2

The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets.

The accompanying notes to condensed consolidated financial statements are an integral part of these statements.

4

(Continued)

5

The accompanying notes to consolidated financial statements are an integral part of these statements.

6

The accompanying unaudited condensed consolidated financial statements for each period include the condensed consolidated balance sheets, statements of income and cash flows of Steiner Leisure Limited (including its subsidiaries, "Steiner Leisure," the "Company," "we" and "our"). All significant intercompany items and transactions have been eliminated in consolidation. In the opinion of management, the accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the United States Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles have been omitted pursuant to the SEC's rules and regulations. However, management believes that the disclosures contained herein are adequate to make the information presented not misleading. In the opinion of management, the unaudited condensed consolidated financial statements reflect all material adjustments (which include normal recurring adjustments) necessary to present fairly our unaudited financial position, results of operations and cash flows. The unaudited results of operations for the three months ended March 31, 2011 and cash flows for the three months ended March 31, 2011 are not necessarily indicative of the results of operations or cash flows that may be expected for the remainder of 2011. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010. The December 31, 2010 Condensed Consolidated Balance Sheet included herein was extracted from the December 31, 2010 audited Consolidated Balance Sheet included in our 2010 Annual Report on Form 10-K.

The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the assessment of the realization of accounts receivables and recovery of long-lived assets and goodwill and other intangible assets, the determination of deferred income taxes, including valuation allowances, the useful lives of definite-lived intangible assets and property and equipment, the determination of fair value of assets and liabilities in purchase price allocations, the determination of gift certificate breakage revenue and the assumptions related to the determination of stock-based compensation.

Steiner Leisure Limited (including its subsidiaries where the context requires, "Steiner Leisure," "we" "us" or "our") is a worldwide provider of spa services. We provide spa services in treatment and fitness facilities located on cruise ships and at hotel spas and day spas located in the United States, Caribbean, Asia, the Pacific and other locations. We sell our products on board the ships we serve, at our hotel spas and day spas, through third party department stores, wholesale outlets, mail order and through our websites. We also own and operate five post-secondary schools (comprised of a total of 17 campuses) located in Arizona, Colorado, Connecticut, Florida, Maryland, Nevada, Pennsylvania, Utah and Virginia. These schools offer programs in massage therapy and, in some cases, beauty and skin care.

On December 31, 2009, we acquired all of the stock of Bliss World Holdings, Inc. (including its subsidiaries, "Bliss Inc.") from Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). Bliss Inc. is a spa and skincare company with urban hotel and day spa locations, offering services under the Bliss and Remède brands and products under the Bliss and Laboratoire Remède brands. Bliss Inc. also operates an e-commerce and catalog business and distributes its products through Bloomingdales, Harrods, Harvey Nichols, Macy's, Neiman Marcus, Nordstrom, Saks Fifth Avenue and other department stores, as well as Sephora stores and other domestic and international retail locations. The purchase price for Bliss Inc. was $100.0 million in cash less cash acquired and a post-closing working capital adjustment. In connection with this acquisition, Bliss and Remède spas and amenities will remain exclusive to Starwood in the hotel category at W Hotels and St. Regis Hotels, respectively.

7

Inventories, consisting principally of beauty products, are stated at the lower of cost (first-in, first-out) or market. Manufactured finished goods include the cost of raw material, labor and overhead. Inventories consist of the following (in thousands):

We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable. In certain cases, the determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to determine the fair value of the assets under evaluation. As of March 31, 2011, management was not aware of any impairment indicators associated with long-lived assets. Unexpected changes in cash flows could result in impairment charges in the future.

Goodwill and other indefinite-lived intangible assets are subject to at least an annual assessment for impairment by applying a fair value based test. The impairment loss is the amount, if any, by which the implied fair value of goodwill and other indefinite-lived intangible assets are less than the carrying or book value. As of each of January 1, 2011 and 2010, the Company performed its annual goodwill impairment test and determined there was no impairment. The Company believes that, as of March 31, 2011, no indicators of impairment were present which would warrant an interim impairment test. We have five operating segments: (1) Maritime, (2) Land-Based Spas, (3) Product and Distribution ("Products"), (4) Training, and (5) Schools. The Maritime, Land-Based Spas, Products and Schools operating segments have associated goodwill and each of them has been determined to be a reporting unit.

The change in goodwill during the three months ended March 31, 2011, which related to an immaterial acquisition, was as follows (in thousands):

8

We file a consolidated tax return for our U.S. subsidiaries other than those domiciled in U.S. territories which file specific returns. In addition, our foreign subsidiaries file income tax returns in their respective countries of incorporation, where required. We utilize the liability method and deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. The majority of our income is generated outside of the United States. We believe a large percentage of our shipboard services income is foreign-source income, not effectively connected to a business we conduct in the United States and, therefore, not subject to United States income taxation.

For currency exchange rate purposes, assets and liabilities of our foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date. Equity and other items are translated at historical rates and income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected in the Accumulated Other Comprehensive Loss caption of our Condensed Consolidated Balance Sheets. Foreign currency gains and losses resulting from transactions, including intercompany transactions, are included in the results of operations. The transaction gains (losses) included in the Administrative expenses caption of our Condensed Consolidated Statements of Income were approximately $1.3 million and ($2.0 million) for the three months ended March 31, 2011 and 2010, respectively. The transaction gains (losses) in the Cost of Products caption of our Condensed Consolidated Statements of Income were approximately ($0.6 million) and $1.5 million for the three months ended March 31, 2011 and 2010, respectively.

