Regis Corporation (RGS) recently inked a deal to divest its minority ownership interest in Provalliance, the largest hair salon company in Europe. The decision reflects the leading global hair care company’s efforts to turn around from continued underperformance.
Per the deal, Minneapolis-based Regis will receive EUR 80 million in cash from Provalliance, which is buying the stake. The divesture is expected to be completed by September 30, 2012, depending on the Provalliance’s ability to arrange financing for the purchase consideration. Regis will incur post-tax non-cash net impairment charge of $15 million to $18 million, associated with the divesture that will be recorded in the company’s third fiscal quarter of 2012.
Regis’ association with Provalliance dates back to January 2008 when Regis combined its continental European franchise salon operations with the Franck Provost Salon Group in a newly formed entity, Provalliance. In March 2011, Regis augmented its ownership interest in Provalliance to 46.7% from 30%.
Regis, which owns various consumer segments like Supercuts, MasterCuts, Regis salons, SmartStyle, has been reeling under pressure for quite sometime. Weak salon traffic due to changes in lifestyle patterns and economic uncertainty has resulted in thirteen straight quarters of negative same-store sales (comps) as Regis has already announced a 3.4% fall in comps for the upcoming third quarter of 2012. The rate of decline was sharper than the year-ago drop of 2.3% as well as the previous quarter’s decrease of 3.0%. Customers continue to elongate the time between salon visits.
While consumer confidence is the U.S. has been faltering, the picture on the international front was darker, as evident from the comps report. Domestic same-store sales fell 3.5% year over year, while international same-store sales plunged 10.6% in the yet-to-be released third quarter of 2012.
Responding to the above difficulties, Regis who competes with Ulta Salon, Cosmetics & Fragrance Inc. (ULTA), decided to concentrate on its core North American salon business. Management remains committed to restructuring and cost-containment efforts. In 2011, Regis revealed its intention to slash cost by $40 million to $50 million in the next two fiscal years. Regis also remains steadfast in shutting down underperforming stores. While the company closed 305 poor-performing units in 2011, it targets to close about 160 company-owned salons in fiscal 2012.
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