Regis Reports Second Quarter 2010 Earnings of $0.30 Per Share

Regis Corporation (NYSE:RGS), the global leader in the $150 billion to $170 billion hair care industry, today reported financial results for its second fiscal quarter ended December 31, 2009. Net income for the second quarter increased to $18.2 million or $0.30 per diluted share. Second quarter earnings results benefited from an unplanned actuarial adjustment to prior years’ workers’ compensation and other insurance claim reserves of approximately $0.02 per diluted share. Absent this non-operational item, the Company’s second quarter operational earnings were $0.28 per diluted share which continued to reflect benefit from strong expense control. The reconciliation of reported earnings to operational earnings is included in today’s press release, and a more comprehensive reconciliation is available on the Company’s website at www.regiscorp.com.

On January 8, 2010, the Company reported second quarter consolidated total same-store sales declined 3.7 percent. Reported revenues for the second quarter ended December 31, 2009 decreased 2.1 percent to $575 million compared to $587 million in the second quarter of fiscal 2009.

"Second quarter earnings results continue to demonstrate the strength of our business model,” commented Paul D. Finkelstein, Chairman and Chief Executive Officer. "Despite sales coming in lower than plan, we are very pleased with our second quarter operating results due to our continued focus on expense control initiatives and improving gross margins. Year-over-year our consolidated gross margins improved seventy basis points, primarily the result of recently implemented leveraged salon pay plans as well as a new retail commission plan for new stylists. After adjusting last year’s results for the impact of our recent equity and convertible note issuance, our second quarter operational earnings per share exceeded last year’s adjusted operational results of $0.27 per share. As we are more than halfway through our current fiscal year, we now expect that our EBITDA may come in toward the higher end of our previously stated range of $200 million to $240 million and at this level, we should produce excess cash flow of at least $90 million which will be used to pay down debt and build cash balances.

"Second quarter same-store sales results were below plan, primarily due to lower than expected customer traffic in December. However, we did see a significant improvement in both service and product same-store sales in the latter half of December. We fully understand that there are limits to expense control and gross margin initiatives. In order for earnings to grow significantly in the future, revenues have to increase. We are highly confident that with the inability of the consumer to outsource a haircut or hair color, coupled with favorable demographics due to the aging population, sales increases should materialize within the next six to nine months. There already have been some indications of improvement as we have seen more days with positive service and product same-store sales in January than we have seen for many months. Over the last three weeks, North American same-store sales are flat. While it is difficult to predict when customer visitation patterns will completely anniversary and stabilize, we continue to believe same-store sales in the second half of our current fiscal year should improve over the first half of the year.”

Mr. Finkelstein concluded, "We are in the quintessential replenishment business offering an affordable necessity, and even in these tough economic times our operations remain very profitable. Our balance sheet is strong; the business model is very attractive; and strategically, our focus on value concepts provides a strong platform for growth once customer visits normalize. We continue to be bullish about the long-range prospects of our Company.”

Regis Corporation will host a conference call discussing first quarter results today, January 27, 2010 at 10 a.m., Central time. Interested parties are invited to listen by logging on to www.regiscorp.com or dialing 877-941-2927. A replay of the call will be available later that day. The replay phone number is 800-406-7325, access code 4194363#.

About Regis Corporation

Regis Corporation (NYSE:RGS) is the beauty industry’s global leader in beauty salons, hair restoration centers and cosmetology education. As of December 31, 2009, the Company owned, franchised or held ownership interests in 12,800 worldwide locations. Regis’ corporate and franchised locations operate under concepts such as Supercuts, Sassoon Salon, Regis Salons, MasterCuts, SmartStyle, Cost Cutters, Cool Cuts 4 Kids and Hair Club for Men and Women. In addition, Regis maintains an ownership interest in Provalliance, which operates salons primarily in Europe, under the brands of Jean Louis David, Franck Provost and Saint Algue. Regis also maintains ownership interests in Empire Education Group in the U.S. and the MY Style concepts in Japan. System-wide, these and other concepts are located in the U.S. and in over 30 other countries in North America, South America, Europe, Africa and Asia. For additional information about the company, including a reconciliation of non-GAAP financial information and certain supplemental financial information, please visit the Investor Information section of the corporate website at www.regiscorp.com. To join Regis Corporation’s email alert list, click on this link:
http://www.b2i.us/irpass.asp?BzID=913&to=ea&Nav=1&S=0&L=1

