LEASES

9 Months Ended

Mar. 31, 2024

Leases [Abstract]

LEASES

LEASES:

At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, the Company considers it to be, or contain, a lease. The Company leases its company-owned salons and its corporate facilities under operating leases. The original terms range from one to 20 years with many leases renewable for an additional five to 10-year term at the option of the Company. In addition to the obligation to make fixed rental payments for the use of the salons, the Company also has variable lease payments that are based on sales levels. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Total rent includes the following:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2024		2023		2024		2023
	(Dollars in thousands)
Office rent	$	756	$	875	$	2,330	$	2,581
Lease termination (benefit) expense	(39)		266		122		1,571
Lease liability benefit (1)	(59)		(297)		(281)		(1,515)
Franchise salon rent (2)	627		415		193		372
Company-owned salon rent	481		818		1,893		2,911
Total	$	1,766	$	2,077	$	4,257	$	5,920

_______________________________________________________________________________

(1)Upon termination of previously impaired leases, the Company derecognizes the corresponding ROU assets and lease liabilities, which results in a net gain. In addition, the Company recognizes a benefit from lease liabilities decreasing in excess of previously impaired ROU assets for ongoing leases that were previously impaired.

(2)Franchise salon rent is lower in the nine months ended March 31, 2024 due to settlements with landlords for less than previously accrued.

The Company leases salon premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. All lease-related costs are passed through to the franchisees. The Company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the unaudited Condensed Consolidated Statements of Operations. For the three and nine months ended March 31, 2024 and 2023, franchise rental income and franchise rent expense were $23.8 million and $26.6 million, and $72.5 million and $85.8 million, respectively. These leases generally have lease terms of approximately five years. The Company expects to renew the SmartStyle master lease and some leases for locations subleased to our franchisees upon expiration of those leases. Other leases are expected to be renewed by the franchisee upon expiration.

All the Company's leases are operating leases. The lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date, including one lease term option when the lease is expected to be renewed. The ROU asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less accrued lease payments and unamortized lease incentives received, if any. Expense for lease payments is recognized on a straight-line basis over the lease term, including the lease renewal option when the lease is expected to be renewed. Generally, the non-lease components, such as real estate taxes and other occupancy expenses, are separate from rent expense within the lease and are not included in the measurement of the lease liability because these charges are variable.

The discount rate used to determine the present value of the lease payments is the Company's estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the interest rate implicit in the lease cannot generally be determined. The Company uses the portfolio approach in applying the discount rate based on the original lease term. The weighted average remaining lease term was 5.15 and 5.52 years, and the weighted average discount rate was 4.99% and 4.55% for all salon operating leases as of March 31, 2024 and June 30, 2023, respectively.

As of March 31, 2024, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows (dollars in thousands):

Fiscal Year	Leases for Franchise Salons		Leases for Company-owned Salons		Corporate Leases		Total Operating Lease Payments		Sublease Income to be Received from Franchisees		Net Rent Commitments
Remainder of 2024	$	22,753	$	198	$	331	$	23,282	$	(22,753)	$	529
2025	81,625		673		1,334		83,632		(81,625)		2,007
2026	68,306		500		1,367		70,173		(68,306)		1,867
2027	58,272		295		1,401		59,968		(58,272)		1,696
2028	48,925		286		1,436		50,647		(48,925)		1,722
Thereafter	74,815		138		2,981		77,934		(74,815)		3,119
Total future obligations	$	354,696	$	2,090	$	8,850	$	365,636	$	(354,696)	$	10,940
Less amounts representing interest	41,545		224		1,065		42,834
Present value of lease liability	$	313,151	$	1,866	$	7,785	$	322,802
Less short-term lease liability	71,838		621		1,026		73,485
Long-term lease liability	$	241,313	$	1,245	$	6,759	$	249,317

LEASES

LEASES:

At contract inception, the Company determines whether a contract is, or contains, a lease by determining whether it conveys the right to control the use of the identified asset for a period of time. If the contract provides the Company the right to substantially all of the economic benefits from the use of the identified asset and the right to direct the use of the identified asset, the Company considers it to be, or contain, a lease. The Company leases its company-owned salons and its corporate facilities under operating leases. The original terms range from one to 20 years with many leases renewable for an additional five to 10-year term at the option of the Company. In addition to the obligation to make fixed rental payments for the use of the salons, the Company also has variable lease payments that are based on sales levels. For most leases, the Company is required to pay real estate taxes and other occupancy expenses. Total rent includes the following:

