Regis Corp (RGS) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Regis Corporation Fiscal 2018 Second Quarter Earnings Call. My name is Lori, and I will be your conference facilitator today. (Operator Instructions) As a reminder, this call is being recorded for playback and will be available by approximately 12 p.m. Eastern Time today.

I'll now turn the conference call over to Paul Dunn, Vice President of Finance and Investor Relations. Please go ahead.

Good morning, and thank you all for joining us.

On the call with me today are Hugh Sawyer, our Chief Executive Officer; Andrew Lacko, our Chief Financial Officer; Eric Bakken, President of our Franchise Segment; and Amanda Rusin, our General Counsel.

Before turning the call over to Hugh, there are a few housekeeping items to address. First, today's earnings release and conference call include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not guarantees of performance and, by their nature, are subject to inherent risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to today's release and our SEC filings for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of this call.

Second, this morning's call must be considered in conjunction with both the 10-Q filing and earnings release we issued this morning. In today's call, we will be discussing non-GAAP financial results that exclude the impact of certain business events. These non-GAAP financial measures are provided to facilitate meaningful year-over-year comparisons which should not be considered superior to, as a substitute for and should be read in conjunction with GAAP financial measures for the period. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in this morning's earnings release, which is available on our website at www.regiscorp.com/investor.

With that, I will now turn the call over to Hugh.

Thank you, Paul, and good morning. Thank you for joining us and thanks as well for your interest in Regis.

My brief comments today will focus on the strategic transformation underway and the results of certain operational initiatives executed during the second quarter and since our turnaround began last April. Andrew will then provide a recap of our financial results for the quarter.

So let's begin with a high-level overview of our progress thus far. Nine months ago, I shared an ambitious vision for Regis that included the following key elements: A strategic transformation of the business with an emphasis on the growth of our franchise platform; the operational turnaround of our underperforming and nonperforming company-owned salon portfolio; the utilization of technology to transform the business; thoughtful investments to support growth through better advertising content and leveraging broader channels of distribution for that improved content through new relationships, digital advertising and social media; efforts to upgrade stylist recruitment, training and retention; the vigorous elimination of nonessential, noncustomer-facing costs; and the revitalization of our guest experience.

Since last April, we have been focused intently on meeting the expectations of our key stakeholders, our guests, our franchisees, our associates and, of course, our shareholders. We are accomplishing more by improving the speed and effectiveness of execution throughout the company. In other words, we are getting things done, things that support the overall strategic transformation and operational turnaround. I believe the initiatives we executed during the second quarter demonstrate that a high-performing culture is beginning to emerge at Regis.

During the second quarter, we substantially completed the operational restructuring of our company-owned salon portfolio. We have now removed or franchised approximately 1,450 nonperforming, underperforming and/or nonstrategic, noncore salons since April of 2017 in essentially 2 major transactions, both of which substantially concluded in the second quarter, although as you might imagine, the work has been underway for several months.

As you will recall, the restructuring events were as follows: The sale and subsequent franchising of substantially all of our mall and U.K. salon operations, which closed on October, and of course, the closing of 597 nonperforming SmartStyle salon locations during the month of January. I can report that our SmartStyle restructuring was accomplished in an exceptional way by our cross-functional field and corporate team and in a manner that has preserved our excellent relationship with Walmart.

Weeding the garden has been an intentional turn of phrase I have used to depict how nonperforming cash flow negative salons were absorbing valuable resources and masking the true health of our company-owned operating platform. We expect by removing these salons from our portfolio, it will not only improve our financial performance, it will also enable management to focus time and attention on the growth of our performing company-owned salons and the continued growth of our franchise business. It is certainly possible that we may close nonperforming or underperforming salons in the future as any prudent retailer would. However, we do believe the actions taken during the second quarter substantially complete the restructuring of our company-owned salon portfolio. And we accomplished these 2 major transactions during the first 9 months of our transformation, essentially clearing the way for the garden to grow.

And we are, in fact, highly focused on growing our business. A number of marketing and advertising initiatives were either announced or substantially developed during the second quarter.

We introduced a new "Everyday Simple Pricing" strategy in our SmartStyle salons. This pricing strategy includes a greatly simplified service menu and a new service offering, the $12.97 "Express Haircut" that is intended to attract the typical Walmart shopper who is pressed for time, including male shoppers who visit a Walmart.

