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Item 1. Business

2020-08-31 compared with 2019-08-27 · 174 added, 169 removed, 204 unchanged (63% of the section changed)

Regis Corporation franchises, owns and operates hairstyling and hair care salons.

Regis Corporation franchises, owns and operates technology-enabled hairstyling and hair care salons.

The Company is listed on the NYSE under the ticker symbol "RGS." Unless the context otherwise provides, when we refer to the "Company," "we," "our," or "us," we are referring to Regis Corporation, the Registrant, together with its subsidiaries.

As of June 30, 2020, the Company franchised, owned or held ownership interests in 6,923 locations worldwide.

The Company's locations consist of 3,951 franchised salons, 3,108 company-owned salons, and 86 locations in which we maintain a non-controlling ownership interest of less than 100%.

The Company's locations consist of 5,209 franchised salons, 1,632 company-owned salons, and 82 locations in which we maintain a non-controlling ownership interest of less than 100 percent.

Each of the Company's salon concepts generally offer similar salon products and services.

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We earn revenue for services and products sold at our company-owned salons, product sold to franchisees, and earn royalty revenue based on service and product sales at our franchise locations.

In fiscal year 2017, we announced plans to expand the franchise side of our business, through organic growth and by selling certain company-owned salons to franchisees over time where it made financial sense for the Company and shareholders, as well as our review of strategic alternatives for company-owned mall-based locations.

In January 2017, we began franchising the SmartStyle brand throughout the U.S.

for the first time.

In fiscal year 2018, the Company began to further expand its franchise business by selling 449 non-mall salons to franchisees, including 33 Supercuts salons.

In fiscal year 2019, the Company accelerated its sale of salons to franchisees by selling 767 salons across all brands.

Additionally, in October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing 250 salons in the UK, to The Beautiful Group ("TBG"), an affiliate of Regent L.P., a private equity firm based in Los Angeles, California.

See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion on the sale of our mall-based salon business and the previous International segment, which are now reported as a discontinued operation.

As a result of the TBG transaction, the Company redefined its operating segments to reflect how the chief operating decision maker evaluates the business and reports its operations in two operating segments:

Franchise and Company-owned salons.

Prior to this change, the Company had four operating segments:

North American Value, North American Premium, North American Franchise and International.

See Note 14 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

Additionally, on June 27, 2019, the Company entered into a settlement agreement with TBG as previously disclosed, which, among other things, was primarily responsible for reducing the Company’s potential lease liability in connection with TBG operated salons from approximately $65 million to $41 million in the fourth quarter of fiscal 2019.

In January 2018, the Company closed 597 non-performing company-owned SmartStyle salons.

The 597 non-performing salons generated negative cash flow of approximately $15 million during the twelve months ended September 30, 2017.

The Company's franchise salon operations are comprised of 5,209 franchised salons operating in the United States (U.S.), Canada, the United Kingdom and Puerto Rico.

The Company's company-owned salon operations are comprised of 1,632 salons operating in the U.S., Canada, and Puerto Rico.

Salons operate primarily under the trade names of SmartStyle, Supercuts and Cost Cutters, and they generally serve the value category within the industry.

Salons operate primarily under the trade names of SmartStyle, Supercuts, Cost Cutters, First Choice Haircutters and Roosters and they generally serve the value category within the industry.

Salons are primarily located in strip center locations and Walmart Supercenters.

During fiscal years 2019 and 2018 , the number of guest visits at the Company's company-owned salons approximated 40 and 50 million , respectively.

Financial information about our segments and geographic areas for fiscal years 2020, 2019, and 2018 are included in Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.

In fiscal year 2017, we announced plans to expand the franchise side of our business, through organic growth and by selling certain company-owned salons to franchisees over time, where it made financial sense for the Company and shareholders.

The transformation began in fiscal year 2017 and in fiscal year 2018, the Company expanded its franchise business by selling 449 non-mall salons to franchisees, primarily SmartStyle.

In fiscal years 2019 and 2020, the Company accelerated its sale of salons to franchisees by selling 767 and 1,475 salons, respectively, across all brands.

Management is committed to its strategy to become a fully-franchised asset-light company by the end of fiscal year 2021.

We plan to sell approximately 800 - 1,000 salons to franchisees in the next twelve months and we will close the remaining salons at their lease expiration or terminate the lease early when it is in the best interest of shareholders.

Additionally, in October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing 250 salons in the U.K., to The Beautiful Group (TBG), an affiliate of Regent L.P., a private equity firm based in Los Angeles, California.

On June 27, 2019, the Company entered into a settlement agreement with TBG regarding the North American salons, which, among other things, exchanged the franchise agreement for a license agreement.

In the second quarter of fiscal year 2020, TBG transferred 207 of its North American mall-based salons to the Company.

The 207 North American mall-based salons transferred were the salons that the Company was the guarantor of the lease obligation.

The overall goal of the TBG transaction was to reduce the Company's exposure to the mall-based lease obligations.

