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Regis Closes Hair Club Divestiture

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Regis Corporation recently completed the sale of one of its subsidiaries, Hair Club for Men and Women, to Tokyo-based Aderans Co., Ltd. We note that Regis inked a deal with Aderans offload the said division last July.

Regis acquired Hair Club in Dec 2004. The subsidiary offers solutions for hair loss and holds around 5% share in the $4 billion U.S. market. There are nearly 98 North American Hair Club locations, including 29 franchise units.

Minneapolis-based Regis received $163.5 million in cash from Aderans for the divesture. Aderans is a worldwide provider of hair replacement and restoration products and services and owns several internationally acknowledged brands. Regis will likely record a post-tax gain of about $12 million from the deal.

We view the deal as strategically positive for both parties. It gives Regis immediate cash value as well as an option to divest one of its non-core businesses. On the other hand, the Japanese firm Aderans will get an opportunity to cater to Regis’ strong U.S. client base and thereby strengthen its global business.

The deal follows the divesture of Regis’ minority ownership interest in Provalliance — the largest hair salon company in Europe —in Apr 2012. Both the divestitures reflect the leading global hair care company’s efforts to turn around from continued underperformance by offloading non-core assets and solely focusing on enhancing salon experience.

Regis, which owns various segments like Supercuts, MasterCuts, Regis salons and SmartStyle, has been reeling under pressure for quite some time. Weak salon traffic due to changes in lifestyle patterns and economic uncertainty has resulted in negative same-store sales (comps) in the last few quarters.

Responding to the above difficulties, Regis 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 costs by $40 million to $50 million over the next two fiscal years. Regis also remains steadfast in shutting down underperforming stores.

Regis currently retains a Zacks Rank #3 (Hold). Some retail stocks that warrant a look at the current level include Sally Beauty Holdings Inc. (SBH - Free Report) , Hastings Entertainment Inc. and Cabela's Incorporated .  While Cabela holds a  Zacks Rank #1 (Strong Buy), Sally Beauty and Hastings Entertainment retain a Zacks Rank #2 (Buy).

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