowance which occurred during fiscal year 2022 are as follows: • The Company determined that it no longer had sufficient U.S. state indefinite-lived taxable temporary differences to support realization of its U.S. state indefinite-lived NOLs and its existing U.S. deferred tax assets that upon reversal are expected to generate state indefinite-lived NOLs.
In fiscal year 2022, the Company determined that it no longer had sufficient U.S. state indefinite-lived taxable temporary differences to support realization of its U.S. state indefinite-lived NOLs and its existing U.S. deferred tax assets that upon reversal are expected to generate state indefinite-lived NOLs.
The amended credit agreement includes typical provisions and financial covenants, including minimum EBITDA, leverage and fixed-charge coverage ratio covenants, the latter two of which are not tested until December 31, 2023. See additional discussion under Financing Arrangements and Note 8 and Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
In addition to a $10.0 million minimum liquidity covenant, the amended credit agreement includes typical provisions and financial covenants, including minimum EBITDA, leverage and fixed-charge coverage ratio covenants, the latter two of which are not tested until December 31, 2023. See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
The Company does not anticipate repurchasing shares of common stock for the foreseeable future. 42 Table of Contents CRITICAL ACCOUNTING POLICIES The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States.
The Company does not anticipate repurchasing shares of common stock for the foreseeable future. 38 Table of Conte n t s CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States.
For fiscal years 2022 and 2021, the Company recognized long-lived asset impairment charges of $0.5 and $13.0 million, respectively, which included $0.5 and $9.5 million, respectively, related to ROU assets on the Consolidated Statement of Operations in Part II, Item 8, of this Form 10-K.
During fiscal years 2023 and 2022, the Company recognized long-lived asset impairment charges of $0.1 and $0.5 million, respectively, related to ROU assets on the Consolidated Statements of Operations in Part II, Item 8 of this Form 10-K.
Estimating cash flows for purposes of the recoverability test is subjective and requires significant judgment. Estimated future cash flows used for the purposes of the recoverability test were based upon historical cash flows for the salons.
Estimating cash flows for purposes of the recoverability test is subjective and requires significant judgment. Estimated future cash flows used for the purposes of the recoverability test were based upon historical cash flows for the salons, adjusted for expected changes in future market conditions and other factors.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 45 Table of Contents
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 41 Table of Conte n t s
See Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We are a party to a variety of contractual agreements that we may be obligated to indemnify the other party for certain matters, which indemnities may be secured by operation of law or otherwise, in the ordinary course of business.
We are a party to a variety of contractual agreements that we may be obligated to indemnify the other party for certain matters, which indemnities may be secured by operation of law or otherwise, in the ordinary course of business.
The Company reserves for unrecognized tax benefits, interest and penalties related to anticipated tax audit positions in the U.S. and other tax jurisdictions based on an estimate of whether additional taxes will be due.
As a result, the Company recorded a $4.1 million valuation allowance on its U.S. state indefinite-lived deferred tax assets. The Company reserves for unrecognized tax benefits, interest and penalties related to anticipated tax audit positions in the U.S. and other tax jurisdictions based on an estimate of whether additional taxes will be due.
The increase in the debt to capitalization ratio as of June 30, 2022 compared to June 30, 2021 was primarily due to the decrease in shareholders' (deficit) equity as a result of the loss from operations. 40 Table of Contents Contractual Obligations and Commercial Commitments On-Balance Sheet Obligations Our debt obligations are primarily composed of our revolving credit facility at June 30, 2022.
The increase in the debt to capitalization ratio as of June 30, 2023 compared to June 30, 2022 was primarily due to the increase in shareholders' deficit as a result of the net loss. 36 Table of Conte n t s Contractual Obligations and Commercial Commitments On-Balance Sheet Obligations Our debt obligations are primarily composed of our credit agreement at June 30, 2023.
The Company calculates estimated fair values of the reporting units based on discounted cash flows utilizing estimates in annual revenue, fixed expense rates, franchise salon counts, long-term growth rates and discount rates for determining terminal value.
The Company calculates estimated fair values of the reporting units based on discounted cash flows utilizing estimates in annual revenue, fixed expense rates, allocated corporate overhead, franchise and company-owned salon counts, and long-term growth rates for determining terminal value. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows.
The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include the market rent of comparable properties and a discount rate.
To determine the fair value of the salon asset groups, the Company utilized market-participant assumptions rather than the Company's own assumptions about how it intends to use the asset group. The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include the market rent of comparable properties and a discount rate.
