Earnings Scorecard: Regis Corp.

Aug.31.10 | About: Regis Corporation (RGS)

Regis Corp. (NYSE:RGS), which owns, operates and franchises hair and retail product salons worldwide, posted fourth quarter and fiscal 2010 results on August 26, 2010. The company’s adjusted earnings for fourth quarter missed the Zacks Consensus Estimate, but reported profit as compared with a loss in the prior-year quarter. Results reflect the benefits of cost-containment measures and improved gross margin. The recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for both the short-term and the long-term outlook for the stock are covered in depth below.

Earnings Report Review
During the fourth quarter, Regis reported net profit of $18.4 million or 30 cents per share versus a loss of $4.6 million or 11 cents in the prior-year quarter. For fiscal year 2010, the company reported net income of $42.7 million, or 75 cents per share versus a loss of $124.5 million, or $2.89 per share, a year earlier.
Total revenue plunged 5.6% year over year to $590.0 million in the reported quarter due to a lower footfall at its salons and decline in total same-store sales. The company also missed the Zacks Consensus Estimate of $596.0 million.
Consolidated same-store sales in the quarter fell 2.7%. However, same-store sales witnessed a gradual improvement in the quarter as the rate of decline was lower than the year-ago period.
Revenues for fiscal 2010 were down 2.9% from the prior-year to $2.36 billion, as consolidated same-store sales decreased 3.2% and were in line with the Zacks Consensus Estimate.
For fiscal 2011, Regis expects same-store sales in the range of -1% to +3%, with positive comps expected in the second half of the year. EBITDA is expected to be in a range of $235 million to $270 million.
(Read our full coverage on this earnings report: Regis Misses Zacks Estimates)
Earnings Estimate Revisions: Overview
Following the fourth quarter earnings release, the Zacks Consensus Estimate for the company has decreased; with the analysts having a negative view on the stock. The earnings estimate details are discussed below.
Agreement of Estimate Revisions
From the table below, a negative inclination can be witnessed among the analysts. Over the last 7 days, out of 9 analysts, 6 have reduced their estimates for fiscal 2011 and for fiscal 2012, out of 4 analysts, 1 has slashed the estimate. None of the analysts has increased their estimates over the last 7 days.
Negative revisions by the analysts are based on a longer recovery to positive comps as visitation by customers is not improving due to a difficult economic environment and assumption for higher operating expenses.
Magnitude of Estimate Revisions
The table below indicates that earnings estimates have decreased by 6 cents to $1.34 for fiscal year 2011 and by 12 cents to $1.49 for 2012 over the last 7 days. The magnitude of estimate revisions indicates that the analysts expect earnings to remain under pressure.

Our Recommendation
We expect Regis to benefit from its cost-saving initiatives, installation of new POS system, economies of scale and incremental salon closures. Moreover, the company has a proven track record of growth through acquisitions as well as new salon construction. Management expects same-store sales to pick up by the end of 2011, following a resurgence in the overall economy.
However, we remain cautious on the stock as consumer behavior has changed in this difficult economic environment. People are cutting back on expenditure, resulting in a slowdown in spending and longer recesses between salon visits. Thus, slower traffic and limited new product introduction due to economic concerns remain a drag on same-store sales.
The company does not face demand risk stemming from technological innovations or foreign competition; however, it has a lingering risk from fashion changes. Continuous changes in trends are risky for a company that generates revenues by providing haircuts and styling.
Regis shares have a Zacks #5 Rank (short-term Strong Sell recommendation). Our long-term recommendation for the stock remains Neutral.
Apart from Regis, another stock that promises long-term growth opportunities is Tractor Supply Company (NASDAQ:TSCO), which has a Zacks #1 Rank (short-term Strong Buy recommendation), as second quarter earnings of $2.05 were above the Zacks Consensus Estimate of $2.03 as well as the prior-year quarter earnings of $1.50. Results improved on the heels of good inventory and markdown management.