Regis accelerating transition to all franchise-owned salons

Regis is accelerating its transition to all franchise-owned salons and has hired an investment banker to help finance the transition.

The news came as Edina-based Regis announced second-quarter results that beat analysts' expectations.

"As we disclosed at the close of fiscal year 2019, the transition to a 'capital-light' franchise model initially has a 'dilutive' impact on the company's adjusted EBITDA, as we saw this quarter," said CEO Hugh Sawyer in a statement, referring to earnings before interest, taxes, depreciation and amortization. "Nevertheless, we remain convinced that a fully franchised business that generates a higher return on its capital will prove to be in the best long-term interests of our shareholders."

Regis stock closed Tuesday at $14.99, down about 2.7%, in an otherwise up day for market indexes.

Sawyer said the transition will be "substantially complete" by the end of 2020. With the acceleration of the process, Regis has been able to make "meaningful" reductions in expenses. At the end of last year, Regis had 3,668 corporate-owned stores. It now has 2,277 stores.

Regis reported a net loss for the quarter ended Dec. 31 of $9.4 million, or 26 cents a share, compared with income of $417,000, or 1 cent a share, in the same period a year ago. Regis lost $23.2 million, or 64 cents per share, in the first half of the fiscal year.

Revenue also was down as expected, from $234.3 million in last year's second quarter to $128.9 million.

During the last fiscal quarter, Regis sold 443 company-owned salons. During the first six months of the year, the company has converted 988 company-owned salons to its franchise portfolio. About 900 Regis-owned salons, or 50% of the remaining company-owned salons are available for sale or in negotiations to be sold.

Regis also said it has retained investment banker Guggenheim Securities to help refinance its debt.

In January, Regis announced the elimination of 290 administrative and support positions throughout the U.S. and Canada. The company expects to save nearly $19 million in annual expenses as a result of the layoffs. Regis sold its Edina headquarters in December 2019, netting $4 million.

Sawyer, who has been on board at Regis for nearly three years, is the third CEO since the late Paul Finkelstein, former CEO, was forced out in 2012.

Regis stock is down for the year and selling only about half of its high-water mark of more than a decade ago. Back then, go-go Regis was gobbling up regional competitors in transactions, many of which didn't pan out over the long term.

Besides its namesake salons, Regis operates salons such as Supercuts, SmartStyle, Cost Cutters, Roosters and First Choice Headquarters.