As of June 30, 2020, we have 166 TBG salons and remaining lease liability of $23 million.

In fiscal year 2018, the Company closed 605 non-performing company-owned SmartStyle salons and 124 other underperforming salons.

In fiscal years 2019 and 2020, the Company closed 133 and 250, respectively, underperforming salons at or near their lease end.

Industry Overview:

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In order to successfully maximize shareholder value, we place a balanced approach on our guests, franchisees, employees and shareholders.

After carefully considering potential options to enhance shareholder value and based on the success of our vendition strategy in 2019, we reached a decision in August 2019 to fully transition our company-owned salons to a franchise platform.

After carefully considering potential options to enhance shareholder value and based on the success of our vendition strategy in 2019, we reached a decision to fully transition our company-owned salons to a franchise platform and continued these efforts in fiscal year 2020.

This strategic initiative is intended to facilitate an ongoing multi-year transformation to a capital-light business that we believe will be better positioned for sustainable growth.

We believe the transformation of our salon platform coupled with the investments we are making in technology, marketing and advertising, merchandise and franchisor capabilities will be in the best long-term interests of our shareholders.

The COVID-19 global pandemic and the resulting government-mandated temporary hibernation of our salons greatly impacted our business in the second half of fiscal year 2020.

However, we believe the safety strategies we implemented to respond to the global pandemic will allow us to thrive once this pandemic has passed.

While we address the immediate crisis, we are still focused on our long-term strategy.

Key Elements of Our Strategy

In fiscal year 2019, the Company executed on various management initiatives to accelerate the growth of its franchise business and to stabilize and enhance performance in company-owned salons as we expand our franchise business and make thoughtful investments in the future state.

In fiscal year 2020, the Company executed on various management initiatives to accelerate the growth of its franchise business and to significantly reduce costs to better align costs with the Company’s transition to a fully-franchised business model.

The core components of the various management initiatives are focused on improving our performance by establishing core competencies to support franchise growth, eliminating non-essential costs, sourcing trend-driven professional beauty care products, optimizing our supply chain and distributor capabilities, creating industry-leading stylist recruiting and education, offering differentiated brands and consumer-focused marketing and advertising and launching transformational technology to reduce friction and enhance the customer experience.

In order to continue providing an exceptional guest experience, we opened our technology offices in Fremont, California during fiscal year 2019 where we have invested in a dedicated product engineering team.

We have partnered with Google to improve and streamline the salon discovery and customer booking experience.

We also launched Opensalon™, Regis' proprietary platform that allows customers to book salon services directly and enables customers to reserve and check-in for various salon services via mobile devices or desktops, for those salons that have chosen to adopt the utilization of such technology.

In order to modernize and continue providing an exceptional guest experience, we opened a technology office in Fremont, California during fiscal year 2019 where we invested in a dedicated Product Engineering team.

We have developed a proprietary cloud-based store management and point of commerce solution, OpenSalon Pro™, which launched in fiscal year 2021.

Beginning in fiscal year 2021, we also launched an all-new Cost Cutters mobile app for iOS and Android which includes a new loyalty program.

The app features same day or advanced bookings, booking history and a digital loyalty program.

Additionally, we overhauled the Supercuts mobile app with improved same-day check-in and the ability to book services for the following day, the update represents an alternative to the traditional walk-in model that consumers (and even some states) are demanding, especially in the face of COVID-19 restrictions and wider consumer preference.

We have also partnered with Google to improve and streamline the salon discovery and customer booking experience.

In 2019, we launched OpenSalon™, Regis' proprietary platform that allows customers to book salon services directly and enables customers to reserve and check-in for various salon services via mobile devices or desktops, for those salons that have chosen to adopt the utilization of such technology.

These technology investments are meant to drive traffic to our franchise and company-owned salons.

We continue to evaluate our investments and disinvest in non-value generating programs while investing in other value generating initiatives.

In addition to closing non-performing company owned salons, we repurposed certain corporate programs and have invested in our creative digital capabilities to re-position Regis as the leading operator of value brands and technical education.

We continue to evaluate our investments and dis-invest in non-value generating programs while investing in other value generating initiatives.

In addition to closing non-performing company-owned salons, we repurposed certain corporate programs, reduced long-term marketing contracts to allow for more agile spending and have invested in our creative digital capabilities to re-position Regis as the leading operator of value brands and technical education.

Salon Franchising Program:

We have various franchising programs supporting our 5,209 franchised salons as of June 30, 2020, consisting mainly of Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters and Roosters salons.

We provide our franchisees with a comprehensive system of business training, stylist education, site approval and lease negotiation, construction management services, professional marketing, promotion, and advertising programs, and other forms of on-going support designed to help franchisees build successful businesses.

Historically, we have signed the salon lease and subleased the space to our franchisees.

Standards of Operations.

