Refinancing: upside TBD (at $27.5)
This idea was shared by value9.
Regis is a hair salon franchisor with over 3,800 locations. The business has been in decline for years, with the salon count consistently shrinking and Covid only accelerating the bleed. But the story is looking up. Over the last 18 months, cash flows have inflected meaningfully higher and management is now guiding for a material slowdown in salon closures. This suggests the turnaround is gaining traction.
At 5x TTM EBITDA and 12x TTM FCF, the stock is already pretty cheap for a franchise business that is generating and growing cash again. The catalyst is an upcoming refinancing of the extremely expensive debt put in place when the company was still burning cash and was widely viewed as a bankruptcy candidate. A successful haircut on the interest bill could lift FCF by 50%, compressing the FCF multiple to 7-8x.
The company levered up heavily during Covid to survive, with net debt more than tripling from $49m in FY19 to $170m in FY22 against a $50m market cap. The post-Covid recovery proved slow, and between the massive cash burn and looming debt maturities, the market was pricing in a very real bankruptcy risk in 2024. The stock fell from $350/share pre-Covid (reverse-split adjusted) to just $4/share mid-2024.
But then RGS refinanced its debt in June 2024. The market welcomed the deal enthusiastically (the stock jumped 5x), primarily because it eliminated the imminent bankruptcy risk. Of the $190m in outstanding debt, $80m was forgiven outright, cutting gross leverage from 7.9x to 4.4x. However, the new debt came with even steeper terms than the prior 2022 facility. Before the refinancing, the interest rate was at SOFR plus 7.25%. Afterward, the rate was increased to SOFR plus 8%-9%, depending on leverage. With the margin sitting near the high end of that range today, the actual all-in interest rate is a painful 13.15%. Total interest expense is running at $20m against $33m in TTM adjusted EBITDA.
For context, RGS carried far cheaper debt pre-Covid: LIBOR plus a 1.25-1.85% margin, alongside a 1-1.6% facility fee.
Things have meaningfully improved for RGS since the 2024 refinancing. FCF went from negative $8m in FY23 and negative $2m in FY24 to a positive $4m in FY25 and $6.3m on a TTM basis. Adjusted EBITDA grew from $23m in FY23 to $33m TTM. Gross leverage sits at 3.5x today. A near-term bankruptcy scenario is clearly off the table. Any new financing would likely get priced on much better terms. Even a 3% cut in the interest rate would lift the FCF to nearly $10m against a current market cap of $79m.
The current debt doesn’t mature until 2029, but management has signaled it will look to refinance right after the make-whole provision expires in June 2026.
From the Q4 2025 earnings call (September 2025):
Our goal would ultimately be to refinance this debt at some point and reduce our interest rate. This year, we’re going to continue to focus on strengthening our financial position. So we’re in a good spot to be able to have those conversations when the make-whole runs out. So we’ll be focusing on everything that Jim talked about, driving comps, improving EBITDA and building that case for better terms when we get to a point where we can refinance.
From the Q2 2026 earnings call (February 2026):
While our current interest rate is higher than recent market levels, the economics of refinancing also depend on other terms of the agreement, including prepayment penalties and fees. Taken together, these factors may make refinancing after the 2-year anniversary of the agreement in June of 2026, economically viable and in the best interest of our shareholders. In the meantime, I want to assure investors that reducing our debt service remains a top priority. We are speaking with potential partners to explore refinancing options as we near the 2-year anniversary of the agreement in June of 2026.
In preparation for the refinancing, RGS overhauled its management team, bringing in a new CEO and two new independent directors. The chairman and COO were replaced as well. All of this happened over the last 6 weeks.
One of the new independent directors is Bill Charters, founder of Sabal Capital Management (a fund focused on special sits and restructurings). Bill Charters owns 3% of RGS in his personal capacity rather than through Sabal Capital. He first filed a 13D in January 2024 alongside a group of activists that together held 8%. They pushed back against dilution and criticized corporate spending. Given Bill Charters’ background (including corporate credit and restructurings), he looks well suited to help the company navigate the upcoming debt refinancing. I take his continuing involvement and appointment to the board as a positive.
