Supercuts 2008 Annual Report Download - page 32

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 year 2009, our outlook for constructed
salons will be between 175 and 200 units, and we expect to add between 350 and 370 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. Capital expenditures in fiscal year 2009, excluding acquisition expenditures budgeted at
$75.0 million, are projected to be approximately $95 million, which includes approximately $50 million for salon maintenance.
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 approximately 100 to 125
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 2009 consolidated same-store sales increase to be 0.5 to 2.5 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 2008, we acquired 7,926 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 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.
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
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