The Company does not control the day-to-day operations of its franchisees, including employment, benefits and wage determination, establishing prices to charge for products and services, business hours, personnel management, and capital expenditure decisions.

However, the franchise agreements afford certain rights to the Company, such as the right to approve locations, suppliers and the sale of a franchise.

Additionally, franchisees are required to conform to the Company's established operational policies and procedures relating to quality of service, training, salon design and decor and trademark usage.

The Company's field personnel make periodic visits to franchised salons to ensure they are operating in conformity with the standards for each franchising program.

All of the rights afforded to the Company with regard to franchised operations allow the Company to protect its brands, but do not allow the Company to control the franchise operations or make decisions that have a significant impact on the success of the franchised salons.

The Company’s franchise agreements do not give the Company any right, ability or potential to determine or otherwise influence any terms and/or conditions of employment of franchisees’ employees (except for those, if any, that are specifically related to quality of service, training, salon design, decor and trademark usage), including, but not limited to, franchisees’ employees’ wages and benefits, hours of work, scheduling, leave programs, seniority rights, promotional or transfer opportunities, layoff/recall arrangements, grievance and dispute resolution procedures, dress code, and/or discipline and discharge.

Franchise Terms.

Pursuant to a franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company.

In addition, for most franchise concepts, the Company collects advertising funds from franchisees and administers the funds on behalf of the concepts.

Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory, payroll costs and certain other items, including initial working capital.

The majority of franchise agreements provide the Company a right of first refusal if the store is to be sold and the franchisee must obtain the Company's approval in all instances where there is a sale of a franchise location.

Additional information regarding each of the major franchised brands is listed below:

Supercuts franchise agreements have a perpetual term, subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee.

All new franchisees enter into development agreements, which give them the right to enter into a defined number of franchise agreements.

These franchise agreements are site specific.

The development agreement provides limited territorial protection for the stores developed under those franchise agreements.

Older franchisees have grandfathered expansion rights which allow them to develop stores outside of development agreements and provide them with greater territorial protections in their markets.

The Company has a comprehensive impact policy that resolves potential conflicts among Supercuts franchisees and/or the Company's Supercuts locations regarding proposed store sites.

SmartStyle and Cost Cutters in Walmart Supercenters

The majority of existing SmartStyle and Cost Cutters franchise agreements for salons located in Walmart Supercenters have a five-year term with a five-year option to renew.

The franchise agreements are site specific.

Cost Cutters (not located in Walmart Supercenters), First Choice Haircutters and Magicuts

The majority of existing Cost Cutters franchise agreements have a 15-year term with a 15-year option to renew (at the option of the franchisee), while the majority of First Choice Haircutters franchise agreements have a ten year term with a five year option to renew.

The majority of Magicuts franchise agreements have a term equal to the greater of five years or the current initial term of the lease agreement with an option to renew for two additional five-year periods.

The current franchise agreement is site specific.

Franchisees may enter into development agreements with the Company which provide limited territorial protection.

Roosters Men’s Grooming Center

Roosters franchise agreements have a ten-year term with a ten-year option to renew (at the option of the franchisee).

New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement under which they have the right to open two additional locations.

Franchisee Training.

The Company provides new franchisees with training, focusing on the various aspects of salon management, including operations, personnel management training, marketing fundamentals and financial controls.

Existing franchisees receive training, counseling and information from the Company on a regular basis.

The Company provides salon managers and stylists with technical training for franchisees.

Among other factors, consistent delivery of an exceptional guest experience, haircut quality, convenience, competitive pricing, salon location, inviting salon appearance and atmosphere, differentiating benefits and guest experience elements and comprehensive retail assortments, all drive guest traffic and improve guest retention.

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Our mobile applications and online check-in capabilities, including check-ins directly from Facebook Messenger and Google, allow us to capitalize on our guests' desire for convenience.

We continue to focus on stylist staffing and retention, optimizing schedules and leveraging our POS systems to help us balance variable labor hours with guest traffic and manage guest wait times.

We continue to focus on stylist staffing and retention, optimizing schedules, balancing variable labor hours with guest traffic and managing guest wait times.

Our salons are located in high-traffic strip centers and Walmart Supercenters, with guest parking and easy access, and are generally open seven days per week, offering guests a variety of convenient ways to fulfill their beauty needs.

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These expectations are met with average service transactions ranging from $19 to $23.

During fiscal year 2018, we greatly reduced the complexity of the service offerings within our SmartStyle portfolio with the introduction of "Everyday Simple Pricing" while also introducing a new "Express Haircut" service targeted towards the male guests who shop at Walmart and simplified the service offerings within our Signature Style portfolio.

Pricing decisions are considered on a salon level basis and established based on local conditions.

In response to the COVID-19 global pandemic we implemented a surcharge at our company-owned salons to cover the costs of additional safety measures we put in place.

Our franchisees control all pricing at their locations.

Salon Appearance and Atmosphere.

Salon Safety, Appearance and Atmosphere.