We signed an industry-exclusive agreement with Buxton Company to provide sophisticated customer analytics, which we believe will improve the precision and effectiveness of our advertising dollars.

We signed an industry-exclusive multiyear sponsorship with Major League Baseball to support the growth of both company-owned and franchised Supercuts salons. Beginning with the 2018 baseball season, Supercuts will become the official hair salon, the official hairstylist and a proud partner of Major League Baseball. I really do believe this will be a home run for Supercuts.

We also believe that highly-trained stylists are better equipped to deliver a superb guest experience. And to improve our guest experience, we are accelerating our commitment to stylist training through a new and innovative interactive digital format that's scheduled to be rolled out to our SmartStyle salons later this month. We are also launching our new social media programming in February and we believe our stylists will embrace this new ecosystem.

I've been consistent in saying that we would fund prudent investments designed to drive the growth of our business and these marketing and advertising initiatives are an example of our investments in growth.

I also remain optimistic about the growth of our franchise business. We are committed to growing the franchise platform and events occurred during the quarter that illustrate the progress we are making in this strategic transformation. The decision to sell and then re-franchise substantially all of our mall-based salons and U.K. business certainly illustrate our commitment. Separately, our franchise portfolio grew an additional 108 salons during the quarter as franchisees opened new salons or converted company-owned salons to franchise-owned.

The announcement of Amanda Rusin as our new General Counsel means that our franchise President, Eric Bakken, will now be able to focus his full time and considerable talents on growing the franchise segment. We are also working very hard to improve the core capabilities we will require to be a best-in-class franchise operator.

Eric and I anticipate that we will have multiple options to grow our franchise business. Focusing on organic growth within the franchise platform is clearly one option, offering new value-added services to our franchise owners is another and, in some cases, we may continue to convert company-owned salons to franchise where the math makes sense to do so.

I have said before that I can see a time in the not too distant future when our franchise salon portfolio will be nearly equal in number to our company-owned salon portfolio. In fact, after closing 597 nonperforming SmartStyle salons in January, our portfolio today is approximately 52% company-owned and 48% franchised, including the salons operated by The Beautiful Group. Now, to put this in proper context, when I joined the company in early April of 2017, the company had a portfolio of approximately 72% company-owned salons and 28% franchised salons. So as you can see, our business is clearly evolving.

Having shared this data, I want to reiterate my support for high-performing company-owned salons. Coupled with the vision of a growth platform of well-run franchised salons, I believe a properly balanced portfolio of high-performing owned and franchised salons will enable Regis to generate a sustainable positive trajectory.

Andrew and I have also committed to eliminating nonessential G&A costs. Every Regis department program and policy is judged based on the economic value that is generated for our shareholders. If that department, program or policy has value, we will certainly support it. If not, we will adjust accordingly and disinvest.

During the quarter, we made the decision to eliminate approximately 65 positions within our corporate salon support team. This review, of course, was enabled by the elimination of -- or franchising of 1,450 underperforming, nonperforming, noncore or nonstrategic company-owned salons. We've also executed a meaningful number of field G&A reductions associated with closing of 597 nonperforming SmartStyle salons. Although it's never easy to make changes which impact our associates, these G&A reductions were clearly the right thing to do for our business and our teams executed these G&A reductions in a thoughtful and caring manner.

When combined with the initiatives we announced at the end of the first quarter, you can see that your management team has been very busy delivering the transformation we committed to make and we are moving forward to build a company that we can all be proud of.

As to the results of the second quarter, this morning, we reported year-over-year growth of adjusted EBITDA. This marks the third consecutive quarter of year-over-year EBITDA growth. And these results were achieved despite the extensive challenges and extraordinary complexity associated with the exit and subsequent franchising of our mall and international salons and the exit of those 597 nonperforming SmartStyle locations and the proactive steps we have taken to eliminate nonessential G&A costs. While I'm encouraged with the results of the quarter and our year-to-date results especially in light of the pace and complexity of the activities since last April, all of us here at Regis recognize that we have much more work to do before we can report to you that an operational turnaround in our company-owned salons has been fully realized and that we have optimized our growth opportunities in franchise.

