Regis Strong on SuperCuts, SmartStyle Brands; Comps a Drag

On Jul 7, we issued an updated research report on Regis Corp. RGS.

Headquartered in Edina, MN, Regis owns, operates and franchises hairstyling and hair-care salons worldwide.

The company's SuperCuts and SmartStyle brands have been performing consistently well over the past few quarters and now represent more than 50% of its overall salon portfolio. Also, the SuperCuts and SmartStyle websites offer information on beauty, products and styling trends and aligning more appropriately to each brand's position saw combined growth of 67% in traffic in the third quarter of fiscal 2016.  

Moreover, several sales building initiatives undertaken by the company like the launch of SuperCuts mobile app, digital check-in service and upgrade of its point of sale system bode well and should drive the top line and comps, going forward.

Also, the company has been consistently adding franchisees to its system over the past 12 months, which is proving to be beneficial. Refranchising a large portion of the Regis' system reduces the company's capital requirements and facilitates earnings per share growth and ROE expansion. Additionally, Regis continues to make efforts to reduce costs that should further boost profits.

Meanwhile, having posted negative comps throughout fiscal 2015, Regis started 2016 on a promising note with comps witnessing an improvement over the first two fiscal quarters. However, comps declined in the fiscal third quarter despite the company's efforts to boost its performance. Though the company is enhancing the scope of its operations to improve execution and performance, a lot needs to be done to maintain traffic trends and positive comps.

Regis' operating margins have been under pressure for the past few quarters mainly due to declining revenues. Also, apart from the domestic operations, the company's major international company-owned salons are located primarily in the U.K., where the economic/political conditions are expected to be challenging post Brexit, thereby affecting the company's sales.

Zacks Rank & Stocks to Consider

Regis currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include KAR Auction Services, Inc. KAR, The Michaels Companies, Inc. MIK and ULTA Salon, Cosmetics & Fragrance, Inc. ULTA. All the three stocks carry a Zacks Rank #2 (Buy).

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