Guest and stylist safety is our first priority and made even more important by the COVID-19 global pandemic.

We have invested heavily in safety and personal protective equipment, ensuring social distancing in our salons and training employees on these measures.

As a result of the COVID-19 pandemic, the Company collaborated with infectious disease specialists at the University of Minnesota Medical School.

These specialists reviewed the Company's salon and customer journey, as well as new safety training videos on how services are performed with the view of how to best protect customers and stylists.

They provided recommendations on the proper personal protective equipment and additional safety measures that have been communicated throughout the our entire salon system to help educate the our franchise partners and stylists to operate salons in a safe manner in a COVID-19 environment.

Franchise and company-owned salons have incorporated these recommendations, along with any state specific guidelines, into our operations.

The Company's salons range from 500 to 5,000 square feet, with the typical salon approximating 1,200 square feet.

Our salon repairs and maintenance program is designed to ensure we invest in salon cleanliness and safety, as well as in maintaining the normal operation of our salons.

Our annual capital expenditures include funds to refresh the appeal and comfort of our salons.

Our annual capital expenditures include investments to refresh the appeal and comfort of our salons.

Retail Assortments.

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Additionally, guests are encouraged to purchase products after stylists demonstrate their efficacy by using them in the styling of our guests' hair.

The top selling brands within the Company's retail assortment include Regis DESIGNLINE and Paul Mitchell.

We also continued to expand our e-commerce initiative to distribute our Regis DESIGNLINE brand through new distribution channels, including amazon.com and walmart.com to supplement our existing in-salon sales and raise brand awareness.

Our point of sale (POS) systems have the ability to collect guest and transactional data and enable the Company to invest in guest relationship management, gaining insights into guest behavior, communicating with guests and incenting return visits.

Leveraging this technology allows us to monitor guest retention and to survey our guests for feedback on improving the guest experience.

The top selling brands within the Company's retail assortment include L'Oreal Professional Brands, Regis Private Label Brands such as DESIGNLINE and Blossom, and Paul Mitchell.

We also continued to expand our e-commerce initiative to distribute our Regis Blossom and DESIGNLINE brands through new distribution channels, including amazon.com and walmart.com to supplement our existing in-salon sales and raise brand awareness.

Our current point of sale system has the ability to collect guest and transactional data and enable the Company to invest in guest relationship management, gaining insights into guest behavior, communicating with guests and incenting return visits.

The system allow us to monitor guest retention and to survey our guests for feedback on improving the guest experience.

Our mobile applications allow guests to view wait times and interact in other ways with salons.

We are making further investments to improve the speed and capabilities of our POS technology, improving the overall guest experience and develop salon management systems to support our growing base of franchisees.

We are investing in advertising to drive traffic.

This includes leveraging advertising and media, guest relationship management programs, digital programs, one-on-one communications and local tactical efforts (e.g., couponing), among other programs.

Traffic driving efforts are targeted vs.

a one-size-fits-all approach.

Annual advertising and promotional plans are based on seasonality, consumer mindset, competitive positioning and return on investment.

In fiscal year 2018, we entered into an industry-exclusive, multi-year sponsorship between Supercuts and Major League Baseball and select local club partnerships.

Furthermore, we reinvigorated Supercuts creative approach to marketing by launching a new Supercuts® brand campaign in July 2019 with Michael Kelly as our spokesperson.

We continually reallocate marketing investments into opportunities we believe represent the highest return to our shareholders.

In fiscal year 2021, our new proprietary back office salon management system will be available to franchisees.

We continue to invest in marketing to differentiate our priority salon and merchandise brands and drive traffic.

This includes leveraging advertising and media, customer relationship management, digital, mobile and other one-on-one communications and hyper-local tactical efforts.

We are increasingly using our owned channels and paid media to support the launches associated with our customer-facing technology such branded applications and new loyalty program.

As the pandemic continues, we are addressing consumer mindset by messaging about our Safe Salon Commitment, and have put customer safety and experience at the head of our Supercuts comeback campaign.

We have also decided to move away from the previously announced sponsorship between Supercuts and Major League Baseball and select local club partnerships.

This is part of efforts to continually reallocate marketing investments into opportunities we believe represent the highest return to our shareholders in the current environment.

Our Company depends on its stylists to help deliver great guest experiences.

Field Leadership.

Development of our field leaders is a high priority because stylists depend on their salons and field leaders for coaching, mentoring and motivation.

Our training curriculum serves as the foundation for ongoing leadership development.

Execution disciplines are used to drive accountability, execution and business performance.

Incentives are designed to align field interests with those of the Company's shareholders by rewarding behaviors focused on revenue and EBITDA growth.

This organization structure also provides a clear career path for our people who desire to ascend within the Company.

Technical Education.

We place a tremendous amount of importance in ongoing development of our stylists' craft.

We aim to be an industry leader in technical training, including the utilization of digital training that we enhanced significantly during fiscal year 2019.

