Q1 2020 Earnings Call
All participants are in listen only mode. Following management's presentation, we will conduct a question and answer session. If he would like to actually question. During this time. Please press star one on your push button telephone if you wish to withdraw your question. Please press star to you.
As a reminder, this call is being recorded for playback and will be available by approximately 12 PM Central time today I'll now turn the conference calls Ive, Richard Carson suffer senior Vice President of Finance. Please go ahead.
Thank you Cassidy good morning, everyone and thank you all for joining us on the call with me today, we have huge Sawyer, our chief Executive Officer, Andrew lack all our executive Vice President and Chief Financial Officer, Eric Bakken President of our franchise segment and Amanda Rosson, Our general counsel before turning the call over here.
There are few housekeeping items to address.
First todays 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 a performance and by their nature are subject to inherent risks and uncertainties that could cause actual results to differ materially from set such forward looking statements. Please refer to the company's current earnings release, and recent SEC filings, including our most recent Form 10-Q and June 32000.
18 Form 10-K for more information on these risks and uncertainties.
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 conference call must be considered in conjunction with the earnings release, we issued this morning, and our previous FCC filings, including our most recent thank you and 10-K on today's call we won't be discussing non gap as adjusted financial results that exclude the impact of a certain business events and other discrete item.
These non-GAAP financial measures are provided to facilitate meaningful year over year comparisons, but 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 mornings release, which is available on our website at www Dot read just corp. dotcom flash investors dash relation.
With that I will now turn the call over to heal.
[laughter], Thank you Carson and good day everyone.
As we discussed last quarter.
Joint read Jewish my aspiration wants to develop a transformational.
During strategy to reinvigorate our company.
Mike guiding principle has been to generate long term value for the company's core constituency or shareholders or franchise owners.
Customers and employees.
We're pleased to report this quarter meaningful progress in our ongoing strategic transformation to what cap here like I.
Hi, great.
Allergy enabled franchise company.
As we continue our transformation, we expect to utilize the cash proceeds we are generating.
From the sale of company owned salons in various ways to maximize shareholder value.
This may include but not be limited to.
Investments on the core capabilities, we need to facilitate sustainable revenue and earnings growth.
In the future state that's a fully franchise company.
Those investments may include.
Frictionless customer facing technology.
Disruptive marketing and advertising trends driven merchandise.
I wish recruiting and education.
Franchise year capabilities.
And he will shape locations to support future Brent organic salon openings fire franchisees.
We may also utilize our cash in the next 18 months to complete any remaining elements.
Multiyear restructuring, including.
Closing nonperforming company owned salons.
Eliminating or reducing any ongoing leach risk associated with TPG.
Supporting our ongoing DNA reductions through several programs.
Management of our capital structure as we continue to evolve to franchise platform.
If needed capital investments and some falon refurbishments and Remodels, as we consolidate or bearish <unk> or various brands throughout the portfolio.
And as you know in the past, we utilize cash to repurchase our shares.
In circumstances, where we believed it was in the best interest shareholders. So how do we expect utilizing the cash proceeds we generate from the sale of company owned salons.
Consistent with past practice investments on the core capabilities needed to facilitate revenue and earnings growth assay franchise company.
Completing the elements are multiyear restructuring.
And where we believe it's on the best censorship our shareholders.
Certainly consider share repurchase programs.
When I arrived in 2017, approximately 28% of the company salons for franchised.
At the close of this quarter approximately 64% of our Salon portfolio is franchised.
Well over at this time approximately 900 company owned salons are roughly 42%.
Other remaining company owned salons in various stages of negotiation to be purchased.
Hi, new or existing franchisees.
We expect these transactions to close but as you know given the uncertainty.
And the external environment and other factors things could still change Nevertheless.
I believe our robust condition pipeline it as incurred isn't encouraging data point.
[laughter] indicates we have a significant opportunity to complete our transformation within the 18 month period, we estimated.
So 2019.
