H&R Block announced plans to reorganize the company, laying off 350 full-time employees in its Kansas City, Mo., headquarters and closing approximately 200 of its underperforming company-owned offices.
The company said it was offering a voluntary separation program to eligible employees throughout the organization and would review each application for voluntary separation on an individual basis. In the event the company does not achieve the targeted number of separations from the voluntary program, involuntary separations will follow, it warned Wednesday.
In addition, the tax prep giant announced a broader realignment of the organization, Phil Mazzini, president of Retail Tax Services, resigning from the company effective April 30, 2012. The company has also begun searching for a new CFO, with the current CFO, Jeff Brown, remaining in the role he took over 18 months ago until a replacement is found and then transitioning into the role of chief accounting and risk officer.
Overall, the company expects to realize net annualized savings of $85 to $100 million by the end of fiscal year 2013 as a result of the strategic realignment.
“Following the completion of my first tax season and a strategic review of our organization, we believe this realignment is an important next step in becoming a nimbler, more profitable, and more client-centric company,” said H&R Block president and CEO Bill Cobb in a statement. “We have settled on a new organizational structure and identified more efficient ways to operate. We believe these actions will allow us to compete more effectively, more quickly respond to our clients’ needs, and invest in our future as we intensify efforts in our core businesses.”
The company has gone through considerable turmoil in recent years and a series of chief executives (see H&R Block Names New President and CEO). Since taking the helm last year, Cobb has tried to re-focus the company on its core tax prep business, selling the RSM McGladrey subsidiary back to McGladrey & Pullen (see Block Sells RSM to McGladrey & Pullen). However, the company has still faced some reverses, including the need to back down from its planned purchase of the TaxAct tax prep software after the Justice Department challenged the acquisition on antitrust grounds, and most recently charges by the Securities and Exchange Commission against its former Option One mortgage unit over sales of subprime mortgages before the financial crisis (see InfoSpace to Acquire TaxAct after DOJ Blocks H&R Block from Deal and Former H&R Block Subsidiary to Pay SEC $28.2M to Settle Subprime Mortgage Charges).
Block plans to report its fourth quarter and fiscal 2012 results on June 26, but it said it expects to incur a pretax charge for lease termination, severance and related costs of approximately $30 million, or $0.06 per share, which will be recorded in the fiscal fourth quarter ending April 30. The company expects fiscal 2012 total revenues of approximately $2.9 billion and GAAP diluted earnings from continuing operations of $1.09 to $1.15 per share.
Despite those reverses, Block said it had a record-setting tax season. The total number of U.S. tax returns prepared in the fiscal year through April 18 reached a record 22.2 million, up 4.5 percent compared to the prior-year period. The company reported client growth for the second consecutive year in both its U.S. retail and digital channels.
Cobb said the company’s preliminary analysis indicated that Block had gained approximately 50 basis points of total U.S. share, including 60 basis points of share in the digital online category and 20 basis points in the assisted category."
Total digital tax returns prepared increased 12.3 percent fiscal-year-to-date through April 18, led by online unit growth of more than 20 percent. Total U.S. retail returns prepared grew 1.0 percent, while aggregate net U.S. retail tax preparation fees grew 1.1 percent for the comparable period.
Block noted that it had discontinued its ExpressTax franchise offices last September, which collectively prepared nearly 100,000 tax returns. Excluding ExpressTax returns prepared through April 18, 2011, as well as ExpressTax returns retained by H&R Block through April 18, 2012, total U.S. retail returns prepared grew 1.6 percent.