9

Basic earnings per share is computed by dividing the net income available to common shareholders by the weighted average number of outstanding common shares. The calculation of diluted earnings per share is similar to basic earnings per share except that the denominator includes dilutive common share equivalents such as share options and restricted shares. Reconciliation between basic and diluted earnings per share is as follows (in thousands, except per share data):

The Company issued 41,000 and 61,000 of its common shares upon the exercise of share options during the three months ended March 31, 2011 and 2010, respectively.

The Company granted 15,000 restricted share units during the three months ended March 31, 2010. No other stock-based compensation was granted during the three months ended March 31, 2011 and 2010, respectively.

Substantially all of our advertising costs are charged to expense as incurred, except costs which result in tangible assets, such as brochures, which are recorded as prepaid expenses and charged to expense as consumed. Advertising costs were approximately $4.6 million and $4.4 million for the three months ended March 31, 2011 and 2010, respectively. Of these amounts, $2.8 million and $2.7 million are included in cost of revenues in the accompanying Condensed Consolidated Statements of Income for the three months ended March 31, 2011 and 2010, respectively. At March 31, 2011 and December 31, 2010, the amounts of advertising costs included in prepaid expenses were not material.

In October 2009, revenue recognition multiple-deliverable revenue arrangements guidance was modified to provide guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. An entity is required to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price. This guidance is effective for the first annual reporting period beginning on or after June 15, 2010 and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. The adoption of this guidance did not have a material impact on our consolidated financial condition, results of operations, or cash flows.

In January 2010, authoritative guidance was issued requiring enhanced disclosures for fair value measurements. Entities are required to separately disclose the amounts and reasons of significant transfers in and out of the first two levels of the fair value hierarchy. Entities are also required to present information about purchases, sales, issuances and settlements of fair value measurements within the third level of the fair value hierarchy on a gross basis. Our adoption of this guidance did not have an impact on our consolidated financial statements.

In December 2010, authoritative guidance was issued that requires public entities that present comparative financial statements to disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the year had occurred as of the beginning of the comparable prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. We adopted this guidance as of January 1, 2011. The adoption did not have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

We recognize revenues earned as services are provided and as products are sold or shipped, as the case may be. Revenue from gift certificate sales is recognized upon gift certificate redemption and upon recognition of breakage. We do not charge administrative fees on unused gift cards, and our gift cards do not have an expiration date. Based on historical redemption rates, a relatively stable percentage of gift certificates will never be redeemed, referred to as "breakage."  We use the redemption recognition method for recognizing breakage related to certain gift certificates for which we have sufficient historical information. Under the redemption recognition method, revenue is recorded in proportion to, and over, the time period gift cards are actually redeemed. Breakage is recognized only if we determine that we do not have a legal obligation to remit the value of unredeemed gift certificates to government agencies under the unclaimed property laws in the relevant jurisdictions. We determine our gift certificate breakage rate based upon historical redemption patterns. At least three years of historical data, which will be updated annually, is used to determine actual redemption patterns. Gift certificate breakage income is included in Services Revenue in our Condensed Consolidated Statement of Income for the three months ended March 31, 2011.

Tuition revenue and revenue related to certain nonrefundable fees and charges at our massage and beauty schools are recognized monthly on a straight-line basis over the term of the course of study. At the time a student begins attending a school, a liability (unearned tuition) is recorded for all academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid up front in cash. Revenue related to sales of program materials, books and supplies are, generally, recognized when the program materials, books and supplies are delivered. We include the revenue related to sales of program materials, books and supplies in the Services Revenue financial statement caption in our Condensed Consolidated Statements of Income. If a student withdraws from one of our schools prior to the completion of the academic term, we refund the portion of the tuition already paid that, pursuant to our refund policy and applicable federal and state law and accrediting agency standards, we are not entitled to retain.

11

Our land-based spas, generally, are required to pay rent based on a percentage of our revenues.  In addition, for certain of our land-based spas, we are required to pay a minimum rental amount regardless of whether such amount would be required to be paid under the percentage rent agreement.  Rent escalations are recorded on a straight-line basis over the terms of the lease agreements. We record contingent rent at the time it becomes probable that it will exceed the minimum rent obligation per the lease agreements. Previously recognized rental expense is reversed into income at such time that it is not probable that the specified target will be met.

Cash and cash equivalents, accounts receivable, accounts receivable - students and accounts payable are reflected in the accompanying Condensed Consolidated Financial Statements at cost, which approximated fair value due to the short maturity of these instruments. The fair values of the term and revolving loans were determined using applicable interest rates as of the balance sheet date and approximate the carrying value of such debt because the underlying instruments were at variable rates that are repriced frequently.

From time to time, in the ordinary course of business, we are party to various claims and legal proceedings. There have been no material changes with respect to legal proceedings previously reported in our annual report on Form 10-K for the year ended December 31, 2010.

The Company may be liable for employment-related taxes for certain past and current employees. Management currently believes that the amount of such liability, if any, would not be material to the Company's financial condition or results of operations.

In March 2009, we received a tax assessment from the Mexican tax authorities for approximately $2.3 million. We received a favorable verdict in the tax court in August of 2010. The Mexican tax authorities appealed the tax court decision. In April of 2011, the tax court again ruled in our favor and as a result, this matter has now been resolved without any obligation to pay the tax assessment.

