What changed in REGIS CORP's 10-K — 2023 vs 2024
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Paragraph-level year-over-year comparison of REGIS CORP's 2023 and 2024 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 2024 report.
+205 added−206 removedSource: 10-K (2024-08-28) vs 10-K (2023-08-23)
Top changes in REGIS CORP's 2024 10-K
205 paragraphs added · 206 removed · 159 edited across 7 sections
- Item 7. Management's Discussion & Analysis+83 / −90 · 74 edited
- Item 1A. Risk Factors+52 / −46 · 29 edited
- Item 1. Business+48 / −50 · 39 edited
- Item 2. Properties+7 / −6 · 4 edited
- Item 5. Market for Registrant's Common Equity+8 / −8 · 7 edited
Item 1. Business
Business — how the company describes what it does
39 edited+9 added−11 removed45 unchanged
Item 1. Business
Business — how the company describes what it does
39 edited+9 added−11 removed45 unchanged
2023 filing
2024 filing
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.
Biggest changeSystem-wide location counts Fiscal Years 2024 2023 2022 FRANCHISE SALONS: Supercuts 1,946 2,082 2,264 SmartStyle/Cost Cutters in Walmart stores 1,232 1,388 1,646 Portfolio Brands 1,117 1,223 1,344 Total North American salons 4,295 4,693 5,254 Total International salons (1) 96 102 141 Total franchise salons 4,391 4,795 5,395 as a percent of total franchise and company-owned salons 99.6 % 98.6 % 98.1 % COMPANY-OWNED SALONS: Supercuts 3 7 18 SmartStyle/Cost Cutters in Walmart stores 8 48 49 Portfolio Brands 6 13 38 Total company-owned salons 17 68 105 as a percent of total franchise and company-owned salons 0.4 % 1.4 % 1.9 % Total franchise and company-owned salons 4,408 4,863 5,500 7 Table of Contents Constructed locations (net relocations) Fiscal Years 2024 2023 2022 FRANCHISE SALONS: Supercuts 9 11 15 SmartStyle/Cost Cutters in Walmart stores — — 1 Portfolio Brands 5 4 5 Total North American salons 14 15 21 Total International salons (1) 1 — — Total franchise salons 15 15 21 COMPANY-OWNED SALONS: Supercuts — — — SmartStyle/Cost Cutters in Walmart stores — — — Portfolio Brands — 1 — Total company-owned salons — 1 — Closed locations Fiscal Years 2024 2023 2022 FRANCHISE SALONS: Supercuts (145) (196) (156) SmartStyle/Cost Cutters in Walmart stores (166) (258) (49) Portfolio Brands (111) (123) (81) Total North American salons (422) (577) (286) Total International salons (1) (7) (39) (13) Total franchise salons (429) (616) (299) COMPANY-OWNED SALONS: Supercuts (3) (11) (6) SmartStyle/Cost Cutters in Walmart stores (30) (1) (15) Portfolio Brands (8) (25) (40) Total company-owned salons (41) (37) (61) 8 Table of Contents Conversions (including net franchisee transactions) (2) Fiscal Years 2024 2023 2022 FRANCHISE SALONS: Supercuts 1 3 19 SmartStyle/Cost Cutters in Walmart stores 10 — 28 Portfolio Brands (1) (2) 63 Total franchise salons 10 1 110 COMPANY-OWNED SALONS: Supercuts (1) — (11) SmartStyle/Cost Cutters in Walmart stores (10) — (27) Portfolio Brands 1 (1) (72) Total company-owned salons (10) (1) (110) _______________________________________________________________________________ (1) Canadian and Puerto Rican salons are included in the North American salon totals.
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.
DeVore served as a 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.
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 remaining 17 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.
We provide our franchisees with a comprehensive system of business training, stylist education, site approval, professional marketing, promotion, and advertising programs, and other forms of ongoing support designed to help franchisees build successful businesses. Historically, we have signed the salon lease and then subleased the space to our franchisees.
We provide our franchisees with a comprehensive system of business training, stylist education, site approval, professional marketing, promotion, and advertising programs, and other forms of ongoing support designed to help franchisees build successful businesses. Historically, we have signed the salon lease and then subleased the space to our franchisees. Standards of Operations.
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.
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 96 franchised international locations.
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.
Michelle DeVore was appointed to Head of 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.
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.
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 5 Table of Contents 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.
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.
Most concepts offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products. The Company has 1,117 franchised and 6 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.
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.
Item 1. Business General: Regis Corporation franchises and owns hair care salons. The Company is listed on the Nasdaq Global Market 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.
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.
Financial information about our segments and geographic areas for fiscal years 2024, 2023, and 2022 are included in Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. As of June 30, 2024, 99.6% of our salons are owned by franchisees.
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.
The Company also specifically condemns human trafficking and abuse of child labor. 11 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.
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.
Salon Support is primarily located in Minneapolis, Minnesota while allowing for hybrid and remote work. 6 Table of Contents 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.
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.
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 1,946 franchised and 3 company-owned Supercuts locations throughout North America. SmartStyle/Cost Cutters in Walmart stores.
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.
Additionally, 68% of the Company's leadership positions are held by women. 10 Table of Contents Families First Over one hundred years ago, the Company began as a family business and its support of families continues today.
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.
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. Franchisee Training.
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.
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.
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.
The Company has 1,232 franchised and 8 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenter locations throughout North America. Portfolio Brands.
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.
As of June 30, 2024, the Company franchised or owned 4,408 locations, primarily in North America. The Company's locations consist of 4,391 franchised salons and 17 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.
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.
These expectations are met with the average service price of transactions ranging from $25 to $32. 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.
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.
Our People As of June 30, 2024, the Company employed 275 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, 2024, 79% of the Company's entire workforce are women and 21% are men.
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
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. 14 Table of Contents
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.
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.
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 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 Contents Executive Officers of the Registrant: Information relating to the Executive Officers of the Company follows: Name Age Position John Davi 46 Executive Vice President, Chief Digital Officer Michelle DeVore 40 Senior Vice President, Head of Marketing Matthew Doctor 37 President and Chief Executive Officer Michael Ferranti 41 Executive Vice President, Brand Operations - SmartStyle, First Choice Hair, Roosters, and Portfolio Brands Jim Lain 60 Executive Vice President, Brand Operations - Supercuts and Cost Cutters James Suarez 49 Executive Vice President, Merchandising and Education Kersten Zupfer 49 Executive Vice President, Chief Financial Officer John Davi was appointed to Executive Vice President and Chief Digital Officer in July 2022.
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.
(2) During fiscal years 2024, 2023, and 2022, the Company sold 10, 1, and 110 salon locations, respectively, to franchisees. 9 Table of Contents Affiliated Ownership Interest: The Company previously maintained a non-controlling 55.1% ownership interest in Empire Education Group, Inc. (EEG), which was accounted for as an equity method investment. EEG operates accredited cosmetology schools.