The timing and amount of sales of shares, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares, and other factors as determined by the Company. During fiscal year 2022, the Company issued 9.3 million shares and received net proceeds of $37.2 million.
The timing and amount of sales of shares, if any, will depend on a variety of factors, including prevailing market conditions, the trading price of shares, and other factors as determined by the Company. During fiscal year 2023, the Company did not issue shares under the prospectus supplement.
Under the amended credit facility entered into in August 2022, the applicable margins for the loans bearing interest are subject to annual increases. The margin applicable to loans bearing interest at SOFR will initially be 3.875%.
Off-Balance Sheet Arrangements Under the credit agreement entered into in August 2022, the applicable margins for the loans bearing interest are subject to annual increases. The margin applicable to loans bearing interest at SOFR was 3.875% through March 27, 2023.
As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 41 Table of Contents Dividends In December 2013, the Board elected to discontinue declaring regular quarterly dividends.
As such, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. 37 Table of Conte n t s Dividends The Company has not declared a quarterly dividend payment since December 2013.
Total liquidity per the agreement was $119.8 million compared to a minimum liquidity covenant of $75.0 million as of June 30, 2022. See additional discussion under Financing Arrangements and Notes 8 and 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
As of June 30, 2023, the unused available credit under the revolving credit facility was $33.3 million and total liquidity per the agreement was $42.8 million. See additional discussion under Financing Arrangements and Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
The decrease in long-lived asset impairment was primarily due to more salon ROU assets being impaired in prior periods. Goodwill Impairment During fiscal year 2022, the Company recorded a goodwill impairment charge of $13.1 million. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Goodwill Impairment During fiscal year 2023, the Company did not record a goodwill impairment charge, and during fiscal year 2022, the Company recorded a goodwill impairment charge of $13.1 million. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
The Company assesses goodwill impairment on an annual basis during the Company's fourth fiscal quarter, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
See Note 5 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. The Company assesses goodwill impairment on an annual basis as of April 30, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Recent Accounting Pronouncements Recent accounting pronouncements are discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 37 Table of Contents LIQUIDITY AND CAPITAL RESOURCES In August 2022, the Company reached an agreement to amend its credit agreement and extend the maturity to August 2025 from March 2023.
Recent Accounting Pronouncements Recent accounting pronouncements are discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 33 Table of Conte n t s LIQUIDITY AND CAPITAL RESOURCES Following the amendment of the Company's credit agreement in August 2022, the facility matures in August 2025.
As a result of the sale, the Company classified the OSP business as discontinued operations in the financial statements as discussed in Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. As part of the Company's strategic transition to a fully-franchised model, the Company is selling salons to franchisees.
As a result of the sale, the Company classified the OSP business as discontinued operations in the financial statements as discussed in Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. The Company shifted its product business from a wholesale model to a third-party distribution model as part of its asset-light transformation.
Franchise Rent Expense During fiscal year 2022, franchise rent expense increased $3.4 million, or 2.7%, primarily due to a higher average franchise salon count. Company-owned Salon Expense Company-owned salon expense decreased $119.2 million, or 84.4%, during fiscal year 2022, primarily due to the reduction in company-owned salons, a reduction in the inventory reserve charge and a decline in product sales.
Company-owned Salon Expense Company-owned salon expense decreased $13.2 million, or 60.0%, during fiscal year 2023, primarily due to the reduction in company-owned salon count, a decline in product sales and an inventory reserve charge of $2.8 million in fiscal year 2022 included in company-owned salon expense.
In fiscal year 2021, loss from discontinued operations includes the income generated from OSP software subscriptions. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Income (Loss) from Discontinued Operations In fiscal year 2023, the Company recorded income from discontinued operations of $4.0 million and in fiscal year 2022, the Company recorded a loss from discontinued operations of $39.4 million.
The impact of these transactions are as follows: Fiscal Years 2022 2021 (Dollars in thousands) Salons sold to franchisees 110 748 Cash proceeds received $ — $ 8,437 Loss from sale of salon assets to franchisees, net $ (2,334) $ (16,696) The Company shifted its product business from a wholesale model to a third-party distribution model as part of its asset-light transformation.
The impact of these transactions is as follows: Fiscal Years 2023 2022 2021 (Dollars in thousands) Salons sold to franchisees 1 110 748 Cash proceeds received $ — $ — $ 8,437 Loss from sale of salon assets to franchisees, net $ — $ (2,334) $ (16,696) On June 30, 2022, the Company sold its Opensalon ® Pro (OSP) software-as-a-service solution to Soham Inc.
