On Sep 18, 2013, we downgraded our long-term recommendation on
), the owner, operator and franchisor of hairstyling and
hair-care salons worldwide, to Underperform following weak
fourth-quarter fiscal 2013 results.
Why the Downgrade?
Estimates for Regis have been declining after it reported
fourth-quarter fiscal 2013 results on Aug 27, 2013. Regis
announced lackluster fourth-quarter results, missing the Zacks
Consensus Estimate for both earnings and revenues. The company's
adjusted earnings of 6 cents per share missed the Zacks Consensus
Estimate of 10 cents by 40% and the comparable year-ago quarter's
earnings of 36 cents by 83.3% due to lower top line and higher
costs. Moreover, the company posted an average negative earnings
surprise of 69.31% over the past four quarters.
In the fourth quarter, total revenue declined 5.0% year over
year to $502.3 million, missing the Zacks Consensus Estimate by
2.3%. Regis' revenues have been reeling under pressure for the
past few quarters owing to the decline in comparable sales
(comps) and lower traffic.
Following the release of fourth-quarter results, the Zacks
Consensus Estimate has been reduced, as analysts are apprehensive
of the stock's performance. The Zacks Consensus Estimate for
fiscal 2014 fell by 41.7% to 21 cents, over the past 30 days. The
company now has a Zacks Rank #5 (Strong Sell).
Cause for Concern
Owing to the continuous fall in guest count, the company has
been witnessing declining comps for the past 20 quarters.
Although the company has undertaken several sales-building
initiatives, we believe that the sluggish comps trend will
continue to affect its performance until the customer-visit
patterns completely rebound especially in the U.S.
In the ensuing quarters, the company will incur increased
expenses due to its various sales-driven initiatives. Profit is
also expected to be under pressure due to the stretching of the
company's normal working hours, which in turn will lead to higher
As the company's major international company-owned salons are
located primarily in the U.K., the challenging retail environment
in the region will continue to be a headwind. Apart from this,
continuous changes in fashion trends are a risk for a company
that earns revenues through providing latest haircuts and
Other Stocks that Warrant a Look
While we prefer to avoid Regis until we see signs of
improvement in the company's performance, other retail stocks
worth a look are
Five Below, Inc.
Ulta Salon, Cosmetics & Fragrance, Inc.
Tractor Supply Company
). All these stocks carry a Zacks Rank #2 (Buy).
FIVE BELOW INC (FIVE): Free Stock Analysis
REGIS CORP/MN (RGS): Free Stock Analysis
TRACTOR SUPPLY (TSCO): Free Stock Analysis
ULTA SALON COSM (ULTA): Free Stock Analysis
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