Hair Salons: Regis Is on a Roll

Would you believe that haircuts and hair care in the U.S. generate $45 billion each year? No wonder Regis (RGIS ), the world's largest owner and operator of hair salons, has been on a roll: Its stock has bucked the market, climbing from 10 on Apr. 25, 2000, to 15 on Mar. 14, 2001. Still the stock is trading at a modest p-e of 10. "It deserves a 15 multiple, or a price of about 25 a share," figures Gary Steiner of investment firm Awad Associates, which has been buying. Regis has been buying back its own shares, notes John Kartsonas of Standard & Poor's. The board has authorized the repurchase of 10% of shares outstanding.

Revenues hit $1.1 billion in the year ended June 30, 2000, up from $991 million in 1999. And earnings should rise to $1.32 a share in fiscal 2001 and to $1.53 in 2002, estimates Steiner. Regis' allure in the current fragile market environment is that it is recession-proof, says Steiner. And although it is the largest operator, with 5,600 owned or franchised salons catering to upscale men and women, Regis controls only 3% of the market. This modest share implies that there is a lot of room for growth, says Steiner.

Regis, he says, expects to do more acquisitions and open more salons. Since it is the only operator with material size, Regis has acquired salons on the cheap. Most of its salons are in shopping malls and in Wal-Mart stores. Earnings fell below estimates in 2000, which the company blamed on higher costs and bad weather. But Regis, which has had eight straight years of strong earnings growth prior to 2000, is now on its way back toward double-digit growth, predicts Steiner.

By Gene G. Marcial

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