Regis Corporation
09/01/2026 | Press release | Distributed by Public on 09/01/2026 04:12
Annual Report for Fiscal Year Ending June 30, 2026 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative from the perspective of our management on our financial condition, results of operations, liquidity, and certain other factors that may affect our future results.
BUSINESS DESCRIPTION
Regis Corporation (the Company) franchises, owns, and operates beauty salons. As of June 30, 2026, the Company franchised or owned 3,712 salons in North America and the United Kingdom. Each of the Company's salon concepts generally offer similar salon products and hair services. As of June 30, 2026, we had 1,611 corporate employees worldwide. See discussion within Part I, Item 1 of this Form 10-K.
In December 2024, the Company acquired the Alline Salon Group (the Alline Acquisition), its largest franchisee, consisting of 314 salons, of which 261 salons remain in operation as of June 30, 2026. The transaction provides Regis with a turn-key operating infrastructure and gets the Company closer to salon operations alongside franchisees, and the salon portfolio provides a testing ground for brand and operational initiatives.
On June 30, 2022, the Company sold its Opensalon® Pro (OSP) software-as-a-service solution to Soham Inc. (Zenoti). In fiscal year 2024, the Company received $2.0 million of proceeds that had been previously held back for general indemnity provisions, and in fiscal year 2025, the Company received $8.5 million in additional proceeds related to salons migrating to Zenoti. The Zenoti migration was successfully completed in fiscal year 2025 and therefore the Company did not receive any additional proceeds from Zenoti in fiscal year 2026. As a result of the sale, the Company classified the OSP business as discontinued operations in the financial statements as discussed in Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
RESULTS OF OPERATIONS
The Company reports its operations in two operating segments: franchise salons and company-owned salons.
System-wide results
Our results are impacted by our system-wide sales, which include sales by all points of distribution, whether owned by our franchisees or the Company. While we do not record sales by franchisees as revenue, and such sales are not included in our Consolidated Financial Statements, we believe that this operating measure is important in obtaining an understanding of our financial performance. We believe system-wide sales information aids in understanding how we derive royalty revenue and in evaluating performance. In fiscal year 2026, a net 199 and 30 franchise and company-owned salons, respectively, have closed.
The following table summarizes system-wide revenue and system-wide same-store sales by concept:
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| Fiscal Years | ||||||||||||||||||||
| 2026 | 2025 | 2024 | ||||||||||||||||||
| (Dollars in millions) | ||||||||||||||||||||
| System-wide revenue | $ | 1,066.3 | $ | 1,104.9 | $ | 1,179.5 | ||||||||||||||
| Supercuts | 3.0 | % | 1.3 | % | 1.6 | % | ||||||||||||||
| SmartStyle | (4.5) | (6.1) | (3.5) | |||||||||||||||||
| Portfolio Brands | 0.1 | (0.6) | 2.0 | |||||||||||||||||
| Total system-wide same-store sales (1) | 0.9 | % | (0.6) | % | 0.7 | % | ||||||||||||||
(1)System-wide same-store sales are calculated as the total change in sales for system-wide franchise and company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. System-wide same-store sales are the sum of the system-wide same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. System-wide same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.
Consolidated Results of Operations
The following table sets forth, for the periods indicated, certain information derived from our Consolidated Statements of Operations. The percentages are computed as a percent of total consolidated revenues, except as otherwise indicated, and the increase (decrease) is measured in basis points. Variances calculated on amounts shown in millions may result in rounding differences.