As we have previously disclosed although the transition to a catheter like franchise model will initially have excluded the impact.
On the company's reported adjusted EBITDA, we remain convinced that a fully franchise business has the potential to generate higher return on its capital.
And we'll ultimately proved to be in the best long term interest of our shareholders and franchise constituents.
We do have more work to do before we finish the transformational phase of our strategy, but we have confidence in our plan.
The bill the abilities of our reaches team and our franchise partners to successfully execute the transformation and that our shared vision for the company.
We'll be fully realized.
And they want you take us through the numbers.
Sure. Thanks, you and good morning.
As you imagine we're very pleased to report significant progress in our transition to a fully franchise model.
Before getting into the details of the quarter I'd like to share with you a quick overview of the changes weve a related to our adoption of these new lease accounting standards that you likely notice in this mornings release.
Historically, we have recorded lease income and expense on a net basis through the rental expense line item on the piano.
However, with the new lease accounting guidelines, we now record franchise rental revenue and the corresponding rental expense on separate line items in the piano.
Well the net impact is a gross up the both revenue and expense line items on the piano the new lease standard does not impact overall operating income.
I'd like to also point out that the new lease guide guidance is accounted for prospectively and we did not restate for comparative periods. So please consider this in your modeling.
In addition to the piano impact the new lease accounting guidance also required us to record a leased asset any lease liability of approximately $990 million on the balance sheet. However, a portion of this long term lease liabilities subleased to our growing portfolio franchisees.
Now turning to the results. We reported this morning consolidated first quarter revenues of 247 million, which represented a decrease of 40.8 million or 14.2% versus the prior year.
Year over year decline in revenue was driven primarily by the conversion of 1143 company owned salons to the company's franchise portfolio over the past 12 months.
And the closure of 147 company owned salons over the past 12 months.
Already which were cash flow negative and not essential to our future.
These headwinds were partially offset by a 3.1 million dollar revenue increase in our franchise segment.
And $31.4 million of rent revenue related to franchise segment that is written it recorded in connection with the new lease accounting guidance I just mentioned.
First quarter consolidated adjusted EBITDA of 29.8 million was 4.7 million or 18.5% favorable to the same period last year.
It was driven primarily by a $26.2 million cash gain excluding noncash goodwill derecognition related to the sale and conversion of 545 company owned salons to the franchise portfolio during the quarter.
Excluding this one time gain adjusted EBITDA totaled 3.6 million.
Which was 14.4 million unfavorable year over year.
The year over year unfavorable variance was driven primarily by the elimination of the EBITDA that had been generated in the prior year pure period from the company owned salons that I've been sold and converted to the company's franchise platform of the past 12 months.
First quarter adjusted EBITDA was also unfavorably impacted by a 1.1% decline in consolidated same store sales.
Minimum wage increases and strategic investments in technology and marketing.
Please note that excluding discrete items and the income from discontinued operations. The company reported increased first quarter 2020, adjusted net income of 13.9 million or 37 cents per diluted share as compared to adjusted net income of 11.3 million or 25 cents per diluted share for the same peers.
Last year.
Looking at segment specific performance in starting with our franchise segment first quarter franchise royalties and fees of 28 million increased 5.6 million or 25.1% versus the same quarter last year, driven primarily by increased franchise Salon comes.
Product sales to franchisees decreased $2.5 million year over year to 13.1 million driven primarily by $4.2 million decrease in products sold to TPG, partially offset by increased franchise Salon count.
Total franchise same store sales were essentially flat year over year.
As a reminder franchise same store sales are calculated in a manner that is consistent with how we calculate same store sales in our company owns loan portfolio and represents the total change in sales for salons that had been a franchise location for more than 12 months.
First quarter franchise, adjusted EBITDA of 11.9 million improved approximately $2 million year over year driven by growth in the franchise land portfolio, partially offset by planned strategic DNA investments to further enhance our franchise or capabilities and to support the increased volume and cadence of transactions and conversion.
Into the franchise portfolio.