Our stylists deliver a superior experience for our guests when they are well trained technically and experientially.

We employ technical trainers who provide new hire training for stylists joining the Company.

Artistic and Safety Education.

We believe in the importance of the ongoing development of our stylists' craft.

We aim to be an industry leader in stylist training, including the utilization of digital training that we enhanced significantly during fiscal years 2019 and 2020.

Our stylists deliver a superior experience for our guests when they are well trained technically and through experience.

We employ trainers who provide new hire training for stylists joining the Company.

We supplement internal training with targeted vendor training and external trainers who bring specialized expertise to our stylists.

We utilize training materials to help all levels of field employees navigate the running of a salon and essential elements of guest service training within the context of brand positions.

In response to the global COVID-19 pandemic, we have provided stylist training virtually in maintaining social distancing, sanitization, personal protective equipment and other safety protocols to limit the virus spread.

Ensuring that we attract, train and retain our stylists is critical to our success.

We compete with all service industries for our stylists;

to that end, we continue to enhance our recruiting efforts across all levels within our organization and are focused on showing our stylists a path forward.

We cultivate a pipeline of field leaders through succession planning and recruitment venues from within and outside the salon industry.

to that end, we continue to enhance our recruiting efforts across all levels within our Company and are focused on showing our stylists a path forward.

We also leverage beauty school relationships and participate in job fairs and industry events.

Our POS systems and salon workstations throughout North America enable communication with salons and stylists, delivery of online and digital training to stylists, salon level analytics on guest retention, wait times, stylist productivity, and salon performance.

We are currently making further investments in our POS hardware and salon technology to improve the speed of our systems allowing for stylists to be more productive and improve overall guest and stylist satisfaction.

Our back office salon management systems and salon workstations throughout North America enable communication with salons and stylists, delivery of online and digital training to stylists, salon level analytics on guest retention, wait times, stylist productivity, and salon performance.

We are currently making further investments in our back office salon management hardware and salon technology to improve the speed of our systems allowing for stylists to be more productive and improve overall guest and stylist satisfaction.

Salon Support

Our corporate headquarters is referred to as Salon Support.

This acknowledges that loving our guests and stylists mandates a service-oriented, guest and stylist-focused mentality in supporting our field operations.

This acknowledges that loving our franchisees, guests and stylists mandates a service-oriented mentality in supporting our franchisees goals as well as our company-owned operations.

Organization.

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Simplification.

Our ongoing simplification efforts focus on improving the way we plan and execute across our portfolio of brands.

Every program, communication, and report that complicates our operations and takes time away from our guests is being assessed for simplification or elimination.

Simplifying processes and procedures around scheduling, inventory management, day-to-day salon execution, communication and reporting improve salon service.

Our organization also remains focused on eliminating non-essential costs and on profit enhancing initiatives that do not harm the guest experience.

Our ongoing simplification efforts focus on aligning our cost structure with our transition to an asset-light franchise model and improving the way we plan and execute across our portfolio of brands.

In fiscal year 2020, we significantly reduced our field and salon support resources as our portfolio of salons shifts to franchisees.

We remain focused on eliminating non-essential costs and on profit enhancing initiatives that do not harm the guest experience.

We also strive to ensure every program, communication, and report that complicates our operations and takes time away from our franchisees or guests is assessed for simplification or elimination.

New Location.

In March 2019, we announced a relocation of Salon Support to a new location in Minneapolis, which relocation should occur by early 2020.

In March 2019, we announced a relocation of Salon Support to a new location in Minneapolis, which occurred in April 2020.

We believe the new headquarters will facilitate collaboration amongst our internal teams, support our employee recruiting efforts and enhance shareholder value.

However, due to the COVID-19 pandemic, the majority of our salon support employees are working from home to reduce the risk of the virus spreading.

We look forward to everyone returning to the office when it is safer.

Salon Concepts:

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The Company has 1,317 franchised and 751 company-owned SmartStyle and Cost Cutters salons located in Walmart Supercenters.

Service revenues represent approximately 71% of total company-owned SmartStyle revenues.

Supercuts salons provide consistent, high quality hair care services and professional hair care products to its guests at convenient times and locations at value prices.

This concept appeals to men, women, and children.

The Company has 2,340 franchised and 403 company-owned Supercuts locations throughout North America and in the United Kingdom.

Service revenues represent approximately 91% of total company-owned Supercuts revenues.

The Company has 2,508 franchised and 210 company-owned Supercuts locations throughout North America.

Signature Style.

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The Company has 1,217 Signature Style franchised and 505 company-owned locations throughout North America.

Service revenues represent approximately 89% of total company-owned Signature Style salons revenues.

International Salons.

International salons are franchised locations operating in the United Kingdom and Germany primarily under the Supercuts and Regis concepts.

International salons are franchised locations operating in the United Kingdom, primarily under the Supercuts concept.

These salons offer similar levels of service as our North American salons.