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| Fiscal Years | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | 2026 | 2025 | 2024 | 2026 | 2025 | |||||||||||||||||||||||||||||||||||||||||||
| (Dollars in millions) | % of Total Revenues (1) | (Decrease) Increase | ||||||||||||||||||||||||||||||||||||||||||||||||
| Royalties | $ | 54.6 | $ | 58.2 | $ | 64.1 | 24.3 | % | 27.7 | % | 31.6 | % | (340) | (390) | ||||||||||||||||||||||||||||||||||||
| Fees | 7.2 | 9.7 | 10.2 | 3.2 | 4.6 | 5.0 | (140) | (40) | ||||||||||||||||||||||||||||||||||||||||||
| Product sales to franchisees | - | - | 0.5 | - | - | 0.2 | - | (20) | ||||||||||||||||||||||||||||||||||||||||||
| Advertising fund contributions | 21.4 | 21.9 | 25.7 | 9.5 | 10.4 | 12.7 | (90) | (230) | ||||||||||||||||||||||||||||||||||||||||||
| Franchise rental income | 62.9 | 76.6 | 95.3 | 28.0 | 36.5 | 46.9 | (850) | (1,040) | ||||||||||||||||||||||||||||||||||||||||||
| Company-owned salon revenue | 78.3 | 43.7 | 7.3 | 34.9 | 20.8 | 3.6 | 1,410 | 1,720 | ||||||||||||||||||||||||||||||||||||||||||
| Cost of product sales to franchisees | - | - | 0.4 | N/A | N/A | 80.0 | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
| General and administrative | 42.0 | 46.8 | 45.4 | 18.7 | 22.3 | 22.4 | (360) | (10) | ||||||||||||||||||||||||||||||||||||||||||
| Rent | 13.5 | 10.5 | 5.5 | 6.0 | 5.0 | 2.7 | 100 | 230 | ||||||||||||||||||||||||||||||||||||||||||
| Advertising fund expense | 21.4 | 21.9 | 25.7 | 9.5 | 10.4 | 12.7 | (90) | (230) | ||||||||||||||||||||||||||||||||||||||||||
| Franchise rent expense | 62.9 | 76.6 | 95.3 | 28.0 | 36.5 | 46.9 | (850) | (1,040) | ||||||||||||||||||||||||||||||||||||||||||
| Company-owned salon expense | 56.0 | 31.1 | 5.1 | 25.0 | 14.8 | 2.5 | 1,020 | 1,230 | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 4.1 | 3.0 | 3.9 | 1.8 | 1.4 | 1.9 | 40 | (50) | ||||||||||||||||||||||||||||||||||||||||||
| Long-lived asset impairment | 0.1 | 0.4 | 0.8 | - | 0.2 | 0.4 | (20) | (20) | ||||||||||||||||||||||||||||||||||||||||||
| Operating income (2) | 24.4 | 19.9 | 20.9 | 10.9 | 9.5 | 10.3 | 140 | (80) | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (20.7) | (20.3) | (25.4) | (9.2) | (9.7) | (12.5) | 50 | 280 | ||||||||||||||||||||||||||||||||||||||||||
| Gain on extinguishment of long-term debt, net | - | - | 94.6 | - | - | 46.6 | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
| Gain on earn-out liability | 1.0 | - | - | 0.4 | - | - | 40 | - | ||||||||||||||||||||||||||||||||||||||||||
| Other, net | 1.1 | 1.8 | (0.2) | 0.5 | 0.9 | (0.1) | (40) | 100 | ||||||||||||||||||||||||||||||||||||||||||
| Income tax benefit (expense) (3) | 1.1 | 115.5 | (0.9) | (18.3) | (7,519.3) | 1.0 | N/A | N/A | ||||||||||||||||||||||||||||||||||||||||||
| Income from discontinued operations | - | 6.5 | 2.0 | - | 3.1 | 1.0 | (310) | 210 | ||||||||||||||||||||||||||||||||||||||||||
| Net income (2) | 6.9 | 123.5 | 91.1 | 3.1 | 58.8 | 44.9 | (5,570) | 1,390 | ||||||||||||||||||||||||||||||||||||||||||
(1)Cost of product sales to franchisees is computed as a percent of product sales to franchisees.
(2)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(3)Computed as a percent of income from continuing operations before income taxes. The income taxes basis point change is noted as not applicable (N/A) as the discussion below is related to the effective income tax rate.