Capital expenditures are a component of the Company's cash flow and capital management strategy, which can be adjusted in response to economic and other changes in the Company's business environment. The Company has a disciplined approach to capital allocation, which focuses on investing in key priorities to support the Company's strategic plan as discussed within Part I, Item 1.
The Company has a disciplined approach to capital allocation, which focuses on ensuring we can meet our interest obligations and investing in key priorities to support the Company's strategic plan as discussed within Part I, Item 1.
As of June 30, 2022, the Company has issued 9.3 million shares for net proceeds of $37.2 million. Share Repurchase Program In May 2000, the Board approved a stock repurchase program with no stated expiration date.
As of June 30, 2023, 9.3 million shares have been cumulatively issued for $38.4 million, and $11.6 million remains outstanding under the share issuance program. Share Repurchase Program In May 2000, the Board approved a stock repurchase program with no stated expiration date.
The percentages are computed as a percent of total revenues, and the increase (decrease) is measured in basis points.
The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated, and the increase (decrease) is measured in basis points. Variances calculated on amounts shown in millions may result in rounding differences.
As of June 30, 2022, cash and cash equivalents were $17.0 million, with $14.9 and $2.1 million within the United States and Canada, respectively. As of June 30, 2022, the Company's borrowing arrangements include a $277.5 million five-year revolving credit facility that expires in March 2023, of which $81.9 million was available as of June 30, 2022.
As of June 30, 2023, cash and cash equivalents were $9.5 million, with $8.7 and $0.8 million within the United States and Canada, respectively. As of June 30, 2023, the Company's borrowing arrangements include a $172.3 million term loan and a $55.0 million revolving credit facility with a $10.0 million minimum liquidity covenant that expires in August 2025.
Effective March 27, 2024, the margin will increase to 7.25%, of which 4.25% will be paid currently in cash and 3.00% will be PIK interest. The margin applicable to base rate loans will be 100 basis points (1.00%) less than the margin applicable to SOFR loans.
Effective March 27, 2023, the margin increased to 6.25%, of which 4.25% is paid currently in cash and 2.00% is PIK interest (added to the principal balance and thereafter accruing interest). Effective March 27, 2024, the margin will increase to 7.25%, of which 4.25% will be paid currently in cash and 3.00% will be PIK interest.
See additional discussion in Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
The margin applicable to base rate loans will be 100 basis points (1.00%) less than the margin applicable to term SOFR loans. See additional discussion in Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
The operating loss improved during fiscal year 2022 compared to the prior comparable period due to the increase in royalties and decrease in general and administrative expense and rent, partially offset by the $13.1 million goodwill impairment charge. 36 Table of Contents Company-owned Salons Fiscal Years 2022 2021 2022 (Dollars in millions) (Decrease) Increase (1) Total revenue $ 20.2 $ 143.0 $ (122.8) Operating loss $ (9.5) $ (70.0) $ 60.5 Total company-owned salons 105 276 _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.
The improvement is primarily due to a decrease in general and administrative expense. 32 Table of Conte n t s Company-Owned Salons Fiscal Years 2023 2022 2021 2023 2022 (Dollars in millions) (Decrease) Increase (1) Total revenue $ 10.1 $ 20.2 $ 143.0 $ (10.1) $ (122.8) Company-owned salon adjusted EBITDA $ (1.8) $ (9.5) $ (47.5) $ 7.7 $ 38.0 Total Company-owned salons 68 105 276 (37) (171) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.
COVID-19 Impact: During fiscal years 2022 and 2021, the global coronavirus pandemic (COVID-19) had an adverse impact on operations. The COVID-19 pandemic continues to impact salon guest visits and franchisee staffing, resulting in a significant reduction in revenue and profitability. In response to COVID-19, the Company received Canadian rent relief, Canadian wage relief and U.S. employee retention payroll tax credits.
COVID-19 Impact: The global coronavirus pandemic (COVID-19) had an adverse impact on operations. As a result, the Company received Canadian rent relief, Canadian wage relief, U.S. employee retention payroll tax credits and a grant from the state of North Carolina.
Rent The decrease of $31.4 million, or 77.0%, in rent expense during fiscal year 2022 was primarily due to the net reduction in the number of company-owned salons. Additionally in fiscal year 2022, the Company accrued less rent deemed uncollectible from franchisees.
Rent The decrease of $0.2 million, or 2.1%, in rent expense during fiscal year 2023 was primarily due to the net reduction in the number of company-owned salons, partially offset by a $1.2 million benefit in fiscal year 2022 related to Canadian COVID-19 rent relief.