We believe the ability to serve walk-in appointments and minimize guest wait times are essential elements in delivering an efficient guest experience. Our mobile applications and online check-in capabilities, including check-ins directly from Google ® , allow us to capitalize on our guests' desire for convenience.
We believe the ability to serve walk-in appointments and minimize guest wait times are essential elements in delivering an efficient guest experience. Our mobile applications and online check-in capabilities allow us to capitalize on our guests' desire for convenience by allowing for future check-ins with optional stylist selection, and offering predicted wait times for guests who wish to walk in.
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 top selling brands within the Company’s retail assortment include: L'Oreal Professional Brands and John Paul Mitchell. 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. Marketing.
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.
We believe stylists deliver a superior experience for 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 supplement internal training with targeted vendor training and external trainers that bring specialized expertise to stylists in our system.
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.
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 We continued our investment in learning and development by adding more content to the Learning Hub and the Beauty of Series.
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.
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.
Salon Support and our associated priorities are aligned with our brands to enhance the effectiveness and efficiency of the service we provide.
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. Salon Support and our associated priorities are aligned with our brands to enhance the effectiveness and efficiency of the service we provide.
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.
Our Company depends on the stylists in our system to help deliver great guest experiences. 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.
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.
Our franchisees continue to focus on stylist staffing and retention, optimizing schedules, balancing variable labor hours with guest traffic, and managing guest wait times. Our franchise salons are located in high-traffic strip centers and Walmart Supercenters with guest parking and easy access to offer guests a variety of convenient ways to fulfill their beauty needs. Stylists.
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.
Suarez had 26 years of combined salon operations and education experience at the Company, including Senior Vice President of Merchandising and Education from March 2022 to August 2023, Vice President of Merchandising and Education from October 2021 to February 2022 and as Vice President of Education from August 2017. 13 Table of Contents Kersten Zupfer was appointed to Executive Vice President and Chief Financial Officer in November 2019.
We introduced Regis Listens , which highlights offerings that we've implemented as a result of employee feedback to show employees that we are listening. Corporate Responsibility The Company will not do business with organizations that employ or condone unfair labor practices. Instead, it partners with companies who share its commitment to ethical business conduct and fair labor practices.
In fiscal year 2024, we included content on diversity, equity, and inclusion to further this commitment, raise awareness, and enhance engagement through inclusivity. Corporate Responsibility The Company will not do business with organizations that employ or condone unfair labor practices. Instead, it partners with companies who share its commitment to ethical business conduct and fair labor practices.
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.
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. In fiscal year 2022, we sold our proprietary back-office salon management system, Opensalon ® Pro to a third party, Soham Inc. (Zenoti).
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.
The Company believes it is operating in substantial compliance with applicable laws and regulations governing all its operations. The Company previously maintained an ownership interest in Empire Education Group, Inc. In May 2024, the Company sold its ownership interest in EEG to the other owner. The sale did not have a significant impact on the Company's operations or financial position.
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.
Before joining Regis, Michael was Head of M&A for Subway Restaurants North America and Global Head of Development, HR, IT, and Chief Administrative Officer at Le Pain Quotidien, an international bakery chain. He also served as Vice President of People & Performance for the U.S. and Canada at Kraft Heinz.
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.
Prior to his experience with Gap, Jim was Vice President of Operations at Galyan's Trading Company Inc. / Dick's Sporting Goods and held several field management positions at Target Stores Inc. James Suarez was appointed to Executive Vice President, Merchandising and Education in August 2023. Prior to his promotion to Executive Vice President, Merchandising and Education, Mr.
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.
See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. As of August 2024, all our salons have transitioned to the Zenoti salon technology platform. We also use mobile applications to allow guests to view wait times and interact in other ways with salons. Salon Support.
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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.
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In May 2024, the Company sold its stake in EEG to the controlling owner. The sale did not have a significant impact on the Company's operations or financial position. When the Company held a majority ownership interest in EEG it was a co-signatory to the Title IV program participation agreements of the EEG schools with the Department of Education.
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Our franchisees continue to focus on stylist staffing and retention, optimizing schedules, balancing variable labor hours with guest traffic, and managing guest wait times.
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As a co-signatory to the Title IV program participation agreements, the Department of Education could hold the Company responsible for EEG's Title IV program liabilities. In connection with the sale, Regis is no longer a co-signatory to the Title IV program participation agreements of the EEG schools with the Department of Education.
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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.
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When the Company held a majority ownership interest in EEG it was a co-signatory to the Title IV program participation agreements of the EEG schools with the Department of Education. As a co-signatory to the Title IV program participation agreements, the Department of Education could hold the Company responsible for EEG's Title IV program liabilities.
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(2) During fiscal years 2023, 2022 and 2021, the Company acquired 0, 0 and 1 salon locations, respectively, from franchisees.
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In connection with the sale, Regis is no longer a co-signatory to the Title IV program participation agreements of the EEG schools with the Department of Education.
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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.
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Michael Ferranti was appointed to Executive Vice President, Brand Operations - SmartStyle, First Choice Hair, Roosters, and Portfolio Brands in August 2024. Since joining the company in March 2021, he has held various leadership roles, including overseeing the People, Legal, and Real Estate functions.
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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.
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Michael’s extensive franchising background began at Burger King, where he held various roles, including Vice President of People, Procurement, Finance & IT, and Vice President, General Manager for South and Southeast Asia, based in Singapore. He later became CEO of Perfect Combo Limited, a Burger King franchisee, leading operations in Hong Kong and Taiwan.
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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.
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Jim Lain was appointed to Executive Vice President, Brand Operations - Supercuts and Cost Cutters in August 2024. Previously, as Executive Vice President and Chief Operating Officer, Jim played a pivotal role in transforming Regis into a leader in the haircare industry.
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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.
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Joining Regis in 2013, Jim brought over 25 years of operations leadership experience, where he spearheaded initiatives that drove operational excellence and elevated the performance of iconic brands like Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters, Roosters, and other legacy brands.
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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.
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Before Regis, Jim made significant contributions at Gap Inc., where he served as Vice President of Operations for Gap Specialty Stores in the U.S. and Canada. In this role, he was responsible for steering a $2.5 billion business across 750 stores, enhancing operational efficiency, and driving growth in a highly competitive market.
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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
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.
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
29 edited+23 added−17 removed105 unchanged
Item 1A. Risk Factors
Risk Factors — what could go wrong, per management
29 edited+23 added−17 removed105 unchanged
2023 filing
2024 filing
Biggest changeOur salons are dependent on a third-party preferred supplier agreement for merchandise. In fiscal year 2023, we entered into a preferred supplier agreement with a supplier. This change has and will continue to reduce our future revenue.
Biggest changeFurthermore, 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 dependent on a third-party preferred supplier agreement for merchandise. In fiscal year 2023, we entered into a preferred supplier agreement with a supplier.
