Supercuts 2012 Annual Report Download - page 35

Table of Contents
Salon Business
The strength of our salon business is in the fundamental similarity and broad appeal of our salon concepts. Each concept generally targets
the middle market guest, however, each attracts a different demographic.
We execute our salon growth strategy by focusing on real estate. Our salon real estate strategy is to add new units in convenient locations
with good visibility and guest traffic, as well as appropriate trade demographics. Our various salon and product concepts operate in a wide
range of retailing environments, including regional shopping malls, strip centers and Walmart Supercenters. We believe that the availability of
real estate will augment our ability to achieve the aforementioned long-term growth objectives.
Organic salon revenue is achieved through the combination of new salon construction and salon same-store sales results. Older,
unprofitable salons will be closed or relocated. Although we have generally been experiencing negative same-store sales we believe our
strategy of focusing on the in-salon guest experience will improve same-store sales.
Historically, our salon acquisitions have varied in size from as small as one salon to over one thousand salons. The median acquisition size
is approximately ten salons. From fiscal year 1994 to fiscal year 2012, we acquired 8,052 salons, net of franchise buybacks.
Hair Restoration Business
In December 2004, we acquired Hair Club for Men and Women. Hair Club for Men and Women is a provider of hair loss solutions with
an estimated five percent share of the $4 billion domestic market. This industry is comprised of numerous locations domestically and is highly
fragmented. In an effort to provide confidentiality for guests, the hair restoration centers operate primarily in professional or medical office
buildings. Further, the hair restoration business is more marketing intensive. As a result, organic growth at hair restoration centers is dependant
on successfully generating new leads and converting them into hair restoration guests.
During the fiscal year ended June 30, 2012, the Company began reviewing alternatives for non-core assets. On July 13, 2012, the
Company entered into a definitive agreement to sell its Hair Club for Men and Women business (Hair Club), a provider of hair restoration
services. The transaction is expected to close during the first half of fiscal year 2013.
CRITICAL ACCOUNTING POLICIES
The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of
America. In preparing the 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 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 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 this
Form 10-K. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial
condition and results of operations.
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