Fiscal Year Ended June 30, 2026, Compared with Fiscal Year Ended June 30, 2025
Royalties
During fiscal year 2026, royalties decreased $3.6 million, or 6.2%, mainly due to a decrease in franchise salon count primarily caused by franchise salon closures and the conversion of franchise salons acquired in the Alline Acquisition to company-owned in December 2024.
Fees
During fiscal year 2026, fees decreased $2.5 million, or 25.8%, primarily due to salon closures. Additionally, the prior year results include the recognition of terminated franchise fees related to the acquisition of Alline.
Advertising Fund Contributions
Advertising fund contributions decreased $0.5 million, or 2.3%, during fiscal year 2026, primarily due to lower salon count.
Franchise Rental Income
During fiscal year 2026, franchise rental income decreased $13.7 million, or 17.9%, primarily due to the decrease in franchise salon count and franchisees signing their own leases.
Company-Owned Salon Revenue
During fiscal year 2026, company-owned salon revenue increased $34.6 million, or 79.2%, due to additional revenues generated by the increase in salon count as a result of the Alline Acquisition in the second quarter of fiscal year 2025.
General and Administrative
The decrease of $4.8 million, or 10.3%, in general and administrative expense during fiscal year 2026 was primarily due to lower corporate compensation and franchise brokerage expenses, as well as lower education event costs, partially offset by higher company-owned general and administrative expense.
Rent
The increase of $3.0 million, or 28.6%, in rent expense during fiscal year 2026 was primarily due to rent expense associated with the salons acquired in the Alline Acquisition.
Advertising Fund Expense
Advertising fund expense decreased $0.5 million, or 2.3%, during fiscal year 2026, primarily due to lower salon count.
Franchise Rent Expense
During fiscal year 2026, franchise rent expense decreased $13.7 million, or 17.9%, primarily due to the decrease in franchise salon count and franchisees signing their own leases.
Company-Owned Salon Expense
Company-owned salon expense increased $24.9 million, or 80.1%, during fiscal year 2026, primarily due to the full year of expenses generated by the salons acquired in the Alline Acquisition.
Depreciation and Amortization
The increase of $1.1 million, or 36.7%, in depreciation and amortization during fiscal year 2026 was primarily due to depreciation expense associated with the assets acquired in the Alline Acquisition.
Long-Lived Asset Impairment
The Company recorded long-lived asset impairment charges of $0.1 million and $0.4 million in fiscal years 2026 and 2025, respectively. The decrease in long-lived asset impairment charges in fiscal year 2026 is due to recognizing impairment on a single salon while the fiscal year 2025 impairment related to subleasing excess corporate office space to unrelated third parties.
Interest Expense
The $0.4 million increase in interest expense during fiscal year 2026 was primarily due to higher debt outstanding, offset partially by declining interest rates.
Gain on Earn-Out Liability
The $1.0 million gain on earn-out liability in fiscal year 2026 is due to a change in the estimated fair value expected to be paid in conjunction with the Alline Acquisition.
Other, Net
Other, net declined $0.7 million in fiscal year 2026, primarily due to foreign currency adjustments.
Income Tax Benefit
During fiscal year 2026, the Company recognized an income tax benefit of $1.1 million with a corresponding effective tax rate of (18.3)%. During fiscal year 2025, the Company recognized an income tax benefit of $115.5 million, with a corresponding effective tax rate of (7,519.3)%, primarily due to the partial release of the valuation allowance on our deferred tax assets. See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Income from Discontinued Operations, net of tax
The Company recorded no income from discontinued operations, net of tax, in fiscal year 2026 compared to $6.5 million in fiscal year 2025, related to contingent proceeds earned based on the number of salons that migrated to the Zenoti platform, partially offset by a non-cash income tax expense allocated to discontinued operations. See Note 3 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Results of Operations by Segment
Based on our internal management structure, we report two segments: franchise salons and company-owned salons. See Note 15 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Significant results of continuing operations are discussed below with respect to each of these segments.