If one of our key vendors becomes unable to continue to provide products and services, or their systems fail, or are compromised or the quality of their systems deteriorate, we may suffer operational difficulties and financial loss. The use of social media may have an adverse effect on our reputation.
If one of our key vendors becomes unable to continue to provide products and services, if their systems fail or are compromised, or if the quality of their systems deteriorate, we may suffer operational difficulties and financial loss. The use of social media may have an adverse effect on our reputation.
Regulations proposed by the Department of Education, if passed, could reduce access to Federal financial aid for beauty schools which could reduce the number of qualified stylists to recruit if licensing requirements are not adjusted. Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is highly competitive.
Regulations passed by the Department of Education could reduce access to Federal financial aid for beauty schools which could reduce the number of qualified stylists to recruit if licensing requirements are not adjusted. Because the salon industry is highly fragmented and comprised of many independent operators, the market for stylists is highly competitive.
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.
If we fail to maintain an effective system of internal control 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.
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.
Effective internal control 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.
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.
We, along with our franchisees, rely on external vendors for the manufacture, supply, and distribution of 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.
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.
As of June 30, 2024, we had 1,240 SmartStyle or Cost Cutters salons within Walmart locations. Walmart is our largest landlord. Business within each of those 1,240 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.
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.
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, 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.
As of June 30, 2024, 99.6% 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.
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.
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, including the Zenoti salon technology platform used by our franchisees.
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.
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.
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. 21 Table of Conte n t s Financial and Economic Risks We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which would materially adversely affect our financial condition and results of operations.
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. 22 Table of Contents Financial and Economic Risks We may be unable to generate sufficient cash flow to satisfy our debt service obligations, which would materially adversely affect our financial condition and results of operations.
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.
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.
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.
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. 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.
Failure 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.
Failure 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. 23 Table of Contents If we are not able to successfully compete in our business markets, our financial results may be affected.
As this risk of cyber-attacks increases, our related insurance premiums may also increase.
As the risk of cyber-attacks increases, our related insurance premiums may also increase.
More broadly, our incident response preparedness and disaster recovery planning efforts may be inadequate or ill-suited for a security incident and we could suffer disruption of operations or adverse effects to our operating results. Our SmartStyle salon operations are dependent on our relationship with Walmart.
More broadly, our incident response preparedness and disaster recovery planning efforts may be inadequate or ill-suited for a security incident and we could suffer disruption of operations or adverse effects to our operating results. Our U.S. SmartStyle and Cost Cutters (located in Walmart) salon operations are dependent on our relationship with Walmart.
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, 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.
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 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. 18 Table of Contents Our continued success depends, in part, on the success of our franchisees, which operate independently.
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.
Any such conduct with respect to our franchisees could also result in litigation. 21 Table of Contents We rely on external vendors for products and services critical to our 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.
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.
Our success is substantially dependent on franchise royalties and the overall success of our franchisees' salons. Many franchisees have seen a decline in revenues in recent years which reduces their profitability. As a result, franchise salon closures have increased, which reduces our royalty income. In addition, franchisees may be unable to pay their royalties which could decrease cash collections.
Many franchisees have seen a decline in revenues in recent years which reduces their profitability. As a result, franchise salon closures have increased, which reduces our royalty income. In addition, franchisees may be unable to pay their royalties which could decrease cash collections.
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 change has reduced our product sales revenue. If our supplier is unable to source the products at the prices expected by our franchisees, our franchisees' profitability and our profitability may be adversely impacted.
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.
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. Premature termination of franchise agreements can cause losses.
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.
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.
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.
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.
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.
Additionally, we plan to continue expanding our digital marketing efforts, and the success of those efforts is dependent upon our franchisees’ proper continued use of Zenoti salon technology platform, accurate and consistent guest data capture, and customers continuing to opt-in to receive marketing messages from us. Our success depends substantially on the value of our brands.
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.
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 were previously subject to delisting proceedings, and we may not be able to maintain compliance with the continued listing standards of any national securities exchange.
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.
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.
Removed
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.
Added
Since January 9, 2024, the Company’s common stock has traded on the Global Market tier of The Nasdaq Stock Market, LLC (Nasdaq). The Company moved its trading to the Nasdaq after failing to regain compliance with the New York Stock Exchange's minimum market capitalization requirement.
Removed
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.
Added
Under Nasdaq's continued listing standards currently applicable to the Company, the Company is required to maintain, among other things, a market value of publicly held shares of at least $15.0 million. We are currently in compliance with the Nasdaq continued listing standards.
Removed
In June 2022, we received written notice from the New York Stock Exchange (NYSE) that we did not meet certain NYSE continued listing standards.
Added
However, if we fail to comply with the currently applicable listing standards, including with regard to the market value of the Company’s publicly held shares, we do not believe we will be able to satisfy alternative listing standards for the Nasdaq Global Market tier and we do not believe we would qualify to transfer to another Nasdaq tier; therefore, our common stock may be delisted from Nasdaq.
Removed
Under the NYSE continued listing standards, the Company is required to maintain (a) a minimum average closing price of $1.00 per share over a period of 30 consecutive trading days, and (b) an average market capitalization of at least $50.0 million over a period of 30 consecutive trading days, and at the same time, total stockholders' equity equal to or greater than $50.0 million.
Added
If, for any reason, Nasdaq were to suspend or remove our securities from trading on the Nasdaq Global Market and we were unable to qualify for listing on another tier or national securities exchange, a reduction in some or all of the following may occur, each of which could materially adversely affect our shareholders: • the liquidity and marketability of our common stock; • the market price of our common stock; • our ability to obtain financing for the continuation of our operations; • the number of institutional and general investors that will consider investing in our common stock; • the number of market makers in our common stock; • the availability of information concerning the trading prices and volume of our common stock; and • the number of broker-dealers willing to execute trades in shares of our common stock.
Removed
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.
Added
In addition, if we ceased eligibility for trading on the Nasdaq Global Market, we may have to pursue trading on a less recognized or accepted market, such as the over-the-counter markets, our stock may be traded as a “penny stock” which would make transactions in our stock more difficult and cumbersome, and we may be unable to access capital on favorable terms or at all, as companies trading on alternative markets may be viewed as less attractive investments with higher associated risks, such that existing or prospective institutional investors may be less interested in, or prohibited from, investing in our common stock.
Removed
We are closely monitoring the closing share price of our common stock and are considering all available options.
Added
This may also cause the market price of our common stock to further decline. 17 Table of Contents Operating Risks We are substantially dependent on franchise royalties and the overall success of our franchisees' salons. Our success is substantially dependent on franchise royalties and the overall success of our franchisees' salons.
Removed
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.
Added
In August of 2024 we executed a workforce reduction.The risks related to the workforce reduction include the potential for business disruption, diversion of time and attention from on-going operations, loss of human capital talent, temporarily reduced productivity and the risk of failing to achieve some or all of the anticipated benefits of the organizational changes.
