7201 Metro Boulevard
Our objective is to continue double-digit growth in sales and profits. We plan to enter the twenty-first century as a billion-dollar company. Our locations are prime. Our associates are the best trained in the industry. Continuing strong results reflect both sound strategy and good execution.
We are fashioned for profitable growth.
Regis Corporation is the world's largest owner and operator of mall-based hair and retail salons. Atypical of the industry, the company owns, rather than franchises, the vast majority of its salons which are operated under five divisions: Regis Hairstylists, MasterCuts, Trade Secret, Wal-Mart Salons, and International. The 1996 purchase of the popular franchise chain Supercuts, Inc. boosted Regis's share of the highly fragmented hair salon market 2.5 percent.
Family Business Roots
Regis Corporation's history began with Russian-born barber Paul Kunin, who set up business in 1922. He built a chain of about 60 shops located in leased space in smaller-city department stores. "My father was never in the top department stores in Minneapolis. He was in the good places in Fargo," said Myron Kunin in a November 1985 Corporate Report article. Although Kunin had grown up working in the shops, it was his father's real estate ventures that he found intriguing.
Myron Kunin and his sister Diana bought the business in 1954. But their father kept the real estate holdings, and Kunin had to settle for being in the hair care business. Kunin eventually bought his sister's share of Regis Corporation and began trimming back the number of downtown department salons. In the mid-1960s, he began opening salons in the enclosed malls that were beginning to spring up in the suburbs of middle-sized and small-sized cities around the country. The new salons had an upscale image and upscale prices. By 1975 Regis Corporation owned 161 salons, and sales for the fiscal year were $10.6 million.
Regis was an anomaly in an industry which was, according to William Swanson, "better known for its small-time mom-and-pop operations, managerial unevenness and generally meager earnings." While the other hair care chains were generally franchised, Regis owned and operated its salons, which allowed for more control over the business. Compound annual sales grew by 29 percent and earnings per share grew by 32 percent for the period between 1978 and 1983.
Move to Public Ownership
Regis became publicly owned in April 1983. The company held about 1/2 percent of the $13.5 billion U.S. salon market and operated more than 300 salons at the time. Piper, Jaffray & Hopwood analyst Dick Pyle, cited by Swanson, said Regis's success as a salon owner and operator was most likely due to factors such as knowledge of the business, good site selection, favorable leases, steady growth, fair treatment of employees, and consistency of image. Its Regis Hairstylists salons catered to a largely female clientele: women who were willing to pay upper-end prices for trend-setting services and products.
In 1984, Regis bought a chain of about 60 shops which targeted male customers. But, according to a 1989 Fortune magazine article by Julianne Slovak, write-offs related to the Your Fathers Mustache purchase cut into earnings for two years, and Regis converted the salons to other concepts.
Executive vice president Peter Fudurich--who joined the company in the 1960s when the California chain he worked for was purchased by Kunin--was in line to succeed Kunin as president. Kunin trusted Fudurich and the management team to oversee daily operation of the company. Kunin, already in 1985, had a number of interests outside of Regis Corporation, including television stations and real estate holdings and developments. He was also well-known as an art collector, having spent millions on works by 20th-century American painters. But Fudurich's illness and death forced Kunin back into the day-to-day involvement in the business.
In 1987, Kunin brought on board Paul Finkelstein, who had worked for both his family's Glemby International Hairstyling Salons and their chief rival, Seligman & Latz. Anthony Carideo wrote in 1988, "Paul Finkelstein, Regis' savvy new president, is adding profits to the bottom line after several years of rapid expansion but erratic earnings comparisons." Finkelstein helped profits by restructuring commissions and emphasizing product sales. Sales for fiscal year 1988 were $192 million. Net income was $7.9 million, up 42 percent from the previous year.
Regis purchased the assets of more than 500 Seligman & Latz salons in August 1988. The nation's second largest department-store beauty chain had Essanelle Salons in about 60 stores, including Saks Fifth Avenue and Neiman Marcus. Regis was granted exclusive rights to run the beauty salons in Saks stores.
