REVENUE RECOGNITION

12 Months Ended

Jun. 30, 2023

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

REVENUE RECOGNITION:

Revenue Recognition and Deferred Revenue:

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 Statements 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 opens 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.

Revenue recognized at point of sale

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. Product sales to franchisees are recorded at the time product is delivered to the franchisee.

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

	June 30, 2023		June 30, 2022		Balance Sheet Classification
	(Dollars in thousands)
Receivables from contracts with customers, net	$	5,683	$	10,263	Receivable, net
Broker fees	12,471		15,592		Other assets
Deferred revenue:
Current
Gift card liability	$	1,823	$	2,037	Accrued expenses
Deferred franchise fees open salons	5,325		5,770		Accrued expenses
Total current deferred revenue	$	7,148	$	7,807
Non-current
Deferred franchise fees unopened salons	$	2,312	$	3,211	Other non-current liabilities
Deferred franchise fees open salons	20,839		26,827		Other non-current liabilities
Total non-current deferred revenue	$	23,151	$	30,038

Receivables relate primarily to payments due for royalties, 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. Management estimates the allowance based on the age of the receivable and creditworthiness of the franchisee. The following table is a rollforward of the allowance for doubtful accounts for the periods indicated:

	Fiscal Years
	2023		2022
	(Dollars in thousands)
Balance at beginning of period	$	6,559	$	7,774
Provision for doubtful accounts (1)	608		967
Provision for franchisee rent (2)	1,358		1,421
Reclass of accrued rent (3)	325		149
Other	106		—
Write-offs	(1,659)		(3,752)
Balance at end of period	$	7,297	$	6,559

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

(2)The provision for franchisee rent is recognized as rent in the Consolidated Statements 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 years 2023 and 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 Statements of Operations. The following table is a rollforward of the broker fee balance for the periods indicated:

	Fiscal Years
	2023		2022
	(Dollars in thousands)
Balance at beginning of period	$	15,592	$	19,254
Additions	—		25
Amortization	(3,100)		(3,189)
Write-offs	(21)		(498)
Balance at end of period	$	12,471	$	15,592

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 2023, 2022 and 2021 was $6.7, $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, 2023 is as follows (in thousands):

2024	$	5,325
2025	4,954
2026	4,481
2027	4,021
2028	3,357
Thereafter	4,026
Total	$	26,164