In closing, the full transformation of Regis will take some time to deliver the investments and an increased velocity of effective execution that supports both the turnaround and our strategic transformation. Winning is a learned behavior. And during the second quarter, I was encouraged to see the initial signs of a new winning attitude at Regis.

My partner, Andrew, will now provide details on the financial results of the quarter. Andrew?

Thanks, Hugh, and good morning, everyone. This morning, I'd like to provide an overview of our results for the second quarter as well as updates on a few items to take into consideration when you look at our year-over-year comparisons.

On a consolidated basis, second quarter revenue totaled $309 million, a $7 million or 2.1% year-over-year decline driven primarily by the closure or re-franchising of 448 salons and a 70 basis point decline in same-store sales, partially offset by favorable revenue growth in our franchise segment and favorable currency effects. The reduction in same-store sales was driven primarily by a 3.2% decline in traffic, partially offset by a 2.5% increase in ticket.

Second quarter consolidated adjusted EBITDA of $18.2 million was $1 million or 6% favorable to the same period last year. The year-over-year growth was driven primarily by the benefits from our operational initiatives or what we have been calling the 120-day plan, which we estimate delivered about $7 million to $9 million during the quarter, profitable growth in our franchise segments and one-time benefit related to the discontinuance of our limited loyalty program test and the closure or re-franchising of 448 salons. These benefits were partly offset by gross profit declines driven by same-store sales, minimum wage and health care cost increases, a year-over-year increase in the company short-term incentive compensation accruals and strategic investments we made in digital advertising during the quarter in support of our SmartStyle brand.

On a year-to-date basis, consolidated adjusted EBITDA of $42.1 million was $2.2 million or 5.5% favorable for the same period last year. We are encouraged by our year-to-date results given the challenges and complexity of our 2 major restructuring events which were substantially completed in the quarter, but have been underway for several months.

Turning now to the segment-specific performance. And starting with our company-owned salons, second quarter revenue totaled $280 million, a $16.3 million or 5.5% decline versus the prior year driven primarily by the closure or re-franchising of 448 salons and a 70 basis point decrease in same-store sales. However, this decrease was partly offset by favorable foreign currency impacts and the opening of 8 new locations over the past 12 months.

Second quarter company-owned salon adjusted EBITDA of $26.5 million, a $300,000 decline versus the same period last year. This decline was driven primarily by the gross profit impact to the same-store sales decline and the purposeful investments made during the quarter related to the SmartStyle digital advertising campaign in support of the rollout of the "Everyday Simple Price" and "Express Haircut" offerings Hugh mentioned. These were partially offset by management initiatives I had discussed earlier, along with a onetime benefit related to the discontinuance of our limited loyalty program test and the closure or re-franchising of 448 salons.

In the franchise segment, revenue of $28.6 million increased $9.5 million or 50.2% compared to the prior year quarter. Royalties and fees of $13.5 million increased $2.1 million or 18.2% versus the same period last year. Royalties increased 9.9% driven primarily by positive same-store sale revenue in the quarter and increased franchised salon counts. Initial franchise fees increased $1.2 million or 198% as the company opened or converted a net 108 franchised locations in the quarter as compared to 41 in the prior year quarter. The remaining balance of the year-over-year revenue growth came from increases in product sales to franchisees.

Second quarter franchise adjusted EBITDA of $9.8 million improved $1.6 million or 19.5% year-over-year driven primarily by the revenue increase, partly offset by cost of goods sold on product sales to franchisees, higher warehouse expenses related to increased product sales volumes and higher incentive costs paid as part of opening the 108 new franchised salons in the quarter.

Turning now to corporate G&A. In response to several questions I've received to-date, let me provide you with some additional color on the primary components of the company's corporate unallocated expenses. This item is largely shared services-related expense that support both the company-owned and franchised salons.

The easiest way to think of these expenses is in 3 broad buckets. The largest of the buckets, which comprises roughly 50% of the corporate G&A, relates to payroll, benefits and other costs for our shared services and other non-field personnel who provide support and assistance to both our company-owned salons and franchise segments. This includes everything from the senior management team to the company's numerous shared services functions, including finance and accounting, tax, marketing and advertising, field support, human resources, revenue management, facilities and real estate to name just a few. These costs not only include payroll and benefits, but also the short and long-term incentive compensation accruals, travel and all other costs associated with these functions.

