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 our June 30, 2020 Annual Report on Form 10-K and other
documents filed or furnished with the Securities and Exchange Commission (SEC)
during the current fiscal year.
MANAGEMENT'S OVERVIEW
Regis Corporation (RGS) franchises, owns, and operates beauty salons. As of
March 31, 2021, the Company franchised, owned or held ownership interests in
6,221 worldwide locations. Our locations consisted of 6,143 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 of March 31, 2021, we had approximately 4,000 corporate
employees worldwide.
Impact of COVID-19 on Business Operations
During the period ended March 31, 2021, the global coronavirus pandemic
(COVID-19) had an adverse impact on operations, including prolonged
government-mandated salon closures in California and Ontario, in addition to
other U.S. states and Canadian provinces during the three and nine months ended
March 31, 2021. 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.
Merchandising Strategy
As part of the Company's transformation to focus on managing and nurturing
brands, and in line with its capital-light business, a new merchandise strategy
to outsource product distribution was adopted in the third quarter. The Company
plans to shifts its product business from a whole-sale 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
change will results in a decrease in revenue, cost of product and general and
administrative expense going forward.
CRITICAL ACCOUNTING POLICIES
The interim unaudited Condensed Consolidated Financial Statements are prepared
in conformity with accounting principles generally accepted in the 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 the June 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 our
June 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.
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RESULTS OF OPERATIONS
Impact of salons sold to franchisees on operations.
In the three and nine months ended March 31, 2021, the Company sold 126 and 408,
respectively, company-owned salons to franchisees. The impact of these
transactions are as follows:
                                                    Three Months Ended March 31,           Increase              Nine Months Ended March 31,       

Increase


                                                       2021              2020             (Decrease)               2021                  2020             (Decrease)

                                                                                                 (Dollars in thousands)

Salons sold to franchisees                               126               375                 (249)                    408              1,363         

(955)


Cash proceeds received                             $     595          $ 

18,502 $ (17,907) $ 7,743 $ 87,916

$ (80,173)



(Loss) gain on venditions, excluding
goodwill derecognition                             $  (4,575)         $  

9,628 $ (14,203) $ (8,463) $ 50,841

    $   (59,304)
Non-cash goodwill derecognition                            -           (17,486)              17,486                       -            (76,966)    

76,966


Loss from sale of salon assets to
franchisees, net                                   $  (4,575)         $ (7,858)         $     3,283          $       (8,463)         $ (26,125)         $    17,662



System-wide results
As we continue to 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 March 31,                 Nine Months Ended March 31,
                                                        2021                  2020                   2021                  2020

SmartStyle                                                (19.6) %               (9.5) %               (28.7) %               (4.8) %
Supercuts                                                 (22.3)                 (3.7)                 (29.9)                 (1.4)
Portfolio Brands                                          (17.9)                 (4.8)                 (26.6)                 (2.7)
Consolidated system-wide same store sales                 (20.7) %               (5.4) %               (28.7) %               (2.7) %


_______________________________________________________________________________
(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.
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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, and the (decrease) increase is measured in basis points.

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