Salons are usually located in prominent high-traffic locations and offer a full range of custom hairstyling, cutting and coloring services, as well as professional hair care products.

The tables on the following pages set forth the number of system-wide locations (company-owned and franchised) and activity within the various salon concepts.

The tables on the following pages set forth the number of system-wide locations (franchised and company-owned) and activity within the various salon concepts.

System-wide location counts

Company-owned salons:

SmartStyle/Cost Cutters in Walmart stores

Signature Style

Mall locations (1)

Total North American salons

Total International salons (1)(2)

Total, Company-owned salons

as a percent of total Company-owned and Franchise salons

Franchised salons:

2020 2019 2018

FRANCHISE SALONS:

SmartStyle/Cost Cutters in Walmart stores (1) 1,317 615 561

Supercuts 2,508 2,340 1,739

Signature Style 1,217 766 745

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Total International salons (2)(3) 167 230 262

Total, Franchised salons

as a percent of total Company-owned and Franchise salons

Total Franchise salons 5,209 3,951 4,114

as a percent of total Franchise and Company-owned salons 76.1 % 56.0 % 50.9 %

COMPANY-OWNED SALONS:

SmartStyle/Cost Cutters in Walmart stores 751 1,550 1,660

Supercuts 210 403 928

Signature Style 505 1,155 1,378

Mall-based (2) 166 — —

Total Company-owned salons 1,632 3,108 3,966

as a percent of total Franchise and Company-owned salons 23.9 % 44.0 % 49.1 %

OWNERSHIP INTEREST LOCATIONS:

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Constructed locations (net relocations)

Company-owned salons:

2020 2019 2018

FRANCHISE SALONS:

SmartStyle/Cost Cutters in Walmart stores (1) 4 3 1

Supercuts 39 55 68

Signature Style 4 6 8

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Total International salons (2)(3) — 1 2

Total, Company-owned salons

Franchised salons:

Total Franchise salons 47 65 79

COMPANY-OWNED SALONS:

SmartStyle/Cost Cutters in Walmart stores — — 1

Supercuts 9 9 —

Signature Style 6 1 1

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Total International salons (2)(3) — — 1

Total, Franchised salons

Total Company-owned salons 15 10 3

Closed locations

Company-owned salons:

2020 2019 2018

FRANCHISE SALONS:

SmartStyle/Cost Cutters in Walmart stores (1) (29) (18) (4)

Supercuts (102) (72) (72)

Signature Style (43) (33) (40)

Mall locations (Regis and MasterCuts) (1)

Mall locations (2) — (807) (63)

Total North American salons (174) (930) (179)

Total International salons (2)(3) (63) (33) (15)

Total, Company-owned salons

Franchised salons:

Total Franchise salons (237) (963) (194)

COMPANY-OWNED SALONS:

SmartStyle/Cost Cutters in Walmart stores (4) (72) (39) (605)

Supercuts (26) (21) (20)

Signature Style (111) (73) (76)

Mall locations (Regis and MasterCuts) (1)

Mall locations (2) (41) — (14)

Total North American salons (250) (133) (715)

Total International salons (2)(3) — — (14)

Total, Franchised salons

Total Company-owned salons (250) (133) (729)

Conversions (including net franchisee transactions) (5)

Company-owned salons:

2020 2019 2018

FRANCHISE SALONS:

SmartStyle/Cost Cutters in Walmart stores (1) 727 69 388

Supercuts 231 618 56

Signature Style 490 48 7

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Total International salons (2)(3) — — 262

Total, Company-owned salons

Franchised salons:

Total Franchise salons 1,448 735 1,583

COMPANY-OWNED SALONS:

SmartStyle/Cost Cutters in Walmart stores (727) (71) (388)

Supercuts (176) (513) (32)

Signature Style (545) (151) (15)

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Total International salons (2)(3) — — (262)

Total, Franchised salons

Total Company-owned salons (1,241) (735) (1,581)

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(1) Franchised SmartStyle salons in Walmart stores include salons originally opened as Magicuts locations in Canadian Walmart stores that were rebranded to SmartStyle.

(2) In October 2017, the Company sold substantially all of its mall-based salon business in North America, representing 858 salons, and substantially all of its previous International segment, representing approximately 250 salons in the UK, to TBG, who operated these locations as franchise locations until June 2019.

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The mall-based business and the previous International segment have been reported as a discontinued operation.

On December 31, 2019, mall-based salons were acquired from TBG and are included in continuing operations under the Company-owned segment from January 1, 2020.

See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further discussion.

(3) Canadian and Puerto Rican salons are included in the North American salon totals.

Franchised SmartStyle salons in Walmart stores includes salons originally opened as Magicuts locations in Canadian Walmart stores that were rebranded to SmartStyle.

(4) In January 2018, the Company closed 597 non-performing company-owned SmartStyle locations.

During fiscal years 2019 , 2018 , and 2017 , the Company acquired thirty-two , zero , and one salon locations, respectively, from franchisees.

