Regis Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Regis Corporation second quarter fiscal year 2021 earnings call. My name is Mary and I will be your conference facilitator today. At this time, all participants are in a listen-only mode. Following management's presentation, we will conduct a question and answer session. If you would like to ask a question during this time, please press star one on your push button phone. If you wish to withdraw your question, please press star two. As a reminder, this call is being recorded for playback and will be available approximately 12 p.m. Central Time today. I will now hand the conference over to Faison McShane, AVP Finance. Please go ahead.

Good morning, everyone, and thank you for joining us. On the call today, we have Felipe Atayi, our Chief Executive Officer, Kirsten Zuffer, our Chief Financial Officer, Bill Lane, Executive Vice President of Portfolio Brands, and Amanda Ruffin, our general counsel. Before turning the call over to Felipe, I would like to remind everyone that the language on forward-looking statements included in our earnings release and AP filing also apply to our comments made on the call today. These documents can be found on our website, www.regiscorp.com backslash Investor Relations, along with any reconciliations of non-GAAP financial measures mentioned on today's call with their corresponding GAAP measures. With that, I will now turn the call over to Felipe.

Thank you, Beda. Good morning and thank you for joining us. Q2 of fiscal year 21 represents the first three months of my four-month tenure every year. And while the effects of the pandemic are evident in our results, we remain very confident about the strength of our business and our brand. So I want to start this focus on why we're confident about the recovery of our business, after which I would like to cover four important topics. Our recent corporate reorganization, our zero-based budgeting process, the progress of our corporate salon re-franchising, and our proprietary POS and salon management technology, Open Salon Growth. Outside of government-imposed restrictions and closures, the main factor impacting the hair salon business is the disruption of daily releases, rather than people's desire to permanently change hair salon habits. Customers are socializing less and working from home more, both of which are typical demand drivers for our services. According to the December release of McKinsey's U.S. Consumer Sentiment During the Coronavirus Crashes survey, the level of concern of Americans when visiting a hair salon is lower than engaging in other activities such as dining in a restaurant, visiting a shopping mall, being at a hotel or using a ride-sharing service. At the heart of our confidence around the solid compact is the fact that our category has the potential to rebound in a way that does not apply to other retail and services. Simply put, you cannot get your haircuts online and few people are willing to give or receive haircuts at home. Our stylists have been correcting do-it-yourself hair colors every day and sales of at-home hair color products have slowed down since salons reopened. We're confident that most hair salon services cannot be replaced or replicated. As our teams continue to roll out, and offices reopen throughout the year, our surveys and market research among salon boards point to our customers wanting to get back to their old teams quickly. When our teams resume, we believe visiting a hair salon will be top on people's priority list. For example, in states such as Florida, where daily routines have been leased disruptions, our comps are better by anywhere between 5 and 15 points. Lastly, we believe that Regions' focus on value brands will be an important strength during uncertain economic times and will provide a cost-effective alternative to higher-priced salons. In my first earnings call, I mentioned my goal to make Regions into a brand-led company that is in the business of supporting franchisees with a strong focus on their unit economics. As of early December, we went through a corporate prioritization that created three brand-centered teams, one for our largest brand, SuperCup, one for our Walmart-based brand, SmartStyle, and a third group called Portfolio Brands, representing our smaller growth and innovation concept. Each of these three groups are now led by a dedicated brand president with their independent team. Before the reorganization, Regus was broken down into OPPO and FRANCO with brand-agnostic teams. In other words, one group was managing salons while the other was managing franchise relations. No specific executive or team was accountable for any of our individual brands. Moving forward, each brand president will have full accountability for their respective brands, including brand strategy, performance metrics, and profitability. We're also changing the way in which we engage with our franchise partners from a passive, reactive stance to actually leading, nurturing, and growing our individual brand. We believe this fundamental change will create enormous value for our franchisees and shareholders over time. I also wanted to provide you with an update on our dual-based purchasing process, which has been underway for the past three months. As I mentioned during the November call, we're working with an external consultant who I have personally worked with for many years and who led multiple zero-based company projects for companies such as Enhorser, Bush, and Bass, and Restaurant Brand International. The main component of our DDB process is a zero-based organizational design. In other words, we're designing our entire organizational structure from the ground up based on the roles and capabilities that we will need as a rank-centric, fully franchised business. Let me use our field-based franchise consultants as an example. Historically, our franchise consultants have had a reactive approach to supporting franchisees without establishing fees or properties. This will result in a lot of inefficiencies and non-value-added activities. The zero-based organization process first sets the goals to be achieved by our franchise consultants adjust their job description accordingly, set the processes and routines to be performed by them, along with the scope of the routine and their cadence. The resulting organization has the right people in the right places, doing the right work, and being held accountable for the right connections. Although we will not complete the B2B process until later in Q4, We're taking action as we identify opportunities rather than waiting for the entire exercise to be complete. Moving on to our progress in re-franchising our remaining corporate salons, a process that is now under the leadership of a former Western Grand International executive who has also spent five years at G.P. Morgan as an investment banker. We have made an important change in approach when it comes to the full file of the buyers of our corporate salons. Up until now, the median purchaser of our condition salons would be sourced via a network of brokers and would engage in a core salon transaction. Although some of our new prospects are still coming from outside the region system, we're working closely with many of our larger, well-capitalized franchisees to match them with salon portfolios that are either contiguous to their current territories or each provide them with entry points into territories from which they would like to consolidate and grow organically. Finally, individual transactions in our current pipeline involve portfolios with more than 100 salons representing prospective buyers who see current market conditions as a very attractive opportunity to grow their business, especially in light of an acceleration in vaccine roll-ups. Finally, I wanted to share some of our progress on our proprietary POS and salon management system, Open Salon Pro. We continue to move forward for developing technologies that increasingly automate our salons and manages the customer journey from digital demand generation to appointment booking to payments at checkout. Our goal in the past quarter was to release a variety of advanced features that we believe will strongly contribute to the four-wall profitability of our salons. As an example, we have fully integrated OSP with our merchandising shippers, so inventory can be automatically uploaded into the system upon delivery without the need for unproductive manual work from our salaries. Still on merchandising, we have also released an algorithmic replenishment capability, which auto-creates product orders for our salons, both removing manual work and creating orders that are better aligned with the sales of that particular location. With these capabilities now in place, we will move forward with a more aggressive roll-up schedule of OSBs into our salons. As of today, we have about 1,000 salons with signed contracts for OSBs, of which more than 350 are live, with the rest of the migration soon following. Over the course of this calendar year, we will begin mandating the process so all of our grants can leverage our new technological capabilities. Back in December, we closely watched two companies, which provides software as a service to the beauty and wellness industry, raised substantial amounts of capital. We believe Open Siloam Pro is a formidable competitor to these services and are looking into the market opportunities of growing OSB beyond the region's family of brands. For this initiative, we're exploring strategic partnerships to help support this process should we choose to move in that direction. Thank you very much. I appreciate you being on the call, and I will now turn it over to our Chief Financial Officer, Kristen Zeltz.