The second bucket, which comprises roughly 30% of the total unallocated G&A, relates to IT and technology-related costs. Outside of a small amount of communications-related expense, the majority of the company's IT expenditures flowed through the corporate G&A and are not allocated to the segments. These items include expenses such as POS maintenance and support, hardware and software maintenance, both corporate and franchise help line services, corporate telecom and networking, the expense component of IT projects and all other technology costs to support the IT functions of the company.

The remaining 20% of unallocated G&A relates to all other corporate expenses, including things such as insurance premiums, professional fees and facility costs to name just a few.

It's important to note that the as reported or GAAP corporate G&A found in our SEC filings can also include onetime items such as severance and restructuring-related expenses that can make our reported corporate G&A costs larger than our normal run rate or as adjusted corporate G&A.

As I've discussed before, with the restructuring of the portfolio largely behind us, including the consolidation of our reportable segments from 4 to 2, we will continue to do the analysis to determine if it makes sense to allocate a portion of the corporate G&A to the reportable segments. Additionally, while there have been a number of headwinds this year, including a handful of onetime discrete items, we are making good progress in rationalizing or reducing run rate corporate G&A and we'll continue to focus our efforts on removing stranded costs and non-value-adding expenses out of our cost structure.

As Hugh reported, we have eliminated a number of roles in our corporate salon support, which have contributed to our reduction of annual run rate adjusted G&A costs. With that context, second quarter corporate adjusted EBITDA loss of $18.1 million was essentially flat year-over-year driven primarily by an increase in the company's short-term incentive compensation expense due in part to the fact that last year's results included an accrual and reversal due to lack of fiscal 2017 performance as compared to favorable results in the first half of fiscal 2018. This increase was essentially offset by the company's traction around initiatives to reduce noncore, nonessential G&A costs. Excluding the impact of short-term incentive compensation and adjustments, adjusted corporate G&A would have improved approximately $2 million or 8% year-over-year.

Before looking at the balance sheet, let me highlight a few items that impact year-over-year comparability of the results I just provided. The first involves our strategic restructuring activity. Due to the previously announced sale and subsequent franchising of substantially all of our mall-based salons and U.K. business, these units are now shown as discontinued operations in the P&L. The financial statements provided in our press release and 10-Q for both current and prior periods have been recast to reflect the impact of this transaction. However, previous releases of financial results for prior years would not reflect this change and are not comparable to our current operations.

The second item involves the field reorganization change we announced in August, which aligned the field leadership team by brand. Although this was a first quarter event, it's important to remember that an outcome of this reorganization is that certain field leaders have been moved out of cost of goods sold and site operating expense, where they have historically been recorded, and into G&A. This change does not impact the overall consolidated results, but does create an $8.9 million decrease in cost of goods sold and site expense with a corresponding $8.9 million increase in G&A when compared to the second quarter last year.

I point this out because the prior year results provided in today's press release and 10-Q do not reflect this reclassification. However, to assist you with your financial modeling, we have provided a pro forma P&L in our website with recast financial statements to better assist you with your comparisons.

Third, given the impact to the quarter of the recent Tax Reform Act, along with the existing valuation allowance in place against our deferred tax assets, it is very difficult to compare after-tax results to prior periods. Specifically, during the quarter, the company recorded a noncash discrete tax benefit of $68.9 million related to the Tax Reform Act driven primarily by the impact of corporate federal rate reductions on our deferred tax assets and liabilities and changes in net operating loss rules.

These legislative changes now allow for the indefinite carryforward of NOLs arising in tax years and in -- after December 31, 2017. Prior law limited the carryforward period to 20 years. As a result of this change, the company is able to re-class a portion of its valuation allowance and deferred tax assets that it expects to reverse in future periods.

I want to stress though that the adjustment to our valuation allowance is solely attributable to the recently enacted Tax Reform Act and does not include a qualitative adjustment. As such, the company continues to maintain the valuation allowance on the historical balance of our federal NOLs, tax credits and various state tax attributes.

