SecProbe.io

CORRESP
1
filename1.htm

T 952-947-7777 | 7201
Metro Boulevard | Minneapolis, Minnesota 55439

March 31,
2009

Via EDGAR

Securities and Exchange
Commission

Attention:  Larry Spirgel

Division of Corporation
Finance

100 F Street, NE

Washington, D.C. 20549

  Re:

  Regis Corporation

  Form 10-K for
  Fiscal Year Ended June 30, 2008

  Filed August 29,
  2008

  Form 10-Q for
  Fiscal Quarter Ended December 31, 2008

  File No. 1-12725

Dear Mr. Spirgel:

On behalf of Regis
Corporation (“Regis” or the “Company”), we hereby respond to the Staff’s
comment letter dated March 3, 2009.
This letter contains the responses to the Staff’s comments.  The Staff’s comments have been reproduced
here in italics and the Company’s responses are detailed under those comments.

Form 10-K for Fiscal Year
Ended June 30, 2008

Note 1. Business Description and
Summary of Significant Accounting Policies, page 73

Inventories, page 74

1.               Tell us why you identify the cost of product used in salon services by
applying estimated gross profit margins to service revenues. Describe your
methodology to us in more detail and explain your basis for concluding it is an
acceptable method for determining the cost of inventory. In this regard, we
note your disclosure at page 40, which states you made refinements to your
inventory tracking systems which resulted in better tracking and accounting for
retail products that your stylists transfer from retail shelves to the back bar
for use in servicing customers.

Response

Total consolidated cost
of service revenues was 57.6 percent, 56.6 percent and 56.8 percent of service
revenues for the three years ended June 30, 2008, 2007 and 2006,
respectively.  The cost of product used
in salon services represents only 3.3 percent, 3.0 percent and 3.0 percent
($63.1 million, $53.7 million and $49.2 million) of service revenues for the
three years ended June 30, 2008, 2007 and 2006, respectively.  The remaining component of cost of service
sales primarily represents payroll and related costs.  Complete physical inventory counts, which are
performed semi-annually (one in the fall and the other near year-end) at each
of the company-owned salons, are the Company’s primary means of control for
determining inventory quantities on hand and the cost of product used in salon
service sales.  Cost of product used in
salon services primarily consists of the use of “back bar” products.  Back bar products include hair color,
shampoo,

conditioner and hair care
treatments including permanents, neutralizers and relaxers used in servicing
customers.  Back bar inventory represents
approximately 15% of our total inventory balance.

During the interim
periods between physical inventory counts, the Company determines the cost of
product used in salon services by applying estimated gross profit margins to
service revenues.  The Company utilizes
this approach because the cost of product used in servicing customers is only a
small component of our overall cost of service sales and it is consistent year
over year.  In addition, it is not
practical to perform an extensive analysis of these back bar items or physical
inventory counts at our distribution centers and over 8,000 company-owned
salons on a quarterly basis.  The
estimated gross profit margin is updated semi-annually based on the results of the
physical inventory counts.  The Company also
monitors other business factors on a monthly basis that could impact our gross
profit margin estimates.  These factors
include reviewing cost of service shipments as a percent of service revenues,
mix of service sales, discounting and special promotions.  Other than at the completion of the physical
inventory counts, the Company has not adjusted the estimated rates used to
calculate the cost of product used in service over the last three years as the
impact at these interim dates has been immaterial.

The majority of the back
bar products are hair color and gallon size containers of shampoo and
conditioner.  These items are shipped to
the salons and properly accounted for as cost of product used in service.  If a customer requests a specific brand for
use in service or if the salon runs out of its back bar product, the stylist
will transfer product from the retail shelves to the back bar.  Prior to fiscal year 2008, the cost of retail
products that the Company’s salon stylists transfer from retail shelves to the
back bar for the use of servicing clients was included as a component of the
Company’s product cost of sales in the Company’s Consolidated Statement of
Operations.  The Company made a revision
on July 1, 2007 to more appropriately classify these costs as a component
of cost of service sales.  This revision
was prompted as a result of researching our physical inventory results and an
improved and more accurate process of tracking these transfers.  The revision represents approximately 10
percent of total cost of products used in service and reduced service margins
by approximately 30 basis points and increased product margins by approximately
70 basis points for fiscal year 2008; however, the revision had no impact on
our consolidated gross margin rate. The Company determined the revision was not
material to the prior period financial statements and accounted for the
revision on a prospective basis with disclosure in the Company’s Management’s
Discussion and Analysis of Financial Condition and Results of Operations.

