Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. This MD&A should be read in conjunction with the MD&A included in ourJune 30, 2022 Annual Report on Form 10-K and other documents filed or furnished with theSEC during the current fiscal year.
MANAGEMENT'S OVERVIEW
Regis Corporation (NYSE:RGS) is a leader in the beauty salon industry. As ofSeptember 30, 2022 , the Company franchised, owned or held ownership interests in 5,494 worldwide locations. Our locations consisted of 5,418 system-wide North American and international salons, and 76 locations in which we maintained a non-controlling ownership interest less than 100 percent. Regis' franchised and corporate locations operate under concepts such as Supercuts®, SmartStyle®, Cost Cutters®, Roosters® and First Choice Haircutters®. Regis maintains an ownership interest inEmpire Education Group in theU.S. As ofSeptember 30, 2022 , the Company had 608 employees worldwide.
Merchandising Strategy
As part of the Company's transformation to focus on managing and nurturing brands, and in line with its capital-light business, the Company adopted a new merchandise strategy to shift its product business from a wholesale model to a third-party distribution model. Management expects the change will positively impact franchisees by providing them access to industry-leading pricing, loyalty programs, promotional benefits, educational assets, and ongoing support. The Company will receive a rebate from the third-party distributors which is included in fees on the interim unaudited Condensed Consolidated Statement of Operations. As a result of the change, product sales to franchisees will continue to decrease and are expected to provide less revenue and costs in fiscal year 2023 as compared to prior year.
CRITICAL ACCOUNTING POLICIES
The interim unaudited Condensed Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted inthe United States of America . In preparing the interim unaudited Condensed Consolidated Financial Statements, we are required to make various judgments, estimates and assumptions that could have a significant impact on the results reported in the interim unaudited Condensed Consolidated Financial Statements. We base these estimates on historical experience and other assumptions believed to be reasonable under the circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our interim unaudited Condensed Consolidated Financial Statements. Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements contained in Part II, Item 8 of theJune 30, 2022 Annual Report on Form 10-K, as well as Notes 1 and 2 to the unaudited Condensed Consolidated Financial Statements contained within this Quarterly Report on Form 10-Q. We believe the accounting policies related to the valuation of goodwill and the valuation and estimated useful lives of long-lived assets are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations. Discussion of each of these policies is contained under "Critical Accounting Policies" in Part II, Item 7 of ourJune 30, 2022 Annual Report on Form 10-K. Our policies related to revenue recognition guidance can be found in Note 2 to the unaudited Condensed Consolidated Financial Statements. 21 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
System-wide results
As an asset-light franchise platform, our results are impacted by our system-wide sales, which include sales by all points of distribution, whether owned by our franchisees or the Company. While we do not record sales by franchisees as revenue, and such sales are not included in our unaudited Condensed Consolidated Financial Statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance.
System-wide same-store sales by concept are detailed in the table below:
Three Months Ended
2022 2021 Supercuts 8.9 % 30.5 % SmartStyle (3.2) 17.0 Portfolio Brands 3.6 18.5 Consolidated system-wide same-store sales (1) 4.5 % 23.2 % _______________________________________________________________________________ (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. Quarterly system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. 22
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