REVENUE RECOGNITION

12 Months Ended

Jun. 30, 2022

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION:

Revenue Recognition and Deferred Revenue:

Revenue recognized at point of sale

Product sales to franchisees are recorded at the time product is delivered to the franchisee. Payment for franchisee product revenue is generally collected 30 to 90 days of delivery. Company-owned salon revenues are recognized at the time when the services are provided or the guest receives and pays for the merchandise. Revenues from purchases made with gift cards are also recorded when the guest takes possession of the merchandise or services are provided. Gift cards issued by the Company are recorded as a liability (deferred revenue) upon sale and recognized as revenue upon redemption by the guest. Gift card breakage, the amount of gift cards which will not be redeemed, is recognized proportional to redemptions using estimates based on historical redemption patterns.

Revenue recognized over time

Royalty and advertising fund revenues represent sales-based royalties that are recognized in the period in which the sales occur. Generally, royalty and advertising fund revenues are billed and collected monthly in arrears. Advertising fund revenues and expenditures, which must be spent on marketing and related activities per the franchise agreements, are recorded on a gross basis within the Consolidated Statement of Operations. The treatment increases both the gross amount of reported revenue and expense and generally has no impact on operating income and net income. Franchise fees are billed and received upon the signing of the franchise agreement. Recognition of these fees is deferred until the salon opening and is then recognized over the term of the franchise agreement, which is typically 10 years. Franchise rental income is a result of the Company signing leases on behalf of franchisees and entering into sublease arrangements with the franchisees. The Company recognizes franchise rental income and expense when it is due to the landlord.

Information about receivables, broker fees and deferred revenue subject to the revenue recognition guidance is as follows:

	June 30, 2022		June 30, 2021		Balance Sheet Classification
	(Dollars in thousands)
Receivables from contracts with customers, net	$	10,263	$	18,011	Receivable, net
Broker fees	15,592		19,254		Other assets
Deferred revenue:
Current
Gift card liability	$	2,037	$	2,240	Accrued expenses
Deferred franchise fees unopened salons	16		40		Accrued expenses
Deferred franchise fees open salons	5,770		5,884		Accrued expenses
Total current deferred revenue	$	7,823	$	8,164
Non-current
Deferred franchise fees unopened salons	$	3,211	$	6,571	Other non-current liabilities
Deferred franchise fees open salons	26,827		32,365		Other non-current liabilities
Total non-current deferred revenue	$	30,038	$	38,936

Receivables relate primarily to payments due for royalties, franchise fees, advertising fees, rent, franchise product sales and sales of salon services and product paid by credit card. The receivables balance is presented net of an allowance for expected losses (i.e., doubtful accounts), related to receivables from franchisees. The following table is a rollforward of the allowance for doubtful accounts for the periods indicated:

	Fiscal Years
	2022		2021
	(Dollars in thousands)
Balance at beginning of period	$	7,774	$	6,899
Provision for doubtful accounts (1)	967		509
Provision for franchisee rent (2)	1,421		1,920
Reclass of accrued rent (3)	149		—
Write-offs	(3,752)		(1,554)
Balance at end of period	$	6,559	$	7,774

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(1)The provision for doubtful accounts is recognized as general and administrative expense in the Consolidated Statement of Operations.

(2)The provision for franchisee rent is recognized as rent in the Consolidated Statement of Operations.

(3)The reclass of accrued rent represents franchisee rent obligations guaranteed by the Company that were unbilled and deemed unrecoverable as of June 30, 2021. The amounts billed in fiscal year 2022 and the related accrual was reclassified to allowance for doubtful accounts.

Broker fees are the costs associated with using external brokers to identify new franchisees. These fees are paid upon the signing of the franchise agreement and recognized as general and administrative expense over the term of the franchise agreement in the Consolidated Statement of Operations. The following table is a rollforward of the broker fee balance for the periods indicated:

	Fiscal Years
	2022		2021
	(Dollars in thousands)
Balance at beginning of period	$	19,254	$	20,516
Additions	25		2,112
Amortization	(3,189)		(3,180)
Write-offs	(498)		(194)
Balance at end of period	$	15,592	$	19,254

The decrease in non-current deferred franchise fees for unopened salons in fiscal year 2022 is primarily due to $2.4 million of deferred fees related to terminated development agreements being recognized as fees in the Consolidated Statement of Operations in the year ended June 30, 2022. Deferred revenue includes the gift card liability and deferred franchise fees for unopened salons and open salons. Deferred franchise fees related to open salons are generally recognized on a straight-line basis over the term of the franchise agreement. Franchise fee revenue for fiscal years 2022 and 2021 was $6.5 and $6.6 million, respectively. Estimated revenue expected to be recognized in the future related to deferred franchise fees for open salons as of June 30, 2022 is as follows (in thousands):

2023	$	5,770
2024	5,468
2025	5,092
2026	4,618
2027	4,157
Thereafter	7,492
Total	$	32,597