The stock is already up from $22-$23 to $27/share following the management reshuffle. However, I think there’s quite a bit of potential upside left if the refinancing gets done on favorable terms. With a 3% rate cut and re-rating to 10x FCF multiple, the stock could gain 30%-40% over the next few quarters.
A few notes on RGS
Regis has the second-largest network of hair salons in the US, with 3,551 franchised and 278 company-owned locations.
Historical financials:
Quick note: the FY25 and TTM cash from operations figures shown in the table have already been adjusted down by $8.4m. This accounts for excessive accumulation of marketing cash collected from franchisees. Management tapped the brakes on marketing spend for a bit, but plans to ramp it back up shortly.
The drivers of the recent profitability inflection have been the 2024 refinancing ($80m debt reduction), cost reductions, and decent performance of the company-owned stores division that was acquired at the end of 2024.
The same-store sales have slowed down overall. However, SSS growth of the main brand (Supercuts, 60% of system-wide revenues) remains consistently positive (+1.6% FY24, +1.3% FY25, +2.5% Q1 FY26, +2% Q2 FY26).
The biggest concern for RGS is still that hardly any new salons are opening up. There were only 18 new openings in all of FY25 compared to 485 closures. Here’s the historical salon count:
A significant portion of salons is underperforming, and many franchisees are simply waiting until their lease contracts expire so they can walk away. It is hard to pin down exactly how many of these zombie salons are left in the system, but management has pointed out that the revenue gap between recently closed locations and the top-tier ones is huge ($120k annual revenue versus $460k for the top-quartile ones).
Management has been repeating that calendar 2025 was the last period of elevated store closures as it ended a big contract expiration window.
Q1 FY26 call:
I mean, generally, our salons close at the end of their leases. And in the last few years, we’ve had a large number of leases that came to the end of their lease life
Q4 FY25 call:
We continue to expect fiscal year 2025 to be the last year of closures in this order of magnitude
Have the warrants all been addressed?
I used the diluted share count, which assumes warrants are exercised on a cashless basis.
The numbers are moving the right way and the turnaround continues to progress without any major negative surprises. System-wide same-store sales grew 2.6% (Supercuts +5.0%) and adjusted EBITDA rose 8.5%. RGS also posted its sixth consecutive quarter of positive operating cash flow. The caveat is that so far revenue growth is coming from pricing rather than foot traffic, which continues to decline.
On the refinancing front, management confirmed it is preparing to act and promised an update shortly:
“In addition to focusing on these 3 priorities, we continue to evaluate opportunities to enhance our financial flexibility, including optimizing our capital structure and reducing interest expense through a potential refinancing of our existing debt. As we approach the 2-year anniversary of our credit agreement in late June, we have the ability to refinance, which could lower our overall cost of capital. We recently added a new Board member, Bill Charters, who is also a significant shareholder and brings deep expertise in credit markets, which will be helpful as we evaluate refinancing opportunities. We’re making great progress, and we’ll provide an update soon.”
Nice update if anyone is still following:
https://oldroperesearch.substack.com/p/regis-rgs-has-more-wood-to-chop
The turnaround continues, though fiscal Q4 came in softer than Q3. There is still no update on the refinancing front, and the two-year anniversary of the existing credit agreement has now passed. Management offered little clarity on the potential timeline beyond saying that it continues to evaluate alternatives and is moving quickly:
“That shareholder alignment is important as we evaluate the alternatives available to us. We are approaching this effort with urgency while maintaining discipline in our approach, and we will not sacrifice long-term value and we’ll continue to pursue the best and appropriate refinancing options for Regis.”
– System-wide same-store sales in Q4 were essentially flat at +0.1% (Supercuts +2.6%), compared to +2.6% and +5.0%, respectively, in Q3.
– Adj. EBITDA declined 5% YoY to $9.2m, although FY26 EBITDA still increased modestly to $32.8m.
– RGS also posted its seventh consecutive quarter of positive operating cash flow, while net leverage improved to 3.1x.
– Revenue growth is still coming primarily from pricing rather than traffic, although Supercuts traffic improved and was down only 1% in Q4.
Conf. call: https://www.bamsec.com/transcripts/8782ac96-d911-45de-ad5e-2b7aa4c9140e