Franchise Salons
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| Fiscal Years | ||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | 2026 | 2025 | ||||||||||||||||||||||||||||
| (Dollars in millions) | (Decrease) Increase (1) | |||||||||||||||||||||||||||||||
| Royalties | $ | 54.6 | $ | 58.2 | $ | 64.1 | $ | (3.6) | $ | (5.9) | ||||||||||||||||||||||
| Fees | 7.2 | 9.7 | 10.2 | (2.5) | (0.5) | |||||||||||||||||||||||||||
| Product sales to franchisees | - | - | 0.4 | - | (0.4) | |||||||||||||||||||||||||||
| Advertising fund contributions | 21.4 | 21.9 | 25.7 | (0.5) | (3.8) | |||||||||||||||||||||||||||
| Franchise rental income | 62.9 | 76.6 | 95.3 | (13.7) | (18.7) | |||||||||||||||||||||||||||
| Total franchise revenue (1) | $ | 146.2 | $ | 166.4 | $ | 195.7 | $ | (20.2) | $ | (29.3) | ||||||||||||||||||||||
| Franchise same-store sales (2) | 0.6 | % | (0.6) | % | 0.6 | % | ||||||||||||||||||||||||||
| Total franchise salons | 3,448 | 3,647 | 4,391 | (199) | (744) | |||||||||||||||||||||||||||
(1)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(2)Franchise same-store sales are calculated as the total change in sales for franchise locations that were open on a specific day of the week during the current period and the corresponding prior period. Year-to-date franchise same-store sales are the sum of the franchise same-store sales computed on a daily basis. Franchise salons that do not report daily sales are excluded from same-store sales. Franchise same-store sales are calculated in local currencies to remove foreign currency fluctuations from the calculation.
Fiscal Year Ended June 30, 2026, Compared with Fiscal Year Ended June 30, 2025
Franchise Revenue
Franchise revenue decreased $20.2 million during fiscal year 2026. The decrease in franchise revenue was primarily due to the decrease in franchise rental income, royalties, and fees as a result of lower salon count, primarily driven by the Alline portfolio moving to the Company-owned segment mid-fiscal year 2025. During fiscal year 2026, franchisees constructed (net of relocations) and closed 8 and 207 franchise salons, respectively.
Company-Owned Salons
| Fiscal Years | ||||||||||||||||||||||||||||||||
| 2026 | 2025 | 2024 | 2026 | 2025 | ||||||||||||||||||||||||||||
| (Dollars in millions) | Increase (Decrease) (1) | |||||||||||||||||||||||||||||||
| Total revenue | $ | 78.3 | $ | 43.7 | $ | 7.3 | $ | 34.6 | $ | 36.4 | ||||||||||||||||||||||
| Company-owned same-store sales (2) | 4.0 | % | (2.8) | % | 3.5 | % | ||||||||||||||||||||||||||
| Total company-owned salons | 264 | 294 | 17 | (30) | 277 | |||||||||||||||||||||||||||
(1)Total is a recalculation; line items calculated individually may not sum to total due to rounding.
(2)Company-owned same-store sales are calculated as the total change in sales for company-owned locations that were open on a specific day of the week during the current period and the corresponding prior period. Year-to-date company-owned same-store sales are the sum of the company-owned same-store sales computed on a daily basis.
Fiscal Year Ended June 30, 2026, Compared with Fiscal Year Ended June 30, 2025
Company-Owned Salon Revenue
Company-owned salon revenue improved $34.6 million in fiscal year 2026, primarily due to a full year of income generated by the salons acquired in the Alline Acquisition.
Recent Accounting Pronouncements
Recent accounting pronouncements are discussed in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
In June 2024, the Company entered into a new credit agreement with TCW Asset Management Company, LLC, and MidCap Financial Trust, which matures in June 2029 (the 2024 Credit Agreement). In addition to a $10.0 million minimum liquidity covenant, the agreement includes typical provisions and financial covenants, including leverage and fixed-charge coverage ratio covenants. The agreement was amended in December 2024 in connection with the Alline Acquisition (the December 2024 Amendment). See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Sources of Liquidity
Funds generated by operating activities, available cash and cash equivalents and our borrowing agreements are our most significant sources of liquidity. The Company believes it has sufficient liquidity, cash on hand, and borrowing capacity to meet its obligations in the next twelve months and until maturity of the credit agreement in June 2029.
