Sales, Comps Weak at Regis - Analyst Blog

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Regis Corporation ( RGS ) recently gave an update on the sales and same-store sales (comps) figures for its upcoming third quarter. The company reported third quarter 2012 revenues of $573.6 million, down 1.3% year over year but up 1.9% sequentially.

Same-store sales (comps) for the third quarter fell 3.4% year over year. The rate of decline was sharper than the year-ago drop of 2.3% as well as the previous quarter's decrease of 3.0%. This indicates a persistent deterioration in the company's same-store sales. Same-store customer counts dropped 3.0% in the third quarter. Service same-store sales fell 4.1% versus a decline of 2.8% in the prior-year quarter.

Retail same-store sales fell 0.9% against a decline of 0.7% in the third quarter of 2011, implying that the company is still struggling to drive traffic. However, consolidated hair restoration business remained a bright spot with same-store sales growth of 4.3% in the quarter versus a growth of 1.3% in the prior-year quarter.

Geographically, North America was better placed than the international market. Domestic same-store sales fell 3.5% year over year, while international same-store sales plunged 10.6%.

While the company's relatively higher-priced, mall-based Regis Salon division was challenged; value salon concepts were relatively better positioned owing to the value sensitive nature of consumers in the backdrop of economic uncertainty.

Comps at Supercuts (located in strip centers; around $17 average ticket) was flat year over year versus a 0.2% growth in the year-ago period, while MasterCuts (around $21 average ticket) and higher-end Regis salons (87% located in malls; around $41 average ticket) posted declines of 3.9% and 4.8%, respectively. SmartStyle salons, which are located exclusively in Wal-Mart Supercenters, recorded a decrease of 5.1%.

Outlook

Regis, which owns, franchises or has stakes in more than 12,800 salons, hair restoration centers and cosmetology education services, is considering a slew of initiatives to turn its business around. Management remains committed to restructuring and cost cutting through overhead reduction as well as shutting down poor performing units.

However, all the efforts seem futile at the current level given the continued deceleration in comps and sales. Sales have been going downhill for quite some time. Additionally, we expect margins to remain under pressure at Hair restoration in the near term as the business continues to experience an increase in the cost of hair systems due to spike in labor cost in China where these systems are manufactured.

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 estimate of negative 1% to positive 1% range. The company also cut its earnings guidance range to $1.11 to $1.21 per share from $1.16 to $1.32 per share.

Regis currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are maintaining a long-term Neutral recommendation on the stock. However, one of Regis' close competitors, Ulta Salon, Cosmetics & Fragrance Inc. ( ULTA ) currently retains a Zacks #1 Rank, which translates into a short-term Strong Buy rating.

Regis is slated to release its third quarter earnings on April 26, 2012. The Zacks Consensus earnings estimate for the third quarter is pegged at 26 cents, representing an annualized gain of 2.50%.


 
REGIS CORP/MN ( RGS ): Free Stock Analysis Report
 
ULTA SALON COSM ( ULTA ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: RGS , ULTA

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