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Regis to Sell Trade Secret Division

Regis will receive a $56 million tax benefit from the sale of its troubled 709-unit Trade Secret division.

Hair salon operator Regis Corp. Tuesday agreed to sell its troubled 709-unit Trade Secret division to Premier Salons Beauty Inc. While the firm will receive no proceeds from the sale, expected to close next month, it will receive a $56 million tax benefit from the transaction, with half realized during the current fiscal year and the remainder in fiscal 2010.

“This division had been highly profitable over many years, but based on current sales trends, Trade Secret was forecasted to have operating losses of over $23 million on a fully allocated basis in fiscal 2009,” said Paul Finkelstein, chairman and chief executive officer of Minneapolis-based Regis. “This category continues to face many challenges, including product diversion and increased competition, and the many new initiatives we have tried have been met with limited success.”

The company had endeavored to convert Trade Secret salons to its PureBeauty nameplate and diversify product offerings within them, putting it in the line of fire from competitors such as Bath & Body Works and Sephora.

Regis took a $171.8 million noncash, pretax charge to account for the sale of Trade Secret, now classified as a discontinued operation, in its second quarter ended Dec. 31. Weighed down by the charge, it reported a net loss for the period of $143.3 million, or $3.34 a diluted share, versus net income of $22.6 million, or 51 cents, a year ago. Excluding special items, earnings per share for the quarter was 36 cents, 8 cents higher than analysts’ censensus estimates. Total revenues fell 4.4 percent to $587.4 million.

The arrangement with Premier includes the assets of 12 salons in Canada in addition to Trade Secret’s U.S. operations.