Back to Private Ownership
Regis owned about 700 salons when the company returned to private ownership in October 1988--Wall Street's expectations regarding their short-term performance, and the company's desire to reward new company managers through equity ownership were among the reasons cited for the change. Public shareholders held 30 percent of stock and received $17.70 per share--a price driven up by protests that the initial offering was too low.
Regis Corp. was merged into Regis Acquisition Corp., a subsidiary of Curtis Squire Inc., a venture-capital firm controlled by the Myron Kunin family. The company incurred $113 million in debt to finance the buyout, pay a $33 million cash dividend to Curtis Squire, and purchase the Essanelle Salons. Unfortunately, the highly leveraged financing quickly became a huge stumbling block.
Kunin and Finkelstein had planned a big expansion into the department-store salon business. But because of the debt load and changing financial climate, the company was refused new loans. Kunin personally funded the 1989 purchase of Maxim's Beauty Salons, a chain started by his uncle. Regis intended to purchase Glemby, which produced about $260 million in annual revenues, but could not do so without outside financing.
Banker and Minnesota Twins owner Carl Pohlad was introduced to the scenario. Pohlad and financier Irwin Jacobs were among the owners of MEI Diversified Inc.--a company which, according to Eric J. Wieffering, "made a lot of investors wealthy" in a 1986 bottling company sale to PepsiCo but had been less than successful in subsequent deals. Kunin and Pohlad began discussions regarding an MEI ownership stake in Regis in 1989, but failed to reach an agreement.
A Bad Hair Deal
Operating income had been improving, but Regis failed to make some of its loan payments, and the terms were renegotiated at much higher interest rates. The hair salon company needed to reduce its debt, so Kunin returned to Pohlad. A deal with MEI was finally struck early in 1990. MEI agreed to purchase the New York-based Glemby Co. Inc., the nation's largest department-store hair salon chain, and Regis's Maxim's Beauty Salons Inc. and Essanelle Salon Co. for a total of about $50 million.
MEI held an 80 percent share of the newly-formed MEI-Regis Salon Corporation. Kunin and Regis owned the remaining 20 percent, and the company received a contract to manage the salons. More than 2000 salons were included in the joint venture and had combined annual sales of about $400 million. Regis retained sole ownership of its Regis Hairstylists and MasterCuts salons.
Analysts and investors reacted positively when the MEI-Regis pairing was announced. Wieffering wrote in Corporate Report Minnesota, "Here, they said, was the perfect match: a company with a lot of cash to invest and a business being run by one of the best operators in the industry." But, the deal went sour when the department-store salons' performance failed to meet MEI's expectations.
In May 1991, MEI filed a lawsuit against Glemby Co. Inc. claiming in U.S. District Court that the financial conditions and prospects of the business had been misrepresented. MEI had paid about $30 million for Glemby. Finkelstein, as a member of the founding family, was initially named in the suit but was later dropped from the list of defendants. Seeking to reduce its own debt further, Regis had been making plans to return to public ownership. That action was jeopardized when MEI announced that it also paid too much for the Regis salon chains it had purchased.
Despite building friction, the dispute between MEI and Regis was settled. The two companies agreed on a lower purchase price, and the MEI-Regis hair salons management contract was extended. But, MEI continued to pursue the suit against Glemby.
Return to Public Ownership
The plan to go public proceeded after Regis found debt financing for $92 million in bank loans remaining from the buyout. But the June 1991 public offering fell short of expectations: the 3.2 million shares sold for $2 off the asking price of $15, and the company raised only about $42 million. The sale reduced Kunin's share of Regis to 56 percent. Regis ended fiscal year 1991 with revenues of $307.7 million and net losses of $3.2 million.
The Regis and MEI partnership continued to deteriorate: MEI took over the management of the joint venture salons early in 1992 and changed the name of the operation to MEI Salon Corporation. MEI claimed Regis had mismanaged the stores, but Regis said the poorer than expected financial showing of the joint venture was due to the Gulf War and the economic recession. The hair business had been considered recession proof, but sales were sharply down, especially in department stores where most of the MEI-Regis salons were located. A rash of department store bankruptcies forced the closure of 150 to 200 of the MEI-Regis salons. In May 1992, Regis sued MEI for expenses related to the management of the MEI-Regis salons. MEI countered with a $150 million suit against Regis alleging fraud, racketeering, and contract violations.