Accrued expenses consists of the following (in thousands):

12

Long-term debt consists of the following (in thousands):

In connection with our acquisition of Bliss Inc., in November 2009, we entered into a new credit facility (the "Credit Facility") with a group of lenders including SunTrust Bank, our existing lender, consisting of a $60 million revolving credit facility, with $5.0 million swingline and $5.0 million letter of credit sub-facilities, and a delayed draw term loan facility of $50.0 million, both maturing November 2, 2012. The delayed draw term loan was fully funded at the closing of the Bliss Inc. acquisition. Extensions of credit under the Credit Facility will also be used (i) to pay certain fees and expenses associated with the Bliss Inc. acquisition, (ii) to refinance existing indebtedness, (iii) for capital expenditures, (iv) to finance possible future acquisitions permitted under the Credit Agreement and (v) for working capital and general corporate purposes, including letters of credit. The new credit facility replaced our 2007 credit facility, which has been terminated. As of March 31, 2011, there was $60.0 million available under the revolving credit facility. Interest on borrowings under the Credit Facility accrues at Base Rate, LIBOR or Index Rate, depending on which rate is lowest at the time, plus, in each case, a spread of between 3.00% - 3.50%, based on the Company's financial performance. At March 31, 2011, our borrowing rate was 3.76%. Our obligations under the Credit Facility are secured by substantially all of the Company's present and future tangible and intangible assets.

Our Credit Facility contains customary affirmative, negative and financial covenants, including limitations on dividends, capital expenditures and funded debt, and requirements to maintain prescribed interest expense and fixed charge coverage ratios. As of March 31, 2011, and through the date of this report, we were in compliance with these covenants. Other limitations on capital expenditures, or on other operational matters, could apply in the future under the credit agreement.

In February 2008, our Board of Directors approved a share repurchase plan under which up to $100.0 million of common shares can be purchased, and terminated the prior plan. During the three months ended March 31, 2011 and 2010, respectively, we purchased approximately 20,000 and 25,000 shares, with a value of approximately $0.9 million and $1.1 million, respectively. Those shares purchased were surrendered by our employees in connection with the vesting of restricted shares and used by us to satisfy payment of our minimum federal income tax withholding obligations in connection with these vestings. These share purchases were outside of our repurchase plan.

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We have three reportable segments: (1) Spa Operations, which sells spa services and beauty products onboard cruise ships and on land at hotel spas and day spas; (2) Products, which sells a variety of high quality beauty products to third parties other than those above; and (3) Schools, which offers programs in massage therapy and skin care. Amounts included in "Other" include various corporate items such as unallocated overhead and intercompany transactions.

Information about our segments is as follows (in thousands):

Included in Spa Operations, Products and Schools is goodwill of $51.0 million, $23.7 million and $42.4 million, respectively, as of March 31, 2011 and $48.8 million, $23.7 million and $42.4 million, respectively, as of December 31, 2010.

14

Set forth below is information relating to countries in which we have material operations. We are not able to identify the country of origin for the customers to which revenues from our cruise ship operations relate. Geographic information is as follows (in thousands):

15

Overview

On December 31, 2009, Steiner Leisure acquired all of the stock of Bliss Inc. from Starwood. Bliss Inc. is a spa and skincare company with urban hotel and land-based spa locations, offering services under the Bliss and Remède brands and products under the Bliss and Laboratoire Remède brands. Bliss Inc. also operates an e-commerce and catalog business and distributes its products through Bloomingdale's, Harrods, Harvey Nichols, Macy's, Neiman Marcus, Nordstrom, Saks Fifth Avenue and other department stores, Ulta and Sephora stores and other domestic and international retail locations, as well as QVC. The purchase price for Bliss Inc. was $100 million in cash less cash acquired and a post-closing working capital adjustment. In connection with this acquisition, Bliss and Remède spas and amenities will remain exclusive to Starwood in the hotel category at W Hotels and St. Regis Hotels, respectively.

Our revenues are generated principally from our cruise ship operations. Accordingly, our success and our growth are dependent to a significant extent on the success and growth of the travel and leisure industry in general, and on the cruise industry in particular. Our hotel spas are dependent on the hospitality industry for their success. These industries are subject to significant risks that could affect our results of operations.

In addition, an increasing percentage of cruise passengers who use our services are repeat customers of ours. These repeat customers are less likely to purchase our products than new customers.

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Key Performance Indicators

Spa Operations. A measure of performance we have used in connection with our periodic financial disclosure relating to our cruise line operations is that of revenue per staff per day. In using that measure, we have differentiated between our revenue per staff per day on ships with large spas and other ships we serve. Our revenue per staff per day has been affected by the continuing requirement that we place additional non-revenue producing staff on ships with large spas to help maintain a high quality guest experience. We also utilize, as a measure of performance for our cruise line operations, our average revenue per week. We use these measures of performance because they assist us in determining the productivity of our staff, which we believe is a critical element of our operations. With respect to our land-based spas, we measure our performance primarily through average weekly revenue over applicable periods of time.

Schools. With respect to our massage and beauty schools, we measure performance primarily by the number of new student enrollments and the rate of retention of our students. A new student enrollment occurs each time a new student commences classes at one of our schools.

Products. With respect to sales of our products, other than on cruise ships and at our land-based spas, we measure performance by revenues.

