Supercuts 2005 Annual Report Download - page 7

Download and view the complete annual report

Please find page 7 of the 2005 Supercuts annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 121

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121

In addition to adding new salon locations each year, the Company has an ongoing program of remodeling its existing salons, ranging
from redecoration to substantial reconstruction. This program is implemented as management determines that a particular location will
benefit from remodeling, or as required by lease renewals. A total of 205 and 169 salons were remodeled in fiscal year 2005 and 2004,
respectively.
Recent Salon Additions. During fiscal year 2003, the Company added nearly 1,000 salons, net of closures and relocations. The
Company constructed or franchised 672 new salons (397 company-owned and 275 franchise) and acquired 753 salons (555 company-
owned and 198 franchise). The 555 acquired company-owned salons included 97 franchise salon buybacks. The Company’s most
significant fiscal year 2003 salon acquisitions included 328 North American BoRics salons, 25 Vidal Sassoon salons, and 286 salons
(including 196 franchise salons) from Opal Concepts.
During fiscal year 2004, net of closures and relocations, the Company added over 500 salons through new construction and
acquisitions. The Company constructed or franchised 720 new salons (452 company-owned and 268 franchise). Additionally, the
Company acquired 405 company-owned salons, including 206 franchise buybacks. The Company’s most significant fiscal year 2004
acquisition was 153 Holiday Hair Salons (primarily in Pennsylvania).
During fiscal year 2005, net of closures and relocations, the Company added over 700 salons through new construction and
acquisitions. The Company constructed or franchised 810 new salons (525 company-owned and 285 franchise). Additionally, the
Company acquired 451 salons (444 company-owned and 7 franchise salons). The 444 acquired company-owned salons included
139 franchise salon buybacks. The Company’s largest fiscal year 2005 salon acquisitions included 129 TGF Salons and 67 HeadStart
salons.
Salon Closures.
The Company evaluates its salon performance on a regular basis. Upon evaluation, the Company may close a salon
for operational performance or real estate issues. In either case, the closures generally occur at the end of a lease term and typically do not
require significant lease buyouts. In addition, during the Company’s acquisition evaluation process, the Company may identify acquired
salons that do not meet operational or real estate requirements. At the time of acquisition, generally limited value is allocated to these
salons, which are usually closed within the first year.
During fiscal year 2005, 315 salons were closed; including 147 company-owned salons and 168 franchise salons. During fiscal year
2004, 338 salons were closed; including 148 company-owned salons and 190 franchise salons. During fiscal year 2003, 360 salons were
closed; including 127 company-
owned salons and 233 franchise salons. The number of franchise salons closed during fiscal year 2004 and
2003 were primarily the result of transition related closures associated with the Company’s acquisition of two franchise concepts in
Europe.
Economies of Scale. Management believes that due to its size and number of locations, the Company has certain advantages which are
not available to single location salons or small chains. The Company has developed a comprehensive point of sale system to accumulate and
monitor service and product sales trends, as well as assist in payroll and cash management. Economies of scale are realized through the support
system offered by the home office. Additionally, due to its size, the Company has numerous financing and capital expenditure alternatives, as
well as the benefits of buying retail products, supplies and salon fixtures directly from manufacturers. Furthermore, the Company can offer
employee benefit programs, training and career path opportunities that are often superior to its smaller competitors.
6