Turning now to the balance sheet. On the liquidity front, the company ended the quarter with a cash balance of $163 million. We are pleased with this outcome given the onetime $27 million lease termination and termination-related payment made in early December in support of the closing of 597 nonperforming SmartStyle salons. This use of cash was partially offset by an $18 million settlement of a life insurance policy in connection with the passing of a former executive. Excluding these onetime items, the company's year-to-date cash position was largely unchanged.

Quarter and balance sheet debt totaled $123 million and there were no outstanding borrowings under our $200 million revolving credit facility.

Finally, several weeks ago, we announced the successful restructuring of our company-owned nonperforming SmartStyle portfolio. As a reminder, these salons were losing an estimated $15 million in annual adjusted EBITDA and went dark yesterday.

With that, I'd like to thank you for your support as we continue to make progress on our strategic transformation. And I'd like to now turn the call over to Lori for questions. Go ahead, Lori.

(Operator Instructions) And we'll go to Jason Gere, KeyBanc Capital Markets.

Just a couple of questions. I guess, the first thing, I just want to understand the tax reform impact a little bit. As you kind of walked through that with the NOL, like how we should be thinking about it going forward? It sounds like it's kind of a mixed bag, but I was just wondering if you can maybe kind of simplify it a little bit more just so we can understand for modeling purposes.

Sure. This is Andrew. So the impact of the tax reform is basically that the indefinite-lived NOLs going forward are able to -- the NOLs have been changed to indefinite-lived such that we can net that against some of our tax assets and liabilities. The net impact is, just doing the math, we made the $70 million adjustment to our valuation allowance. We still have a portion of the valuation allowance intact and I don't expect that we will be making adjustments until a future period. At which point, we would release the valuation allowance that would help you with your modeling our income tax expense line.

Okay. Okay. That makes sense. And then, Hugh, a bigger question. When you look at the comp performance of the corporate-owned stores in the quarter, can you maybe parcel out some of the weaker traffic? And just how much is weather-related? How much is that some of the initiatives that you're doing are just still in the infancy that you're not going to see the turn yet? So I'm just wondering if maybe you can parcel out maybe some of the -- or bridge the gap like some of the factors with overall comps. Where you actually were really pleased? Where you're -- and then you pointed out some areas have more work to be done, but just like maybe your assessment over the last couple of months.

Sure, Jason. I'll let Andrew take the portion of your question related to weather. We -- Andrew and I made a social commitment to each other that we try not to point at weather as it relates to the impact to our operations, but it's interesting, Jason. I've been in other industries where weather has an impact, but it's striking how dramatic it can be in this industry where people just simply can't get out and cannot get into a salon to get their haircut. So we're aware that in and around the -- particularly the holiday periods, we were impacted. And Andrew is probably going to give you some more data then I'll address the rest of your question.

Yes. We're not in a position to give specific numbers, but as I'm sure other retailers have seen, that period between Christmas and New Year's was particularly difficult given the cold strip and the weather that came through the Midwest and the South and the Eastern seaboard. So it certainly had an impact on that 70 basis points. We're not at liberty and we just don't want to pin anything to the weather because weather is unpredictable, that's just part of our business, but it did certainly have a drag on that 70 basis point performance.

As to the rest of your question -- Jason, it's Hugh. The -- overall, I'm feeling good about Supercuts, particularly with the new MLB partnership. The MLB relationship is just going to open up so many different channels for our content that I just -- I am very certain that it's going to be a home run for the company as I've said publicly.

As to SmartStyle, now that we've got the restructuring out of the way, we remain hopeful and believe that the changes we've made in simplifying our pricing boards and introducing new services are going to help us inside those Walmart locations. The early data is encouraging, particularly as it relates to capturing some of those male customers that are inside the Walmart that historically we may not have always harvested.

And as to the rest of the portfolio, inside of Signature Style, it's a mixed bag, but we're working through that process as well based on essentially 5 core initiatives around growth, which you may have heard me talk about before, but it begins with improving the customer database and the insights and analytics we have related to our customers. We think we're going to get a lot better at that with the Buxton relationship, which is industry-exclusive. We have accelerated our investment in digital advertising, which predicts -- provides a bigger bang for the -- our investment dollars than TV advertising. And we've really leveraged digital advertising with SmartStyle. And I also think, Jason, the rollout of social media that we're going to make in February, which is initially targeted towards social media -- I mean, excuse me, towards SmartStyle will be helpful to us.