	Three Months Ended March 31,				Nine Months Ended March 31,
	2024		2023		2024		2023
	(Dollars in thousands)
Office rent	$	756	$	875	$	2,330	$	2,581
Lease termination (benefit) expense	(39)		266		122		1,571
Lease liability benefit (1)	(59)		(297)		(281)		(1,515)
Franchise salon rent (2)	627		415		193		372
Company-owned salon rent	481		818		1,893		2,911
Total	$	1,766	$	2,077	$	4,257	$	5,920

_______________________________________________________________________________

(1)Upon termination of previously impaired leases, the Company derecognizes the corresponding ROU assets and lease liabilities, which results in a net gain. In addition, the Company recognizes a benefit from lease liabilities decreasing in excess of previously impaired ROU assets for ongoing leases that were previously impaired.

(2)Franchise salon rent is lower in the nine months ended March 31, 2024 due to settlements with landlords for less than previously accrued.

The Company leases salon premises in which the majority of its franchisees operate and has entered into corresponding sublease arrangements with franchisees. All lease-related costs are passed through to the franchisees. The Company records the rental payments due from franchisees as franchise rental income and the corresponding amounts owed to landlords as franchise rent expense on the unaudited Condensed Consolidated Statements of Operations. For the three and nine months ended March 31, 2024 and 2023, franchise rental income and franchise rent expense were $23.8 million and $26.6 million, and $72.5 million and $85.8 million, respectively. These leases generally have lease terms of approximately five years. The Company expects to renew the SmartStyle master lease and some leases for locations subleased to our franchisees upon expiration of those leases. Other leases are expected to be renewed by the franchisee upon expiration.

All the Company's leases are operating leases. The lease liability is initially and subsequently measured at the present value of the unpaid lease payments at the lease commencement date, including one lease term option when the lease is expected to be renewed. The ROU asset is initially and subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, less accrued lease payments and unamortized lease incentives received, if any. Expense for lease payments is recognized on a straight-line basis over the lease term, including the lease renewal option when the lease is expected to be renewed. Generally, the non-lease components, such as real estate taxes and other occupancy expenses, are separate from rent expense within the lease and are not included in the measurement of the lease liability because these charges are variable.

The discount rate used to determine the present value of the lease payments is the Company's estimated collateralized incremental borrowing rate, based on the yield curve for the respective lease terms, as the interest rate implicit in the lease cannot generally be determined. The Company uses the portfolio approach in applying the discount rate based on the original lease term. The weighted average remaining lease term was 5.15 and 5.52 years, and the weighted average discount rate was 4.99% and 4.55% for all salon operating leases as of March 31, 2024 and June 30, 2023, respectively.

As of March 31, 2024, future operating lease commitments, including one renewal option for leases expected to be renewed, to be paid and received by the Company were as follows (dollars in thousands):

Fiscal Year	Leases for Franchise Salons		Leases for Company-owned Salons		Corporate Leases		Total Operating Lease Payments		Sublease Income to be Received from Franchisees		Net Rent Commitments
Remainder of 2024	$	22,753	$	198	$	331	$	23,282	$	(22,753)	$	529
2025	81,625		673		1,334		83,632		(81,625)		2,007
2026	68,306		500		1,367		70,173		(68,306)		1,867
2027	58,272		295		1,401		59,968		(58,272)		1,696
2028	48,925		286		1,436		50,647		(48,925)		1,722
Thereafter	74,815		138		2,981		77,934		(74,815)		3,119
Total future obligations	$	354,696	$	2,090	$	8,850	$	365,636	$	(354,696)	$	10,940
Less amounts representing interest	41,545		224		1,065		42,834
Present value of lease liability	$	313,151	$	1,866	$	7,785	$	322,802
Less short-term lease liability	71,838		621		1,026		73,485
Long-term lease liability	$	241,313	$	1,245	$	6,759	$	249,317