The top executive at Regis Corp. said Tuesday that the company will continue to spend cash on its salons even as its short-term profits take a beating.
In a brief interview with the Star Tribune, CEO Dan Hanrahan said Regis specifically needs to invest in its hair stylists if the world's largest chain of hair salons ever wants to reverse its streak of declining sales at stores open for at least a year.
"We are willing to take a hit to the margin in order to turn the business around," Hanrahan said.
Much of Regis' lower profits relates to the company's decision to extend the hours of its hair stylists, especially at its Supercuts locations and SmartStyle salons in Wal-Mart Stores.
In the past, Regis would cut hours in order to make its numbers for the quarter, Hanrahan said. But since haircutting and styling depends heavily on service, it makes sense to invest in those services, he said.
"We need to retrain the customer so they understand we're in the hair business, that we have the available space," Hanrahan said.
So far, the investments appear to be making a difference.
SmartStyle and Supercuts both reported positive same-store sales in the quarter, with revenue growing 2.6 percent and 1.3 percent, respectively.
Regis reported Tuesday that it earned $2.4 million, or 4 cents a share, in the third quarter, but widely missed Wall Street's expectations.
Excluding discontinued operations and restructuring costs, Regis earned 1.2 cents a share, compared with the 14 cents analysts had been expecting.
Adjusted earnings also were sharply lower than the 29.2 cents of a year ago.
Regis stock rose 4 cents to close Tuesday at $18.93.
Overall, third-quarter revenue was $504.9 million, down 5.8 percent, compared with the Wall Street expectation of $519.7 million.
Total same-store sales fell 1.4 percent, although Regis appears to have slowed the rate of decline.
"We've got a lot of work to do clearly," Hanrahan said. He declined to give a time when he thinks same-stores sales will start growing again.
Increasing sales is only one part of the equation. Over the past year, Regis also has reduced costs and sold off noncore businesses. Regis sold its Hair Club for Men and Women to Aderans Co. for $163.5 million and divested its stake in Provalliance for $105 million.
Wall Street appears to endorse Hanrahan's strategy. Since November, the stock has jumped nearly 19 percent.
Next up for Regis: cutting the number of store brands it operates and deciding which of its 7,500 salons in North America to keep or exit.
The company previously indicated that it will trim, at a minimum, 25 brands from its stable of 50, which includes Supercuts, MasterCuts, SmartStyle and CostCutters.
Before Regis makes those decisions, the company first needs to stabilize store operations, Hanrahan said.
"We have a lot of brands," he acknowledged. "But we need to get the basics right first."
The company also has been reducing the size of its corporate headquarters workforce. Hanrahan confirmed that Regis recently laid off employees but declined to disclose a number.