Regis Corporation 2026 Q4 Earnings Call

For Susan Lintonsmith, and this conference is being recorded. We will open this call up for questions at the end of our prepared remarks. I would like to remind everyone that the language on forward-looking statements included in our earnings release and 8-K filing also applies to our comments made on the call today. These documents can be found on our website, www.regiscorp.com/investor-relations. With that, I will now turn the call over to our CEO, Susan Lintonsmith.

Good morning, everyone, and thank you for joining us. In fiscal 2026, we strengthened the foundation of our business and demonstrated our ability to deliver profitable growth while consistently delivering cash. We finished the year with $224.5 million of revenue, $32.8 million of adjusted EBITDA, and more than $13 million in cash from operations, extending our track record to seven consecutive quarters of positive cash from operations. We delivered positive comparable sales growth in the fourth quarter with consolidated same-store sales up 0.1% and Supercuts up 2.6%. For the full fiscal year, consolidated same-store sales increased by 0.9%, driven largely by Supercuts, which achieved 3% growth, delivering growth for the fifth consecutive year. This performance demonstrates that the initiatives we have been implementing are building momentum and translating into results.

Over the past five months, I've spent significant time with our franchisees, our company teams, and in salons, giving me firsthand understanding of the business, what's working, and where we have meaningful opportunities to improve. I'm encouraged by what I've seen, but I'm equally focused on the opportunities ahead and the work required to unlock the full potential of our portfolio. As we enter fiscal 2027, our focus is clear: convert the foundation we have built into stronger, more consistent performance and sustainable growth. Our priorities are to, one, strengthen our brands, two, drive growth through traffic, and three, improve the health of our salon portfolio while mitigating closures.

These priorities are grounded in the belief that successful performance in a service business like ours is driven by strong, meaningfully differentiated brands, impactful marketing that drive guests into our salons, and great experiences delivered to every guest in every salon, every day. I'll dive deeper into specifics later in the call. Before I turn it over to Kersten, I want to briefly address our opportunity to refinance our existing debt. This is an important priority for both our shareholders and the company, and the board and I are actively engaged in the process with Kersten. We are exploring many options and will move forward when we believe the terms provide meaningful value for shareholders. Kersten will provide additional details on our efforts shortly. I'll hand the call over to her now to review our financial results.

Thanks, Susan. I will cover the fourth quarter and full year results and then spend a few minutes on our balance sheet. Our fiscal 2026 results demonstrate meaningful progress in our transformation with stronger profitability and, importantly, a significant improvement in cash generation. As Susan mentioned, we generated $32.8 million of adjusted EBITDA, an increase of $1.2 million compared to fiscal year 2025, and $13.5 million of unrestricted cash from operations, up from $5.4 million in the prior year. These results were achieved while continuing to direct resources toward our strategic priorities and navigating an environment where franchise location count declined. For the fourth quarter, we delivered $6.6 million of operating income, generated $9.2 million in consolidated adjusted EBITDA, and produced positive cash from operations for the seventh consecutive quarter. We achieved these results despite lower revenue.

Total revenue for the fourth quarter was $56 million, a decrease of $4.4 million, or 7.3% compared to the prior year. The decline was primarily driven by lower non-margin franchise rental income, reflecting a reduction in franchise salon count and the transition of certain franchisees to their own leases. Net income was $4.4 million, or $1.51 per diluted share, compared to $116.5 million, or $42.58 per diluted share in the year-ago quarter. The year-over-year comparison is heavily influenced by the $115.5 million discrete tax benefit recognized in the prior year, as well as $1.9 million loss from discontinued operations net of tax, rather than underlying business performance. On an adjusted basis, net income increased to $3 million from $2 million, providing a more meaningful view of the underlying performance of the business. Turning to our adjusted results, as a reminder, our adjusted results exclude stock-based compensation expense.

We believe this provides a clear view of our underlying business performance. A reconciliation of our GAAP to non-GAAP results is included in our press release. Adjusted G&A was $9.8 million in the fourth quarter, down from $10.4 million in the prior year quarter, reflecting continued cost management discipline. For the fourth quarter, consolidated adjusted EBITDA was $9.2 million, a decrease of $500,000 compared to $9.7 million in the prior year quarter. The decrease was primarily driven by an unfavorable impact from foreign currency translation adjustments, as well as lower franchise revenue. Adjusted EBITDA for our franchise segment was $6.4 million in the quarter, a decrease of $1.3 million compared to $7.7 million in the prior year quarter. This decrease was primarily driven by lower royalties and fees resulting from the decline in salon count.