So as you think about these 2 large brands, Supercuts is our best-known brand and we're going to be riding the MLB train to move content into multiple channels. And on our lesser-known brand on SmartStyle, we are raising awareness with digital advertising and with social media.

We're also investing in customer-facing technology to change the guest and stylist experience. We have a number of pilots underway in our salons that will change the face of the guest experience and the stylist experience. Andrew has made great progress improving the sophistication of revenue management and our pricing programs which I think, over time, will help growth. And then, finally, we're taking steps to upgrade our merchandising while leveraging the core competencies we already have in supply chain management.

So as you think about the 5 pillars of growth for Regis, now that the restructuring phase is behind us, it's essentially improving the customer insights through better database and analytics, accelerating the investment in digital and social media while leveraging channels of distribution for content for Supercuts through MLB, investing in customer-facing technology to upgrade the guest and stylist experience, improving the sophistication of our revenue management and pricing programs and upgrading our merchandising while leveraging the great supply chain management capabilities we already have. Those are essentially the 5 foundational pillars of growth going forward now that the restructuring is behind us.

We'll go next to Stephanie Wissink, Jefferies.

This is Ashley Helgans on for Steph Wissink. We just have one. Would you mind giving us some clarity around same-store sales, excluding the stores that are slated for closure?

Sure. Going forward, the 597 obviously was a drag on the portfolio from a revenue performance. They have shown some health in the recent past as a result of the new service offerings that we have launched in the SmartStyle portfolio, specifically the $12.97 "Express Haircut" and the "Everyday Simple Pricing", the simplification of price menu, but that's a symptom of -- they were underperforming and had lower than system average guest traffic and ticket. And as a result, that lifted the performance of that subset of salons off of a smaller base.

But overall, we anticipate that by the elimination of these underperforming -- or not underperforming, nonperforming salons, they will -- they certainly have been a drag on our overall performance and we anticipate that we will see a lift by weeding the garden of these salons out of our portfolio in both the sales performance and in adjusted EBITDA.

And I would -- I think, Andrew, you would agree with this. As we have moved out of the mall locations and moved out of international and also eliminated these 597, the underlying performance of the company-owned salons will become much clearer.

Correct.

You'll have much greater visibility in the days and weeks ahead now that the -- those 1,450 salons have been removed from the portfolio.

We'll go next to Beth Lilly, Crocus Hill Partners.

So it's interesting. You've made some fascinating comments in terms of the restructuring is basically complete, but yet there's much more work to do. So Hugh, is that in relates -- in relationship to the top line in terms of growing the same-store sales? Or you think that there is still some more weeding of the garden that can incur in terms of the operational and the G&A line?

Beth, I think, that the categories of opportunity going forward are, I think, are substantially in 3 areas. And Andrew can add onto this.

I think there -- we will run across opportunities related to closing nonperforming or underperforming, but it will -- the major components of closing nonperforming or underperforming salons, I think, is now, in fact, complete. And we -- at this point, we are satisfied with our portfolio of company-owned salons.

Now, having said that, it is imperative that we continue to accelerate the growth of our franchise platform, which Eric and I fully intend to do. It is imperative that we continue to pull down G&A costs, particularly nonessential or nonperforming G&A costs, which we intend to do. It is imperative that we invest in the growth of our business around those 5 key pillars that I identified a moment ago. And it is imperative that we upgrade the technology platform at Regis, and that review is underway as well.

So as to the much more work to do comment, I think you're right, Beth. It relates to continuing to address G&A where there are opportunities to do so. It's growth and acceleration of franchise. It's investments around same-store sales and traffic. And it's investment in the technology platform as we continue to transform the company in the years ahead. And when I -- when you hear me articulate that we have much more work to do, it's around those core areas of the business.

So in terms of -- and we've spent some time talking about this. And I really appreciate the color in terms of the G&A number and the buckets. Is -- so when you talk about kind of nonessential G&A, is that in that 20% of bucket of all other? Or do you think that there's opportunities in terms of payroll, benefits, things like that as well as the IT infrastructure?