Excluding the impact of TV Gi franchise, adjusted EBITDA was $2.5 million favorable year over year.
I would like to point out that with the revenue recognition and lease accounting guidance, we have adopted over the last two years as well as historical sales a product TPG at cost.
Franchise segment EBITDA margin percentage is not a comparable year over year.
After adjusting for the non contributory revenue associated with AD fund revenue franchisee rent revenue and TPG products sales or pro forma franchise segment EBITDA margin was approximately 40.4%, which was approximately 20 basis points favorable year over year and inline with our expectations.
Looking now at company owned salons segment fourth quarter revenue decreased 75.3 million or 30.2% versus the prior year to 174.5 million.
This year over year decline is driven by inconsistent with the decrease of 1271 company owns launch over the past 12 months, which can be bucketed into two main categories first the conversion of 1188 company owned salons to our asset light technology enabled French.
Platform over the course of the past 12 months of which 545 were sold during the first quarter.
And second the closure of approximately 147 company owns loans over the course of the last 12 months, most of which were unprofitable and as I noted earlier not essential to our future strategy.
These net company owned Salon reductions were partially offset by 45 salons that were bought back from our franchisees over the last year and 19, New company owned organic Salon openings. During the last 12 months, which we expect to transition to our franchise portfolio in the months ahead.
First quarter company owned slots segment, adjusted EBITDA decreased 16.1 million year over year to 11.5 million.
Consistent with the total company consolidated results the unfavorable year over year variance was driven primarily by the elimination of the adjusted EBITDA that has been generated in the prior to.
The company owns loans that were sold converted into the franchise platform over the past 12 months.
The quarter was also unfavorably impacted by 2% decline and same store sales increases in stylists minimum wages and commissions and our investments in a new supercuts advertising campaign, which launched during the MLB playoff season and World series.
Turning now to corporate overhead first quarter adjusted EBITDA of 6.4 million is driven primarily by the $26.2 million net gains excluding non cash goodwill derecognition from the sale in conversion of company owns lines.
The net impact of management initiatives to eliminate noncore non essential Gina expenses and lower year over year incentive expenses.
These were partially offset by the timing of the company's annual franchise convention that Curt that occurred in the first quarter of this year compared to the second quarter in the prior year.
Lastly, I want to point out that the cash proceeds dirt received during the first quarter for the salons. We then dish and were approximately $70000 per unit compared to approximately a $125000 per unit for the full year of flight 19.
The decline in year over year per unit. Then addition, cash proceeds is driven primarily by the increase mix in signature and Smartstyle salons conditions during the quarter as both of these have lower typically have lower transaction multiples than slides in our supercuts portfolio.
Looking now at the balance sheet as expected we have maintained our strong overall liquidity position, while providing optimal balance sheet flexibility to fund the elements of the company's transformational strategy.
On the liquidity front next quarter and cash equaled 58.9 million as you mentioned, we expect to utilize our vision mission cash proceeds in various ways to maximize shareholder value. So our quarter end cash may fluctuate in the quarters ahead.
During the first quarter, we repurchased 1.5 million shares were approximately 4.2% of the total shares outstanding for 26.3 million.
As of September Thirtyth, we had $90 million drawn on our existing credit facility, which was equivalent to our F. why 19 year end levels.
Turning now to cash flow I thought it might be helpful to provide a high level reconciliation of how we see adjusted EBITDA flow through to cash from operations indoor free cash flow.
When looking at first quarter cash flow statement. The single largest use of cash is approximately $12 million use of working capital.
This net use of cash is significantly impacted by cash outlays associated with the wind down of company owns lines as we can berke to a fully franchise.
Platform.
Specifically in the first quarter the working capital to use is primarily driven by three items first transition related payroll and vacation payments, including severance payments related to restructuring our field teams to better align with our future state. We anticipate these types of outlays will likely continue as we transition to the fully franchise platform.