Cost of revenues includes:

• cost of services, including an allocable portion of wages paid to shipboard employees, an allocable portion of payments to cruise lines, an allocable portion of staff-related shipboard expenses, wages paid directly to land-based spa employees, payments to land-based spa venue owners, spa facilities depreciation, as well as, with respect to our schools, directly attributable campus costs such as rent, advertising and employee wages; and
• cost of products, including an allocable portion of wages paid to shipboard employees, an allocable portion of payments to cruise lines, an allocable portion of other staff-related shipboard expenses, as well as costs associated with development, manufacturing and distribution of products.

The allocations discussed above are based on the portion of maritime revenues represented by product or service revenues.

Cost of revenues may be affected by, among other things, sales mix, production levels, exchange rates, changes in supplier prices and discounts, purchasing and manufacturing efficiencies, tariffs, duties, freight and inventory costs and increases in fuel costs. Certain cruise line and land-based spa agreements provide for increases in the percentages of services and products revenues and/or, as the case may be, the amount of minimum annual payments over the terms of those agreements. These payments may also be increased under new agreements with cruise lines and land-based spa venue owners that replace expiring agreements.

Cost of products includes the cost of products sold through our various methods of distribution. To a lesser extent, cost of products also includes the cost of products consumed in rendering services. This amount is not a material component of the cost of services rendered and would not be practicable to identify separately.

Operating expenses include administrative expenses, salary and payroll taxes. In addition, operating expenses include amortization of certain intangibles relating to our acquisitions of hotel spas in 2001, UCMT in April 2006; CCMT in August 2008; and Bliss Inc. in December 2009.

We do not have critical accounting policies with respect to revenue recognition other than with respect to our massage therapy and beauty schools. Tuition revenue and revenue related to certain nonrefundable fees and charges at our massage and beauty schools are recognized monthly on a straight-line basis over the term of the course of study. At the time a student begins attending a school, a liability (unearned tuition) is recorded for all academic services to be provided and a tuition receivable is recorded for the portion of the tuition not paid up front in cash. Revenue related to sales of program materials, books and supplies are, generally, recognized when the program materials, books and supplies are delivered. We include the revenue related to sales of program materials, books and supplies in the Services Revenue financial statement caption in our Consolidated Statement of Income. If a student withdraws from one of our schools prior to the completion of the academic term, we refund the portion of the tuition already paid that, pursuant to our refund policy and applicable federal and state law and accrediting agency standards, we are not entitled to retain.

Revenue from gift certificate sales is recognized upon gift certificate redemption and upon recognition that a certificate will never be redeemed, referred to as "breakage." We do not charge administrative fees on unused gift cards, and our gift cards do not have an expiration date. Based on historical redemption rates, a relatively stable percentage of gift certificates are anticipated to be subject to breakage. We use the redemption recognition method for recognizing breakage related to certain gift certificates for which we have sufficient historical information. Under the redemption recognition method, revenue is recorded pro rata over the time period gift cards are actually redeemed and breakage is recognized only if we determine that we do not have a legal obligation to remit the value of unredeemed gift certificates to government agencies under the unclaimed property laws in the relevant jurisdictions. We determine our gift certificate breakage rate based upon historical redemption patterns. At least three years of historical data, which is updated annually, is used to determine actual redemption patterns.

We do not have critical accounting policies with respect to allowance for doubtful accounts other than with respect to our massage therapy and beauty schools. We extend unsecured credit to our students for tuition and fees and we record a receivable for the tuition and fees earned in excess of the payment received from or on behalf of a student. We record an allowance for doubtful accounts with respect to accounts receivable using historical collection experience. We review the historical collection experience, consider other facts and circumstances, and adjust the calculation to record an allowance for doubtful accounts as appropriate. If our current collection trends were to differ significantly from our historic collection experience, however, we would make a corresponding adjustment to our allowance. We write off the accounts receivable due from former students when we conclude that collection is not probable.

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Property and equipment are recorded at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets in question. Leasehold improvements are amortized on a straight-line basis over the shorter of the useful life of the improvement or the term of the lease. For certain properties, leasehold improvements are amortized over lease terms, which include renewal periods that may be obtained at our option and that are considered significant to the continuation of our operations and to the existence of leasehold improvements, the value of which would be impaired if we discontinued our use of the leased property. We perform ongoing evaluations of the estimated useful lives of our property and equipment for depreciation purposes. The estimated useful lives are determined and continually evaluated based on the period over which services are expected to be rendered by the asset, industry practice and asset maintenance policies. Maintenance and repair items are expensed as incurred.

We review long-lived assets for impairment whenever events or changes in circumstances indicate, based on estimated future cash flows, that the carrying amount of these assets may not be fully recoverable. In certain cases, the determination of fair value is highly sensitive to differences between estimated and actual cash flows and changes in the related discount rate used to evaluate the fair value of the assets in question.

Significant management judgment is required in determining our provision for income taxes, our deferred income tax assets and liabilities and the valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance of $37.0 million as of March 31, 2011, due to uncertainties related to our ability to utilize certain of our deferred income tax assets, primarily consisting of net operating losses carried forward, before they expire. The valuation allowance is based on our estimates of taxable income and the period over which our deferred income tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could impact our results of operations and financial condition.

