Regis Tops Estimate, Trims Outlook - Analyst Blog

By Zacks Equity Research,

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Regis Corporation ( RGS ) reported second quarter 2012 adjusted earnings of 32 cents per share, way ahead of the Zacks Consensus Estimate of 8 cents and the year-ago quarter earnings of 25 cents. The better-than-expected results were driven by lower tax rate and margin expansion.

However, including the after tax non-recurring expense of $77 million, the company delivered a net loss of $57.4 million or $1.01 per share compared with net earnings of $14.5 million or 24 cents per share posted in the year-ago quarter.

Total revenue fell 1.9% year over year to $563.3 million in the reported quarter due to sluggish same-store sales.

Quarter Performance

Service revenues and product revenues dipped 2.2% and 1.2% year over year to $421.3 million and $132.2 million, respectively; while fees and royalties inched up 1.7% to $9.8 million.

Consolidated same-store sales plummeted to 3.0%. Moreover, the rate of decline was sharper than the year-ago drop of 1.3% but in line with the sequential decrease. The sustained deterioration in comps is primarily due to slower customer traffic. During the quarter, guest count plunged 2.4%.

Service same-store sales fell 3.3% versus a decline of 2.1% in prior-year quarter. Retail same-store sales fell 2.2% against a growth of 1.5% in the second quarter of 2010, implying that the company is struggling to drive traffic. However, consolidated Hair restoration business remained a sweet spot as same-store sales grew 1.7% in the quarter versus a 0.8% rise in the prior-year quarter.

Geographically, North America witnessed a narrower loss than the international market. Domestic same-store sales fell 2.9% year over year, while International same-store sales plunged 10.1%. International business continues to suffer due to challenging retail environment in the United Kingdom, where majority of company-owned salons are located.

During the quarter, gross margin expanded 30 basis points (bps) to 44.8%. Operational operating margin also enhanced 20 bps to 4.4%, benefiting from improved service margin and reduced expense.

Store Update

At the end of the second quarter of 2012, Regis owned, franchised, or held ownership interest in 12,777 worldwide locations, up 33% year over year.

Financial Position

At the end of the quarter, cash and cash equivalents declined to $83.1 million from $96.3 million at the end of the fourth quarter of 2011. As of September 30, 2011, Regis reduced its long-term debt and capital lease obligations to $263.9 million from $281.2 million as of June 30, 2011. 


With comps coming in below 3% for the first half of 2012, the Beauty Salon operator trimmed its outlook for fiscal 2012. The company now anticipates same-store sales in the - negative 3.5% to negative 2.5% range versus the previous estimation of negative 1% to positive 1% range. The company has cut down its earnings guidance range to $1.11 to $1.21 per share from the earlier guidance of $1.16 to $1.32 per share. EBITDA guidance has been reduced from $222 million - $242 million to $210 million - $220 million.

Our Take

Though the company is undertaking a host of initiatives to improve traffic, continuous decline in same-store sales and customer visitation implies that the efforts are not paying off. With reduced outlook for 2012 and and the retirement of president Randy L. Pearce, effective from June 30, who was tipped to become the CEO of the company in February, further adds to the uncertainty. Hence, estimates for the company are expected to move down in the coming days. The Zacks Consensus Estimate for 2011 and 2012 are pegged at $1.17 and $1.32, respectively.

Regis has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Our long-term recommendation for the stock remains Neutral.

One of Regis' primary competitors, Ulta Salon, Cosmetics & Fragrance Inc. ( ULTA ), is expected to release its fourth quarter 2011 earnings on March 5, 2012

REGIS CORP/MN ( RGS ): Free Stock Analysis Report
ULTA SALON COSM ( ULTA ): Free Stock Analysis Report
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: RGS , ULTA

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