Secondly, both short term in long term bonus and incentive payments related to fight 18 performance and third we saw normal course inventory build during the quarter as we lead up to the upcoming holiday season. However, I want to point out that we expect the company's merchandise inventory levels to stabilize and materially decrease in the months ahead.
As we continue to convert to the wholesale inventory model needed to support our franchisees.
In addition to change and working capital when reconciling the adjusted EBITDA to operating cash flow, you'll need to take into account. The fact that the $26.2 million net gain from the conversion of our company owns launched the franchise platform are included in our net income in adjusted EBITDA, but not included in cash from operations as the cash.
Proceeds are reported as inflows in the in this investing activities section of the cash flow statement.
Turning now to other operational items I thought it would be helpful to provide a brief update on TV G.
As we have discussed in the past reaches had a number of reasons to pursue the original TPG transaction back in October 2017.
First the transaction provided us an opportunity to transfer mall based at least risk to a third party and enabled us to exit the malls and focused on growth and the value sector, rather than premium salons second with this transaction, we were able to substantially avoid the continuing operating losses associated with these lines third.
We created Optionality, if the buyer was able to improve the performance of this portfolio and finally, the TPG transaction has enabled us to focus on our franchise conversion strategy.
As we had briefly previously disclosed although we would have provided some although we have provided some ongoing support.
The buyer of this business has not performed as well as we had hoped in fact the business has struggled and continues to be challenged. Nevertheless, we have worked hard to reduce the ongoing lease risk and today, we estimate that in the worst case scenario. Our all in remaining risk is approximately $35 million prior to any mitigate.
Okay and efforts that maybe available to us and this is a significant decline from the original lease liability of approximately $140 million. When we entered into this transaction over two years ago.
Looking forward should TPG destabilize further we believe we have multiple options to minimize our cash risk, including negotiating with landlords to buy out of the leases at potentially reduced amount or negotiated reduced rents we could bring back a number of these lines into our alco portfolio and operate them and or we.
Could transfer the slides, where we have ongoing lease risk to a new operator.
As a contingency plan we have these options under a continuing review, but have not concluded the best option for our business.
You May have also read recently that an administrative action has been filed in the UK.
As a reminder, the UK transaction with TPG was done as a stock deal and we do not believe that reaches has any liability associated with this transaction or the salons. However, we will continue to review and monitor this matter and determined what the best course of action related to the UK salons, particularly supercuts.
Lastly, before turning the call back to Cassidy for questions.
As we discussed on last quarter's call. We have provided a recast view of our actual results for the last 12 months ended September Thirtyth 2019, bifurcate bifurcated between our modeled recast execution and pro forma franchise newco component of the business.
We believe this recast will help you model, how we're thinking about the future state fully franchise business.
Well the numbers presented are subject to material change in providing this Mexico is intended to represent our company owned salons modeled as though they were a standalone business with cost allocations related to product sales and distribution expenses corporate overhead and other onetime in strategy in a costs.
The pro forma franchise Newco component is intended to reflect the scenario in which we were to snappy line at the end of the first quarter, what our company may look like as a fully franchise business based on our last 12 months of actual results. This also represents our existing and projected new franchise lines with allocations for product sales and distribution expenses.
Long term strategic technology investments and corporate overhead DNA.
This pro forma view should make any some of the parts analysis work simpler and enables one devalue the modeled franchise newco pork newco portion of business at a multiple more in line with other publicly traded pure franchise companies.
Conversely for the exit Coke component as a business given the fact that this is anticipated to have a relatively short lifecycle and not continue in perpetuity [noise].
We believe it should be valued at its nominal absolute value and not having multiple applied against it.
Lastly, as a reminder, while what we have presented today reflect actual results for the last 12 months ended September Thirtyth 2019, when thinking about the overall some of the parts for evaluation purposes. It is necessary to consider future period excellent cash flow items, including EBITDA and cash Capex net of sale proceeds along with.
Franchise Newco cash capex.