Our land-based spas, generally, are required to pay rent based on a percentage of our revenues, with others having fixed rents. In addition, for certain of our land-based spas, we are required to pay a minimum rental amount regardless of whether such amount would be required to be paid under the percentage rent agreement. Rent escalations are recorded on a straight-line basis over the term of the lease agreement. We record contingent rent at the time it becomes probable that it will exceed the minimum rent obligation per the lease agreement. Previously recognized rental expense is reversed into income at such time that it is not probable that the specified target will be met.

In October 2009, revenue recognition multiple-deliverable revenue arrangements guidance was modified to provide guidance on whether multiple deliverables exist, how the arrangement should be separated, and the consideration allocated. An entity is required to allocate revenue in an arrangement using estimated selling prices of deliverables if a vendor does not have vendor-specific objective evidence or third-party evidence of selling price. This guidance is effective for the first annual reporting period beginning on or after June 15, 2010 and may be applied retrospectively for all periods presented or prospectively to arrangements entered into or materially modified after the adoption date. The adoption of this guidance did not have a material impact on our consolidated financial condition, results of operations or cash flows.

21

In January 2010, authoritative guidance was issued requiring enhanced disclosures for fair value measurements. Entities are required to separately disclose the amounts and reasons of significant transfers in and out of the first two levels of the fair value hierarchy. Entities are also required to present information about purchases, sales, issuances and settlements of fair value measurements within the third level of the fair value hierarchy on a gross basis. Our adoption of this guidance did not have an impact on our consolidated financial statements.

In December 2010, authoritative guidance was issued that requires public entities that present comparative financial statements to disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the year had occurred as of the beginning of the comparable prior annual reporting period only. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, non-recurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010, with early adoption permitted. We adopted this guidance as of January 1, 2011. The adoption did not have a material impact on our consolidated financial position, results of operations, cash flows or related disclosures.

The following table sets forth for the periods indicated, certain selected income statement data expressed as a percentage of revenues:

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Revenues of our reportable segments for the three months ended March 31, 2011 and 2010, respectively, were as follows (in thousands):

Total revenues increased approximately 15.1%, or $22.0 million, to $168.0 million in the first quarter of 2011 from $146.0 million in the first quarter of 2010. Of this increase, $15.2 million was attributable to an increase in services revenues and $6.8 million was attributable to a increase in products revenues.

Spa Operations Segment Revenues. Spa Operations segment revenues increased approximately 16.2%, or $17.0 million, to $122.0 million in the first quarter of 2011 from $105.0 million in the first quarter of 2010. Average weekly revenues for our land-based spas increased 4.0% to $30,615 in the first quarter of 2011 from $29,427 in the first quarter of 2010. In January 2011, we completed the acquisition of The Onboard Spa Company ("Onboard"). We had an average of 2,539 shipboard staff members in service in the first quarter of 2011, compared to an average of 2,099 shipboard staff members in service in the first quarter of 2010. Revenues per shipboard staff per day decreased by 1.2% to $416 in the first quarter of 2011 from $421 in the first quarter of 2010. Average weekly revenues for our shipboard spas decreased by 1.0% to $49,806 in the first quarter of 2011 from $50,303 in the first quarter of 2010. Excluding the ships we began serving in connection with the acquisition of Onboard, revenue per shipboard staff per day increased 0.5% to $423 and average weekly revenues of our shipboard spas increased by 3.2% to $51,924 in the first quarter of 2011. The increases in revenues and the key performance indicators referenced above were primarily attributable to strengthening of the economy worldwide, resulting in increased spending by consumers at our spas.

Products Segment Revenues. Product segment revenues increased approximately 14.9% or $4.5 million to $35.0 million in the first quarter of 2011 from $30.5 million in the first quarter of 2010. This increase is primarily attributable to a strengthening of the economy worldwide, resulting in increased spending by consumers on our products.

Schools Segment Revenues. Schools segment revenues increased approximately 2.7%, or $0.4 million to $17.4 million in the first quarter of 2011 from $17.0 million in the first quarter of 2010. This increase in revenues was primarily attributable to increased enrollments and otherwise increased student populations.

COST OF SERVICES

Cost of services increased $11.6 million to $91.2 million in the first quarter of 2011 from $79.6 million in the first quarter of 2010. Cost of services as a percentage of services revenues was 80.7% in the first quarter of 2011 and 81.3% in the first quarter of 2010. This decrease was primarily due to the strong performance of both our land-based and shipboard spas.

COST OF PRODUCTS

Cost of products increased $7.4 million to $38.5 million in the first quarter of 2011 from $31.1 million in the first quarter of 2010. Cost of products as a percentage of products revenue increased to 70.0% in the first quarter of 2011 from 64.6% in the first quarter of 2010. During the first quarter of 2010, there was a $1.5 million foreign exchange gain resulting from the strengthening of the U.S. Dollar against the U.K. Pound Sterling related to intercompany inventory purchases. Excluding this foreign exchange gain, cost of products as a percentage of revenue was 68.0% in the first quarter of 2010. This increase was primarily attributed to additional discounts given on the sale of our products.

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OPERATING EXPENSES

Operating expenses decreased $1.4 million to $21.9 million in the first quarter of 2011 from $23.3 million in the first quarter of 2010. Operating expenses as a percentage of revenues decreased to 13.0% in the first quarter of 2011 from 16.0% in the first quarter of 2010. This decrease was primarily attributable to a $1.3 million foreign exchange gain on our holdings of U.K. Pounds Sterling and Euros resulting from the weakening of the U.S. Dollar against those currencies and good cost controls. The results of the first quarter of 2010 included a $2.0 million foreign exchange loss as the opposite occurred as to what is described previously.

