Regis restructuring results in more profitable quarter

August 22, 2018

Regis Corp. is in the midst of a business transformation that is restyling the company into a leaner more profitable company less dependent on company-owned salons.

After reporting better than expected fourth quarter results and a profit for the fiscal year after losing money in fiscal 2017 its stock on Tuesday jumped 14 percent to $20.59.

Although we have more work to do, we are pleased to report signs of progress in our financial performance and ongoing transformation efforts, said the companys president and CEO, Hugh Sawyer, in its earnings release.

During the quarter ended June 30, Regis cut 701 salons from its network and converted another 448 company-owned salons into franchise locations. As a result, the Edina-based operator of company-owned and franchised hair salons reported revenue was down 8.1 percent to $294,885. Earnings were $4.8 million, or 10 cents per share, up from $1.3 million, or 3 cents per share, in the same quarter a year ago.

Analysts expected the company to earn $1.6 million, or 3 cents per share.

Stephanie Wissink, an equity analyst for Jefferies, wrote recently of the changes at Regis. We still see inherent value in the operating model and would expect ongoing tuning of the structure to optimize the profit profile.

The company reported positive same-store sales results of 0.7 percent despite the fact the Easter holiday fell in the fourth quarter a year ago but in their third quarter this year. It was also marked the fourth time in last five quarters Regis has shown same-store-sales growth.

The company also announced further progress on its multiyear plan to make over the company and improve the performance of company-owned stores. During the fourth quarter, the company repurchased $15.2 million worth of company shares, converted 144 company-owned salons to franchised sites and it would consider franchising the remaining Supercuts salons that are company-owned.

Sawyer, who took over as CEO in April 2017, said on the companys earnings conference call that the number of franchised salon locations now make up 51 percent of the companys salon portfolio, compared with 29 percent 16 months ago. As of June 30, the company owned 3,966 salons and had 4,114 franchise locations.

Adjusted quarterly earnings, excluding some discrete items and discontinued operations, were $10.4 million, or 22 cents per share, compared with $11.6 million, or 25 cents per share in the fourth quarter last year. Further adjusting for new income tax rates and the valuation of deferred tax assets Regis said its adjusted net income in the quarter actually increased $4 million in the quarter, or 9 cents per diluted share.

Revenue for the year was $1.2 billion, down 4.3 percent from the prior year. The company earned $8.7 million, or 18 cents per share, compared to a net loss of $16.1 million, or 33 cents per share.

With the bump on Tuesday, Regis shares are up 33.5 percent year-to-date. Over the last 52 weeks, shares have traded in the range of $9.96 to $22.19 per share.

Patrick Kennedy 612-673-7926

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