Book to physical
adjustments resulting from our semi-annual physical counts of inventory
represent less than 0.1 percent of service sales, less than 0.2 percent of
related cost of service sales and less than 1.0 percent of total inventory
balances during fiscal years 2008, 2007 and 2006, respectively.  Based on the results of the Company’s
physical inventory counts and the monthly review of gross margin rates, the
Company believes applying estimated gross profit margins to service revenues
for dates between the Company’s semi-annual physical inventory counts is an
acceptable method for determining the cost of service sales.

In future filings, the
Company will revise the inventory disclosure in Footnote 1 to the Consolidated
Financial Statements as follows:

Inventories

Inventories consist
principally of hair care products for retail product sales.  A portion of inventories are also used for
salon services consisting of hair color, hair care products including shampoo and
conditioner and

2

hair care treatments
including permanents, neutralizers and relaxers.  Inventories are stated at the lower of cost
or market, with cost determined on a weighted average cost basis.

Physical inventory counts
are performed semi-annually. Product and service inventories are adjusted based
on the results of the physical inventory counts.  Between the physical inventory counts, cost
of retail product sold to salon customers is determined based on the weighted
average cost of product sold, adjusted for an estimated shrinkage factor, and
the cost of product used in salon services is determined by applying estimated
gross profit margins to service revenues.
The estimated gross profit margins related to service inventories are
updated semi-annually based on the results of the physical inventory counts and
other factors that could impact the Company’s margin rate estimates such as mix
of service sales, discounting and special promotions. Actual results for the
estimated gross margin percentage as compared to the semi-annual estimates have
not historically resulted in material adjustments to our statement of
operations.

Long-Lived Asset
Impairment Assessments, Excluding Goodwill, page 76

2.               Tell us the nature of the assets that were included in your impairment
charge of $10.5 million as of June 30, 2008 and clarify how this
impairment charge was related to the plan to close certain stores in fiscal
2009. In this regard, we note that none of the impaired salon assets were held
for sale.

Response

The Company reviews
long-lived assets for impairment at the salon level annually or if events or
circumstances indicate that the carrying value of such assets may not be
recoverable.  During the fourth quarter
of fiscal year 2008, the Company performed a test for long-lived asset
impairment in accordance with Statement of Financial Accounting Standards No. 144,
Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144), and recognized an impairment
charge for the full carrying value of certain salons’ equipment and leasehold
improvements totaling $10.5 million.  All
of the salons included in the impairment charge had estimated negative
undiscounted future cash flows.  Salon equipment
and leasehold improvements consist of furniture and fixtures such as chairs,
shelves, sinks and real property such as lighting, cabinets, flooring,
wall-coverings and signs. The salon equipment had negligible salvage value. The
Company typically elects not to transfer movable assets, such as chairs and
shelves, to other salons as the cost of moving and storing such assets exceeds
the cost of purchasing similar assets.
Accordingly, the Company included the carrying value of movable assets
as part of its impairment testing.

The Company’s test for impairment is performed at a
salon level as this is the lowest level for which identifiable cash flows are
largely independent of the cash flows of other groups of assets and
liabilities.  In accordance with SFAS No. 144,
the Company initially identifies salons whose sum of undiscounted estimated
future cash flows expected to result from the use of the related salon assets
does not recover the carrying value of the salon assets.  When the sum of a salon’s undiscounted estimated
future cash flows is zero or negative, impairment is measured as the full
carrying value of the related salon’s equipment and leasehold
improvements.  When the sum of a salon’s
undiscounted estimated future cash flows is greater than zero but less than the
carrying value of the related salon’s equipment and leasehold improvements, a
discounted cash flow analysis is performed to estimate the fair value of the
salon assets and impairment is measured as the difference between the carrying
value of the salon assets and the estimated fair value.  The fair value estimate is based on the best
information available, including market data.