Income from operations of our reportable segments for the three months ended March 31, 2011 and 2010, respectively, was as follows (in thousands):

The increase in operating income in the Spa Operations segment was primarily attributable to a strengthening of the economy worldwide, resulting in increased consumer spending on our products and services. The decrease in the operating income in the Products segment was attributable to additional discounts given on the sale of our products. The decrease in the operating income in the Schools segment was primarily attributed to higher operating costs attributable to that segment.

Other income (expense) decreased due to increased interest expense as a result of the debt and deferred financing fees we expensed in connection with the pay-off of our term loan which accrued during the first quarter of 2011.

Provision for income taxes increased $0.2 million to $1.7 million in the first quarter of 2011 from $1.5 million in the first quarter of 2010. Provision for income taxes decreased to an overall effective rate of 11.1% in the first quarter of 2011 from 13.1% in the first quarter of 2010. The decrease was primarily due to the income earned in jurisdictions that tax our income representing a lower percentage of the total income earned in the first quarter of 2011 than such income represented in the first quarter of 2010.

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During the three months ended March 31, 2011, cash used in investing activities was $3.8 million compared with $0.9 million for the three months ended March 31, 2010. This change was primarily attributable to the completion of the Onboard acquisition.

During the three months ended March 31, 2011, cash used in financing activities was $24.9 million compared with $9.1 million for the three months ended March 31, 2010. This increase in cash used in financing activities was primarily attributable to the pay-off of our term loan during the three months ended March 31, 2011.

Steiner Leisure had working capital of approximately $73.4 million at March 31, 2011, compared to working capital of approximately $77.7 million at December 31, 2010.

In February 2008, our Board of Directors approved a share repurchase plan under which up to $100.0 million of common shares can be purchased, and terminated the prior plan. During the three months ended March 31, 2011 and 2010, respectively, we purchased approximately 20,000 and 25,000 shares, with a value of approximately $0.9 million and $1.1 million, respectively. Those shares purchased were surrendered by our employees in connection with the vesting of restricted shares and used by us to satisfy payment of our minimum federal income tax withholding obligations in connection with these vestings. These share purchases were outside of our repurchase plan.

In connection with the acquisition of Bliss Inc. in November 2009, we entered into a new credit facility (the "Credit Facility") with a group of lenders including SunTrust Bank, our existing lender, consisting of a $60 million revolving credit facility, with $5.0 million swingline and $5.0 million letter of credit sub-facilities, and a delayed draw term loan facility of $50.0 million, both maturing October 30, 2012. The delayed draw term loan was fully funded at the closing of the Bliss Inc. acquisition. Extensions of credit under the Credit Facility may also be used (i) to pay certain fees and expenses associated with the Bliss Inc. acquisition, (ii) to refinance existing indebtedness, (iii) for capital expenditures, (iv) to finance possible future acquisitions permitted under the Credit Agreement and (v) for working capital and general corporate purposes, including letters of credit. The new credit facility replaced our 2007 credit facility, which has been terminated. During the three months ended March 31, 2011, the Company repaid all outstanding borrowings under the term loan. As of March 31, 2011, there was $60.0 million available under the revolving credit facility. Interest on borrowings under the Credit Facility accrues at base rate of the bank, LIBOR or a specified index rate, depending on which rate is lowest at the time, plus, in each case, a spread of between 3.00% - 3.50%, based upon the Company's financial performance. At March 31, 2011, our borrowing rate was 3.76%. Our obligations under the Credit Facility are secured by substantially all of the Company's present and future tangible and intangible assets.

Our credit facility contains customary affirmative, negative and financial covenants, including limitations on dividends, capital expenditures and funded debt, and requirements to maintain prescribed interest expense and fixed charge coverage ratios. As of March 31, 2011 and April 29, 2011, we were in compliance with these covenants. Other limitations on capital expenditures, or on other operational matters, could apply in the future under the credit agreement.

We believe that cash generated from our operations is sufficient to satisfy the cash required to operate our current business for the next 12 months.

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We have no off-balance sheet arrangements.

We do not believe that inflation has had a material adverse effect on our revenues or results of operations. However, public demand for activities, including cruises, is influenced by general economic conditions, including inflation. Periods of economic softness, such as has been experienced in recent years, particularly in North America where a substantial number of cruise passengers reside, could have a material adverse effect on the cruise industry and hospitality industry upon which we are dependent, and has had such an effect in recent years. Such a slowdown has adversely affected our results of operations and financial condition in those years, though less so in 2010 and in the first quarter of 2011. Recurrence of the more severe aspects of the recent adverse economic conditions in North America and elsewhere and over-capacity in the cruise industry could have a material adverse effect on our business, results of operations and financial condition during any period of such recurrence.

From time to time, including in this report, we may issue "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These forward-looking statements reflect our current views about future events and are subject to known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those expressed or implied by such forward-looking statements. We have tried, whenever possible, to identify these statements by using words like "will, " "may, " "could, " "should, " "would, " "believe, " "expect, " "anticipate, " "forecast, " "future, " "intend, " "plan, " "estimate" and similar expressions of future intent or the negative of such terms.

