Supercuts 2007 Annual Report Download - page 44

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Rent
Rent expense, which includes base and percentage rent, common area maintenance and real estate taxes, was as follows:
(1)
Represents the basis point change in rent expense as a percent of consolidated revenues as compared to the corresponding period of the
prior fiscal year.
The basis point deterioration in rent expense as a percent of consolidated revenues during fiscal years 2007, 2006 and 2005 was primarily
due to rent expense increasing at a faster rate than location same-
store sales. Additionally, fiscal year 2007 is impacted by an extra week of rent
in the United Kingdom. During fiscal year 2008, we expect rent expense as a percent of consolidated revenues to increase by approximately 30
basis points. Rent expense rates are not materially impacted by the deconsolidation of beauty schools.
During fiscal year 2006, $4.1 million in lease termination costs were recognized through rent expense. These costs resulted from our
decision to close 64 company-owned salon locations and refocus efforts on improving the sales and operations of nearby salons. Additionally,
the increase in this fixed-cost expense as a percent of consolidated revenues was due to salon rent increasing at a faster rate than salon same-
store sales during both fiscal years 2006 and 2005.
Depreciation and Amortization
Depreciation and amortization expense (D&A) was as follows:
(1)
Represents the basis point change in depreciation and amortization as a percent of consolidated revenues as compared to the
corresponding period of the prior fiscal year.
The basis point improvement in D&A for fiscal year 2007 relates primarily to lower salon impairment charges in fiscal year 2007 when
compared to salon impairment charges in fiscal year 2006. Impairment charges of $6.8 million ($4.3 million net of tax) were recorded during
fiscal 2007 related to the impairment of property and equipment at underperforming locations. During fiscal year 2008, we expect D&A as a
percent of consolidated revenues to decrease by approximately 20 basis points. D&A expense rates are not expected to be impacted by the
deconsolidation of beauty schools.
The basis point deterioration in D&A as a percent of consolidated revenues during fiscal year 2006 was primarily due to increased salon
impairment charges during fiscal year 2006 over fiscal year 2005, stemming from lower same-store sales volumes during recent fiscal years.
Impairment charges of $7.4 and $1.0 million were recognized for the North American and international operations, respectively, during fiscal
year 2006. Additionally, $2.4 million in losses on disposal of property and equipment was recognized
43
Expense as %
of Consolidated
Increase Over Prior Fiscal Year
Years Ended June 30,
Rent
Revenues
Dollar
Percentage
Basis Point
(1)
(Dollars in thousands)
2007
$
382,820
14.6
%
$
31,894
9.1
%
20
2006
350,926
14.4
39,942
12.8
20
2005
310,984
14.2
41,555
15.4
20
Expense as %
of Consolidated
Increase (Decrease) Over Prior Fiscal Year
Periods Ended June 30,
D&A
Revenues
Dollar
Percentage
Basis Point
(1)
(Dollars in thousands)
2007
$
124,137
4.7
%
$
8,234
7.1
%
(10
)
2006
115,903
4.8
24,150
26.3
60
2005
91,753
4.2
16,770
22.4
30