Regis : Reports Fourth Quarter 2017 and Full-Year Results

Regis Corporation (NYSE: RGS):

Regis Corporation (NYSE: RGS), a leader in the haircare industry, whose primary business is owning, operating and franchising hair salons, today reported fourth quarter 2017 net income of $1.3 million, or $0.03 per share as compared to net income of $5.6 million, or $0.12 per share in the fiscal fourth quarter of 2016. On an adjusted basis, the Company reported net income of $9.2 million, or $0.20 earnings per share versus net income of $5.5 million, or $0.12 earnings per share, for the same period last year.

Total revenue in the quarter of $424.2 million decreased $23.5 million, or 5.3%, while same-store sales were up 0.4%, compared to the prior year quarter. Fourth quarter adjusted EBITDA of $30.7 million, was $3.2 million, or 11.7% favorable year-over-year.

On a full year basis, the Company reported a net loss of $16.1 million, or $(0.35) per share as compared to a net loss of $11.3 million, or $(0.23) per share in the prior year. On an adjusted basis, net income was $2.7 million, or $0.06 earnings per share versus net income of $3.1 million, or $0.06 earnings per share, for the same period last year.

Total revenue for the year of $1,691.9 million decreased $99.0 million, or 5.5%, and same-store sales were down 1.8%, compared to the prior year. Adjusted EBITDA for the year of $87.0 million was down $3.6 million, or 4.0% on a year-over-year basis.

Hugh Sawyer, President and Chief Executive Officer, commented, “I am grateful for the efforts of our employees and franchise partners in 2017 and the loyalty of our guests and shareholders. Management is increasing the cadence of decision making required to restructure our portfolio, execute the operational turnaround of our company-owned salons and accelerate the growth of our franchise business. We expect the elements of our strategy to be transformational for our guests and employees and value-enhancing for our shareholders.”

New Segment Reporting Provides Improved Transparency

Beginning in the fourth quarter of fiscal year 2017, and in conjunction with the Company’s previously announced plans to focus on a performing portfolio of company-owned and franchised locations, the Company redefined its reportable segments. The new reportable segment structure, which provides increased transparency to the Company’s franchise business, is the basis on which the fourth quarter and full year 2017 results included within are presented. Comparable prior period results also reflect this change. The new reporting segments are: North American Value, North American Franchise, North American Premium and International salons.

Fourth quarter revenue for the North American Value segment, which is comprised of SmartStyle, Supercuts, MasterCuts, and Signature Style concepts, decreased 2.6% versus the prior year to $320.3 million. The year-over-year decline in revenue was driven primarily by our mall based value brand, by the closure of unprofitable salons and the unfavorable impact of foreign currency partly offset by positive same-store sales increases of 1.6%.

Fourth quarter adjusted gross profit of $134.2 million decreased $2.4 million, or 1.8%, versus the same period last year. The primary drivers of the year-over-year decline were the decrease in salon counts and minimum wage increases, partly offset by same-store sales growth and favorable inventory shrink and usage rates.

Fourth quarter North American Value adjusted EBITDA totaled $41.0 million which was a $3.3 million, or 8.6%, increase versus the same period last year. The year-over-year increase was driven primarily by the closing of unprofitable salons and cost savings, partly offset by the gross profit decline.

Fourth quarter North American Franchise revenue was $21.2 million, a $1.0 million, or 4.7%, increase compared to the prior year quarter. Royalties and fees were $13.1 million, a $1.0 million, or 8.6%, increase versus the same period last year. Royalties increased 5.9% driven primarily by positive same-store revenue in the quarter and increased franchise salon counts. Initial franchise fees were up $0.5 million, or 46.0%, as the Company opened, or converted, a net 111 franchised locations in the quarter as compared to 57 in the prior year quarter.

Fourth quarter North American Franchise adjusted EBITDA of $9.3 million improved $0.1 million year-over-year, driven primarily by the increase in royalties and fees, partly offset by lower margins on product sales to franchisees and higher incentive costs.

The North American Premium segment, which is comprised of the Company's predominantly mall-based Regis Salon brands and Vidal Sassoon North America salons, had fourth quarter revenue of $56.8 million, an $11.1 million, or 16.3%, decrease versus the same period last year. The year-over-year decline was driven primarily by the closing of unprofitable salons and negative same-store sales of 4.1%.