Factors that could cause actual results to differ materially from those expressed or implied by our forward-looking statements include the following:

• our dependence on cruise line concession agreements of specified terms that are, in some cases, terminable by cruise lines with limited or no advance notice under certain circumstances;
• our dependence on the cruise industry and the hospitality industry and our being subject to the risks of those industries, including operation of facilities in regions with histories of economic and/or political instability, or which are susceptible to significant adverse weather conditions, and the risk of maritime accidents or disasters, passenger disappearances and piracy or terrorist attacks at sea or elsewhere and the adverse publicity associated with the foregoing;
• increases in our payment obligations in connection with renewals of expiring cruise line agreements and land-based spa agreements, or the securing of new agreements;
• increasing numbers of cruise line passengers being sourced from outside of North America;
• the continuing effect on the travel and leisure segment of the international political climate, terrorist attacks and armed hostilities in various regions in recent years and the threat of future terrorist attacks and armed hostilities;
• the continuing growth of the cruise lines' capacity in recent years and resulting potential need by the cruise lines to offer discounted fares to guests, resulting in potentially adverse effects on us due to reduced spending on our services and our products;
• changes in or disruptions to airline service to cruise embarkation and disembarkation locations, resulting in adverse effects on the ability of cruise passengers to reach their ports or cancellation of cruises;
• increasing numbers of days during cruises when ships are in port, which results in lower revenues to us;
• reductions in revenues during periods of cruise ship dry-dockings and major renovations or closures of land-based venues where we operate spas;

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• our dependence on a limited number of companies in the cruise industry and further consolidation of companies in the cruise industry;
• the economic slowdown experienced in recent years, including a significant reduction in consumer spending, which improved in 2010 and the first quarter of 2011, and related disruptions to capital and credit markets in North America and elsewhere that have reduced the number of customers on cruise ships and at land-based venues and have reduced consumer demand for our services and our products;
• the risk that we will be unable to successfully integrate or profitably operate Bliss Inc., or other operations that we may acquire in the future, with our then existing businesses;
• our dependence on the land-based hospitality industry and the risks to which that industry is subject;
• the effects of outbreaks of illnesses or the perceived risk of such outbreaks on our land-based spa operations in Asia and in other locations, on our cruise ship operations and on travel generally;
• major renovations or changes in room rates, guest demographics or guest occupancy at the land-based venues we serve that could adversely affect the volume of our business at land-based spas;
• our dependence, with respect to our land-based spas, on airline service to our venue locations, which is beyond our control and subject to change;
• our dependence on a limited number of product manufacturers;
• our dependence on our distribution facilities and on the continued viability of our third party product distribution channels;
• our obligation to make minimum payments to certain cruise lines and owners of the locations of our land-based spas, irrespective of the revenues received by us from customers;
• our dependence on the continued viability of the cruise lines we serve and the land-based venues where we operate our spas;
• the risk that our receivables, which have been collected on a less timely basis than prior to the commencement of the economic slowdown, will continue to become subject to an even longer period of collection or become uncollectible;
• delays in new ship introductions, a reduction in new, large spa ship introductions and unscheduled withdrawals from service of ships we serve;
• increased fuel costs contributing to the economic weakness and increasing our costs of product delivery and employee travel expenses;
• our dependence for success on our ability to recruit and retain qualified personnel;
• possible labor unrest or changes in economics based on collective bargaining activities;
• the licensing requirements of the various jurisdictions where we have operations, which could affect our ability to open or adequately staff new venues on our timely basis;
• changes in the taxation of our Bahamas subsidiaries and increased amounts of our income being subject to taxation;
• competitive conditions in each of our business segments, including competition from cruise lines and land-based venues that may desire to provide spa services themselves and competition from third party providers of shipboard and land-based spa services;
• risks relating to our non-U.S. operations;
• the risk of severe weather conditions, including, but not limited to, hurricanes, earthquakes and Tsunamis, disrupting our spa operations;
• the ability of the land-based venue operators under certain of our land-based spa agreements to terminate those agreements under certain circumstances;

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• insufficiency of resources precluding our taking advantage of new spa or other opportunities;
• our potential need to seek additional financing and the risk that such financing may not be available on satisfactory terms or at all;
• uncertainties beyond our control that could affect our ability to timely and cost-effectively construct and open land-based spa facilities;
• risks relating to the performance of our massage and beauty schools which are, among other things, subject to significant government regulation, the need for their programs to keep pace with industry demands and the possibility that government-backed student loans will not be available to our students;
• risks relating to the operation of our schools, including student enrollment and retention and faculty retention;
• the risk that increases in interest rates could result in corresponding increases in cost to certain of our students and to students' ability to timely repay loans, resulting in a negative impact on our schools' ability to participate in Title IV programs and a reduction in the number of students attending our schools;
• the risk, with respect to certain of our campuses that experience severe weather conditions from time to time, that such weather conditions could result in closings of certain of those campuses for days at a time;
• the risk of a protracted economic slowdown on our schools;
• obligations under, and possible changes in, laws and government regulations applicable to us and the industries we serve, including the new DOE regulations that could significantly affect our schools' operations, government regulation of our products and the claims we make about the efficacy of our products, proposed new rules with respect to shipboard employees, increased security requirements for ships we serve that call on U.S. ports, as well as possible challenges to our ability to obtain work permits for employees at our land-based spas;
• product liability or other claims against us by customers of our products or services;
• the risk that our insurance coverage may become unavailable to us on commercially reasonable terms or may be insufficient to cover us in the event of a certain loss, or that high visibility claims could result in adverse publicity and thus adversely affect our business;
• the risks to our cash investments resulting from the current financial environment;
• restrictions imposed on us as a result of our credit facility;
• our need to find additional sources of revenues;
• the risk that announced retail rollouts of our product sales at specified venues will not occur;
• our need to expand our services to keep up with consumer demands and to grow our business and the risk of increased expenses and liabilities potentially associated with such expansion;
• our ability to successfully protect our trademarks or obtain new trademarks;
• foreign currency exchange rate risk;
• risks relating to interruptions in service of, and unauthorized access to, our computer networks;
• the risk that changes in privacy law could adversely affect our ability to market our services and products effectively; and
• the risk of fluctuations in our share price, including as a result of matters outside of our control.