This press release contains "forward-looking statements” within the meaning of the federal securities laws, including statements concerning anticipated future events and expectations that are not historical facts. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward–looking statements in this document reflect management’s best judgment at the time they are made, but all such statements are subject to numerous risks and uncertainties, which could cause actual results to differ materially from those expressed in or implied by the statements herein. Such forward-looking statements are often identified herein by use of words including, but not limited to, "may,” "believe,” "project,” ”forecast,” "expect,” "estimate,” "anticipate” and "plan.” In addition, the following factors could affect the Company’s actual results and cause such results to differ materially from those expressed in forward-looking statements. These factors include competition within the personal hair care industry, which remains strong, both domestically and internationally; price sensitivity; changes in economic conditions, and in particular, continued weakness in the U.S. and global economies; changes in consumer tastes and fashion trends; the ability of the Company to implement its planned spending and cost reduction plan and to continue to maintain compliance with the financial covenants in its credit agreements; labor and benefit costs; legal claims; risk inherent to international development (including currency fluctuations); the continued ability of the Company and its franchisees to obtain suitable locations and financing for new salon development and to maintain satisfactory relationships with landlords and other licensors with respect to existing locations; governmental initiatives such as minimum wage rates, taxes and possible franchise legislation; the ability of the Company to successfully identify, acquire and integrate salons that support its growth objectives; the ability of the Company to maintain satisfactory relationships with suppliers; the ability of the Company to consummate the planned closure of salons and the related realization of the anticipated costs, benefits and time frame; or other factors not listed above. The ability of the Company to meet its expected revenue target is dependent on salon acquisitions, new salon construction and same-store sales increases, all of which are affected by many of the aforementioned risks. Additional information concerning potential factors that could affect future financial results is set forth in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. However, your attention is directed to any further disclosures made in our subsequent annual and periodic reports filed or furnished with the SEC on Forms 10-K, 10-Q and 8-K and Proxy Statements on Schedule 14A.

(1) Premier Salons Beauty, Inc. (Premier) purchased Trade Secret, Inc. from Regis Corporation on February 16, 2009. The agreement included a provision that Regis Corporation would supply product to Premier at cost for a transition period. The agreement was substantially complete as of September 30, 2009.

(1) Canadian and Puerto Rican salons are included in the Regis Salons, MasterCuts, Supercuts and Promenade concepts and not included in the International salon totals.

(2) Represents primarily the acquisition of franchise networks.

(3) On February 16, 2009 the Company announced the completion of the sale of Trade Secret retail product division to Premier Salons Beauty, Inc. As a result of this transaction, the Company reported the Trade Secret operations as discontinued operations for all periods presented. Forty-three franchise salons were not included in the sale of Trade Secret to Premier Salons Beauty, Inc. and are not reported as discontinued operations. These franchise salons are now included in Promenade.

Relocations represent a transfer of location by the same salon concept.
Conversions represent the transfer of one salon concept to another concept.

REVENUES BY CONCEPT:

(1) Salon same-store sales are calculated on a daily basis as the total change in sales for company-owned salons which were open on a specific day of the week during the current period and the corresponding prior period. Quarterly and year-to-date salon same-store sales are the sum of the same-store sales computed on a daily basis. Relocated salons are included in same-store sales as they are considered to have been open in the prior period. International same-store sales are calculated in local currencies so that foreign currency fluctuations do not impact the calculation. Management believes that same-store sales, a component of organic growth, are useful in order to help determine the increase in salon revenues attributable to its organic growth (new salon construction and same-store sales growth) versus growth from acquisitions.

(2) Beginning with the period ended December 31, 2008, the operations of Trade Secret concept within the North American reportable segment were accounted for as a discontinued operation. All periods presented reflect Trade Secret as a discontinued operation. Accordingly, Trade Secret revenues are excluded from this presentation.