Fourth quarter adjusted gross profit for the segment decreased $4.3 million, or 18.4%, versus the prior year quarter driven by salon closures, negative same-store sales, and minimum wage increases, partly offset by favorable inventory shrink and usage rates.

North American Premium fourth quarter adjusted EBITDA loss of $1.7 million increased $1.0 million as compared to the prior year quarter, driven primarily by the gross profit decline, partly offset by cost savings from closing of unprofitable salons.

International segment fourth quarter revenue of $25.9 million declined $4.9 million, or 15.8% versus the same period last year. The revenue decline was driven primarily by the closing of unprofitable salons and the unfavorable impact of foreign currency along with negative same-store sales of 5.1%.

Adjusted gross profit for the quarter decreased $2.6 million, or 18.7%, year-over-year to $11.2 million driven primarily by volume decreases from closed salons, unfavorable currency impact, negative same-store sales, stylist productivity, and inventory shrink and usage rates.

International fourth quarter adjusted EBITDA of $0.4 million was $0.3 million favorable to the same period last year. Operating expense reductions from the closing of unprofitable salons and purposeful cost savings, were partly offset by the gross profit decrease.

Other Corporate Updates

Strategic Alternatives
In May of this year, the Company announced it had retained Huron Transaction Advisory for financial advisory and investment banking services to assist in its review of strategic alternatives for its mall-based salons comprised of the Company's Regis Salons brands and its MasterCuts brand. The Company continues to make progress in its assessment of options for its mall-based salons.

120-Day Plan Update
The Company executed a number of initiatives during the fourth quarter, including a 120-day plan which consisted of several work streams that helped stabilize performance and establishes a platform for longer-term revenue and earnings growth in company-owned salons. The core components of the 120-day plan are focused on strategic pricing and improving the Company's performance by better aligning stylist scheduling and other company resources to forecasted demand while continuing to provide an exceptional guest experience. In addition, we are simplifying our business and disinvesting in certain programs that do not create value while focusing on our brands to drive traffic and grow revenues.

Deferred Tax Valuation Allowance Update
As a result of the Company's valuation allowance against most of its deferred tax assets, associated reported and as adjusted after-tax results are not comparable to prior periods.

• Net income for the quarter of $1.3 million benefited by $0.8 million due to the deferred tax valuation allowance on income tax expense.
• Fourth quarter earnings per share of $0.03 benefited by $0.02 per share due to the deferred tax valuation allowance on income tax expense.

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

Earnings Webcast
Regis Corporation will host a conference call via webcast discussing fourth quarter results today, August 23, 2017, at 9 a.m., Central time. Interested parties are invited to participate in the live webcast by logging on to www.regiscorp.com or participate by phone by dialing (888) 490-2771 and entering access code 8255882. A replay of the presentation will be available later that day. The replay phone number is (888) 203-1112, access code 8255882.

About Regis Corporation
Regis Corporation (NYSE:RGS) is a leader in beauty salons and cosmetology education. As of June 30, 2017, the Company owned, franchised or held ownership interests in 9,008 worldwide locations. Regis’ corporate and franchised locations operate under concepts such as Supercuts, SmartStyle, MasterCuts, Regis Salons, Sassoon Salon, Cost Cutters, Roosters and First Choice Haircutters. Regis maintains an ownership interest in Empire Education Group in the U.S. For additional information about the Company, including a reconciliation of certain non-GAAP financial information and certain supplemental financial information, please visit the Investor Information section of the corporate website at www.regiscorp.com. To join Regis Corporation’s email alert list, click on this link: http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1

This press release contains or may contain "forward-looking statements" within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements in this document reflect management's best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may," "believe," "project," "forecast," "expect," "estimate," "anticipate," and "plan." In addition, the following factors could affect the Company's actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include the continued ability of the Company to implement its strategy, priorities and initiatives; our ability to attract, train and retain talented stylists; financial performance of our franchisees; acceleration of sale of certain salons to franchisees; the ability of the Company to maintain a satisfactory relationship with Walmart; marketing efforts to drive traffic; changes in regulatory and statutory laws including increases in minimum wages; our ability to manage cyber threats and protect the security of sensitive information about our guests, employees, vendors or Company information; reliance on information technology systems; reliance on external vendors; consumer shopping trends and changes in manufacturer distribution channels; competition within the personal hair care industry; changes in tax exposure; changes in healthcare; changes in interest rates and foreign currency exchange rates; failure to standardize operating processes across brands; financial performance of Empire Education Group; the continued ability of the Company to implement cost reduction initiatives; compliance with debt covenants; changes in economic conditions; changes in consumer tastes and fashion trends; exposure to uninsured or unidentified risks; reliance on our management team and other key personnel or other factors not listed above. Additional information concerning potential factors that could affect future financial results is set forth under Item 1A of our annual report or Form 10-K. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-Q and 8-K and Proxy Statements on Schedule 14A.

