Regis: Earnings Preview

| About: Regis Corporation (RGS)

Regis Corp. (NYSE:RGS), the largest hair salon chain in the world, is slated to release its fourth quarter and fiscal 2011 results on August 25, before the opening bell. The current Zacks Consensus Estimate for the fourth quarter is 30 cents per share, representing an annualized negative growth of 12.8%. The current Zacks Consensus Estimate for 2011 is $1.10, which also reflects a year-over-year negative growth of 16.3%.

With respect to earnings surprises over the trailing four quarters, Regis has turned around significantly from negative 19.35% to positive 3.45%. The average earnings surprise was a negative 8.68%. This implies that the company has missed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Preliminary Fourth Quarter Results

Based in Edina, Regis reported fourth quarter 2011 revenues of $592 million, up 0.3% over the year in a pre-earnings announcement.

Same-store sales in the fourth quarter fell 1.7% year over year but was lower than the year-ago quarter drop of 2.7% and the prior quarter plunge of 2.3%, attributable to higher customer footfalls. The several initiatives taken by Regis to drive traffic seems to have succeeded as customer visits improved 150 basis points (bps) over the last nine months, but still plunged 2.5%.

Domestic same-store sales fell 1.6% year over year while International same-store sales decreased 5.5%. However, hair restoration same-store sales rose 1.3% in the quarter. Results remained weak in the company’s relatively higher-priced, mall-based Regis Salon division, but value salon concepts experienced stronger sales due to a shift in consumer behavior arising from the economic uncertainty.

Supercuts (located in strip centers; around $17 average ticket) posted a 0.2% rise in comparable store sales while higher-end Regis salons (87% located in malls; around $41 average ticket) posted a dip of 1.8%. SmartStyle salons, located exclusively in Wal-Mart Stores (NYSE:WMT), and MasterCuts (around $21 average ticket) also reported drops of 2.6% and 1.4% in comps, respectively.


For fiscal 2012, Regis is expected to undertake further initiatives to improve consumer traffic. The company anticipates same-store sales in the -1% to +1% range and EBITDA between $222 million and $242 million. The company estimates earnings in the range of $1.16 to $1.32 per share.

Estimates Revisions Trend

Estimates have not budged in the last 60 days, implying that the analysts are maintaining their outlook post first quarter earnings. The current Zacks Consensus Estimate is pegged at $1.24 for 2012 (reflecting a year-over-year growth of 12.8%).

Agreement of Estimate Revisions

There has been no movement in the analysts’ earnings estimates over the last 30 days due to the absence of any meaningful catalyst to drive the estimates up or down.

Magnitude of Estimate Revisions

Over the last 60 days, the earnings estimates of 30 cents, $1.10 and $1.24 for the second quarter, fiscal 2011 and fiscal 2012, respectively, remained unchanged. This implies that the analysts expect the company to report in line.

Our Take

The fourth quarter 2011 results are projected to be below the estimates as same-store sales continues to remain sluggish due to a continuous decline in traffic, stemming from rising unemployment and uncertain economic conditions.

However, we expect Regis to benefit from its cost saving initiatives, installation of the POS system, expansion of Pro-Cuts concept, economies of scale and incremental salon closures. Additionally, Regis continues to spend on a host of initiatives, such as installation of the POS system, expansion of the Pro-Cuts concept, remodeling of stores and marketing expenses to reinvigorate the brand and drive traffic. Moreover, growth acceleration through new salon construction and enhancement of shareholder value also augurs well.

Regis shares have a Zacks #4 Rank (short-term Sell recommendation). Our long-term recommendation for the stock also remains Neutral.

One of Regis primary competitors, Ulta Salon, Cosmetics & Fragrance Inc. (NASDAQ:ULTA) is slated to release its second quarter 2011 results on September 8, 2011.