Beauty school dropout…

April 24, 2007

images-14.jpegThose of us over a certain age — or with kids under a certain age — can be forgiven for humming the tune to Pinky’s lament from the movie/musical Grease. But that’s the first thing that came to mind when I started poking into the 8K that Regis (RGS) filed earlier today, detailing their announcement last week that they were dumping the 51 beauty schools they had acquired over the past few years.

Of course, they didn’t say it exactly like that. Very few people come right out and admit their mistakes, and that’s particularly true when it comes to CEOs admitting dumb acquisition strategies. And given the number of schools acquired so quickly — the company acquired 30 schools in fiscal 2006, which more than doubled the number of schools owned — it was a mighty big oops. The closest that Regis Chairman and CEO Paul Finkelstein came was that Regis would have to invest a lot of money in technology and management to make the acquisition strategy work.

But that doesn’t stop the questions. For one, there’s the mysterious disappearance of four schools, since according to the earnings release from April 12 — a mere week before the deal was announced — Regis operated 55 schools, not the 51 that is part of deal with privately held Empire Education. And then there’s the much larger question of how things went so wrong so quickly. It was just 2 1/2 years ago — in October 2004 — that the company announced plans to move into the beauty school business by spending $50 million on acquiring existing schools because the industry was so fragmented and so profitable.

Yet, it wasn’t until the Q that Regis filed on Feb. 9 that the company stated that the “beauty school business has not met our expectations during the current fiscal year. We are currently addressing the post acquisition integration difficulties which we have encountered in order to return the acquired schools to internally anticipated profit levels.” In last week’s press release, Regis said it would take a $20-$25 million charge. It will also retain a 49% ownership interest in Empire. But since Empire is privately held, it may be hard for investors to get a real handle on what this failed experiment really wound up costing.

Leave a Reply

You must be logged in to post a comment.