LEASES

6 Months Ended

Dec. 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 11 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 December 31,				Six Months Ended December 31,
	2024		2023		2024		2023
	(Dollars in thousands)
Office rent (1)	$	700	$	748	$	1,426	$	1,574
Lease termination expense	27		174		79		161
Lease liability benefit (2)	(65)		(95)		(128)		(223)
Franchise salon rent (3)	881		(96)		952		(434)
Company-owned salon rent (4)	606		663		884		1,413
Total	$	2,149	$	1,394	$	3,213	$	2,491

_______________________________________________________________________________

(1)Rental income associated with the sublease of corporate office space is recorded in other income and was $0.3 million and $0.6 million for the three and six months ended December 31, 2024, respectively.

(2)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.

(3)Franchise salon rent is a benefit in the three and six months ended December 31, 2023, due to settlements with landlords for less than previously accrued.

(4)Note that this amount includes 12 days of rent related to the Alline salons acquired during the quarter. See Note 13.

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 six months ended December 31, 2024, and 2023, franchise rental income and franchise rent expense were $20.0 million and $24.1 million, and $41.7 million and $48.8 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 4.92 and 5.05 years, and the weighted average discount rate was 5.47% and 5.13% for all salon operating leases as of December 31, 2024, and June 30, 2024, respectively.

As of December 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 2025	$	36,048	$	4,270	$	672	$	40,990	$	(36,048)	$	4,942
2026	64,630		6,864		1,367		72,861		(64,630)		8,231
2027	56,168		4,941		1,401		62,510		(56,168)		6,342
2028	47,900		3,755		1,436		53,091		(47,900)		5,191
2029	37,938		2,746		1,472		42,156		(37,938)		4,218
Thereafter	40,076		5,323		1,509		46,908		(40,076)		6,832
Total future obligations	$	282,760	$	27,899	$	7,857	$	318,516	$	(282,760)	$	35,756
Less amounts representing interest	34,429		5,407		837		40,673
Present value of lease liability	$	248,331	$	22,492	$	7,020	$	277,843
Less short-term lease liability	57,955		11,932		1,084		70,971
Long-term lease liability	$	190,376	$	10,560	$	5,936	$	206,872

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 11 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 December 31,				Six Months Ended December 31,
	2024		2023		2024		2023
	(Dollars in thousands)
Office rent (1)	$	700	$	748	$	1,426	$	1,574
Lease termination expense	27		174		79		161
Lease liability benefit (2)	(65)		(95)		(128)		(223)
Franchise salon rent (3)	881		(96)		952		(434)
Company-owned salon rent (4)	606		663		884		1,413
Total	$	2,149	$	1,394	$	3,213	$	2,491

_______________________________________________________________________________

(1)Rental income associated with the sublease of corporate office space is recorded in other income and was $0.3 million and $0.6 million for the three and six months ended December 31, 2024, respectively.

(2)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.

(3)Franchise salon rent is a benefit in the three and six months ended December 31, 2023, due to settlements with landlords for less than previously accrued.

(4)Note that this amount includes 12 days of rent related to the Alline salons acquired during the quarter. See Note 13.

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 six months ended December 31, 2024, and 2023, franchise rental income and franchise rent expense were $20.0 million and $24.1 million, and $41.7 million and $48.8 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 4.92 and 5.05 years, and the weighted average discount rate was 5.47% and 5.13% for all salon operating leases as of December 31, 2024, and June 30, 2024, respectively.

As of December 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 2025	$	36,048	$	4,270	$	672	$	40,990	$	(36,048)	$	4,942
2026	64,630		6,864		1,367		72,861		(64,630)		8,231
2027	56,168		4,941		1,401		62,510		(56,168)		6,342
2028	47,900		3,755		1,436		53,091		(47,900)		5,191
2029	37,938		2,746		1,472		42,156		(37,938)		4,218
Thereafter	40,076		5,323		1,509		46,908		(40,076)		6,832
Total future obligations	$	282,760	$	27,899	$	7,857	$	318,516	$	(282,760)	$	35,756
Less amounts representing interest	34,429		5,407		837		40,673
Present value of lease liability	$	248,331	$	22,492	$	7,020	$	277,843
Less short-term lease liability	57,955		11,932		1,084		70,971
Long-term lease liability	$	190,376	$	10,560	$	5,936	$	206,872