Regis Corp. plans to sell more than 3,100 salons in its transition to a full franchise business model.
In its last fiscal year, the Edina-based company has sold 767 salons to franchisees, making more than half its 7,145 salons franchises. It said Tuesday, as it released fourth quarter results, that it will sell almost all of the rest of the corporate-owned stores.
“After more than two years of carefully planned evolution, we have identified and confirmed a compelling vision for Regis as a capital light, high growth, technology-enabled franchise company,” said Regis President and Chief Executive Hugh Sawyer in a statement. “We are 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.”
Sawyer said while the transition will tighten margins in the short term, it will be more profitable in the long run. For example, sales were 4.3% lower in corporate-owned salons for the quarter.
Overall, sales were down 17.4% to $248.2 million for the fourth quarter. For the fiscal year ended June 30, sales were $1 billion, down from $1.2 billion in the prior year. Besides the company-owned salons sold, Regis also closed 214 salons during the last year.
For the quarter, the company reported a net loss from continuing operations of $5.4 million, or 14 cents per share, compared with a $3.3 million profit, or 7 cent per share gain, in the same period last year.
Adjusted earnings, aided by gains from salons sold, were $24.6 million, or 62 cents per share, up form $9 million, or 19 cents per share.
The corporate style change that Regis is undergoing will also cut the total number of salon brands from more than 50 to just five core brands: Supercuts, SmartStyle, Cost Cutters, First Choice Haircutters and Roosters.
When Sawyer joined Regis in 2017, just 28% of the salons were franchised; at the close of the company’s fiscal year, June 30, 56% of the salons were franchised.
The company is anticipating that the remainder of its portfolio conversion will take place over the next 18 to 24 months but that nearly half its remaining corporate-owned salons are in the process of being purchased by new or existing franchises.
Sawyer said the strategic shift will also include new technology, better marketing and advertising, more investment in stylist recruitment and training and more trend-driven merchandise.
The company also said it has launched a new brand campaign for Supercuts and is implementing an online scheduling tool for Regis salons.
“We have more work to do before we finish the transformational phase of our strategy, but we have growing confidence in our plan, the ability of the Regis team and our franchise partners to successfully execute the transformation,” Sawyer told analysts on the company’s earnings call Tuesday.
Shares of Regis closed Tuesday at $14.68, down 8%.