Removed
Our future growth and profitability may depend on the effectiveness, efficiency and spending levels of our marketing and advertising efforts to drive awareness and traffic to our salons.
Added
If we are unable to successfully manage and implement this workforce reduction, we may not achieve or sustain the expected cost savings benefits or otherwise impair our ability to continue execution of our operations and strategic plans.
Removed
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.
Added
Our Board has adopted a Tax Benefits Preservation Plan, which may not protect the future availability of the Company’s tax assets in all circumstances, and which could delay or discourage takeover attempts that some shareholders may consider favorable.
Removed
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.
Added
As of June 30, 2024, we had approximately $490 million of U.S. federal net operating losses ("NOLs”) as well as other tax attributes that could be available in certain circumstances to reduce future U.S. corporate income tax liabilities. Pursuant to Section 382 ("Section 382”) of the U.S.
Removed
Under our current operating and financial model, we use the cash we generate and borrow to cover the operating costs of our business as it is currently conducted and to pay interest expense on outstanding debt. We have limited capital resources available to invest in further execution of our strategy to grow our business.
Added
Internal Revenue Code of 1986, as amended (the "Code”), and the Treasury Regulations issued thereunder, a corporation that undergoes an "ownership change” is subject to limitations on its use of its 24 Table of Contents existing NOL and interest expense carryforwards and certain other tax attributes (collectively, "Tax Assets”), which can be utilized in certain circumstances to offset future U.S. tax liabilities.
Removed
While management’s projections demonstrate our ability to continue funding our business in this manner through the maturity of our revolving credit facility in August 2025, we do not expect to have access to additional cash to make further investments in the business.
Added
Generally, an "ownership change” occurs if the percentage of the Company’s stock owned by one or more "five percent stockholders” increases by more than fifty percentage points over the lowest percentage of stock owned by such stockholders at any time during the prior three-year period or, if sooner, since the last "ownership change” experienced by the Company.
Removed
In order for the Company to be able to repay its debt in full upon maturity, or restructure the debt prior to August 2025, the Company will likely need to explore options for refinancing the indebtedness, and the availability of such options depends on the ability of the Company to continue to improve its cash from operations and other market conditions.
Added
In the event of such an "ownership change,” Section 382 imposes an annual limitation on the amount of post-change taxable income a corporation may offset with pre-change Tax Assets. Similar rules apply in various U.S. state and local jurisdictions.
Removed
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.
Added
With respect to the substantial majority of our Tax Assets, while we have, in recent years, experienced significant changes in the ownership of our stock, we do not believe we have undergone an "ownership change” that would limit our ability to use these Tax Assets.
Removed
Due to poor financial performance of EEG, we fully impaired the investment in prior years.
Added
However, there can be no assurance that the Internal Revenue Service will not challenge this position. On January 28, 2024, our Board of Directors authorized and declared a dividend of one preferred stock purchase right for each outstanding share of Common Stock.
Removed
If the transaction does not close as anticipated and EEG is unsuccessful in executing its business plan, or if economic, regulatory and other factors, including declines in enrollment, revenue and profitability, continue for the for-profit secondary education market, our financial results may be affected by certain potential liabilities related to this investment.
Added
See Note 1 of the Consolidated Financial Statements for additional information on the terms and operation of the Tax Benefits Preservation Plan (the "Plan”), dated as of January 28, 2024, as the same may be amended from time to time, between the Company and Equiniti Trust Company, LLC, as Rights Agent.
Removed
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.
Added
By adopting the Plan, the Board of Directors is seeking to protect the Company’s ability to use its NOLs and other tax attributes to offset potential future income tax liabilities. The Company’s ability to use such NOLs and other tax attributes would be substantially limited if the Company experiences an "ownership change,” as defined in Section 382.
Added
The Plan is intended to make it more difficult for the Company to undergo an ownership change by deterring any person from acquiring 4.95% or more of the outstanding shares of stock without the approval of the Board of Directors.
Added
However, there can be no assurance that the Plan will prevent an "ownership change” from occurring for purposes of Section 382, and events outside of our control and which may not be subject to the Plan, such as sales of our stock by certain existing shareholders, may result in such an "ownership change” in the future.
Added
While we currently have a valuation allowance against our NOLs and other historic Tax Assets for financial accounting purposes, if we have undergone or, in the future, undergo an ownership change that applies to our Tax Assets, our ability to use these Tax Assets could be substantially limited after the ownership change, and this limit could have a substantial adverse effect on our cash flows and financial position.
Added
Although the Plan is not principally intended to prevent a takeover, it may have an anti-takeover effect because an “acquiring person” thereunder may be diluted upon the occurrence of a triggering event.
Added
Accordingly, the Plan may complicate or discourage a merger, tender offer, accumulations of substantial blocks of our stock, or assumption of control by a substantial holder of our securities. The Plan, however, should not interfere with any merger or other business combination approved by the Board of Directors.
Added
Because the Board of Directors may consent to certain transactions, the Plan gives our Board of Directors significant discretion to act in the best interests of shareholders.
Item 2. Properties
Properties — owned and leased real estate
4 edited+3 added−2 removed0 unchanged
Item 2. Properties
Properties — owned and leased real estate
4 edited+3 added−2 removed0 unchanged
2023 filing
2024 filing
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.
Biggest changeThe Company leases the premises in which approximately 85% 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.
None of the Company's salon leases are individually material to the operations of the Company, and the Company expects that it will be able to renew its leases on satisfactory terms as they expire or identify and secure other suitable locations. See Note 6 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
None of the Company's salon leases are individually material to the operations of the Company, and the Company expects that it will be able to renew its leases on satisfactory terms as they expire or identify and secure other suitable locations.
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.
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 also exited its Fremont, California office in fiscal year 2023 and the lease obligation expires September 30, 2024.
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.
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. Approximately half of our company-owned salons had leases that expired in January 2024.
Removed
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.
Added
Item 2. Properties The Company leases its corporate headquarters in Minneapolis, Minnesota, and the lease expires in 2030. We lease four floors at our corporate headquarters. We currently sublease three of the four floors through sublease arrangements which expire in 2030.
Removed
Approximately half of our company-owned salons have leases that expire in January 2024, which the Company does not intend to renew.
Added
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
See Note 6 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 26 Table of Contents
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed3 unchanged
Item 3. Legal Proceedings
Legal Proceedings — active lawsuits and investigations
1 edited+0 added−0 removed3 unchanged
2023 filing
2024 filing
Biggest changeSee Note 9 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
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. 27 Table of Contents PART II
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−1 removed0 unchanged
Item 5. Market for Registrant's Common Equity
Market for Common Equity — stock, dividends, buybacks
7 edited+1 added−1 removed0 unchanged
2023 filing
2024 filing
Biggest changeShare 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.
Biggest changeShare Issuance Program In February 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 had the ability to offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.
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.