As of June 30, 2026, cash and cash equivalents were $26.0 million, with $25.3 million and $0.7 million within the United States and Canada, respectively.
As of June 30, 2026, the Company's borrowing arrangements include a $116.1 million term loan, $11.1 million of paid-in-kind interest, and a $25.0 million revolving credit facility with a $10.0 million minimum liquidity covenant that expires in June 2029. As of June 30, 2026, the unused available credit under the revolving credit facility was $19.0 million and total liquidity per the agreement was $35.0 million. See additional discussion under Financing Arrangements and Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Uses of Cash
The Company closely manages its liquidity and capital resources. The Company's liquidity requirements depend on key variables, including the performance of the business, the level of investment needed to support its business strategies, credit facilities and borrowing arrangements, and working capital management. The Company has a disciplined approach to capital allocation, which focuses on ensuring we can meet our interest obligations and investing in key priorities to support the Company's strategic plan as discussed within Part I, Item 1. Additional information about the Company's current use of cash is described under "Sources of Liquidity."
Cash Requirements
The Company's most significant contractual cash requirements as of June 30, 2026, were lease commitments and interest payments. See Notes 6 and 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K for further detail.
Cash Flows
Cash Flows from Operating Activities
During fiscal year 2026, cash provided by operating activities was $13.1 million. Cash provided by operations decreased slightly year over year due primarily to the use of restricted ad fund cash in fiscal year 2026, versus a build of restricted ad fund cash in the prior fiscal year, offset partially by our lower cost structure.
Cash Flows from Investing Activities
During fiscal year 2026, cash used in investing activities of $2.0 million was primarily related to capital expenditures.
Cash Flows from Financing Activities
During fiscal year 2026, cash used in financing activities of $2.3 million was primarily related to repayments of long-term debt, partially offset by proceeds from issuance of common stock related to options and warrants exercised.
Financing Arrangements
Financing activities are discussed in Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. Derivative activities are discussed in Part II, Item 7A, "Quantitative and Qualitative Disclosures about Market Risk."
The Company's financing arrangements consist of the following:
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| Twelve months ended | June 30, | |||||||||||||||||||||||||
| 2026 | 2025 | 2026 | 2025 | |||||||||||||||||||||||
| (Cash interest rate %) | (Dollars in thousands) | |||||||||||||||||||||||||
| Term loan (1) | 8.42% | 9.14% | $ | 116,135 | $ | 118,875 | ||||||||||||||||||||
| Paid-in-kind interest | 11,101 | 5,376 | ||||||||||||||||||||||||
| Deferred financing fees (2) | (9,392) | (12,174) | ||||||||||||||||||||||||
| Term loan, net | 117,844 | 112,077 | ||||||||||||||||||||||||
| Revolving credit facility (1) | 8.42% | 9.14% | 1,030 | 1,030 | ||||||||||||||||||||||
| Fair value of warrants issued to lenders | (1,736) | (2,314) | ||||||||||||||||||||||||
| Total debt, net | $ | 117,138 | $ | 110,793 | ||||||||||||||||||||||
| Less: Long-term debt, current portion | (3,000) | (1,100) | ||||||||||||||||||||||||
| Long-term debt, net | $ | 114,138 | $ | 109,693 | ||||||||||||||||||||||
(1)The term loan and revolving credit facility mature on June 24, 2029.
(2)Deferred financing fees, inclusive of $4.3 million of Original Issue Discount fees, are amortized on a straight-line basis over the term of the related agreement.