(5) During fiscal years 2020, 2019, and 2018, the Company acquired 27, 32, and zero salon locations, respectively, from franchisees.

During fiscal years 2020, 2019, and 2018, the Company sold 1,475, 767, and 1,581 salon locations, respectively, to franchisees.

Salon Franchising Program:

We have various franchising programs supporting our 3,951 franchised salons as of June 30, 2019 , consisting mainly of Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters and Roosters salons.

Standards of Operations.

However, the franchise agreements afford certain rights to the Company, such as the right to approve locations, suppliers and the sale of a franchise.

The Company's field personnel make periodic visits to franchised salons to ensure they are operating in conformity with the standards for each franchising program.

The Company’s franchise agreements do not give the Company any right, ability or potential to determine or otherwise influence any terms and/or conditions of employment of franchisees’ employees (except for those, if any, that are specifically related to quality of service, training, salon design, decor, and trademark usage), including, but not limited to, franchisees’ employees’ wages and benefits, hours of work, scheduling, leave programs, seniority rights, promotional or transfer opportunities, layoff/recall arrangements, grievance and dispute resolution procedures, dress code, and/or discipline and discharge.

Franchise Terms.

Pursuant to a franchise agreement with the Company, each franchisee pays an initial fee for each store and ongoing royalties to the Company.

In addition, for most franchise concepts, the Company collects advertising funds from franchisees and administers the funds on behalf of the concepts.

Franchisees are responsible for the costs of leasehold improvements, furniture, fixtures, equipment, supplies, inventory, payroll costs and certain other items, including initial working capital.

Additional information regarding each of the major franchised brands is listed below:

Supercuts franchise agreements have a perpetual term, subject to termination of the underlying lease agreement or termination of the franchise agreement by either the Company or the franchisee.

All new franchisees enter into development agreements, which give them the right to enter into a defined number of franchise agreements.

These franchise agreements are site specific.

The development agreement provides limited territorial protection for the stores developed under those franchise agreements.

Older franchisees have grandfathered expansion rights which allow them to develop stores outside of development agreements and provide them with greater territorial protections in their markets.

The Company has a comprehensive impact policy that resolves potential conflicts among Supercuts franchisees and/or the Company's Supercuts locations regarding proposed store sites.

SmartStyle and Cost Cutters in Walmart Supercenters

The majority of existing SmartStyle and Cost Cutters franchise agreements for salons located in Walmart Supercenters have a five year term with a five year option to renew.

The franchise agreements are site specific.

Cost Cutters (not located in Walmart Supercenters), First Choice Haircutters and Magicuts

The majority of existing Cost Cutters franchise agreements have a 15 year term with a 15 year option to renew (at the option of the franchisee), while the majority of First Choice Haircutters franchise agreements have a ten year term with a five year option to renew.

The current franchise agreement is site specific.

Franchisees may enter into development agreements with the Company which provide limited territorial protection.

Roosters Men’s Grooming Center

Roosters franchise agreements have a ten-year term with a ten-year option to renew (at the option of the franchisee).

New franchisees enter into a franchise agreement concurrent with the opening of their first store, along with a development agreement under which they have the right to open two additional locations.

Franchisee Training.

Existing franchisees receive training, counseling and information from the Company on a regular basis.

The Company provides salon managers and stylists with technical training for franchisees.

Salon Markets and Marketing:

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The council has overall control of the advertising fund's expenditures and operates in accordance with terms of the franchise operating and other agreements.

All stores, company-owned and franchised, contribute to the advertising funds.

All stores, franchised and company-owned, contribute to the advertising funds.

Depending on the brand, the funds are allocated to the brand contributing market for media placement and local marketing activities or to the creation of national advertising and system-wide activities.

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Affiliated Ownership Interest:

The Company maintains a noncontrolling 55.1% ownership interest in Empire Education Group, Inc.

The Company maintains a non-controlling 55.1% ownership interest in Empire Education Group, Inc.

(EEG), which is accounted for as an equity method investment.

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EEG operates accredited cosmetology schools.

Contributing the Company's beauty schools in fiscal 2008 to EEG leveraged EEG's management expertise, while enabling the Company to maintain a vested interest in the beauty school industry.

Additionally, we utilize our EEG relationship to recruit stylists directly from beauty school.

We entered into an agreement to sell our stake in EEG to the controlling owner in fiscal year 2020 while enhancing our relationship in order to recruit stylists directly from beauty school.

The transaction is expected to close in fiscal year 2021, at which time the Company expects to record an immaterial non-operating gain.

Corporate Trademarks:

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The Company believes its employee relations are amicable.