Since that time and through June 30, 2024, 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.
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 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 2024, the Company did not repurchase shares. As of June 30, 2024, 1.5 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase.
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.
The closing stock price was $23.06 per share on August 23, 2024. Dividends In accordance with its capital allocation policy, the Company does not pay cash dividends.
Item 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.
Item 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 Nasdaq Global Market under the symbol "RGS." Holders As of August 23, 2024, the Company had approximately 266 shareholders of record.
The Company does not anticipate repurchasing shares of common stock for the foreseeable future.
The Company does not anticipate repurchasing shares of common stock for the foreseeable future. Item 6. Reserved Not applicable. 28 Table of Contents
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.
The Company issued the following common stock through its share issuance program: Fiscal Years 2024 2023 2022 Issued shares — — 464,781 Average price (per share) $ — $ — $82.60 Price range (per share) $ — $ — $75.20 - $119.80 Total $ — $ — $ 38,400,000 Share Repurchase Program In May 2000, the Company's Board of Directors (Board) approved a stock repurchase program with no stated expiration date.
Removed
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.
Added
In fiscal year 2022, 464,781 shares were issued for $38.4 million under the prospectus. During fiscal years 2023 and 2024, the Company did not issue any shares under this prospectus. The share issuance program expired on February 10, 2024.
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
74 edited+9 added−16 removed44 unchanged
Item 7. Management's Discussion & Analysis
Management's Discussion & Analysis (MD&A) — revenue / margin commentary
74 edited+9 added−16 removed44 unchanged
2023 filing
2024 filing
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.
Biggest changeFiscal Years 2024 2023 2022 2024 2023 2022 2024 2023 (Dollars in millions) % of Total Revenues (1) Increase (Decrease) Royalties $ 64.1 $ 66.0 $ 65.8 31.6 % 28.4 % 23.8 % 320 460 Fees 10.2 11.3 11.6 5.0 4.8 4.2 20 60 Product sales to franchisees 0.5 2.8 15.1 0.2 1.2 5.5 (100) (430) Advertising fund contributions 25.7 31.7 32.6 12.7 13.6 11.8 (90) 180 Franchise rental income 95.3 111.4 130.8 46.9 47.7 47.4 (80) 30 Company-owned salon revenue 7.3 10.1 20.2 3.6 4.3 7.3 (70) (300) Cost of product sales to franchisees 0.4 3.5 17.4 80.0 125.0 115.2 (4,500) 980 Inventory reserve — 1.2 7.7 — 0.5 2.8 (50) (230) General and administrative 45.4 50.8 65.3 22.4 21.8 23.7 60 (190) Rent 5.5 9.2 9.4 2.7 3.9 3.4 (120) 50 Advertising fund expense 25.7 31.7 32.6 12.7 13.6 11.8 (90) 180 Franchise rent expense 95.3 111.4 130.8 46.9 47.7 47.4 (80) 30 Company-owned salon expense 5.1 8.8 22.0 2.5 3.8 8.0 (130) (420) Depreciation and amortization 3.9 7.7 6.2 1.9 3.3 2.2 (140) 110 Long-lived asset impairment 0.8 0.1 0.5 0.4 — 0.2 40 (20) Goodwill impairment — — 13.1 — — 4.7 — (470) Operating income (loss) (2) 20.9 8.8 (28.9) 10.3 3.8 (10.5) 650 1,430 Interest expense (25.4) (22.1) (12.9) (12.5) (9.5) (4.7) (300) (480) Loss from sale of salon assets to franchisees, net — — (2.3) — — (0.8) — 80 Gain on extinguishment of long-term debt, net 94.6 — — 46.6 — — N/A N/A Other, net (0.2) 1.4 (0.3) (0.1) 0.6 (0.1) (70) 70 Income tax (expense) benefit (3) (0.9) 0.7 (2.0) 1.0 5.5 (4.5) N/A N/A Income (loss) from discontinued operations 2.0 4.0 (39.4) 1.0 1.7 (14.3) (70) 1,600 Net income (loss) (2) 91.1 (7.4) (85.9) 44.9 (3.2) (31.1) 4,810 2,790 ____________________________________________________________________________ (1) Cost of product sales to franchisees is computed as a percent of product sales to franchisees.
(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.
(2) Total is a recalculation; line items calculated individually may not sum to total due to rounding. (3) Computed as a percent of income (loss) from continuing operations before income taxes.
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.
During fiscal years 2024, 2023, and 2022, the Company recognized long-lived asset impairment charges of $0.8 million, $0.1 million, 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.
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 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, 2024, we have liabilities for uncertain tax positions.
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.
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 2024, 2023, and 2022 resulted in ASC 360-10-35-21 triggering events.
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.
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, 2024.
The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available. The fair value of the right of use asset is estimated by determining what a market participant would pay over the life of the primary asset in the group, discounted back to June 30, 2023.
The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available. The fair value of the right of use asset is estimated by determining what a market participant would pay over the life of the primary asset in the group, discounted back to June 30, 2024.
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.
Since that time and through June 30, 2024, 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.
Additional information about the Company's current use of cash is described under "Sources of Liquidity." Cash Requirements The Company's most significant contractual cash requirements as of June 30, 2023 were lease commitments and interest payments.
Additional information about the Company's current use of cash is described under "Sources of Liquidity." Cash Requirements The Company's most significant contractual cash requirements as of June 30, 2024, were lease commitments and interest payments.
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.
Non-current deferred benefits of $5.6 million includes $1.7 million related to a non-qualified deferred salary plan, a salary deferral program of $1.8 million and a bonus deferral plan of $2.1 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees.
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.
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 June 2029.
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.
The decrease in franchise revenue was primarily due to the decrease in franchise rental income and advertising fund collections 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.
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.
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, 2024, and 2023, the franchise reporting unit had $173.1 million and $173.8 million of goodwill, respectively, and the company-owned segment had no goodwill at either period.
See discussion within Part I, Item 1 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.
See discussion within Part I, Item 1 of this Form 10-K. As part of the Company's strategic transition to a fully franchised model, the Company sold salons to franchisees.
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 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 2024, the Company did not repurchase shares. As of June 30, 2024, 1.5 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase.
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.
The following table summarizes system-wide revenue and system-wide same-store sales (1) by concept: Fiscal Years 2024 2023 2022 (Dollars in millions) System-wide revenue $ 1,179.5 $ 1,230.5 $ 1,228.5 Supercuts 1.6 % 6.9 % 22.1 % SmartStyle (3.5) (2.5) 5.7 Portfolio Brands 2.0 5.5 11.2 Total system-wide same-store sales 0.7 % 4.4 % 14.8 % ____________________________________________________________________________ (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.
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.
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 $181.8 million and $202.2 million at June 30, 2024 and 2023, respectively.
