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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