Regis Corporation 's ( RGS ) third-quarter
fiscal 2013 adjusted earnings of one cent per share missed the
Zacks Consensus Estimate of 13 cents by 92.3% and the comparable
year-ago quarter's earnings by 96.6%.
The weaker top-line, fewer working days during the quarter,
mounting labor costs generated from higher working hours and
growing costs of retail products are being held primarily
responsible for such disappointing earnings. As the company has
ownership interests in the U.S. based cosmetology company, Empire
Education Group, lower equity in earnings in the latter also played
Total revenue declined 5.8% year over year to $504.9 million in
the reported quarter, which missed the Zacks Consensus Estimate of
$521 million by 3.1%. While benefiting from the time-shift of
Easter, the quarterly revenues have declined due to a drop in
traffic and decreased service revenues that resulted in negative
comparable store sales (comps).
Service revenues dropped 5% year over year to $392.1 million,
mainly due to a 5% decrease in North American service revenues and
a 0.4% decline in North American comps. North American comps were
affected by a 1.7% decline in guest counts, fewer working days and
reduction in the number of stores offsetting a 1.3% rise in average
ticket prices. Comps in the quarter have also gained from early
Product revenues decreased 8.8% to $103.2 million owing to a
5.2% fall in comps. Royalties and fees revenues have also witnessed
a drop of 2.1% year over year to $9.6 million.
Consolidated comps in the quarter were down 1.4%. However, the
rate of decline in comps was better than the year-ago quarter's
drop of 3.9%, reflecting that Regis' sales-driving initiatives have
started to pay off. However, comps were adversely affected by a
2.4% decline in guest count, which again was offset by a 1% rise in
the average ticket price.
The company's portfolio of salons offers a wide variety of
concepts, including Regis Salons, Supercuts, MasterCuts, SmartStyle
and Promenade in malls, strip centers, lifestyle centers, Wal-Mart
supercenters, department stores, mass merchants and high-street
In the third quarter, Supercuts and SmartStyle salon revenues
increased 2.6% and 1.3% year over year with positive comps of 0.7%
and 0.3%, respectively. Regis' decision to increase the salon hours
positively impacted revenues for both the salons.
Cost of service as a percent of service revenues expanded 180
basis points (bps) to 59.8%, reflecting a rise in labor costs in
North American salons with increased salon hours. Cost of product
as a percent of product revenues also increased 130 bps to 51.6%,
mainly due to the occurrence of clearance sales.
As of Mar 31, 2013, the company's store count (including
company-owned and franchised) was 9,939.
Decline in salon traffic due to changes in lifestyle patterns
and economic pressure has resulted in 18 straight quarters of
negative comps for the company. We believe that the sluggish comps
will continue to affect Regis' result in the near term.
Although the company has taken several initiatives to drive
traffic, lower revenues and comps indicate that the efforts are not
completely paying off. Moreover, in the near term, we expect
profits to remain under pressure as the salon operator plans to
increase its staffing hours to control the ongoing decline in
customer traffic, which in turn will lead to higher labor
Although Regis continues to take various strategic initiatives
such as installing third-party point-of-sale (POS) software systems
(SuperSalon), implementing cost-effective promotions, revising its
pricing strategy and enhancing normal salon hours, we believe the
company has a long way to go.
Another retailer Big 5 Sporting Goods Corp. 's
( BGFV ) earnings
and revenues outperformed the Zacks Consensus Estimate during the
first quarter of 2013.
Regis currently carries a Zacks Rank #4 (Sell). Some other
retail stocks with a favorable Zacks Rank include Cabela's
Incorporated ( CAB ) and
Hastings Entertainment Inc. ( HAST ) while Cabela's
holds a Zacks Rank #1 (Strong Buy), Hastings Entertainment carries
a Zacks Rank #2 (Buy).BIG 5 SPORTING (BGFV): Free Stock Analysis
ReportCABELAS INC (CAB): Free Stock Analysis ReportHASTING ENTMT (HAST): Get Free ReportREGIS CORP/MN (RGS): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment