We maintain our Neutral recommendation on
), the global leader in beauty salons. Though we prefer the
company's strong brand recognition and asset-light strategy,
continuous decline in comparable store sales (comps) as well as
margins keep us on the sidelines at the current level.
Why the Reiteration?
Regis with a worldwide network of nearly 10,000 stores is well
established in the market to command a premium rate relative to
the overall personal services industry.
Regis continues to take various strategic initiatives such as
installing third-party point-of-sale (POS) software system
(SuperSalon), implementing cost-effective promotion as well as
pricing strategy and enhancing normal salon hours in order to
drive its top-line growth and same-store sales through boosting
Regis also remains steadfast in its goal to continuously
expand its business globally. Over the past 18 years, the
company has acquired more than 8,000 salons, thereby expanding
both in North America and internationally.
Regis is concentrating on liquidation of its non-core assets
in order to facilitate its financial flexibility, which in turn
will maximize shareholders' value. In this regard, Regis has
completed the sale of one of its subsidiaries, Hair Club for Men
and Women, to Tokyo-based Aderans Co., Ltd in Apr, 2013 and also
divested its minority ownership interest in Provalliance to
Provost Family, the largest hair salon company in Europe in Sept,
However, Regis has witnessed negative comps in the past 18
quarters, which can act as headwinds to its growth story.
Although the company has taken several strategic initiatives to
drive its traffic, lower revenues and comps reflect that the
efforts are not completely paying off.
Regis has been witnessing contraction in its gross as well as
operating margin in the past few quarters due to increased salon
labor costs. In the near term, we expect margins to remain under
pressure as the salon operator plans to increase its staffing
hours and labor costs to control the ongoing decline in customer
Moreover, as Regis' major international company-owned salons
are located primarily in the U.K., the challenging retail
environment in the region is expected to adversely affect its
overall International salon business' comps. Apart from this,
Regis is highly exposed to any risk associated with fashion
changes, which may hurt its sales, going ahead.
Hence, at the current level, we remain cautious and prefer to
wait until we find some greater evidence of an outperformance.
Regis currently carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some other retail stocks with a favorable Zacks Rank include
Sally Beauty Holdings Inc.
Hastings Entertainment Inc.
). While Cabela's holds a Zacks Rank #1 (Strong Buy), Sally
Beauty and Hastings Entertainment carry a Zacks Rank #2
CABELAS INC (CAB): Free Stock Analysis Report
HASTING ENTMT (HAST): Free Stock Analysis
REGIS CORP/MN (RGS): Free Stock Analysis
SALLY BEAUTY CO (SBH): Free Stock Analysis
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