The Company's 2024 Credit Agreement, as amended, includes a $120.0 million term loan and a $25.0 million revolving credit facility, with a $10.0 million minimum liquidity covenant, is secured by the Company's assets, and expires June 24, 2029. The 2024 Credit Agreement, as amended, includes typical provisions and financial covenants, including leverage and fixed-charge coverage ratio covenants. As of June 30, 2026, the unused available credit under the revolving credit facility was $19.0 million, outstanding letters of credit were $6.0 million, and total liquidity per the agreement was $35.0 million.
The interest rate on the 2024 Credit Agreement is based on the secured overnight financing rate (SOFR) plus margin. The margin is subject to change based on the Company's total leverage ratio, remeasured annually on a predetermined date set by the lender. When the Company's total leverage ratio is greater than or equal to 3.75 to 1.00, the margin applicable to the term loan and revolving credit facility is 9.00%. If the Company's leverage ratio is less than 3.75 to 1.00, the margin rate is 8.50%. In either scenario, the Company has elected the option to pay 4.5% of the margin as paid-in-kind (PIK) interest (added to the principal balance and thereafter accruing interest), and the remainder is paid currently in cash. The SOFR base rate applicable to the debt has a floor of 2.50% per annum. The interest rate applicable to any letter of credit is 5.25% and paid currently in cash. See additional discussion in Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Our debt to capitalization ratio, calculated as the principal amount of debt, including paid-in-kind interest accrued, as a percentage of the principal amount of debt and shareholders' equity at fiscal year end, was as follows:
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| As of June 30, |
Debt to Capitalization (1) |
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| 2026 | 39.8 | % | ||||||
| 2025 | 40.3 | % | ||||||
| 2024 | 67.0 | % | ||||||
(1)Excludes the long-term lease liability as that liability is offset by the right-of-use (ROU) asset.
Contractual Obligations and Commercial Commitments
On-Balance Sheet Obligations
Our debt obligations are primarily composed of our 2024 Credit Agreement, as amended, at June 30, 2026.
Non-current deferred benefits of $5.7 million include $1.5 million related to a non-qualified deferred salary plan, a salary deferral program of $1.4 million and a bonus deferral plan of $2.8 million related to established contractual payment obligations under retirement and severance agreements for a small number of employees. See Note 4 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Operating leases primarily represent long-term obligations for the rental of salons, including leases for company-owned locations, as well as salon franchisee lease obligations, which are reimbursed to the Company by franchisees. Regarding franchisee subleases, we generally retain the right to the related salon assets, net of any outstanding obligations, in the event of a default by a franchise owner. Additionally, as a result of having assigned its interest in obligations under certain real estate leases directly to franchisees, the Company is secondarily liable on such lease agreements as guarantor. Declines in system-wide revenue in certain brands over the past few years have increased the risk of default by franchisees, which may be material.
The Company has unfunded deferred compensation contracts covering certain management and executive personnel. We cannot predict the timing or amount of future payments related to these contracts. See Note 11 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
As of June 30, 2026, we have liabilities for uncertain tax positions. We are not able to reasonably estimate the amount by which the liabilities will increase or decrease over time; however, at this time, we do not expect a significant payment related to these obligations within the next fiscal year. See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Off-Balance Sheet Arrangements
Under the 2024 Credit Agreement, as amended, the margin applicable to any letter of credit is 5.25% and is paid currently in cash. See Note 8 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
We are a party to a variety of contractual agreements that we may be obligated to indemnify the other party for certain matters, which indemnities may be secured by operation of law or otherwise, in the ordinary course of business. These contracts primarily relate to our commercial contracts, operating leases and other real estate contracts, financial agreements, agreements to provide services and agreements to indemnify officers, directors, and employees in the performance of their work. While our aggregate indemnification obligation could result in a material liability, we are not aware of any current matter that we expect will result in a material liability.
We do not have any unconditional purchase obligations or significant other commercial commitments such as standby repurchase obligations.
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes at June 30, 2026. As such, we are not materially exposed to any financing, liquidity, market, or credit risk that could arise if we had engaged in such relationships.
Dividends
The Company has not declared a quarterly dividend payment since December 2013.
