Regis Corp (Ticker RGS) owns supercuts, and a few other haircut brands. They’re at the end of a business transition as they move out of product-brands and solely license their brand to various salons or other products. I believe their story is a relatively common one, and boils down to a few main takeaways.
Retail during Covid
The company raked up 172M worth of debt during 2020, got some pandemic relief but increasing interest rates since then have made the debt functionally unmanageable, with the latest rates at 9.54%.
Management afterwards
Management has done a decent job getting the balance sheet in order, finally having a positive operating margin and is generating cash. They likely haven’t cut G&A enough yet, as most of this gain is due to getting out of branded-products business. They are moving in to a world where they just license out the Supercuts (and other) brand names. From a pure operating margin perspective, I really like this decision as it’ll be a very easy business to run.
Unfortunately, even if they manage a turn around, the debt load is going to significantly eat in to any possible returns. RGS is forced to renegotiate at some point in the next year, as it’s very unlikely they’ll generate 172M through normal business operations – cutting G&A another 50% would only yield 25M, and that is their largest expense.
For this one, I’m waiting to see what management can renegotiate for their next debt restructure, but even then I would rather own the debt than the company.