In our company-owned salon segment, the adjusted EBITDA improved by $800,000 year over year to $2.8 million. The improvement was primarily driven by decreased rent and salon expenses resulting from the closure of unprofitable salons. One item to note as we move into fiscal 2027, we are dedicating resources to the company-owned salon business that were previously shared across the organization. This will shift certain costs into the company-owned salon segment's reported results, impacting the year-over-year comparison. This is a reallocation of costs rather than an increase in spending. Our total G&A expense declined in fiscal 2026, and we expect to maintain expense discipline in 2027. Turning to our franchise portfolio, we ended fiscal year 2026 with 207 closures, offset by eight openings for a net decline of 199 salons.

The locations that exited the system were predominantly lower volume salons, resulting in a smaller impact on royalty revenue than the unit count alone would suggest. The average unit volume of the closed locations was approximately 136,000, roughly 364,000 below the average unit volume of stores in our highest performing quartile. While the decline in salon count continues to affect franchise revenue, we believe the remaining salon base is becoming stronger and more productive, which should support improved franchisee economics over time. For budgeting purposes, we identify salons at risk of closure based primarily on lease expiration dates and key operating metrics, including average unit volume and rent as a percentage of revenue. Based on the visibility we have today, we do not expect fiscal year 2027 closures to be materially different from fiscal year 2026. Now, turning to our full year fiscal results.

For fiscal 2026, consolidated revenue was $224.5 million, an increase of $14.4 million compared to fiscal year 2025. The increase was primarily driven by higher company-owned salon revenue, partially offset by lower royalties, fees, and non-margin franchise rental income. Operating income for the full fiscal year increased to $24.4 million, up from $19.9 million in fiscal year 2025. The improvement was primarily driven by increased company-owned salon revenue, partially offset by lower royalties and fees. Net income for our fiscal year 2026 was $6.9 million, or $2.41 per diluted share, compared to $123.5 million, or $46.10 per diluted share in fiscal year 2025. The year-over-year comparison is also heavily influenced by the $115.5 million discrete tax benefit recognized in the prior year, as well as the $6.5 million in income from discontinued operations net of tax in the prior year.

On an adjusted basis, net income increased to $7.8 million from $7.6 million, which highlights improvement in the underlying performance of the business. As I mentioned earlier, adjusted EBITDA for fiscal year 2026 increased to $32.8 million, up from $31.6 million in fiscal year 2025. This improvement was primarily driven by a full year of company-owned salon revenue and lower G&A expenses, partially offset by lower franchise revenue. Adjusted net income was $7.8 million, up from $7.6 million in fiscal year 2025, while adjusted diluted earnings per share were $2.70 compared to $2.85 in the prior year. Turning to full-year cash flows, net cash provided by operating activities was $13.1 million for fiscal year 2026, compared to $13.7 million in the prior year. That reported measure includes restricted ad fund cash, which is designated for marketing purposes and is not available for corporate use.

Importantly, unrestricted cash from operations increased to $13.5 million in fiscal year 2026, up from $5.4 million in fiscal year 2025. This represents a significant improvement in cash generation and reflects the benefits of our lower cost structure and improved operating performance. We used a portion of that cash to fund $2 million in capital investments and repay $2.7 million of term loan principal while still ending the fiscal year with a cash balance that is more than 50% greater than a year ago. As of June 30, 2026, we had $26 million in unrestricted cash and cash equivalents. In accordance with our credit agreement, we expect to make our annual excess cash flow sweep payment in September, which will reduce our cash and our outstanding debt by approximately $7 million-$8 million.

Turning to our debt, as of June 30, 2026, our funded debt was approximately $128 million, consisting of $116 million of term loan principal, $11 million of paid-in-kind interest, and approximately $1 million outstanding under our revolving credit facility. We also had $6 million of standby letters of credits outstanding, which includes the $1 million related to the revolver draw, leaving $19 million of available capacity. Net of cash, funded debt was approximately $102.2 million or approximately 3.1 times adjusted EBITDA. As of June 30, 2026, we had $19 million of unused availability under the revolving credit facility and total liquidity of $35 million. Unrestricted cash generated from operations more than doubled this year, and that improvement is an important part of our refinancing efforts.

It demonstrates the significant progress we have made in improving the business's ability to generate cash and provides us with greater flexibility to reinvest in the business and repay debt obligations. We continue to evaluate refinancing alternatives that provide acceptable terms and conditions and will lower our overall cost of debt in a way that creates meaningful value for shareholders. Our board is actively engaged throughout this process, including our recently appointed director, who is also a significant shareholder. That shareholder alignment is important as we evaluate the alternatives available to us. We are approaching this effort with urgency while maintaining discipline in our approach, and we will not sacrifice long-term value and will continue to pursue the best and appropriate refinancing options for Regis. Overall, our fiscal 2026 results demonstrate continued financial progress.