Share Repurchase Program
In May 2000, the Board approved a stock repurchase program with no stated expiration date. Since that time and through June 30, 2026, the Board has authorized $650.0 million to be expended for the repurchase of the Company's stock under this program. All repurchased shares become authorized but unissued shares of the Company. The timing and amounts of any repurchases depend on many factors, including the market price of the common stock and overall market conditions. During fiscal year 2026, the Company did not repurchase shares. As of June 30, 2026, 1.5 million shares have been cumulatively repurchased for $595.4 million, and $54.6 million remained authorized for repurchase. The Company does not anticipate repurchasing shares of common stock for the foreseeable future.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Consolidated Financial Statements are prepared in conformity with accounting principles generally accepted in the United States. 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 circumstances. Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. Changes in these estimates could have a material effect on our Consolidated Financial Statements.
Our significant accounting policies can be found in Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. We believe the following accounting policies are most critical to aid in fully understanding and evaluating our reported financial condition and results of operations.
Goodwill
As of June 30, 2026, and 2025, the franchise reporting unit had $172.4 million and $173.1 million of goodwill, respectively, and the company-owned segment had goodwill of $10.3 million in each period related to the Alline Acquisition. See Note 5 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K. The Company assesses goodwill impairment on an annual basis as of April 30, and between annual assessments if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount.
Goodwill impairment assessments are performed at the reporting unit level, which is the same as the Company's operating segments. The goodwill assessment involves a one-step comparison of the reporting unit's fair value to its carrying value, including goodwill (Step 1). If the reporting unit's fair value exceeds its carrying value, no further procedures are required. However, if the reporting unit's fair value is less than the carrying value, an impairment charge is recorded for the difference between the fair value and carrying value of the reporting unit.
In applying the goodwill impairment assessment, the Company may assess qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit is less than its carrying value (Step 0). Qualitative factors may include, but are not limited to, economic, market and industry conditions, cost factors, and overall financial performance of the reporting unit. If after assessing these qualitative factors, the Company determines it is more likely than not that the carrying value is less than the fair value, then performing Step 1 of the goodwill impairment assessment is unnecessary.
The carrying value of each reporting unit is based on the assets and liabilities associated with the operations of the reporting unit, including allocation of shared or corporate balances among reporting units. Allocations are generally based on the number of salons in each reporting unit as a percent of total salons or expenses of the reporting unit as a percentage of total company expenses.
The Company calculates estimated fair values of the reporting units based on discounted cash flows utilizing estimates in annual revenue, fixed expense rates, allocated corporate overhead, franchise and company-owned salon counts, and long-term growth rates for determining terminal value. Where available and as appropriate, comparative market multiples are used in conjunction with the results of the discounted cash flows. The Company engages third-party valuation consultants to assist in evaluating the Company's estimated fair value calculations. See Note 1 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
Long-Lived Assets, Excluding Goodwill
The Company follows the guidance in ASC 360, Property, Plant, and Equipment and applies the guidance to property, plant, and equipment as well as right of use (ROU) assets. The Company has identified its asset groups at the individual salon level as this represents the lowest level that identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Poor salon performance in fiscal years 2026, 2025, and 2024, resulted in ASC 360-10-35-21 triggering events. As a result, management assessed underperforming salon asset groups, which included the related ROU assets, for impairment in accordance with ASC 360.
The first step in the impairment test under ASC 360 is to determine whether the long-lived assets are recoverable, which is determined by comparing the net carrying value of the salon asset group to the undiscounted net cash flows to be generated from the use and eventual disposition of that asset group. Estimating cash flows for purposes of the recoverability test is subjective and requires significant judgment. Estimated future cash flows used for the purposes of the recoverability test were based upon historical cash flows for the salons, adjusted for expected changes in future market conditions and other factors. The period of time used to determine the estimates of the future cash flows for the recoverability test was based on the remaining useful life of the primary asset of the group, which was the ROU asset in all cases.
