Supercuts 2006 Annual Report Download - page 33

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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 customer 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 Wal-
Mart Supercenters. We believe that the availability of
real estate will augment our ability to achieve the aforementioned long-term growth objectives. In fiscal 2007, although we have tempered our
outlook for constructed salons to between 350 to 400 units, we still expect to add between 500 and 700 net locations through a combination of
organic, acquisition and franchise growth. Our long-term outlook anticipates that we will add between 800 to 1,000 net locations each year
through a combination of organic, acquisition and franchise growth.
Organic salon revenue growth is achieved through the combination of new salon construction and salon same-store sales increases. Each
fiscal year, we anticipate building several hundred company-owned salons. We anticipate our franchisees will open several hundred salons as
well. Older, unprofitable salons will be closed or relocated. Our long-term outlook for our salon business is for annual consolidated low single
digit same-store sales increases. Based on current fashion and economic cycles (i.e., longer hairstyles and lengthening of customer visitation
patterns), we project our annual fiscal year 2007 consolidated same-store sales increase to be one to two percent.
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 2006, we acquired 7,344 salons, net of franchise buybacks. We anticipate
adding several hundred company-owned salons each year from acquisitions. Some of these acquisitions may include buying salons from our
franchisees.
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. As a result, we believe there is an opportunity to consolidate this industry through acquisition. Expanding the hair loss business
organically and through acquisition would allow us to add incremental revenue which is neither dependent upon, nor dilutive to, our existing
salon and school businesses.
Our organic growth plans for hair restoration include the construction of a modest number of new locations in untapped markets
domestically and internationally. However, the success of our hair restoration business is not dependent on the same real estate criteria used for
salon expansion. In an effort to provide confidentiality for our customers, 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 our hair restoration centers
will be dependent on successfully generating new leads and converting them into hair restoration customers. Our growth expectations for our
hair restoration business are not dependent on referral business from, or cross marketing with, our hair salon business, but these concepts will
be evaluated closely for additional growth opportunities.
Beauty School Business
The beauty school business 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
and hair loss industries, the beauty school industry is highly fragmented. As a result, we believe there is an opportunity to consolidate this
industry through acquisition. Capitalizing on these opportunities would allow us to add incremental revenue without cannibalizing our existing
salon or hair restoration center businesses. During
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