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STNR Q3 CONF CALL NOTES

CONF CALL

  • Service margin lower 90bps QoQ:  primarly due to enrollment levels reductions in schools and to a lesser extent, smaller contribution from laser hair removal business
  • 3Q legal fees: 5 cent impact
  • Ex Fx, product margins declined 170 bps--due to unfavorable product mix sold
  • Med onboard spend was weaker than historical trend
  • Ship in Alaska/Caribbean performed well but not enough to offset European weakness
  • Will commence operations on Celebrity Reflection in Q4 2012
  • Land operations: product sales lower due to timing of shipments from Q3 to Q4 
  • Population growth excluding Dallas, Houston and Cortiva: -15% since the start of the year
  • Continue to make progress with Cortiva, albeit at a slower pace
  • Ideal Image: $30.5MM cash revenues; on a SSS basis, cash sales up 9% YTD.  Fewer guests than anticipated over the summer reduced GAAP revenues.  Will open 21 new stores rather than 15 stores previously (and will complete one expansion and one relocation)--will drag on GAAP earnings.  Deferred revs: $84MM (31% since beginning of year).
  • 3Q Cash:  $53.4MM
  • 4Q guidance
    • 4Q D&A:  $4.5MM (below the line depreciation $883k, below the line amortization $380k, above the line depreciation $3.5 million)
    • 4Q capital spending:  $6MM; (in 3Q, it was $6.8MM)
    • 4Q:  $190-200MM revenues; $0.70-0.75 EPS
  • 2012 guidance:  $790-800MM revs; $3.42-3.47 EPS
    • Lowered guidance due to opening of additional laser hair removal locations, weakenss in school segment, and softness from vessel sailing in Euro itineraries
  • Repurchases 320k shares ($14.4 million).  Have $7.3MM remaining under their authorization
  • 338.8 million- total equity at end of 3Q

Q&A

  • 4Q guide down:  opening of additional laser hair center (15 cents), weakness in school segment (11 cents), softness in Europe vessels (5 cents)
  • Ideal Image:  less visitors than anticipated (mainly due to additional store openings) but cash sales continue to be healthy
    • September was weaker than expected; will recognize deferred revenues over the 2-yr max contract
    • October is a huge month for them; so far average treatment and appointment per day is trending up
  • Still feel lingering effects of Costa Concordia; ships are still repositioning 
  • 4Q:  Expect Caribbean/Alaska to improve a little bit in the beginning part of 4Q but definitely will not offset European weakness
  • Ideal Image:  opened up a new center in South Florida (may open a 2nd center there)
  • School division:  slow integration in Cortiva; overall, enrollments are down; the schools are all about population, the bigger the population, the better they are able to offset the fixed cost of the schools and running them.... students are not getting enough funding and loans.
  • FX impact on product margins: the dollar amount was approximately $520,000 as (indiscernible) cost of product and $380,000 gain in admin or the net of about 140 positive.
  • Ideal Image competition:  some weaker players have left with no new entrants.  No question that it is highly competitive.