Amid poor fourth quarter, Regis CEO urges patience

  • Article by: THOMAS LEE , Star Tribune
  • Updated: August 27, 2013 - 9:09 PM

He told investors that the company needs better execution and he sees better days ahead.

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After adding a point-of-sale system, revamping its field organization and cutting merchandise, Regis Corp. had a poor quarter.

Photo: DAVID BREWSTER • Star Tribune file,

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Regis Corp. CEO Dan Hanrahan urged investors to remain patient with his turnaround plan even as the company seemed to regress in the recently completed fourth quarter.

The Edina-based operator of hair salons finished the last three months of its fiscal year on a sour note. Same-store sales and same-store service sales each fell 3.1 percent.

As a result, Regis said adjusted operating profits for the quarter fell 28 percent to $37 million from $51.6 million a year ago. Total sales declined 5 percent to $502.3 million.

Even as Hanrahan said it would take time to revive the struggling company, he acknowledged Regis took a step backward with its latest results. He could not be reached for comment.

“I’m not pleased with our performance,” Hanrahan told analysts during a conference call. “We must drive better execution and get our business back on track.”

Still, he said, “changes in strategic direction of an established business requires investment, execution and time. While there has been disruption to our business performance, I’m proud with the progress our entire organization has made at laying the foundation for us to become a best-in-class operator.”

Under Hanrahan, Regis has put in a new point-of-sale system, revamped its field organization to enable local managers to make decisions and simplified merchandise by eliminating 4,500 items at its 7,000 salons. The company has invested considerable time and money on its hair stylists, extending the hours of these employees at Supercuts salons and SmartStyle locations inside Wal-Mart.

In a previous interview with the Star Tribune, Hanrahan said he was willing to sacrifice margins because these investments were necessary to the Regis’ long-term prospects. “We are willing to take a hit to the margin in order to turn the business around,” Hanrahan said.

In the past, Regis would cut stylists’ hours in order to make its numbers for the quarter. But since haircutting and styling depend heavily on service, it makes sense to invest in those areas, he said.

“We need to retrain the customer so they understand we’re in the hair business, that we have the available space,” he said.

But worse than expected sales, not just investments, eroded Regis’ profits in the fourth quarter. Service revenues dropped 5.3 percent to $390 million from the comparable period in fiscal 2012. Product revenue declined nearly 5 percent to $102 million with fewer people visiting Regis salons.

Hanrahan blamed some of the sales declines on the disruption caused by installing the new point-of-sale system. Some salons were able to adapt better than others, he said, suggesting that the ultimate factor was effective leadership.

“We saw salons where people got through it very well and we didn’t see our salons lose revenue,” Hanrahan said, “but we did see salons where they just really struggled with any kind of change. I think more than anything else, it pointed out … how much we need to improve in our ability to deal with change in the field.”

The new point-of-sale system, he said, will give Regis better information about customer retention and salon performance.

Hanrahan declined to specify when he expects Regis’ investments to result in positive sales. He called fiscal 2014 a period of “transition and execution.”

“It will be a year focused on execution where we begin to manage the change instead of the change managing us,” Hanrahan said.

Regis shares fell 31 cents, or 2.21 percent, to close Tuesday at $16.78.

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