As the legal battle raged on, Regis continued to grow. In December 1992, the company purchased Consumer Beauty Supply, a mall-based beauty product retailer which complemented their service-oriented chains. Regis purchased a similar concept from Trade Secret Development Corp. the next year. Both the chains sold brand-named products such as Nexxus and Redken as well as the Regis line. Jennifer Waters wrote, "Both Trade Secret and Beauty Express are considered cash cows of the hair salon industry because of the growth in retail sales in recent years." The Trade Secret purchase put Regis into the franchising business for the first time.
In the meantime, MEI's series of losses had forced the company to file for Chapter 11 bankruptcy protection; their dispute with Regis was settled through the U.S. Bankruptcy Court in December 1993. Regis agreed to loan Toronto-based Magicuts Inc. $5.9 million for the purchase of the MEI salons. The settlement, which also included the transfer of Regis stock to MEI, cost Regis about $15 million. The legal battle hit the company's stock price as well. Regis stock fell from the $13 public offering price to the $6-$9 range and stayed there until the suit was settled. The stock was trading in the mid-teens in the beginning of 1995.
Changes had been taking place in the hair salon industry. "To stave off competitors such as the publicly traded Supercuts, which has aggressively franchised its way to 850 salons, Regis has been building its own discount chain by adding 35 to 40 stores to its MasterCuts Division for the last two years," wrote Jagannath Dubashi in a 1994 Financial World article. MasterCuts--established in 1985 to cater to men, young adults, and children--had grown to 257 salons by the end of fiscal 1994 and contributed 16 percent of total revenues. In comparison, the company owned about 800 Regis Hairstylist salons which generated over half of total revenues.
Regis had begun operating haircare salons in Mexico in 1988 and in the United Kingdom in 1990. In 1993, the company held 260 international salons: 217 in its United Kingdom (U.K.) subsidiary, 35 in Canada, and 8 in Mexico. Sales from the U.K. subsidiary, which also included salons in South Africa, contributed 9.4 percent of total company sales for the 1993 fiscal year. In 1995, Regis acquired Essanelle Ltd., which operated 79 upscale salons located in British department stores such as Harrods; the purchase also included some salons in Switzerland. The addition of 91 salons in the next year made Regis the U.K.'s dominant hairstyling firm.
Building for the Future
In May 1996, Regis created a fifth leg of operation with the purchase of 154 National Hair Care Centers LLC salons operating in Wal-Mart stores. The salons had total annual revenues of about $28 million. Susan Feyder wrote that according to Piper Jaffray Inc. analyst Saul Yaari, "the deal is significant because of the relationship Regis will have with Wal-Mart as it puts hair salons into new stores." The giant retailer expected to build 100 supercenters in 1996. Regis hoped to land spots in 30 to 50 of them.
Regis spent $30 million on acquisitions in fiscal 1996. Company revenues climbed to $499 million; net income was $19 million, up 31 percent from the previous year. The company also brought its debt to capitalization ratio down to 37 percent--it had been hovering around 60 percent four years earlier. Kunin retired as chief executive office at the end of the fiscal year, but retained his position as chairman of the board. Regis president and chief operating officer Finkelstein succeeded him.
In July 1996, Regis announced plans to purchase SuperCuts, Inc., a pioneer in the discount haircut market, in a deal which exceeded $100 million. Founded in 1975, the franchiser was purchased by an investor group in 1987 and taken public in 1991. Revenues tripled between 1991 and 1995. But, a rapid expansion of corporate-owned stores resulted in a $7.1 million loss in 1995. Regis stock fell 20 percent to around $26 per share, when news of the purchase was made public. Piper Jaffray analyst Yaari said in a July 1996 article by Sally Apgar, "I think the merger is a good fit, but the price was rich and, therefore, the risk is higher." Yaari also thought Wall Street might view the company--now with six business areas&mdash spreading itself too thin.
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