Regis Corp.: Salon visits are up, but sales down

  • Article by: STEVE ALEXANDER , alex@ startribune.com
  • Updated: October 10, 2011 - 7:27 PM

The hair salon company, in a battle with an activist investor, turns to cost-cutting and other measures to improve results.

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Regis Salon at the Nicollet Mall and 6th St. in Minneapolis

Photo: David Brewster, Star Tribune

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Regis Corp., the hair salon firm that's trying to put its best foot forward as it faces a proxy fight by dissident shareholders, pre-released first-quarter revenue numbers Monday that showed it beat Wall Street expectations.

While salons saw modest increases in the number of customer visits, Regis is "not satisfied" and is working on converting more first-time customers into repeat clients, said CEO Randy Pearce.

First-quarter revenue was $569 million, down 1.7 percent from a year ago, but slightly above a composite analyst estimate of $567.4 million. Regis, an Edina-based operator of hair care salons, beauty schools and hair restoration centers, also said that consolidated same-store sales in the quarter decreased 1.5 percent, although customer traffic to its stores rose slightly. The company is scheduled to report earnings on Oct. 24.

"The Regis management team remains committed to implementing its important revenue and aggressive cost cutting initiatives to drive customer traffic and enhanced financial performance," said Pearce, who was promoted to CEO last week.

But the Edina firm's announcement had minimal effect on the stock market, where Regis shares rose 2 cents, a tiny fraction of a percent, to $15.72, on a day that broad market indexes surged more than 3 percent.

The company's flagging stock price has been one of the points of contention in the pending proxy fight. Starboard, a New York-based activist hedge fund that owns about 5.2 percent of Regis, is waging the battle for three of Regis' six board seats, partly based on its contention that Regis' stock price has historically been weak.

The fund's other complaints are that Regis has allegedly high operating expenses and executive compensation, a reluctance to sell non-core assets and allegedly insufficient stock ownership by existing board members. Starboard has said Regis needs to cut $100 million in costs, sell off non-core assets, and reorganize its core North American business.

Starboard executives have said previously that they regarded board representation as a top priority so they can make sure the company will properly execute its preferred strategies.

In an attempt to deal with the Starboard threat, Regis previously said it would explore selling off its Hair Club for Men and Women business, cut $40 million to $50 million in costs over the next two years, and that Regis' chairman and CEO, Paul Finkelstein, would leave the company next year, according to documents filed with the Securities and Exchange Commission.

Seeking Alpha, an investor website, said Monday that Regis has hired an investment banker to help sell some businesses that might have a value of $200 million.

Steve Alexander • 612-673-4553

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