As discussed during our August earnings call in terms of modeling future Gionee expenses, while not intended to be used as forward looking guidance. We believe it is reasonable to model Gina of approximately $12500 personal on in the fully franchise future state business split roughly evenly between franchise direct DNA, which would.
Include distribution center costs and corporate GNS.
With that I'd like to thank you for your can see continued support and interest and Regis and will like to now turn the call back to Cassidy for questions go ahead Cassidy.
Thank you Andrew the question answer session will begin at this time.
He would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned up till now you're seeing not to reach our equipment again press star one to ask a question.
Our first question comes from Stephanie Wissink of Jefferies.
Hi, this is actually how involved for stuff, but think thanks for taking your question a U.S. had a nice strong level the additions in the quarter, how should we model the average gain when we look at the carrying value of your remaining thoughts relative to the average multiple you're getting for sale.
[noise], Andrew you want to take that.
Yeah sure. So hey, Ashley good morning, So as you look forward from a from a cash gain I would use as a good proxy our results today. So last year I find 19 in the first quarter because again, we intended to provide additional disclosure last October with first quarter of flight 19 that.
Clearly lays out a number of slides addition, cash proceeds the net gains. So you can see kinda they assume PPD in inventory. That's included we then have the goodwill derecognition to get to what the net gains are so because it is a very fluid process with which we're selling depend.
And on whether it's a smartstyle a signature salaries supercuts salons.
Salon that gets condition.
Yeah, I would just use kind of that those rough average is based on experience today to compete on a per unit basis.
What the proceeds or what the net gain could be and then in my prepared remarks I also talked about the fact that on a per unit basis basis cash received per unit.
Lower this quarter and again, that's a function of the mix of salons that we sold with the Smartstyle and signature style Oh salons those portfolios ticket typically receiving it is slightly lower cash for multiple than supercuts and if you look at the total balance of the portfolio at the end as this quarter you can see were largely through.
The supercuts portfolio and we.
We have a majority of the the conditions to remain are in the Smartstyle in signature Sal portfolio. So from a cash proceeds per unit.
It's probably going to be lower than the average transaction history to date.
Especially as you consider we're using the signature style of ambitions as a very capital light cost effectively to.
Affectuate our brand consolidation.
Great. Thank you and I could just squeeze in one more how has the response back into the second part of <unk> product enhancements he's made to date.
Hi, few we we've actually been encouraged if you think about.
Opens along a good.
Simple way to think about opened as long as its an aggregator.
But that doesn't mean that we won't and rice, our branded apps as well.
Travel so they live in the same.
Most of the Delta Airlines App. So you should expect that's going forward to continue to drive adoption open slots are we.
Like the technology, because it gives us access to googles user base.
Facebook messenger user base.
And to the Alexa.
User base and so in combination.
That opens up a portal to customers that we may have never done business with this free of the common but at the same time.
You will see reduced renewed who support.
Our branded absolutely supercuts and Smartstyle cost cutters for the past five.
So that these these two concepts live in the same world together and give us access to long time, more customers and and new consumers, who may never have experienced service that's one of our salons.
We've been encouraged by both adoption of customers.
And adoption of our franchisees as we continue to migrate through a.
The technology enabled world, we need to all existence today.
So we were optimistic about we feel good about.
Great. Thanks.
Yeah, I've told you.
And our next question comes from right Champagne loop capital.
Good morning, Thanks for taking my questions. So the comps we were hoping for I'm, a flatter comp than what we got him, particularly in supercuts, given the advertising on MLB and elsewhere, what's driving that comp lower year on year.
I'll take the first.
You want to take that Andrew.
Oh go ahead, you Yeah, I guess, you know I'll take the first part and then Andrew you can weigh in or.
Others they.
Please recall Andrews earlier point than on the year over year comparative.
May not always be relevant or are accurate.
So there's gonna be it's going to take some time for the dust to settle.
On the comp analysis as we continue to convert to a franchise platform.
In order to get a accurate comparative view on a quarter to quarter basis.