BUSINESS DESCRIPTION Regis Corporation (the Company) franchises, owns and operates beauty salons. As of June 30, 2023, the Company franchised or owned 4,863 salons in North America and the United Kingdom. Each of the Company's salon concepts generally offer similar salon products and services and serve the mass market. As of June 30, 2023, we had 435 corporate employees worldwide.
BUSINESS DESCRIPTION Regis Corporation (the Company) franchises, owns, and operates beauty salons. As of June 30, 2024, the Company franchised or owned 4,408 salons in North America and the United Kingdom. Each of the Company's salon concepts generally offer similar salon products and services and serve the mass market. As of June 30, 2024, we had 275 corporate employees worldwide.
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.
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. 42 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.
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.
In February 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 had the ability to offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.
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.
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, 2024, Compared with Fiscal Year Ended June 30, 2023 Franchise Revenue Franchise revenue decreased $27.5 million during fiscal year 2024.
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.
The impact of these transactions is as follows: Fiscal Years 2024 2023 2022 (Dollars in thousands) Salons sold to franchisees 10 1 110 Cash proceeds received $ — $ — $ — Loss from sale of salon assets to franchisees, net $ — $ — $ (2,334) On June 30, 2022, the Company sold its Opensalon ® Pro (OSP) software-as-a-service solution to Soham Inc.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
See additional discussion in Note 8 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. 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.
See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 41 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.
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.
As of June 30, 2024, the unused available credit under the revolving credit facility was $9.8 million and total liquidity per the agreement was $19.9 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.
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.
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. 39 Table of Contents Dividends The Company has not declared a quarterly dividend payment since December 2013.
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.
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' equity (deficit) at fiscal year-end, was as follows: As of June 30, Debt to Capitalization (1) 2024 67.0 % 2023 125.1 % 2022 120.8 % _______________________________________________________________________________ (1) Excludes the long-term lease liability as that liability is offset by the right-of-use (ROU) asset.
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 are calculated in local currencies to remove foreign currency fluctuations from the calculation. 30 Table of Contents Consolidated Results of Operations The following table sets forth, for the periods indicated, certain information derived from our Consolidated Statements of Operations.
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.
In fiscal years 2024, 2023, and 2022, the Company experienced the following charges related to the exit of the distribution centers: Fiscal Years 2024 2023 2022 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 ____________________________________________________________________________ (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 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.
In addition to a $10.0 million minimum liquidity covenant, the agreement includes typical provisions and financial covenants, including leverage and fixed-charge coverage ratio covenants, of which the latter two are not tested until September 30, 2024. See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 31 Table of Conte n t s Results of Operations by Segment Based on our internal management structure, we report two segments: Franchise salons and Company-owned salons.
See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 33 Table of Contents Results of Operations by Segment Based on our internal management structure, we report two segments: franchise salons and company-owned salons. See Note 15 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. 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.
The Company does not anticipate repurchasing shares of common stock for the foreseeable future. 40 Table of Contents CRITICAL ACCOUNTING POLICIES AND ESTIMATES The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States.
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.
In fiscal years 2024, 2023, and 2022, the Company received the following financial assistance: Fiscal Years 2024 2023 2022 Financial Statement Caption (Dollars in thousands) Canadian rent relief Rent $ — $ — $ 1,235 Canadian wage relief Company-owned salon expense — — 1,966 North Carolina COVID-19 grant Other, net — 1,106 — Additionally, in December 2022, the Company paid $2.5 million of social security contributions that had been deferred under the CARES Act.
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.
Income Tax (Expense) Benefit During fiscal year 2024, the Company recognized an income tax expense of $0.9 million, with a corresponding effective tax rate of 1.0%, compared to recognizing an income tax benefit of $0.7 million, with a corresponding effective tax rate of 5.5% during fiscal year 2023.
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.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Income (Loss) from Discontinued Operations The Company recorded income from discontinued operations of $2.0 million and $4.0 million in fiscal years 2024 and 2023, respectively.
In fiscal year 2023, a net 600 franchise salons have closed, which reduces future royalty income.
In fiscal year 2024, a net 404 franchise salons have closed, which reduces future royalty income.
Company-owned Salon Adjusted EBITDA During fiscal year 2023, Company-owned salon adjusted EBITDA improved $7.7 million, primarily due to the closure of unprofitable salons. Fiscal year 2023 also benefited from a $1.1 million grant received from the state of North Carolina related to COVID-19 relief.
Company-Owned Salon Adjusted EBITDA During fiscal year 2024, company-owned salon adjusted EBITDA improved $1.5 million, primarily due to a change in estimate related to gift card breakage in addition to the closure of unprofitable salons. Fiscal year 2023 also benefited from a $1.1 million grant received from the state of North Carolina related to COVID-19 relief.
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.
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.
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.
Franchise Salons Fiscal Years 2024 2023 2022 2024 2023 (Dollars in millions) Increase (Decrease) (1) Royalties $ 64.1 $ 66.0 $ 65.8 $ (1.9) $ 0.2 Fees 10.2 11.3 11.6 (1.1) (0.3) Product sales to franchisees 0.5 2.8 15.1 (2.3) (12.3) Advertising fund contributions 25.7 31.7 32.6 (6.0) (0.9) Franchise rental income 95.3 111.4 130.8 (16.1) (19.4) Total franchise revenue (1) $ 195.7 $ 223.2 $ 255.8 $ (27.5) $ (32.6) Franchise same-store sales (2) 0.6 % 4.4 % 15.0 % Franchise adjusted EBITDA $ 26.3 $ 22.8 $ 7.7 $ 3.5 $ 15.1 Total franchise salons 4,391 4,795 5,395 (404) (600) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.
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.
Product Sales to Franchisees Product sales to franchisees decreased $2.3 million, or 82.1%, during fiscal year 2024, primarily due to the Company's shift in its product business to a third-party distribution model.
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.
The improvement is primarily due to a decrease in general and administrative expense. 34 Table of Contents Company-Owned Salons Fiscal Years 2024 2023 2022 2024 2023 (Dollars in millions) (Decrease) Increase (1) Total revenue $ 7.3 $ 10.1 $ 20.2 $ (2.8) $ (10.1) Company-owned salon adjusted EBITDA $ (0.3) $ (1.8) $ (9.5) $ 1.5 $ 7.7 Total company-owned salons 17 68 105 (51) (37) _______________________________________________________________________________ (1) Total is a recalculation; line items calculated individually may not sum to total due to rounding.
The Company received $13.0 million in proceeds in June 2022 and received an additional $5.0 million in proceeds in fiscal year 2023, offset by a $0.5 million transaction fee. The Company expects to receive an additional $2.0 million of proceeds held back for general indemnity provisions in December 2024 and additional proceeds as salons migrate to the Zenoti platform.
(Zenoti). The Company received $13.0 million in proceeds in June 2022 and received an additional $5.0 million in proceeds in fiscal year 2023, offset by a $0.5 million transaction fee. In fiscal year 2024, the Company received an additional $2.0 million of proceeds that had been previously held back for general indemnity provisions.