Cash Flows from Investing Activities During fiscal year 2022, cash provided by investing activities of $7.7 million was primarily related to cash received of $13.0 million from the sale of OSP, partially offset by capital expenditures primarily related to developing the OSP software.
Cash used in fiscal year 2023 included a $2.5 million payment of previously deferred social security contributions. Cash Flows from Investing Activities During fiscal year 2023, cash provided by investing activities of $4.0 million was primarily related to cash received of $5.0 million from the sale of OSP, partially offset by a $0.5 million transaction fee.
Derivative activities are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk." The Company's financing arrangements consist of the following: June 30, Maturity Dates 2022 2021 2022 2021 (Fiscal year) (Interest rate %) (Dollars in thousands) Revolving credit facility 2023 5.50% 5.00% $ 179,994 $ 186,911 As of June 30, 2022 and 2021, the Company had $180.0 and $186.9 million, respectively, of outstanding borrowings under its revolving credit facility.
Derivative activities are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk." The Company's financing arrangements consist of the following: June 30, Maturity Dates 2023 2022 2023 2022 (Fiscal year) (Interest rate %) (Dollars in thousands) Term loan 2026 9.54% N/A $ 172,268 $ — Deferred financing fees (6,471) — Term loan, net 165,797 — Revolving credit facility 2026 9.54% 5.50% 10,000 179,994 Paid-in-kind interest 1,033 — Total long-term debt, net $ 176,830 $ 179,994 In August 2022, the Company amended its credit agreement and extended the maturity to August 2025.
Long-Lived Asset Impairment In fiscal year 2022, the Company recorded a long-lived asset impairment charge of $0.5 million, which represents a right of use (ROU) asset impairment charge of $0.5 million. In fiscal year 2021, the Company recorded a long-lived asset impairment charge of $13.0 million, which included a ROU asset impairment of $9.5 million.
During fiscal year 2021, the Company recognized a long-lived asset impairment charge of $13.0 million, which included $9.5 million related to ROU assets on the Consolidated Statements of Operations in Part II, Item 8 of this Form 10-K.
The decrease in franchise revenue was primarily due to the decrease in product sales to franchisees due to the Company's shift to third-party distributors, partially offset by higher royalties and advertising fund contributions due to a higher average salon count and increase in system-wide sales.
The decrease in franchise revenue was primarily due to the decrease in franchise rental income as a result of lower salon count and the decrease in product sales to franchisees due to the Company's shift to a third-party distributor model.
During fiscal year 2021, the Company recorded an inventory reserve charge of $12.1 million, which was included in company-owned salon expense in connection with our distribution center exit strategy. 33 Table of Contents General and Administrative The decrease of $31.1 million, or 32.3%, in general and administrative expense during fiscal year 2022 was primarily due to lower administrative and field management compensation resulting from headcount reductions and a decrease in expenses associated with the distribution centers closed in fiscal year 2022.
General and Administrative The decrease of $14.5 million, or 22.2%, in general and administrative expense during fiscal year 2023 was primarily due to lower administrative and field management compensation resulting from headcount reductions, lower legal and professional fees and a decrease in expenses associated with the distribution centers closures in fiscal year 2022.
Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations.
The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations.
During fiscal year 2022, franchisees purchased 110 salons from the Company and constructed (net of relocations) and closed 21 and 299 franchise salons, respectively. Franchise Operating Loss During fiscal year 2022, franchise salon operations generated operating losses of $11.8 million, and generated an operating loss of $24.6 million during fiscal year 2021.
During fiscal year 2023, franchisees purchased one salon from the Company and constructed (net of relocations) and closed 15 and 616 franchise salons, respectively. Franchise Adjusted EBITDA During fiscal year 2023, franchise adjusted EBITDA totaled $22.8 million, an improvement of $15.1 million compared to fiscal year 2022.
The income taxes basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate. 32 Table of Contents Fiscal Year Ended June 30, 2022 Compared with Fiscal Year Ended June 30, 2021 Consolidated Revenues Consolidated revenues are primarily comprised of royalties, fees, advertising fund contributions, product sales to franchisees, franchise rental income and company-owned salon revenue.
The income taxes basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate. 29 Table of Conte n t s Fiscal Year Ended June 30, 2023 Compared with Fiscal Year Ended June 30, 2022 Royalties During fiscal year 2023, royalties increased $0.2 million, or 0.3%, primarily due to higher average royalty rates and improved system-wide same-store sales, mostly offset by a decrease in franchise salon count.