So I actually am continue to be.
Optimistic about the future comps.
We.
As you know Lora and one of the reasons, we embrace the.
Franchise strategy is although these are national brands that local market businesses.
And when you have owners put their own capital to work.
On a local market business they tend to be.
Proactive and enthusiastic about growing businesses.
And where you're right we are supplementing that in working in collaboration with.
To upgrade the marketing and advertising in the company of both with.
Retaining too.
Agencies like Barclay tried day Barclay for more cost cutters and try it they for supercuts and we're continuing to invest in Influencers and digital and.
The other campaigns that we will be.
Necessary to take wrote in the future years, but the most important component of this and then I'll pass it back to Andrew is it will take.
Sometime for the dust to settle so that we get an accurate you're over your view of the cops.
Since they're they're not we measure this in the same way we do any other crop sales were off.
Andrew you want to tag on there.
Well actually Eric wants to a few comments on franchise and I'll take some third on.
Hey, Lawrence Eric Bakken. So if you if you looked at the business, particularly supercuts, obviously, the vast majority now on the franchise side and when you factor in the number of locations that we have deals on yeah were down 226, corporate supercuts locations and that that number will go down.
In the near term as well, but if you look at it from a comp perspective in the quarter Supercuts franchise was up 1.6% service for the quarter down in retail and up 1.1 overall and we were gaining momentum.
Through the quarter. So we're making good progress I'm you know from when we don't released the traffic numbers on that or transaction numbers, but.
That number is obviously far better on the franchise side. So you know we're focused on heavily on all of our businesses, but in particular on Supercuts and you mentioned in the marketing and advertising you touched on that as well, but we're also very actively involved in improving our ability to attract recruit and higher.
The best stylist and so that's you know we have a significant focus on that and that is starting to pay dividends as we go forward for all of our business as but in particular for supercuts. So so were you know we always want it to be better, but it's positive in the quarter and and we're seeing some improvement as we move ahead as well and the only thing I would.
That is a large sandra.
On the company owned slots with Supercuts you the remaining portfolio at the end of the quarter was just north of 300 salons. So while it is a negative.
3.4, and service comps total down Threenine the impact.
Is relatively de Minimis now just given the small size of the portfolio and inevitably as we're going through this transition a there is likely to be some disruption on the opco side or just given the uncertainty with the the the transition to a fully franchise model that we think Jim laying in the.
Field leadership team has done an excellent job of of minimizing and managing through but it be remiss for us not to acknowledge that there is at least a small amount of disruption habit and just because of the transition that's going on that's why it's imperative that we moved quickly to the move to the fully franchise model Yeah, just to add to that it you know I would.
That's rupturing exists overall throughout the entire organization.
And so we're managing it on all sides of course, but we're transitioning you know a lot of stores and that takes the time energy and effort of the entire field team both on the Opco on franchise side.
And Andrew and the up to four well isn't that correct to say that historically, we utilized pricing to offset a minimum wage increases.
That is correct.
No that impacts comps as well like I.
That's correct.
Yes, the Opco portfolio continues to be a melting ice cube.
Yeah.
Got it I appreciate all that and also the comments about how the mix shift in the then additions is impacting your your take per per Salon, but <unk> is it fair to say that what you're left with at the corporate level.
The or less productive salons, and therefore that you know price per vindication should stay compressed him, we shouldn't expect much comp improvement on the company owned side.
I don't think that's a fair statement.
I think it's it's more a function of the portfolio mix. The fact that just I mean for our publicly disclose FTD disclosures.
Supercuts tends to be a higher performing.
Higher margin piece of the business there that the tends to have higher unit or average unit revenue.
So as we have a substantially addition fully through the supercuts portfolio now we're.
Getting into the Smartstyle and the.
Sooner so portfolio one would expect that.
The average multiple that we get and we've been fully transparent disclosure tends to be able to lessen supercuts and then again with the signature style portfolio with many of these salons. We are using this process to convert the salons into one of the.
