Regis Corp. Revenue Down 40 Percent While Pivoting to All-Franchise Model

Regis Corp. Revenue Down 40 Percent While Pivoting to All-Franchise Model

CEO also cites “government-mandated hibernation” among challenges

Minneapolis-based Regis Corp., a hair salon owner, operator and franchisor, was already in the process of overhauling its business model when the Covid-19 pandemic hit.

The company reported third quarter fiscal 2020 revenue at $153.8 million, a drop of 40.5 percent compared to a year ago. Regis reported a net loss of $4.5 million for the quarter, compared to a profit of $15.4 million in last year’s third quarter. The company’s third quarter ended on March 31.

But Covid-19 was not to blame for the bulk of the sales drop. Regis is in the process of getting out of the business of running salons to become an all-franchise company. Shedding company-owned locations means less money coming into the corporate office. At the same time, it noted that salon closings in late March due to the pandemic and a 7.9 percent drop in company-owned same store sales were also factors in the results.

“Despite the challenges caused by the pandemic and the government-mandated hibernation of our salon portfolio, we continued to make meaningful progress in all areas of our strategy,” said Hugh Sawyer, chairman, president and CEO of Regis, in a statement. “We remain committed to our transformation to a fully-franchised model on an expeditious timetable, the removal of non-essential G&A [general and administrative expenses] and the deployment of value-enhancing technology.”

The company reported a $75.3 million loss for continuing operations for the quarter. But that number included non-cash charges including “a one-time non-cash goodwill impairment charge of $44.5 million related to the company-owned salon segment [and] non-cash goodwill derecognition charges of $19.8 million associated with the sale of 375 company-owned salons to franchisees in the third quarter.”

In corporate finance, “goodwill” is an intangible asset when one company buys another. The goodwill share of the purchase price reflects a premium that the buyer pays over and above what the fair value of the assets would be. A company’s brand name, reputation, and other factors are part of goodwill. The impairment charges reflect a write-down in the value of that intangible asset.

In January Regis cut approximately 290 jobs estimated to save $19 million a year as part of restructuring related to its conversion to an all-franchise model.

The company also shuttered “90 non-performing company-owned salons in the quarter which were at or near the end of their lease term.” Over the 12 months through the end of March, Regis closed 187 “unprofitable salons.”

Regis has significantly reduced its portfolio of company-owned salons from 3,376 at the end of March 2019 to 1,815 locations at the end of March 2020. That now represents 26.1 percent of the total portfolio of franchise and company-owned salons.

In March the company tapped its credit line for $183 million “to increase its cash position and preserve financial flexibility in light of uncertainty resulting from the COVID-19 pandemic.” Many companies have made similar moves in response to the crisis.

The company reported that about one-third of its salons remain closed: As of June 15, 2020, 3,934 of our franchise salons and 775 of our company-owned salons were open, representing approximately 68% of the Company’s portfolio.

Regis recently relocated its headquarters from Edina to the 3701 Wayzata Boulevard building in Minneapolis along the Interstate 394 corridor.