Regis Corporation (NYSE:RGS) Q1 2024 Earnings Call Transcript

From a franchise salon count perspective, 52 salons closed in Q1 putting our franchise salon count at 4,745. Of the 52 closures, 24 were Supercuts, 15 SmartStyle and the remaining 13 from our portfolio brands. The average volumes for these closures were $122,000. And as I mentioned on previous calls, these closures are the byproduct, of the challenging operating environment we are in, and these salons performance has been exacerbated by the labor constraints and customer traffic changes. We continue to expect this rationalization of the portfolio and the focus, is on ensuring that we optimize and get the most out, of the footprint that we have going forward. The key drivers of our results during the quarter remain the work that we are doing, to continually manage our G&A expenses and our company-owned salon footprint.

Our G&A improvement of close to $3 million versus the prior year quarter and company-owned salon EBITDA improvement of $700,000 year-over-year combined with the top line growth of our remaining stores, enabled us to grow profitability, despite the lower royalty and fee revenue due to salon closures. Now regarding an update on Zenoti, which is perhaps the top initiative related to our salon operations right now. Given the foundation, the platform sets for our personalized marketing and operational initiatives, we have crossed the 1,000 salon threshold with 1,140 active locations. As a reminder, while migration payments are part of the OpenSalon Pro transaction, we did receive $18 million of cash to-date, with another $2 million anticipated in December.

These upfront payments enabled us to paydown part of our debt leading up, to the amend and extend last year. And in addition to the upfront proceeds, we are operating without the G&A and CapEx burden of product development, which combined were higher than the associated product revenue that we were taking in. Additionally, as part of the transaction, Zenoti purchased OpenSalon Pro from us and there are currently approximately 2,000 salons running on OpenSalon Pro, giving us a clear line of sight into over 3,000 salons to run on Zenoti. And given the ability to move this cohort, due to the direct controls Zenoti has over the platform, we have prioritized those salons running on a third-party system called SuperSalon. A system that franchisees have utilized, pre the OpenSalon Pro days, of which there are approximately 1,400 salons remaining running on that system, many of which have signed up to convert over to Zenoti.

Now I’ve gotten a lot of questions around the speed, and the ability for us to simply force the conversion and to, which I will answer that it is much more nuanced than that. This is a large scale change management exercise, with close to 600 franchisees, who manage a group of corporate employees, stylists with a variations of back office processes and permutations, of how they run their business. There is a delicate balance, between pushing and collaborating that we have been navigating. And while the conversion is no doubt slower than we would have liked, or even initially anticipated and communicated, with the info that we have today. It was required based upon the work to be able to customize the product, to meet the unique business needs of our franchisees and also guide that change, through what is already a challenging operating environment.

We have made it clear, that heading into the new calendar year that Zenoti, is the required point-of-sale system for our franchisees and we believe that the timing of consolidating our salons onto this platform, by the end of our fiscal year still holds. And I would like to reiterate that we are currently living, with the benefits of this transaction. This was the right move for us to make and we wouldn’t be, where we are today had we not done it. And while our financial results continue, to be largely driven by G&A, and company-owned salon management, we are focused intently on driving same-store sales, as we maintain our discipline on those key items. Zenoti will play a key role here. Given the platform’s functionality and ability, to optimize the use of our data through CRM and loyalty efforts in order to drive more frequency.