The second step of the long-lived asset impairment test requires that the fair value of the asset group be estimated when determining the amount of any impairment loss. For the salon asset groups that failed the recoverability test, an impairment loss was measured as the amount by which the carrying amount of the asset group exceeds its fair value. The Company applied the fair value guidance within ASC 820-10 to determine the fair value of the asset group from the perspective of a market-participant considering, among other things, appropriate discount rates, multiple valuation techniques, the most advantageous market, and assumptions about the highest and best use of the asset group. To determine the fair value of the salon asset groups, the Company utilized market-participant assumptions rather than the Company's own assumptions about how it intends to use the asset group. The significant judgments and assumptions utilized to determine the fair value of the salon asset groups include the market rent of comparable properties and a discount rate. The fair value of the salon long-lived asset group is estimated using market participant methods based on the best information available. The fair value of the right of use asset is estimated by determining what a market participant would pay over the life of the primary asset in the group, discounted back to June 30, 2026.
During fiscal years 2026, 2025, and 2024, the Company recognized long-lived asset impairment charges of $0.1 million, $0.4 million, and $0.8 million, respectively, on the Consolidated Statements of Operations in Part II, Item 8 of this Form 10-K. The impairment loss for each salon asset group that was recognized was allocated among the long-lived assets of the group on a pro-rata basis using their relative carrying amounts. Additionally, the impairment losses did not reduce the carrying amount of an individual asset below its fair value, including the assets included in the salon asset groups. Assessing the long-lived assets for impairment requires management to make assumptions and to apply judgment which can be affected by economic conditions and other factors that can be difficult to predict. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate impairment losses for its long-lived assets, including its ROU assets. If actual results are not consistent with the estimates and assumptions used in the calculations, the Company may be exposed to future impairment losses that could be material.
Income Taxes
Deferred income tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the Consolidated Financial Statements or income tax returns. Deferred income tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using currently enacted tax rates in effect for the years in which the differences are expected to reverse.
We recognize deferred tax assets to the extent that we believe these assets are more likely than not to be realized. The Company evaluates all evidence, including recent financial performance, the existence of cumulative year losses and our forecast of future taxable income, to assess the need for a valuation allowance against our deferred tax assets. While the determination of whether to record a valuation allowance is not fully governed by a specific objective test, accounting guidance places significant weight on recent financial performance.
The Company has a valuation allowance on its deferred tax assets amounting to $57.7 million and $60.5 million at June 30, 2026, and 2025, respectively.
The significant change to the valuation allowance that occurred during fiscal year 2026 is as follows:
•As of June 30, 2026, we determined that an additional $3.2 million of our U.S. tax credit carryforwards will be realizable. Therefore, we released the associated valuation allowance and recorded a corresponding tax benefit.
Significant changes to the valuation allowance that occurred during fiscal year 2025 are as follows:
•As of June 30, 2025, we determined that it is more likely than not that the majority of our U.S. federal and state deferred tax assets will be realizable. As such, we released $110.2 million of our valuation allowance associated with the U.S. federal and state deferred tax assets. A valuation allowance will remain on certain U.S. tax credit carryforwards and state deferred tax assets in which we have concluded that it is more likely than not that they will expire unused.
•We have determined that it is more likely than not that a portion of our Canadian deferred tax assets will be realizable as of June 30, 2025, and released $6.1 million of our Canadian valuation allowance.
The Company reserves for unrecognized tax benefits, interest, and penalties related to anticipated tax audit positions in the U.S. and other tax jurisdictions based on an estimate of whether additional taxes will be due. If payment of these amounts ultimately proves to be unnecessary, the reversal of these liabilities would result in tax benefits being recognized in the period in which it is determined that the liabilities are no longer necessary. If the estimate of unrecognized tax benefits, interest, and penalties proves to be less than the ultimate assessment, additional expenses would result.
Inherent in the measurement of deferred balances are certain judgments and interpretations of tax laws and published guidance with respect to the Company's operations. Income tax expense is primarily the current tax payable for the period and the change during the period in certain deferred tax assets and liabilities.
See Note 10 to the Consolidated Financial Statements in Part II, Item 8, of this Form 10-K.
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