Forward-looking statements should not be relied upon as predictions of actual results. Subject to any continuing obligations under applicable law, we expressly disclaim any obligation to disseminate, after the date of this report, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.

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For a discussion of our market risks, refer to Part II, Item 7A. Quantitative and Qualitative Disclosures about Market Risk is in our Annual Report on Form 10-K for the year ended December 31, 2010.

We carried out an evaluation, under the supervision, and with the participation, of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15(d)-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of March 31, 2011.

There has been no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the three months ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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From time to time, in the ordinary course of business, we are party to various claims and legal proceedings. There have been no material changes with respect to legal proceedings previously reported in our annual report on Form 10-K for the year ended December 31, 2010.

In addition to the information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results. The following updates the risk factor identified in the caption below, which was included in our 2010 Form 10-K.

In October 2010, the DOE issued new regulations relating to the Title IV Programs. Among other areas covered are the following:  incentive compensation, disclosure of information pertaining to educational programs subject to DOE requirements regarding gainful employment by program graduates in a recognized occupation, procedures for obtaining approval of new programs subject to DOE gainful employment requirements, state authorization as a component of institutional eligibility, definition of a credit hour (an area that will have a particular impact on our schools), verification of information included on a Free Application for Federal Student Aid, definition of a high school diploma for purposes of establishing eligibility to participate in student financial aid programs, misrepresentation of information provided to students and prospective students, agreements between institutions of higher education, ability to benefit testing, satisfactory academic progress, retaking coursework, term-based module programs, institutions required to take attendance for purposes of certain return of Title IV funds requirements, and timeliness and method of disbursement of Title IV funds. 

The DOE is expected to issue additional final rules soon with a general effective date of July 1, 2012 regarding gainful employment by program graduates in a recognized occupation, which rules would require each educational program offered at each of our schools to comply with additional requirements in order to qualify for Title IV Program funding.  Under the proposed DOE regulations, each program would be required to achieve threshold rates with respect to federal loan repayment and with respect to the relationship between student debt and the income that enrollees earn after program completion.  Programs that fail to achieve threshold rates may be subject to loss of Title IV eligibility, restrictions on Title IV enrollment, requirements to submit employer affirmations of program acceptability and projected job vacancies and/or requirements to provide debt warnings and disclosures to current and prospective students.  

We continue to analyze the new regulations and subsequent informal and formal guidance and clarifications issued by the DOE with respect to the new regulations to identify and assess potential impacts to our schools business and to consider and evaluate various strategies to address those potential impacts. The implementation of these rules will adversely effect the results of operations of our schools and will require us to change certain of our business practices and incur costs of compliance and in developing and implementing changes in operations. The new regulations will affect our student recruitment and/or enrollment by limiting the ability of our students and educational programs to remain eligible to participate in Title IV Programs, limiting the financial aid or government sponsored loan amounts a student can receive, adversely impacting our ability to compensate certain employees, and may result in changes in, or elimination of certain programs and may have other material effects on our schools business including limiting our ability to grow that business.

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The continuing economic slowdown could have an adverse impact on the ability of students to make repayments, thus increasing our schools' default rates. If any of our schools were to lose eligibility to participate in federal student financial aid programs because of high student loan default rates, it could have a material adverse effect on the results of operations and financial condition of our schools.

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Schools participating in Title IV Programs may not provide any commission, bonus or any other incentive compensation based directly or indirectly on success in securing enrollment or financial aid to any person or entity, engaging in any student recruitment or admission activity or making decisions regarding the awarding of Title IV Program funds. The law and regulations governing this requirement do not establish clear criteria for compliance in all circumstances. Moreover, the New DOE Regulations will eliminate all 12 safe harbors and thereby reduce the scope of permissible payments under the rule and expand the scope of employees subject to the rule. The DOE stated when it published the final regulations that it did not intend to provide private guidance regarding particular compensation structures in the future and will enforce the incentive compensation rule as written. We cannot predict how the DOE will interpret the rule, but, in any event, we will have to modify some of our compensation practices as a result of the elimination of the safe harbors. These modifications could affect our ability to appropriately compensate and retain our admissions representatives and other officers and employees and could affect our enrollments, either of which could have a material adverse effect on the results and operations and financial condition of our schools. In addition, if the DOE determined that our compensation practices violated these standards, the DOE could subject our schools to monetary fines or penalties or other sanctions. Any substantial fine, penalty or other sanction against our schools could have a material adverse effect on our schools' results of operations and financial condition.

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(c) The following table provides information about purchases by Steiner Leisure of our common shares during the three month period ended March 31, 2011: