Regis Downgraded to Strong Sell - Analyst Blog

On Mar 13, 2014, Zacks Investment Research downgraded Regis Corp. RGS to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Regis Corp. witnessed sharp downward estimate revisions after reporting disappointing fiscal second-quarter 2014 results. Shares of this hairstyling and hair-care salons operator and franchisor have been on a downtrend since the beginning of January and given its expected negative earnings growth rates in the upcoming quarters, it has more downside left.

On Jan 27, Regis reported fiscal second-quarter adjusted loss of 4 cents per share which compared unfavorably with the Zacks Consensus Estimate of earnings of a penny. It was the company's fifth earnings miss in the last six quarters.

Earnings were affected by lower-than-expected revenues which declined 7.5% year over year and also missed the Zacks Consensus Estimate by 2.5%. Additionally, 6.2% drop in consolidated comps was also a headwind for the company. Further, rising cost of service as a percent of service revenues (up 160 bps), due to negative service comps and higher healthcare costs added to the woes.  

Not surprisingly, analysts continued to revise their earnings estimates significantly lower for Regis. Therefore, the Zacks Consensus Estimate for fiscal 2014 was revised to a loss of a penny per share from earnings of 16 cents per share over the last 60 days. For 2015, the Zacks Consensus Estimate nosedived 34.2% over the same time frame.

Other Stocks That Warrant a Look

A better-ranked stock in the same industry is Barnes & Noble, Inc. BKS, sporting a Zacks Rank #1 (Strong Buy). In the broader retail-wholesale sector, stocks performing well currently and worth considering are The Wendy's Co. WEN and Zale Corp. ZLC. Both the stocks have the same Zacks Rank as Barnes & Noble.