BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The unaudited interim Condensed Consolidated Financial Statements of Regis Corporation (the Company) as of March 31, 2023 and for the three and nine months ended March 31, 2023 and 2022, reflect, in the opinion of management, all adjustments necessary to fairly state the consolidated financial position of the Company as of March 31, 2023 and its consolidated results of operations, comprehensive loss, shareholders' deficit and cash flows for the interim periods. Adjustments consist only of normal recurring items, except for any discussed in the notes below. The results of operations and cash flows for any interim period are not necessarily indicative of results of operations and cash flows for the full year.

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP). The unaudited interim Condensed Consolidated Financial Statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2022 and other documents filed or furnished with the SEC during the current fiscal year.

Inventories:

The Company has inventory valuation reserves for excess and obsolete inventories or other factors that may render inventories unmarketable at their historical costs. The Company exited its distribution centers in fiscal year 2022 and now stores inventory at a third-party facility. To facilitate the exit of the distribution centers, the Company sold inventory at discounts. The inventory valuation reserve as of March 31, 2023 and June 30, 2022 was $1.8 and $1.9 million, respectively. In the three months ended March 31, 2023, the Company did not record an inventory reserve charge and in the nine months ended March 31, 2023, the Company recorded an inventory reserve charge of $1.2 million in inventory reserve on the unaudited Condensed Consolidated Statement of Operations. In the three and nine months ended March 31, 2022, the Company recorded total inventory reserve charges of $7.5 and $9.0 million, respectively. In the three months ended March 31, 2022, $6.4 and $1.1 million were recorded in inventory reserve and company-owned salon expense, respectively, on the unaudited Condensed Consolidated Statement of Operations. In the nine months ended March 31, 2022, $6.4 and $2.6 million were recorded in inventory reserve and company-owned salon expense, respectively, on the unaudited Condensed Consolidated Statement of Operations.

As of March 31, 2023 and June 30, 2022, the Company had inventory related to discontinued operations of $1.3 and $1.8 million, respectively, offset by a reserve of $1.3 and $1.1 million, respectively. The increase in the reserve during fiscal year 2023 reduced the gain from discontinued operations. See Note 3 to the unaudited Condensed Consolidated Financial Statements.

Goodwill:

As of March 31, 2023 and June 30, 2022, the Franchise reporting unit had $173.4 and $174.4 million, respectively, of goodwill. The change in goodwill for the nine months ended March 31, 2023 is due to foreign currency translation. The Company assesses goodwill impairment on an annual basis, during the Company's fourth fiscal quarter, 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 value. An interim impairment analysis was not required in the three or nine months ended March 31, 2023.

Depreciation:

Depreciation expense in the three months ended March 31, 2023 and 2022 includes $0.2 and $0.3 million, respectively, and for the nine months ended March 31, 2023 and 2022 includes $0.6 and $0.9 million, respectively, of asset retirement obligations, which are cash expenses. Depreciation expense in the nine months ended March 31, 2023 includes a $2.6 million accelerated depreciation charge in the second quarter related to the consolidation of office space within the Company's corporate headquarters.