StarTribune.com

Regis to close 160 salons in effort to shave operating costs

By JACKIE CROSBY, Star Tribune

July 9, 2008

Edina-based Regis Corp. said Wednesday it will close about 160 underperforming salons in the United States, Canada and United Kingdom in the next six months as it tries to cut costs. Four of the stores will be in Minnesota, though a company official declined to offer specific locations.

The stores make up less than 2 percent of the chain's 8,500 company-owned salons, which operate under the names Regis Salons, MasterCuts, Cost Cutters, Supercuts and Trade Secret, among others.

The closings come in addition to the 200 or so low-performers that Regis typically shuts down each year when leases run out, Regis CEO Paul Finkelstein said. The company said it would offer employees jobs in nearby salons.

"Every store that opens isn't a home run," said Stan Pohmer, a Twin Cities retail consultant. "At some point you have to identify your chances of turning them around. ... It's just good business management to go in and cut out the low-hanging fruit that's sucking all your resources out. It's not something that hints at problems endemic with the company."

Regis expects to shutter 100 stores at regional malls, 40 at strip malls and 20 in the United Kingdom. About a third of the closings will come from the struggling Trade Secret stores, the rest from a "myriad of brands," Finkelstein said. Many of the stores were located in malls that were struggling or in strip centers that had lost major tenants.

None of the 2,178 SmartStyle salons that operate in Wal-Mart SuperCenters will be closed, Finkelstein said.

Regis expects to record a pretax charge of $20 million to $25 million to close the stores before the end of their lease terms, a cost Finkelstein said will ultimately boost profits by reducing the drain on time and resources.

Regis said it will write down $4.5 million, or 6 to 7 cents a share, in the fourth quarter, which ended June 30. The remainder of the charges will be recorded in the first half of the fiscal year.

Shares on Wednesday closed at $26.81, down almost 2 percent, in a day most of the market's major indexes closed down by a similar amount.

Regis has spent the past 18 months focusing on internal efforts to reduce costs, including consolidating contracts for janitorial services and office supply vendors and reducing the number of small parcel posts.

Combined with price increases across nearly 6,000 locations, Finkelstein said, the measures helped boost third-quarter net income.

Meanwhile, Regis is pushing forward with new concepts despite cutting its new-store construction in half as consumers make fewer visits to the salon for haircuts, products and other services.

On Aug. 8, Regis plans to open what Finkelstein describes as a "quality, high-end barbershop" called Raze, located off of Hwy. 62 and Shady Oak Road in Minnetonka. Haircuts will run $25 to $30, and come complete with hot towels, Internet access, bottled water and other amenities.

Jackie Crosby • 612-673-7335