We think part of the G&A load resides in the procurement area of the business and we believe the company has opportunities to take a more aggressive stance in our approach to procurement. Beth, because of the -- because Regis was essentially a roll-up that occurred over 20 or 30 years, it doesn't act like a large $1.5 billion company. It behaves as if it's a small regional or local business and so the leverage we have through scale has not always been fully utilized at Regis.

And we are fortunate that we were able to attract Amanda. You will really enjoy meeting her, Beth, when we have a chance to get together again. She's both a JD, MBA and is a very competent executive. So we have moved procurement. We have actually invested in a Procurement Officer, which we have not done historically at Regis. I know that's hard to believe, but the procurement area was disbursed throughout the functional lines of the company rather than being consolidated under one expert. So we now have that one expert in place and he reports to Amanda as the General Counsel. So we think one of the G&A opportunities we have going forward relates to a more sophisticated, fact-based and aggressive approach to our procurement activities here at Regis.

And I think there will also be opportunities for efficiencies inside the company as we invest in a better and upgraded IT platform in the months and years ahead. Those opportunities are clearly there at Regis and we have a number of initiatives underway that should enable a more efficient approach -- the way we run the back office of the business.

So when I think about G&A, we've already done a lot in that area, some of this masked by the -- some of the things Andrew talked about earlier, but visibility on the G&A downturn or takeouts will improve in the months ahead. And then, going forward, I'm still pretty optimistic, Beth, we're going to be able to do a lot more in the G&A area, particularly through procurement and smart investments in IT, which will just improve the overall efficiency of the company.

And then, Andrew and I, our HR team and Eric, we're very disciplined about our approach to measuring the economic return of every program and, frankly, every human asset in the company. Setting aside regulatory compliance issues, if the employee generates income, then -- in excess of the investment we make, it's a great opportunity for Regis. If the program or employee doesn't, then we need to disinvest. And that's the right way to think about it in any business and we are doing those things as well. So I think you'll -- we're optimistic that we continue to have opportunities in the G&A area.

Great. Then I have one other question, if you don't mind. So in terms of the company-owned salons, your EBITDA margins on an adjusted basis were up quarter-over-quarter. However, you've eliminated a lot of noncore salons, so are underperforming. So should we start to see the EBITDA margin then from the company-owned salons expand further?

I'll take the first part of that and then I'll let Andrew take the hard part of that question. Just simply remove -- if you can imagine, Beth, when you take out those terrible 597 cash-negative salons, we're going to get some expansion in margin simply by doing that, by removing the bleed that was occurring in those salons.

Now, having said that, I still -- Beth, I still don't know yet how high up is in opco. I'm going to find out, but I don't know how far we can push those margins and growth acceleration in the operating side of the business. I've got a pretty good idea. I think Eric and I have got a pretty good idea of the franchise. We've got that walked through and dialed in and I don't see anything that stands in the way of the continued growth of franchise.

On opco, we'll be very disciplined in terms of what works and what doesn't work and we're going to push that envelope to see how high up is and particularly now that we've shed those nonperforming salons. I guess, we have said that the shareholders -- or we'd give the shareholders greater visibility, but Beth, as you know, it will give us greater visibility, too. So we don't have to waste any time screwing around with a bunch of salons that aren't adding to earnings.

Right. So, I mean, just logically thinking, it's true. If you eliminate those nonperforming salons, then your margin should -- we should see the company-owned stores salon margins to expand. Is that correct?

Yes, Beth. This is Andrew. Absolutely, the math will work out that way, but I'd also like to just kind of point you back to your prior question that as we become more efficient with our G&A load, our cost structure should become much -- not much, but potentially lower. And as such, you would expect to see margin expansion as well as part of becoming more efficient with some of the investments that we're making in improving technology and then the corresponding flow-through to be more efficient on the backup.

That's a really good point that Andrew is making, Beth, because there were 2 ends to the bookshelf on those nonperforming salons. It was both the inherent poor performance of the local salon, but it was also the G&A load associated with those nonperforming salons. And that G&A load has been removed as part of the 597.

Correct.

It's not in the numbers yet, but it's gone.

That will conclude the question-and-answer session.

At this time, I'd like to turn the call over to Hugh Sawyer for any additional or closing remarks.

Thank you, operator, and thanks to all for your continued support. And we look forward to speaking with you again next quarter. Thanks, everyone.

That will conclude today's call. Thank you for your participation.