The long-awaited financial rebound of Regis Corp. seems to have arrived.
Regis stock hit $42 in 2007, just ahead of the Great Recession, bottomed out at less than $10 per share early last year and has since doubled in value.
The board, reconstituted since insurgent shareholders forced out CEO Paul Finkelstein in 2012, and investors have embraced the recovery plan by the second CEO since Finkelstein. It gained credibility thanks to improved financial results in its last fiscal year that were reported in August.
The human carnage, however, has continued. The company has shrunk from 41,000 full- and part-time employees in June 2017 to 27,000 on June 30, after the sale of some corporate-owned salons.
In late September, employees said up to 75 people from its unspecified number of Edina corporate employees were let go.
Regis has declined to discuss what it considers personnel issues or otherwise comment beyond news releases.
The brass has done OK, though. Regis, worth about $900 million, is on its third seven-figure CEO in seven years.
Its strategy has ranged from selling itself to reinventing itself in what has proved a painful corporate drama for many stakeholders.
CEO Hugh Sawyer, who joined the company in early 2017 as a consultant to the previous CEO, has sold Regis businesses, cut expenses and moved rapidly away from corporate-owned stores to a franchise model, where licensing- and fee-based revenue can be more predictable.
That’s not unlike the strategy of neighboring Great Clips, a private company that operates exclusively through small-business franchisees.
Regis “is executing a highly tactical rebalancing and restructuring effort and progress appears on track — potentially even running slightly ahead of expectations,” Jefferies analyst Stephanie Wissink said in a recent note to investors.
Finkelstein, who died at 75 last year in Florida, built Regis into a consolidating giant in the hair-care salon trade over 16 years as CEO. However, the recession, slack business in declining retail malls and more had Finkelstein on the ropes by 2011.
Activist investor Starboard Value of New York, critical of Finkelstein’s robust compensation and reluctance to take dramatic steps, managed to get its three director candidates elected to the board by time-for-change shareholders.
Starboard Value’s 2011 election pitch to shareholders: Finkelstein collected more than $15 million in compensation from 2008 to 2010 while the share price declined 30 percent; and he was entitled to $800,000-plus for life and $2.75 million when replaced as CEO.
Finkelstein stepped down in 2012. Five years later, the situation was still tumultuous.
The board replaced Finkelstein’s successor, CEO Dan Hanrahan, with Sawyer, a senior consultant at Chicago-based Huron Consulting that Regis had hired to design a turnaround. Regis shares were trading at 10-year lows and revenue was off 5 percent during the first half of 2017.
Hanrahan, who had been CEO of Celebrity Cruises, exited with $9.3 million in severance that included accelerated equity awards.
Sawyer, 64, has dramatically increased the sale of marginal businesses and accelerated the move to the franchise model.
In late 2017, Regis sold its remaining mall-based business in North America, 858 salons and virtually all of its former international business; 250 salons in the United Kingdom, to the Beautiful Group, an affiliate of private-equity firm Regent of Los Angeles.
Earlier this year, Regis closed 597 of its SmartStyle salons that generated negative cash flow of $15 million during the previous 12 months.
Regis, which operates under trade names SmartStyle, Supercuts, Master, Regis and Cost Cutters, has cut company-owned salons to 3,966 from 6,273 last year and increased franchised salons from 2,496 to 4,114.
Regis, which is also trying to improve the performance of company-owned stores, says it is cutting nonessential costs while improving guest experiences and recruiting and retaining stylists.
The company reported improved financial results in fiscal 2018, including net income from continuing operations of $61.9 million, compared to a $900,000 loss in 2017. Revenue declined 4.3 percent in 2018 from 2017. Franchise royalties and fees, still less than 5 percent of revenue, are rising, while service and product revenue were down slightly.
“Although we have more work to do, we are pleased to report signs of progress in our financial performance and ongoing transformation efforts,” Sawyer said in August. The fiscal 2018 return to Regis shareholders was 61 percent, thanks to the rising stock price.
Sawyer was paid $3.1 million, including an incentive bonus of $2 million.
Staff writer Patrick Kennedy contributed to this report.
Neal St. Anthony has been a Star Tribune business columnist and reporter since 1984. He can be contacted at firstname.lastname@example.org.