As a result of the weakening economy and resulting
decline in same-store sales across the Company’s various salon concepts, in the
fourth quarter of fiscal year 2008, the Company evaluated its salons and
identified 160

3

underperforming company-owned salons for potential
closure.  The Company’s decision was
announced in a release to the public on July 9, 2008.  Each of the 160 salons identified by the
Company for potential closure had estimated negative undiscounted future cash
flows.  Accordingly, the salon assets
related to these 160 salons, and approximately 20 additional salons with
estimated negative undiscounted future cash flows that were identified through
the Company’s SFAS No. 144 testing procedures, were impaired and the
carrying value aggregating $10.5 million was written off as of June 30,
2008.

Negotiations with landlords were commenced subsequent
to the Company’s fiscal year ended June 30, 2008 and related Form 10-K
filing.  In a number of cases, these
negotiations with landlords resulted in rent reductions instead of lease
terminations.  Subsequently, the Company
elected to operate such salons with rent reductions instead of closing them due
to the significant cost savings this afforded.
As of December 31, 2008, the Company had closed 35 stores and
negotiated rent reductions for four salons. The remaining 121 stores were open
and fully operational as of December 31, 2008.

No salon equipment and leasehold improvements were
classified as held for sale as all of the criteria in paragraph 30 of SFAS No. 144
were not met.  In accordance with SFAS No. 144,
all of the Company’s salon assets that were impaired as of June 30, 2008
were considered held and used as the Company intends to operate the identified
salons.

3.               We note that you evaluated the appropriateness of the remaining useful
lives of your property and equipment affected by your impairment charges. Tell
us why you concluded that a change in the useful life was not warranted as of June 30,
2008, in light of your decision in July 2008 to close up to 160
underperforming Company owned salons in fiscal 2009.

Response

In the fourth quarter of
fiscal year 2008, the Company performed a test for long-lived asset impairment
in accordance with SFAS No. 144 and recognized an impairment charge for
the full carrying value of certain salons’ equipment and leasehold improvements
of $10.5 million.  All of the salons
included in the impairment charge had estimated negative undiscounted future
cash flows.  Up to 160 of the salons
included in the impairment charge were also identified for potential closure.
The Company assessed the useful lives of its equipment and leasehold
improvements in connection with its long-lived asset impairment test.  The Company considered a change to the useful
lives of the unaffected salon assets and determined that no change was
warranted as the Company planned to continue operating the unaffected salons in
the normal course of business.  The
useful lives of the Company’s salon assets correspond to the lesser of the
lease term or useful life of the assets.

Advertising Funds, page 78

4.               Tell us your basis in the accounting literature for not reflecting the
activities of the advertising funds in your financial statements, in light of
the fact that certain of your company-owned salons are required to contribute
to these funds. Clarify how you recognize advertising expense for these
company-owned salons.

Response

The Company has various
franchising programs supporting its franchise salon concepts consisting of
Supercuts, Cost Cutters, First Choice Haircutters, Magicuts, and Pro Cuts.  Most of the concepts maintain advertising
funds that provide comprehensive advertising and sales promotion support.

4

The Supercuts advertising
fund is the Company’s largest advertising fund.
The Supercuts advertising fund is administered by a council consisting primarily
of franchisee representatives.  The
council has overall control of all of the fund’s expenditures and operates in
accordance with terms of the franchise operating and other agreements.

Each Supercuts store
contributes 5.0 percent of sales to the fund (contributions for other concepts
range between 1.5 percent and 5.0 percent).
The majority of the advertising funds are spent to support media
placement and local marketing activities. The remainder is allocated for the
creation of national advertising campaigns and system wide activities.  None of the advertising funds collected may
be used by the Company as reimbursement for the cost of administering the
advertising fund.  Advertising funds can
only be used as directed by the fund’s council and are considered to be
restricted.

The Company records all
advertising funds as assets and liabilities within the Company’s Consolidated
Balance Sheet. As of June 30, 2008 and 2007, approximately $16.3 million
and $14.4 million, respectively, of the advertising funds’ assets were recorded
within total assets in the Company’s Consolidated Balance Sheet. As of June 30,
2008 and 2007, approximately $16.3 million and $14.4 million, respectively, of
the advertising funds’ liabilities were recorded within total liabilities in
the Company’s Consolidated Balance Sheet. As the advertising fund balances were
approximately 1.5 percent of total assets and liabilities as of June 30,
2008 and 2007, respectively, the Company did not separately disclose these
balances in its Consolidated Balance Sheet.

The Company records
advertising expense in the period the company-owned salon makes contributions
to the respective adve