MINNEAPOLIS - Regis Corporation (NASDAQ:RGS), a prominent player in the haircare industry, has completed the strategic acquisition of Alline Salon Group (ASG), its largest franchisee. The transaction, which closed today, includes an initial consideration of $22 million and the potential for ASG to earn an additional $3 million in earn-out payments over the next three years. The announcement comes as Regis's stock has shown remarkable momentum, with a 370% price return over the past six months according to InvestingPro data.
The acquisition encompasses a portfolio of 314 salons operating under the Supercuts, Cost Cutters, and Holiday Hair brands, primarily in Michigan, Ohio, and Pennsylvania. The financial performance of these salons leading up to October 2024 showed revenues of $83 million, with $11.1 million in 4-Wall EBITDA and $5.8 million in EBITDA.
Regis Corporation's President and CEO, Matthew Doctor, highlighted the strategic and financial benefits of the acquisition. Doctor emphasized the value creation potential from the business they intimately know and the synergies identified, expected to be realized in 2026, between $1.0 and $1.5 million. The acquisition is designed to maintain Regis's asset-light model, with approximately 93% of salons remaining franchisee-owned and operated.
The initial consideration was financed through a combination of cash on hand and an upsize of Regis's credit agreement with existing lenders. The cash and stock transaction includes $19 million in cash and $3 million in Regis common stock, subject to a 1-year lock-up agreement. InvestingPro data reveals that Regis operates with a significant debt burden, with a debt-to-equity ratio of 6.75x. For deeper insights into Regis's financial health and 12 additional ProTips, consider exploring InvestingPro's comprehensive analysis.
Regis's acquisition of ASG is positioned as a move to strengthen its connection to salon operations and franchisees, providing a platform to test and optimize customer and stylist initiatives. Mike Sarafa, CEO of Alline Salon Group, expressed confidence in the opportunities for team members to continue driving results within the larger Regis organization.
The transaction is touted to be accretive to Regis's Adjusted EBITDA, and leverage is expected to decrease slightly. Legal counsel and financial advisors were involved from both Regis and ASG to facilitate the transaction.
This news is based on a press release statement and reflects management's expectations at the time of the announcement. Regis Corporation, which franchised or owned 4,359 locations as of September 30, 2024, operates under various brands including Supercuts, SmartStyle, and Cost Cutters. According to InvestingPro analysis, the company maintains a "Fair" overall financial health score of 2.3 out of 5, with analysts projecting a challenging year ahead. Get access to the full Pro Research Report, available for Regis and 1,400+ other US stocks, to make more informed investment decisions.
In other recent news, Regis Corporation reported mixed results in its first-quarter fiscal 2025. The company's total revenues fell to $46.1 million, a $7.3 million decrease from the previous year, due to lower franchise rental income and advertising fund revenue. However, adjusted EBITDA improved to $7.6 million, with margins expanding to 40%. Despite a slight decrease in same-store sales, adjusted earnings per share increased to $0.93 from $0.71 the previous year.
Regis is currently focusing on operational improvements and a new digital strategy to reverse negative traffic trends and enhance franchisee profitability. The company has launched a unified rewards program that has contributed to loyalty member sales reaching 20% of total sales. Despite closing a net of 49 salons during the quarter, Regis anticipates continued adjusted EBITDA growth in fiscal 2025.
The recent developments also reveal a decline in royalty and fee revenue by $1.2 million due to salon closures, and a reported net loss of $900,000 for the quarter. However, the adjusted EBITDA for the core franchise business stood at $8 million, and cash from operations improved by $1.5 million year-over-year. Regis Corporation's strategic shifts and recent results highlight the company's commitment to future growth and profitability.
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