See Notes 6 and 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further detail. 34 Table of Conte n t s Cash Flows Cash Flows from Operating Activities During fiscal year 2023, cash used in operating activities was $7.9 million.
See Notes 6 and 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further detail. 36 Table of Contents Cash Flows Cash Flows from Operating Activities During fiscal year 2024, cash used in operating activities was $2.0 million.
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.
As of June 30, 2024, cash and cash equivalents were $10.1 million, with $9.4 million and $0.7 million within the United States and Canada, respectively. As of June 30, 2024, the Company's borrowing arrangements include a $105.0 million term loan and a $25.0 million revolving credit facility with a $10.0 million minimum liquidity covenant that expires in June 2029.
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 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. 43 Table of Contents
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.
Share Issuance Program In February 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 had the ability to offer and sell, from time to time, up to $50.0 million worth of its common stock in "at-the-market" offerings.
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.
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.
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.
During fiscal year 2024, franchisees purchased 10 salons from the Company and constructed (net of relocations) and closed 15 and 429 franchise salons, respectively. Franchise Adjusted EBITDA During fiscal year 2024, franchise adjusted EBITDA totaled $26.3 million, an improvement of $3.5 million compared to fiscal year 2023.
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 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 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. Total liquidity and available credit under the revolving credit facility, as defined by the agreement, were $42.8 and $33.3 million, respectively, as of June 30, 2023.
The agreement includes typical provisions and financial covenants, including leverage and fixed-charge coverage ratio covenants, of which the latter two are not tested until September 30, 2024. As of June 30, 2024, the unused available credit under the revolving credit facility was $9.8 million and total liquidity per the agreement was $19.9 million.
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.
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. 31 Table of Contents Fiscal Year Ended June 30, 2024, Compared with Fiscal Year Ended June 30, 2023 Royalties During fiscal year 2024, royalties decreased $1.9 million, or 2.9%, primarily due to a decrease in franchise salon count and unfavorable same store sales traffic.
Depreciation and Amortization The increase of $1.5 million, or 24.2%, in depreciation and amortization during fiscal year 2023 was primarily due to a $2.6 million accelerated depreciation charge in the second quarter of fiscal year 2023 related to the consolidation of office space within the Company's corporate headquarters, partially offset by lower asset retirement obligations ("white boxing" salons at lease end) and the net reduction in company-owned salon count.
Depreciation and Amortization The decrease of $3.8 million, or 49.4%, in depreciation and amortization during fiscal year 2024 was primarily due to a $2.6 million accelerated depreciation charge in the second quarter of fiscal year 2023 related to the consolidation of office space within the Company's corporate headquarters, partially offset by accelerated depreciation charges in the fourth quarter of fiscal year 2024 related to further consolidation of office space within the corporate headquarters and the net reduction in company-owned salon count.
Other, net Other, net improved $1.7 million in fiscal year 2023, primarily due to a $1.1 million grant received from the state of North Carolina related to COVID-19 relief and a class action settlement.
Additionally, the net gain includes the write off of paid-in-kind interest accruals and the write off of unamortized debt financing fees. Other, Net Other, net declined $1.6 million in fiscal year 2024, primarily due to a $1.1 million grant received from the state of North Carolina related to COVID-19 relief and a class action settlement in fiscal year 2023.
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.
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: Twelve months ended June 30, 2024 2023 2024 2023 (Cash interest rate %) (Dollars in thousands) Term loan (1) 9.68% 9.54% $ 105,000 $ 172,268 Deferred financing fees (14,244) (6,471) Term loan, net 90,756 165,797 Revolving credit facility (1) 9.68% 9.54% 10,237 10,000 Paid-in-kind interest 53 1,033 Fair value of warrants issued to lenders (Note 14) (1,501) — Total long-term debt, net $ 99,545 $ 176,830 _______________________________________________________________________________ (1) June 30, 2023 term loan and revolving credit facility had a maturity date of August 31, 2025.
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.
Company-Owned Salon Expense Company-owned salon expense decreased $3.7 million, or 42.0%, during fiscal year 2024, primarily due to the reduction in company-owned salon count and a decline in product sales.
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.
Cash Flows from Financing Activities During fiscal year 2024, cash provided by financing activities of $8.4 million was primarily a result of cash proceeds from the June 2024 credit agreement, offset by repayment of long-term debt and debt refinancing fees. 37 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.
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 decrease in the debt to capitalization ratio as of June 30, 2024, compared to June 30, 2023, was primarily due to extinguishment of long term debt during fiscal year 2024. 38 Table of Contents Contractual Obligations and Commercial Commitments On-Balance Sheet Obligations Our debt obligations are primarily composed of our credit agreement at June 30, 2024.
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.
General and Administrative The decrease of $5.4 million, or 10.6%, in general and administrative expense during fiscal year 2024 was primarily due to lower compensation resulting from headcount reductions, lower legal and professional fees and less technical education spend.
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.
Rent The decrease of $3.7 million, or 40.2%, in rent expense during fiscal year 2024 was primarily due to the net reduction in the number of company-owned salons.
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.
Cash Flows from Investing Activities During fiscal year 2024, cash provided by investing activities of $1.6 million was primarily related to $2.0 million received related to the sale of OSP.
(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.
(2) Due to the reduction in company-owned salons, the Company cannot redistribute inventory from closed salons causing an increase to the reserve. 29 Table of Contents RESULTS OF OPERATIONS The Company reports its operations in two operating segments: franchise salons and company-owned salons. COVID-19 Impact: The global coronavirus pandemic (COVID-19) had an adverse impact on operations.
Advertising Fund Contributions Advertising fund contributions decreased $0.9 million, or 2.8%, during fiscal year 2023, primarily due to the decrease in franchise salon count, partially offset by improved system-wide same-store sales. Franchise Rental Income During fiscal year 2023, franchise rental income decreased $19.4 million, or 14.8%, primarily due to the decrease in franchise salon count.
Advertising Fund Contributions Advertising fund contributions decreased $6.0 million, or 18.9%, during fiscal year 2024, primarily due to the decrease in franchise salon count and decrease in advertising fund contribution rates. Franchise Rental Income During fiscal year 2024, franchise rental income decreased $16.1 million, or 14.5%, primarily due to the decrease in franchise salon count.
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.
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. 35 Table of Contents LIQUIDITY AND CAPITAL RESOURCES In June 2024, the Company entered into a new credit agreement with TCW Asset Management Company, LLC, and MidCap Financial Trust, which matures in June 2029.
Long-Lived Asset Impairment In fiscal year 2023, the Company recorded a long-lived asset impairment charge of $0.1 million, and in fiscal year 2022, the Company recorded a long-lived asset impairment charge of $0.5 million. The decrease in long-lived asset impairment was primarily due to more salon ROU assets being impaired in prior periods.