Training revenues also increased year over year. See Note 2 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Product Sales to Franchisees Product sales to franchisees decreased $41.6 million, or 73.4%, during fiscal year 2022, primarily due to the Company's shift in its product business to a third-party distribution model.
Product Sales to Franchisees Product sales to franchisees decreased $12.3 million, or 81.5%, during fiscal year 2023, primarily due to the Company's shift in its product business to a third-party distribution model.
The additional purchase price of approximately $4 million expected to be received in the first quarter of fiscal year 2023 will be used to repay the term loan as required by the credit agreement. 39 Table of Contents Financing Arrangements Financing activities are discussed in Note 8 and Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Cash Flows from Financing Activities During fiscal year 2023, cash used in financing activities of $2.1 million was primarily as a result of debt refinancing fees of $4.4 million, partially offset by a net $2.3 million borrowing under the Company's revolving credit facility. 35 Table of Conte n t s Financing Arrangements Financing activities are discussed in Note 8 and Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Loss from Discontinued Operations, net of Income Taxes In fiscal year 2022, the loss from discontinued operations includes the loss from the sale of OSP, including goodwill derecognition of $38.4 million, partially offset by proceeds from the sale.
Income in fiscal year 2023 is primarily due to the receipt of $5.0 million sales proceeds offset by a $0.5 million transaction fee and other expenses from the sale of OSP. The loss in fiscal year 2022 includes the loss from the sale of OSP, including goodwill derecognition of $38.4 million, partially offset by proceeds from the sale.
Company-owned Salon Revenue During fiscal year 2022, company-owned salon revenue decreased $122.8 million, or 85.9%, due to the decrease in company-owned salons as a result of the sale of salons to franchisees and salon closures, a decline in product sales, and exiting our third-party logistic revenue associated with the closure of our warehouses in fiscal year 2022.
Company-owned Salon Revenue During fiscal year 2023, company-owned salon revenue decreased $10.1 million, or 50.0%, due to the decrease in company-owned salon count and a decline in product sales.

… 61 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+1 added−3 removed4 unchanged
Biggest changeDuring fiscal years 2022 and 2021, a $0.6 million foreign currency loss and $0.3 million foreign currency gain is included in loss from continuing operations, respectively. 46 Table of Contents
Biggest changeDuring fiscal years 2023, 2022 and 2021, the Company recorded a $0.3 million foreign currency loss, $0.6 million foreign currency loss and a $0.3 million foreign currency gain in loss from continuing operations, respectively, in the Consolidated Financial Statements. 42 Table of Conte n t s
As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. As of June 30, 2022, the Company did not have any derivative instruments to manage its foreign currency risk.
As a result, the Company may engage in transactions involving various derivative instruments to hedge assets, liabilities and purchases denominated in foreign currencies. As of June 30, 2023, the Company did not have any derivative instruments to manage its foreign currency risk.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk The primary market risk exposure of the Company relates to changes in interest rates in connection with its debt, specifically the revolving credit facility, which bears interest at variable rates based on SOFR plus an applicable borrowing margin.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk The primary market risk exposure of the Company relates to changes in interest rates in connection with its credit agreement, which bears interest at variable rates based on SOFR plus an applicable borrowing margin.
By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company's policies and use of financial instruments. Interest Rate Risk: The Company has established an interest rate management policy that attempts to minimize its overall cost of debt, while taking into consideration earnings implications associated with volatility in short-term interest rates.
By policy, the Company does not enter into such contracts for the purpose of speculation. The following details the Company's policies and use of financial instruments. Interest Rate Risk: The Company has established an interest rate management policy that attempts to minimize its overall cost of debt.
Removed
In the past, the Company has used interest rate swaps to further mitigate the risk associated with changing interest rates and to maintain its desired balances of fixed and floating rate debt. In addition, access to variable rate debt is available through the Company's revolving credit facility.
Added
The Company's interest payments are based on the SOFR, such that a hypothetical 100 basis point increase or decrease in the SOFR will have a $1.8 million annual impact on our annual cash flows. As of June 30, 2023, the Company had outstanding variable rate debt of $183.3 million and the Company did not have any outstanding interest rate swaps.
Removed
The Company reviews its policy and interest rate risk management quarterly and adjusts in accordance with market conditions and the Company's short- and long-term borrowing needs. As of June 30, 2022, the Company had outstanding variable rate debt of $180.0 million and the Company did not have any outstanding interest rate swaps.
Removed
In August 2022, the Company amended and extended its revolving credit facility to convert it to a $180.0 million term loan and $55.0 million revolving credit facility with varying interest rates. See Note 16 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Other RGS 10-K year-over-year comparisons