(3) Premier Salons Beauty, Inc. (Premier) purchased Trade Secret, Inc. from Regis Corporation on February 16, 2009. The agreement included a provision that Regis Corporation would supply product to Premier at cost for a transition period. For the three and six months ended December 31, 2009, the Company generated revenue of $0.0 and $20.0 million, respectively, in product sold to Premier, which represented 0.0 and 1.7 percent of consolidated revenues, respectively. The agreement was substantially complete as of September 30, 2009.

FINANCIAL INFORMATION BY SEGMENT:

Financial information concerning the Company’s salon, school and hair restoration businesses is shown in the following tables.

(1) Premier Salons Beauty, Inc. (Premier) purchased Trade Secret, Inc. from Regis Corporation on February 16, 2009. The agreement included a provision that Regis Corporation would supply product to Premier at cost for a transition period. The agreement was substantially complete as of September 30, 2009.

(1) Beginning with the period ended December 31, 2008, the operations of the Trade Secret concept within the North American reportable segment were accounted for as a discontinued operation. All comparable periods reflect Trade Secret as a discontinued operation.

(1) Premier Salons Beauty, Inc. (Premier) purchased Trade Secret, Inc. from Regis Corporation on February 16, 2009. The agreement included a provision that Regis Corporation would supply product to Premier at cost for a transition period. The agreement was substantially complete as of September 30, 2009.

(1) Beginning with the period ended December 31, 2008, the operations of the Trade Secret concept within the North American reportable segment were accounted for as a discontinued operation. All comparable periods reflect Trade Secret as a discontinued operation.

REGIS CORPORATION (NYSE: RGS)
NON-GAAP FINANCIAL MEASURES (Unaudited)

The Company’s press release announcing results of operations for the three month period ended December 31, 2009 includes references to the following "non-GAAP financial measures” as defined by Regulation G of the Securities and Exchange Commission:

• Second quarter earnings results benefited from an unplanned actuarial adjustment to prior years’ workers’ compensation and other insurance claim reserves of approximately $0.02 per diluted share.
• Absent this non-operational item, the Company’s second quarter operational earnings were $0.28 per diluted share which continued to reflect benefit from strong expense control.
• After adjusting last year’s results for the impact of our recent equity and convertible note issuance, our second quarter operational earnings per share exceeded last year’s adjusted operational results of $0.27 per share.

Non-GAAP Diluted Net Income Per Share

The table below is provided to assist the reader’s understanding of the three month period ending December 31, 2009 earnings. The Company believes that adjusted net income per diluted share from operations, a non-GAAP financial measure, is a useful basis to compare the Company’s results against, because unusual items during the three month period ending December 31, 2009, impacted the Company’s reported net income (see "Adjustments” in table below). The presentation below reconciles as reported net income per diluted share (U.S. GAAP amounts) to adjusted net income per diluted share from operations. The adjusted net income per diluted share information should not be construed as an alternative to reported results under U.S. GAAP.

(1) Diluted net income per share, as reported for the second quarter ending December 31, 2009 was calculated under the if-converted method.

(2) The second quarters ending December 31, 2009 and 2008 included a $1.9 million ($1.2 million after-tax) and $6.7 million ($4.1 million after-tax), respectively, benefit related to an unplanned adjustment to prior years’ workers’ compensation and other insurance claim reserves.

(3) The second quarter ending December 31, 2008 included $117.5 million in loss from the Trade Secret business, which is reported as discontinued operations.

(4) The second quarter ending December 31, 2008 included a $41.7 million ($40.3 million after-tax) expense related to the goodwill impairment charge related to the Company’s U.K. salon division.

(5) The second quarter ending December 31, 2008 included $7.8 million ($4.8 million after-tax) in expense related to the Company’s investment in and loans to Intelligent Nutrients, LLC.

(6) The second quarter ending December 31, 2008 included $0.8 million ($0.5 million after-tax) in expense associated with lease termination costs as part of the initiative to close up to 160 underperforming company-owned salons.

(7) On a pro-forma basis for the three months ended December 31, 2008, adjusted diluted net income per share from operations would be calculated under the if-converted method. The calculation under the if-converted method includes adjustments for the debt and equity offerings that occurred during the quarter ending September 30, 2009 that would have increased net income through the incremental savings on interest expense by approximately $2.4 million after-tax and increased the number of diluted shares by approximately 24.4 million.