Supercuts 2004 Annual Report Download - page 29

Table of Contents
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S OVERVIEW
Regis Corporation, based in Minneapolis, Minnesota, is an owner, operator and franchisor of hair and retail product salons and beauty career
schools. Our worldwide operations include 10,162 system-wide North American and international salons, including ten beauty career schools,
at June 30, 2004. Each of our concepts has generally similar products and services and serves mass-market consumers. Our operations are
organized to be managed based on geographical location. Our North American operation includes 8,148 salons, including 2,330 franchise
salons, operating in the United States, Canada and Puerto Rico primarily under the trade names of Regis Salons, MasterCuts, Trade Secret,
SmartStyle, Supercuts and Cost Cutters. Our international operations include 2,014 salons, including 1,594 franchise salons, located throughout
Europe, primarily in the United Kingdom, France, Italy and Spain. During fiscal year 2004, we had an average of approximately 50,000
corporate employees worldwide.
Our growth strategy consists of two primary, but flexible, building blocks. Through a combination of organic and acquisition growth, we seek
to achieve our long-term objective of 10-to-14 percent annual revenue growth. We anticipate that going forward, the mix of organic and
acquisition growth to be roughly equal. However, depending on several factors, including the availability of appropriate real estate, availability
of salons for sale and same-store sales trends, this mix will vary from year-to-year. We believe achieving revenue growth of 10-to-14 percent
will allow us to increase annual earnings at a low-to-mid teen percent growth rate.
Organic revenue growth is achieved through the combination of new salon construction and same-store sales increases. Each fiscal year, we
anticipate building several hundred corporate salons. We anticipate our franchisees will open several hundred salons as well. Older,
unprofitable salons will be closed or relocated. Our long-term outlook is for annual consolidated low single-digit same-store sales increases.
Based on current fashion and economic cycles, we project our fiscal year 2005 consolidated same-store sales increase to be at the low end of
our long-term outlook range.
Historically, acquisitions have varied in size from as small as one salon to over one-thousand salons. The median acquisition size is
approximately 10 salons. From fiscal year 1994 to fiscal year 2004, we completed nearly 300 acquisitions, adding over 7,400 salons. We
anticipate adding several hundred corporate salons each year from acquisitions. Some of these acquisitions may include buying salons from our
franchisees.
We execute our growth strategy by focusing on real estate. Our real estate strategy is dependent on adding salons in convenient locations with
good visibility, strong customer traffic and appropriate trade demographics. Our various salon and product concepts are now operating in a
wide range of retailing environments. We believe that the availability of real estate will augment our ability to achieve the aforementioned
long-term growth objectives. We anticipate that we will add approximately 1,000 salons each year through a combination of organic,
acquisition and franchise growth.
The conceptual strength of our business is in the fundamental similarity of our salon concepts that allow flexibility and multiple salon concept
placement in shopping centers and neighborhoods, and broad customer mix. Each concept is targeted at the middle market customer, however
each attracts a slightly different demographic. We anticipate expanding all of our salon concepts. In addition, we anticipate testing and
developing new salon concepts to complement our existing concepts.
We have begun acquiring and are exploring the possibility of building beauty career schools. The beauty career school business is highly
profitable, and often participates in governmental programs designed to encourage education. We believe there is an opportunity to place
graduates in our various salon concepts which may provide us with another competitive advantage. Similar to the salon industry, the beauty
career school business is highly fragmented. As a result, we believe there is an opportunity to consolidate this industry. Expanding this business
would allow the Company to add incremental revenue without cannibalizing our existing salon business. Primarily through acquisition, we
believe beauty career schools could contribute over $100 million in annual revenue in five years.
Additionally, we desire to enter the Asian market within the next five years.
For a discussion of our near-term expectations, please refer to the Investor Information section of our website at www.regiscorp.com.
Maintaining financial flexibility is a key element in continuing our successful growth. With strong operating cash flow and an investment grade
credit rating, we are confident that we will be able to financially support our long-term growth objectives.
23