Failed merger boosts Regis results

By Simon Pitman

- Last updated on GMT

Related tags Contract Chief executive officer Regis

Hair salon operator and hair care provider Regis says its has swung
back into profit following a string of disappointing results that
led Albert-Culver executives to withdraw from a proposed merger.

Regis said that it earned a total of $18.6m during its third quarter, compared with a loss of $16.6m during the same period last year. The quarter also included an 8 cents a share dividend relating to the termination of the merger with the Alberto-Culver Sally Beauty Business, which had to be paid up as part of contractual obligations.

Paul Finkelstein, chairman and chief executive officer said "We recognized $5.7 million, of transaction charges related to the terminated merger with Alberto-Culver's Sally Beauty Company business unit. Conversely, our fourth quarter results will benefit from the merger termination fee paid to us by Alberto-Culver."

However, the results were still below analysts expectations, who had expected profits to go as high at the $20m mark, when polled by Thomson First Call.

The company's third quarter sales turnover increased by 8.4 per cent to reach $604m, largely in line with analyst's expectations. Thsi figure was acheived despite the fact the company's same-stores sales fell by 0.4 per cent.

When it announced the termination of its merger agreement with Regis, Alberto-Culver also pointed to Regis's 2007 outlook, stating that certain 'uncertainties' combined with differences over operating and governances approaches had contributed to the split.

Looking ahead to the fourth quarter, Regis says it believes that its operational outlook remains the same. However, fourth quarter earnings are expected to benefit from the receipt of the $50m due to be paid by Alberto-Culver for the termination of its merger agreement, which should push earnings up to around $25m.

For the 2006 financial year as a whole, Regis is expecting that EBITDA will increase 11 per cent to $301m, boosted considerably by the Albeto-Culver payment, whereas same-stores sales will increase in the region of 0.5 to 1 per cent, reflecting the tough market conditions.

Although the company has benefited from the termination of its merger with Alberto-Culver in the short-term, its long-term future does not seem so bright. Looking to 2007, its seems that a lack of investment is curtailing its plans to expand.

Indeed the company has stated that it is unable to include planned acquisitions in its outlook due to uncertainty over their size and timing and also stated that it is cutting back plans to open 466 corporate salons down to 325.

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