You called them the fab five brands for the brand consolidation effort that we have undergoing in doing so we offset some of the remodel in reefer costs or with the purchase price. So it gets recorded as relatively low if not zero purchase price, but on the other side or the new France.
He has funded a substantial amount of conversion and it's a brand new supercuts cost cutters first choice, our cutters or whatever that the ending slot as so that's really the dynamics of what's driving the lower cash proceeds per unit this quarter and likely going forward.
We don't think it's a function of being left with a bunch of dogs and cats, an underperforming salons, because we do believe that the remaining portfolio is actually a strong.
Performing portfolio.
And that's not strong lower will.
Well deal with it in a different way will if it's a nonperforming slum are going to close it we're not gonna conviction that or sell it and I think I'd also highlight.
And more I know you know this but it's worth it.
Bears mentioning that these opco comps become meaningfully less important to the financial reform the company with each passing month.
As as the times the clock runs and we continue our condition process, the opco comps, while we monitor them and we.
And as Andrew mentioned DRAM laying on our teams have done a month wonderful work and.
Running our Opco business during this transformation the comps become a at some point.
Far less relevant to the financial performance of the company.
Got it jumps <unk> last question and something that should be relevant to new toe. I mean, you mention to you that part of the thesis is that you're converting to an asset light higher returns high growth model is the growth you expect to see comp growth or do you expect that is franchisees take ownership of territory.
Or is that they will expand the salon count in their territories.
You know, it's in and I'll, let Eric tag onto this too, but I, we are actually I'm sure I'll speak for myself I'm very optimistic, but we have great group of franchisees and I think they grow organically within the four walls.
Third businesses.
Within that local salon.
Because that's what entrepreneurs do you know when they put capital work. They go grow their businesses they have better.
Pilots everyday main hunger customers when they come through the Doron and thank you so much for visiting our supercuts.
But at the same time, we think there is laura a meaningful opportunity for organic openings.
And we are.
Pursuing a real estate strategy, where we prepositioned those assets in advance of organic salon openings by our franchisees. So I I think the answer to your question is both a we expect.
Same store sales comp increases from our franchisees on both the service and merchandise side and we also expect that are great franchisees are going to want to pursue new organic openings in the years ahead and that's why we're.
I had a bad.
Last thing and.
So that when they're ready to grow we're ready to provide them what the least location and Eric you can add to that too if you'd like.
Sure, Yes, I agree with.
With all of that we obviously need to grow the or the businesses that we're selling so we need to get the comp growth, but we also need to add additional organic locations and Laura as you might recall of as part of these deals that we build in a.
Hey store opening requirement to all the transactions generally if they buy three they need to open one additional locations. So works as you mentioned were securing real estate out of that and you'll you'll see those the organic numbers.
Improved significantly as we get through that the van decision process, what what's happening as you have.
The vast majority of our owners existing owners, who were growing previously and the new owners are obviously buying the been dish and location, so they're quite busy and and shoring up the operations and making enhancements and improvements.
Both to the physical plant into the employee base in the Salon, so they're busy doing that right and as I get that process to a point, where they're comfortable that you'll see them go into the market and work with us to add additional locations and we'll be well position to help them.
With that as we as we secure real estate in many instances ahead of having a franchisee to take those locations.
Understood. Thank you.
You're welcome.
This concludes securing a portion of the color I'll now turn the conference back to you.
Well, thanks, Cassidy, so I wouldnt be remiss, if I just didn't take a moment to.
Express our heartfelt appreciation to our shareholders for their continued support.
And to our franchisees and employees for the Awesome work. They do every single day on behalf of our customers on our shareholders. So thank you everyone and we look forward to talking to you again.
At the close in the next.
Thanks and goodbye.
Ladies and gentlemen, this concludes our conference call for today, if you wish to access to replay for this presentation. You made you said that this thing reaches Corp dot com in the Investor Relations section of the website or by dialing 1888 choose your 3111 to access code three too.
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