Long-Lived Asset Impairment The Company recorded long-lived asset impairment charges of $0.8 million and $0.1 million in fiscal years 2024 and 2023, respectively. The increase in long-lived asset impairment was primarily due to more right-of-use assets being impaired in fiscal year 2024 resulting from subleasing excess corporate office space to unrelated third parties.
See Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Significant results of continuing operations are discussed below with respect to each of these segments.
Significant results of continuing operations are discussed below with respect to each of these segments.
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.
In fiscal year 2022, 464,781 shares were issued for $38.4 million under the prospectus. During fiscal years 2023 and 2024, the Company did not issue any shares under this prospectus. The share issuance program expired on February 10, 2024. Share Repurchase Program In May 2000, the Board approved a stock repurchase program with no stated expiration date.
Advertising Fund Expense Advertising fund expense decreased $0.9 million, or 2.8%, during fiscal year 2023, primarily due to the decrease in franchise salon count, partially offset by improved system-wide same-store sales. 30 Table of Conte n t s Franchise Rent Expense During fiscal year 2023, franchise rent expense decreased $19.4 million, or 14.8%, primarily due to the decrease in franchise salon count.
Advertising Fund Expense Advertising fund expense decreased $6.0 million, or 18.9%, during fiscal year 2024, primarily due to the decrease in franchise salon count and a decrease in advertising fund contribution rates. 32 Table of Contents Franchise Rent Expense During fiscal year 2024, franchise rent expense decreased $16.1 million, or 14.5%, primarily due to the decrease in franchise salon count.
Interest Expense The $9.2 million increase in interest expense during fiscal year 2023 was primarily due to the increase of $1.1 million in amortization of fees related to the credit amendment that was signed in the first quarter of fiscal year 2023 and a higher weighted average interest rate on outstanding borrowings, including non-cash paid-in-kind interest of $1.0 million.
Interest Expense The $3.3 million increase in interest expense during fiscal year 2024 was primarily due to a higher weighted average interest rate on outstanding borrowings. Gain on Extinguishment of Long-Term Debt, Net In June 2024, the Company recorded a gain of $94.6 million related to the extinguishment of long-term debt.
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. Uses of Cash The Company closely manages its liquidity and capital resources.
In fiscal year 2022, 464,781 shares were issued for $38.4 million under the prospectus. During fiscal years 2023 and 2024, the Company did not issue any shares under this prospectus. The share issuance program expired on February 10, 2024. Uses of Cash The Company closely manages its liquidity and capital resources.
Fees During fiscal year 2023, fees decreased $0.3 million, or 2.6%, primarily due to a decrease in terminated development agreements year over year, partially offset by an increase in the fee received from the Company's third-party distribution partner.
This was partially offset by increased prices within our same store sales. Fees During fiscal year 2024, fees decreased $1.1 million, or 9.7%, primarily due to a decrease in terminated development agreements year over year.
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.
If the Company's leverage ratio is less than 3.75 to 1.00, the margin rate is 8.50%. In either scenario, 4.5% of the margin is paid-in-kind (PIK) interest (added to the principal balance and thereafter accruing interest), and the remainder is paid currently in cash. The margin applicable to any letter of credit is 5.25% and paid currently in cash.
Fiscal Year Ended June 30, 2023 Compared with Fiscal Year Ended June 30, 2022 Company-owned Salon Revenue Company-owned salon revenue decreased $10.1 million in fiscal year 2023, primarily due to decrease in company-owned salon count and a decline in product sales in salons.
Fiscal Year Ended June 30, 2024, Compared with Fiscal Year Ended June 30, 2023 Company-Owned Salon Revenue Company-owned salon revenue declined $2.8 million in fiscal year 2024, primarily due to the closure of loss-generating company-owned salons, partially offset by the recognition of non-cash revenue of $1.3 million due to a change in estimate related to gift card breakage.
Cash used in operations improved due to lower general and administrative expense resulting from a reduced headcount, a $1.1 million cash grant received from the state of North Carolina related to COVID-19 relief, $0.6 million received related to COVID-19 employee retention credits and less cash used for working capital.
Cash used in operations improved due to lower general and administrative expense and less cash used for working capital. Cash used in fiscal year 2023 included a $2.5 million payment of previously deferred social security contributions.
The margin applicable to base rate loans will be 100 basis points (1.00%) less than the margin applicable to SOFR loans. See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Off-Balance Sheet Arrangements Under the credit agreement entered into in June 2024, the margin applicable to any letter of credit is 5.25% and is paid currently in cash. See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Removed
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.
Added
In fiscal year 2025, the Company expects additional proceeds related to salons migrating to Zenoti. The Zenoti migration was successfully completed in early first quarter, fiscal year 2025.
Removed
Inventory Reserve During fiscal year 2023, the Company recorded an inventory reserve charge of $1.2 million related to slow moving products. During fiscal year 2022, the Company recorded a total inventory reserve charge of $10.5 million, of which $7.7 million was recorded in inventory reserve and $2.8 million was recorded in company-owned salon expense on the Consolidated Statements of Operations.
Added
Company-Owned Salon Revenue During fiscal year 2024, company-owned salon revenue decreased $2.8 million, or 27.7%, due to the decrease in company-owned salon count, partially offset by the recognition of non-cash revenue related to a change in estimate for gift card breakage.
Removed
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.
Added
Cost of Product Sales to Franchisees Cost of product sales to franchisees decreased $3.1 million, or 88.6%, primarily due to the Company's shift in its product business to a third-party distribution model.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
5 edited+1 added−0 removed4 unchanged
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk — interest-rate, FX, commodity exposure
5 edited+1 added−0 removed4 unchanged
2023 filing
2024 filing
Biggest changeThe 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.
Biggest changeInterest Rate Risk: 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 an impact on our annual cash flows of approximately $1.0 million annually.
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.
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, 2024, the Company did not have any derivative instruments to manage its foreign currency risk.
Foreign Currency Exchange Risk: Over 90% of the Company's operations are transacted in U.S. dollars. However, because a portion of the Company's operations consist of activities outside of the U.S., the Company has transactions in other currencies, primarily the Canadian dollar, and to a lesser extent, the British pound.
However, because a portion of the Company's operations consist of activities outside of the U.S., the Company has transactions in other currencies, primarily the Canadian dollar, and to a lesser extent, the British pound.
During 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
During fiscal years 2024, 2023, and 2022, the Company recorded foreign currency losses of $0.5 million, $0.3 million, and $0.6 million in income (loss) from continuing operations, respectively, in the Consolidated Financial Statements. 44 Table of Contents
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.
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.
Added
As of June 30, 2024, the Company had outstanding variable rate debt of $115.3 million, and the Company did not have any outstanding interest rate swaps. SOFR variability does not impact our letters of credit, which are charged at a fixed rate of 5.25%. Foreign Currency Exchange Risk: Over 90% of the Company's operations are transacted in U.S. dollars.