Regis Stops Paying Dividends, Changes How It Spends Cash

Regis Stops Paying Dividends, Changes How It Spends Cash

The salon chain operator said it is implementing a “new capital allocation policy” as it attempts to turn itself around, and it determined that paying dividends is “not the best use of excess capital.”

Regis Corporation, the Edina-based salon chain operator, recently outlined a new strategy for allocating capital and said it will cease paying quarterly dividends.

Regis' brands include Supercuts, MasterCuts, Regis Salons, Sassoon Salon, and Cost Cutters, among others, and it currently has 9,752 owned and franchised locations. The company has struggled and cut costs in recent years.

Regis reported a net loss of $136,000 for its latest quarter and a 7 percent decline in revenue. Last month, Regis President and CEO Dan Hanrahan said the company had made “transformational changes” that were “disruptive” but “necessary” to turn the company around.

On Monday, the company said it is implementing a “new capital allocation policy” as it attempts to right the ship. Hanrahan, who took the reins in 2012, pointed out that the company has “largely reconstituted our management team and board” during his tenure, and a key priority of the leadership team was re-evaluating how the company allocates capital.

The goals of Regis’ new plan are to “preserve a strong balance sheet,” “prevent unnecessary dilution,” and find the best ways to deploy capital.

In an effort to accomplish those goals, the company said it issued $120 million of 5.75 percent senior, unsecured notes, which will become due in 2017. Combined with the company’s existing $204 million cash balance, the issuance of those notes will “provide significant liquidity for the company to execute its turnaround strategy,” Regis said. The company might use proceeds from the notes to refinance a portion of its $172.5 million in convertible debt that matures in July, but “no definitive decisions have been made.”

The company said that, going forward, its “preferred use of capital” will be to reinvest in salons “where expected returns provide attractive rewards relative to risks taken.” Once the business is stabilized, the default use of capital will be share repurchases, Regis said.

Regis also said it will no longer pay dividends to shareholders. The company most recently paid a dividend of $0.06 per share on November 19.

“While dividends are a viable option for some companies, management believes the best return on capital is through purposeful reinvestment into the business and share repurchases at reasonable prices,” Regis said.

Hanrahan said in a statement that he is “confident that our strategic changes and our new capital allocation philosophy position Regis to execute its turnaround plan, provide options with respect to capital deployment, and ensure that we maximize value to our shareholders during our turnaround and our subsequent growth.”

Regis is among Minnesota’s 25 largest public companies based on revenue, which totaled $2 billion in its latest fiscal year. Shares of the company’s stock closed down about 1.2 percent Wednesday at $15.84. The stock was trading down more than 4 percent at $15.15 Thursday morning.