REGIS CORPORATION 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, 2020 Annual Report on Form 10-K and other documents filed or furnished with theSecurities and Exchange Commission (SEC) during the current fiscal year. MANAGEMENT'S OVERVIEWRegis Corporation (RGS) franchises, owns, and operates beauty salons. As ofDecember 31, 2020 , the Company franchised, owned or held ownership interests in 6,384 worldwide locations. Our locations consisted of 6,306 system-wide North American and International salons, and in 78 locations we maintained a non-controlling ownership interest less than 100 percent. Each of the Company's salon concepts generally offer similar salon products and services and serve the mass market. As ofDecember 31, 2020 , we had approximately 5,000 corporate employees worldwide. Impact of COVID-19 on Business Operations During the period endedDecember 31, 2020 , the global coronavirus pandemic ("COVID-19") had an adverse impact on operations, including prolonged government mandated salon closures inCalifornia andOntario , in addition to otherU.S. states and Canadian provinces. As ofJanuary 25, 2021 , ourCalifornia salons were allowed to re-open. The COVID-19 pandemic continues to impact salon guest visits resulting in a significant reduction in revenue and traffic. Due to the economic disruption caused by the COVID-19 pandemic, the Company faces a greater degree of uncertainty than normal in making judgments and estimates needed to apply the Company's significant accounting policies. Actual results and outcomes may differ from management's estimates and assumptions. 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, 2020 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, the valuation and estimated useful lives of long-lived assets, estimates used in relation to tax liabilities and deferred taxes 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, 2020 Annual Report on Form 10-K. Our policies related to revenue recognition guidance, ASC Topic 606, can be found in Note 2 to the unaudited Condensed Consolidated Financial Statements. 27 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS Impact of salons sold to franchisees on operations. In the three and six months endedDecember 31, 2020 , the Company sold 145 and 282, respectively, company-owned salons to franchisees. The impact of these transactions are as follows: Three Months Ended December 31, Increase Six Months Ended December 31, Increase 2020 2019 (Decrease) 2020 2019 (Decrease) (Dollars in thousands)
Salons sold to franchisees 145 443 (298) 282 988 (706) Cash proceeds received$ 3,413 $ 31,468 $ (28,055) $ 7,148 $ 69,414 $ (62,266) (Loss) gain on venditions, excluding goodwill derecognition$ (3,226) $
14,993
$ (45,101) Non-cash goodwill derecognition - (27,400) 27,400 - (59,480)
59,480
Loss from sale of salon assets to franchisees, net$ (3,226) $ (12,407) $ 9,181 $ (3,888) $ (18,267) $ 14,379 System-wide results As we transition to an asset-light franchise platform, our results will be more impacted by our system-wide sales, which include sales by all points of distribution, whether owned by the Company or our franchisees. While we do not record sales by franchisees as revenue, and such sales are not included in our 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 December 31, Six Months Ended December 31, 2020 2019 2020 2019 SmartStyle (32.2) % (4.3) % (33.0) % (3.1) % Supercuts (32.9) (1.1) (33.2) (0.4) Portfolio Brands (30.0) (2.3) (30.1) (2.0) Consolidated system-wide same store sales (32.0) % (2.3) % (32.3) % (1.7) % _______________________________________________________________________________ (1)System-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations for more than one year that were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date system-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Locations relocated within a one-mile radius are included in same-store sales as they are considered to have been open in the prior period. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation. TBG salons were not a franchise location in fiscal year 2021 so they are excluded from fiscal year 2020 same-store sales for comparability. 28
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Condensed Consolidated Results of Operations (Unaudited) The following table sets forth, for the periods indicated, certain information derived from our unaudited Condensed Consolidated Statement of Operations. The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated.
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