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Regis Gets Clipped

August 27, 2013

Sales continue to fall in Q4

Has Regis Corporation reached the clipping point? Sales continue to fall at the hair salon operator in the US. The company reported that its fiscal  Q4 sales slipped 5% to $502.3 million.

And yet, Dan Hanrahan, president and CEO said Regis made significant investments behind three strategies. First, rolling out a new point-of-sale system to approximately 6,700 salons throughout North America. Second, reorganized field management organization. Third, standardized retail plan-o-grams to improve salon appearance, reduce inventory management time and increase distribution efficiencies.

"Executing all three of these initiatives in a single quarter highlights our sense of urgency in creating a stable operating structure that will allow Regis to generate improved financial results on a sustainable basis," said Hanrahan. "We cannot transform Regis into a strong operator without making the changes we did in the fourth quarter. These initiatives are focused on generating guest traffic, delivering an outstanding guest experience and cultivating a loyal guest following. As I have said in the past, changing the strategic direction of any established business requires investment, execution and time. While there has been disruption to our current business performance, I am proud of the progress our entire organization has made in laying the foundation for us to become a best in class operator."

The company provided the following updates on fourth quarter strategic investments and associated benefits cited by Hanrahan:

Technology. The company completed the initial rollout of the SuperSalon point-of-sale system and salon workstations in approximately 6,700 salons, which represents over 95% of its North American locations. The next area of focus will be to ensure its stylists become fluent in the use of SuperSalon, through a combination of web based and hands on user training. The system will provide improved analytics on guest retention, real time information on stylist productivity and salon performance and vastly improved Guest Relationship Management capabilities. As expected, the magnitude and scope of this initiative created certain challenges in the quarter that have since been remediated. The performance of SuperSalon improves each day as stylists become more familiar with the system, according to Hanrahan.

Organization. The company said it made significant progress in its field reorganization. The reorganization reduces span of control, improves geographic alignment and enables more localized decision making. This structure will closely align field management compensation with key financial and operating metrics. In addition, this structure will provide long-term career paths for successful employees. While span of control is reduced, individual field manager responsibility is concentrated geographically. This reduces travel costs, travel time and allows management more time in individual salons.

"With assistance from outside staffing experts, we have filled over 93% of open positions at all levels throughout the field organization, sourced mainly from internal candidates," said Hanrahan. "We noted disruption in salon performance as we filled open positions and acclimated field leaders to their new roles. Our field leaders are in the salons on a more frequent basis and are focused on delivering a great guest experience.

Merchandising. The company simplified and standardized plan-o-grams in approximately 7,000 salons. These plan-o-grams improve salon appearance, optimize retail performance and enable efficiencies throughout our supply chain. This initiative involved transitioning from over 1,300 to fewer than 50 plan-o-grams. This resulted in the elimination of approximately 4,500 items. The company originally planned to complete the reset in the fourth quarter, but delayed completion to mid-August in order to dedicate necessary resources to the SuperSalon rollout and field reorganization. A combination of clearance activity, delayed implementation and execution challenges during a period of significant change has negatively impacted our product same-store sales in July and August. We are monitoring compliance with new plan-o-grams, and evaluating the impact these changes have on our longer-term retail performance and adjusting our assortment as necessary.

Recent Trends

Factoring out the impact of the Easter shift from April of last year to March of this year, same-store service sales declined 140 basis points from the third to the fourth quarter. As of August 25, 2013, first quarter-to-date same-store service sales and product sales were down 3.4 % and 14.9%, respectively.

"I am pleased with the operational changes we have implemented. The impact these changes have had on our operating results are necessary to position Regis to generate sustainable revenue and profitability growth and I expect our business performance to improve over time. I expected these transformational changes to disrupt our business," concluded Hanrahan. "However, I am not satisfied with our performance during the fourth and first quarters of fiscal 2013 and 2014. We must drive better execution, get our business back on course and continue to execute on changes that will enable the organization to move forward along a strategic path that will result in longer-term revenue and profitability growth."

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