Should You Dump Regis Corp.? - Analyst Blog

On Jun 13, 2014, we issued an updated research report on Regis Corp. ( RGS ).

We remain skeptical about Regis Corp. after it reported disappointing third-quarter 2014 results. The company's adjusted loss of 15 cents per share were wider than the Zacks Consensus Estimate of a loss of 6 cents and also compared unfavorably with the year-ago earnings of a penny. With this, the company missed the earnings expectations in four out of five quarters.

Even though revenues beat the consensus mark by 1.2%, the same fell 6.6% year over year to $471.6 million. Additionally, service revenues and product revenues have been declining continuously at Regis, due to weak same-store sales. In fact, share price declined more than 4% on a year-to-date basis a result of weak sales.

Regis has been experiencing decreasing traffic for the past few quarters due to a weak consumer discretionary spending environment in the U.S. Government budget cuts; high tax rates and still-tightened credit availability continue to hurt consumers' discretionary spending. Additionally, a sluggishly recovering economy in its international operations in the U.K. added to the company's woes in its domestic country. Continuous changes in the fashion trends are a risk for the company that earns revenues by providing latest haircuts and styling.

Moreover, higher operating costs owing to different sales-driving initiatives, mounting retail expenses and increasing labor costs are expected to hurt margins in the upcoming quarters.

However, we are encouraged by the company's restructuring initiatives, modified point-of-sale system and retail plan. Further, the company has reorganized its field structure, which includes moving from branded to a geographic management structure. We believe that such efforts might drive sales in the future.

Regis currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the same industry include ULTA Salon, Cosmetics & Fragrance, Inc. ( ULTA ), Five Below, Inc. ( FIVE ) and Office Depot, Inc. ( ODP ). All these stocks carry a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.

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

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