Executive Officers:

Information About Our Executive Officers:

Information relating to the Executive Officers of the Company follows:

President and Chief Executive Officer

Executive Vice President and President of Franchise

Executive Vice President and Chief Technology Officer

Executive Vice President and Chief Financial Officer

Executive Vice President and Chief Operating Officer

James Townsend

Executive Vice President and Chief Marketing Officer

Laura Alexander

Senior Vice President, Chief Merchandising Officer

Senior Vice President and Chief Human Resources Officer

Senior Vice President and General Counsel and Secretary

Name Age Position

Hugh Sawyer 66 Chairman, President and Chief Executive Officer

Eric Bakken 53 Executive Vice President and President of Franchise

Chad Kapadia 51 Executive Vice President and Chief Technology Officer

James Townsend 44 Executive Vice President and Chief Marketing Officer

Kersten Zupfer 45 Executive Vice President and Chief Financial Officer

Shawn Moren 53 Executive Vice President and Chief Talent Officer

Amanda Rusin 38 Senior Vice President and General Counsel and Secretary

Hugh Sawyer has served as President and Chief Executive Officer, as well as a member of the Board of Directors, since April 2017.

He was elected Chairman of the Company's Board of Directors in January 2020.

Before joining Regis Corporation, he served as a Managing Director of Huron Consulting Group Inc.

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and as an Engineering Leader and founding member of Netflix, Inc.'s Content Platform Engineering and Media Pipeline.

Andrew Lacko was appointed to Executive Vice President and Chief Financial Officer in July 2017.

Before joining Regis Corporation, he served as Senior Vice President, Global Financial Planning, Analysis and Corporate Development, of Hertz Global Holdings, Inc.

since 2015 and as Vice President - Financial Planning and Analysis of Hertz Global Holdings, Inc.

beginning in January 2014.

Before joining Hertz, Mr.

Lacko served as Vice President, Financial Planning and Analysis at First Data Corp.

from 2013 to January 2014.

Prior to that, Mr.

Lacko served in senior financial planning and analysis and investor relations roles at Best Buy Co., Inc.

from 2008 to 2013.

Jim Lain has served as Executive Vice President and Chief Operating Officer since November 2013.

Before joining Regis Corporation, he served as Vice President at Gap, Inc.

from August 2006 to November 2013.

Kersten Zupfer was appointed to Executive Vice President and Chief Financial Officer in November 2019.

Before her promotion to Chief Financial Officer she served in accounting and finance roles of increasing leadership at Regis for more than 13 years.

Most recently, she served as Senior Vice President and Chief Accounting Officer since November 2017, prior to which she served as Vice President, Corporate Controller, Chief Accounting Officer since December 2014.

James Townsend was appointed as Executive Vice President and Chief Marketing Officer in April 2019.

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and started his career at Ogilvy in New York City.

Laura Alexander was appointed as Senior Vice President, Chief Merchandising Officer in June 2018.

Alexander served as Vice President, Walmart Relations and SmartStyle Franchise Administration from July 2017 to June 2018.

Alexander joined the Company in 2012 and served in various roles within the legal, franchise and Walmart Relations departments.

Shawn Moren was appointed to Senior Vice President and Chief Human Resources Officer in August 2017.

Shawn Moren was appointed to Executive Vice President and Chief Talent Officer in August 2019.

She also served as the Senior Vice President and Chief Human Resources Officer from August 2017 to August 2019.

Before joining Regis Corporation, she served as Senior Vice President, Human Resources, for Bluestem Group, Inc.

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Before joining Polaris Industries, Inc.

Rusin served as Commercial Director at Cargill, Incorporated from August 2013 to May 2014 and Attorney at Cargill, Incorporated from June 2008 to August 2013.

She served as Commercial Director at Cargill, Incorporated from August 2013 to May 2014 and Attorney at Cargill, Incorporated from June 2008 to August 2013.

Governmental Regulations:

The Company is subject to various federal, state, local and provincial laws affecting its business as well as a variety of regulatory provisions relating to the conduct of its beauty related business, including health and safety.

During the third and fourth fiscal quarters of 2020, state and local governments temporarily mandated the closure of our franchise and company-owned salons in the response to the COVID-19 global pandemic.

These government-mandated closures have and may continue throughout the pandemic.

We monitor state and local regulations carefully to ensure the safety or our stylists and guests.

In the United States, the Company's franchise operations are subject to the Federal Trade Commission's Trade Regulation Rule on Franchising (the FTC Rule) and by state laws and administrative regulations that regulate various aspects of franchise operations and sales.

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The Company has registered its offering of franchises with the regulatory authorities of those states in which it offers franchises and in which such registration is required.

State laws that regulate the franchisor-franchisee relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship.

State laws that regulate the franchisee/franchisor relationship presently exist in a substantial number of states and, in certain cases, apply substantive standards to this relationship.

Such laws may, for example, require that the franchisor deal with the franchisee in good faith, may prohibit interference with the right of free association among franchisees and may limit termination of franchisees without payment of reasonable compensation.

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Department of Education.

In 2020, we signed an agreement to sell our ownership interest in EEG to the other owner.

The transaction is expected to close in fiscal year 2021.

Financial Information about Foreign and North American Operations

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business