Non-GAAP Reconciliations

We believe our presentation of non-GAAP operating income (loss), net income (loss), net income (loss) per diluted share, and other non-GAAP financial measures provides meaningful insight into our ongoing operating performance and an alternative perspective of our results of operations. Presentation of the non-GAAP measures allows investors to review our core ongoing operating performance from the same perspective as management and the Board of Directors. These non-GAAP financial measures provide investors an enhanced understanding of our operations, facilitate investors’ analyses and comparisons of our current and past results of operations and provide insight into the prospects of our future performance. We also believe the non-GAAP measures are useful to investors because they provide supplemental information research analysts frequently use to analyze financial performance.

The method we use to produce non-GAAP results is not in accordance with U.S. GAAP and may differ from methods used by other companies. These non-GAAP results should not be regarded as a substitute for corresponding U.S. GAAP measures but instead should be utilized as a supplemental measure of operating performance in evaluating our business. Non-GAAP measures do have limitations in that they do not reflect certain items that may have a material impact upon our reported financial results. As such, these non-GAAP measures should be viewed in conjunction with both our financial statements prepared in accordance with U.S. GAAP and the reconciliation of the selected U.S. GAAP to non-GAAP financial measures, which are located in the Investor Information section of the corporate website at www.regiscorp.com.

Non-GAAP reconciling items for the three and twelve months ended June 30, 2017 and 2016:

The following information is provided to give qualitative and quantitative information related to items impacting comparability. Items impacting comparability are not defined terms within U.S. GAAP. Therefore, our non-GAAP financial information may not be comparable to similarly titled measures reported by other companies. We determine which items to consider as “items impacting comparability” based on how management views our business, makes financial, operating and planning decisions and evaluates the Company’s ongoing performance. The following items have been excluded from our non-GAAP results:

• Salon tools write-off.
• Professional fees.
• Severance expense.
• CEO transition costs.
• Expense associated with legal settlements.
• Gain on life insurance proceeds.
• Expense associated with legal cases.
• Expenses associated with financing arrangements.
• Other than temporary impairment associated with our investment in Empire Education Group (EEG).

REGIS CORPORATION
Reconciliation by reportable segment of reported U.S. GAAP net income (loss) to adjusted EBITDA,
a non-GAAP financial measure
(Dollars in thousands)
(Unaudited)

Adjusted EBITDA
EBITDA represents U.S. GAAP net income (loss) for the respective period excluding interest expense, income taxes and depreciation and amortization expense. The Company defines adjusted EBITDA, as EBITDA excluding equity in loss of affiliated companies, and identified items impacting comparability for each respective period. For the three and twelve months ended June 30, 2017 and 2016, the items impacting comparability consisted of the items identified in the non-GAAP reconciling items for the respective periods. The impact of the income tax provision adjustments associated with the above items is already included in the U.S. GAAP reported net income (loss) to EBITDA reconciliation, therefore there is no adjustment needed for the reconciliation from EBITDA to adjusted EBITDA. The impact of the impairment on the Company's investment in EEG is already included by excluding the impact of the Company’s equity in loss of affiliated companies, net of taxes, as reported.

REGIS CORPORATION
Reconciliation by reportable segment of reported U.S. GAAP gross profit (excluding depreciation and amortization) to adjusted gross profit (excluding depreciation and amortization), a non-GAAP financial measure
(Dollars in thousands)
(Unaudited)

Gross profit
The Company defines gross profit as service and product revenues less cost of service and cost of product, excluding depreciation and amortization. Non-GAAP gross profit is gross profit, as defined by the Company, adjusted for items impacting comparability for each respective period.