Regis Misses Consensus - Analyst Blog

Regis Corporation (RGS) reported second quarter fiscal 2011 adjusted earnings of 25 cents per share, below the Zacks Consensus Estimate of 28 cents. The lower-than-expected result was due to sluggish same-store sales.

During the quarter, the company reported GAAP net income of $14.5 million, or 24 cents per share, down from $18.2 million or 30 cents per share in the year-ago quarter.

Quarter Performance

Regis' total revenue inched down 0.2% year over year to $574.0 million due to lower footfall at its salons and a decline in total same-store sales. The company also missed the Zacks Consensus Estimate of $573.0 million.

Service revenues plunged 1.0% to $430.9 million; whereas product revenues grew 2.4% to $133.8 million and royalty and fee revenues inched up 0.4% year over year at $9.6 million.

Consolidated same-store sales dropped 1.3%. However, same-store sales witnessed a gradual improvement in the quarter as the rate of decline was lower than the quarter's drop of 3.7% as well as first quarter's drop of 1.5%, implying rise in customer traffic. The decline was due to dampened sales trends in November and cold weather in December that brought customer visits to a near halt.

Domestic sales spiked 0.3% year over year while International sales decreased 8.1%. Hair Restoration sales were up 2.1% in the quarter.

Operating expenses were $551.5 million, up 1.5% year over year, reflecting a rise in cost. As a result, operating margin contracted160 basis points year over year to 4.0%.

During the quarter, Regis owned, franchised, or held ownership interest increased to 12,744 worldwide locations, as compared with 12,728 at the end of the fourth quarter of 2010, but decreased sequentially from 12,758 at the end of first quarter 2010.
  
Financial Position

At the end of second quarter 2011, the Beauty Salon operator increased its cash and cash equivalents to $174.3 million as compared with $151.9 million at the end of the fourth quarter of 2010. As of December 31, 2010, Regis reduced its long-term debt to $371.4 million versus $388.4 million as of June 30, 2010. 

Outlook
 
In fiscal 2011, Regis will focus on its top-line growth and expects same-store sales to improve, with second half of the year expected to be stronger than the first half of the year. However, it expects same-store sales to be at the lower end of the previous range of -1% to +2%. 

 Our Take

The economic downturn has severely impacted the company's earnings in the last few quarters, and Regis now expects same store sales to be at the lower end of its previous outlook, implying that economic challenges still persist. The company is seeing improvement in customer visits, but spending still remains low, thus we expect estimates to go down for the next quarter.

We have a Zacks #2 Rank (short-term Buy recommendation) on the stock. Our long-term recommendation for the stock also remains Neutral.

One of Regis' primary competitors, Ulta Salon, Cosmetics & Fragrance Inc. (ULTA), is expected to release its fourth quarter earnings on March 7, 2011.

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