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Regis (RGS) Stock Down on Wider-than-Expected Q3 Loss

Regis Corp. RGS reported dismal results for the third quarter of fiscal 2016. While adjusted loss was wider than the Zacks Consensus Estimate, revenues missed the consensus mark as well. Consequently, shares of the company plunged around 14.6% yesterday.

Adjusted loss of 6 cents per share was wider than the Zacks Consensus Estimate of a loss of 2 cents. However, the figure compared favorably with the year-ago loss of 8 cents.

The owner, operator and franchisor of hairstyling and hair care salons posted revenues of $442.6 million for the quarter, down 2.5% year over year, owing to lower Service and Product revenues, partially offset by an increase in Franchise revenues. Reported revenues also missed the Zacks Consensus Estimate of $450 million by 1.6%.

Performance in Detail

Consolidated comps in the quarter were down 0.4%.In comparison, comps had been up 2.2% in the prior quarter and declined 0.7% in the year-ago period. Management believes that the shift of Easter from April in last year to March this year boosted same-store sales by around 40 basis points (bps), and expects this impact to reverse in the upcoming quarter.

Service revenues dipped 2.3% year over year to $344.1 million mainly due to a net reduction of 223 salons and foreign currency headwinds. Same-store sales inched up 0.3% driven by a 2.9% increase in average ticket price, offset by a 2.6% decline in guest traffic.

Product revenues were down 4.9% year over year to $86.7 million. Same-store sales went down 3.5% backed by a 4.5% decrease in average ticket, partly offset by a 1% increase in guest transactions.

Royalties and fees revenues were $11.8 million, up 9.1% year over year. Franchisees posted positive same-store sales and the company added 181 net franchised locations in the last 12 months.

Cost of service, as a percentage of service revenues, increased 150 bps to 63.1% due to higher health insurance costs, state minimum wage increases, stylist productivity and Easter Sunday pay.

Cost of product, as a percentage of product revenues, increased 10 bps to 49.6%. Favorable inventory management partly offset higher expenses related to promotional activities.

General and administrative expenses of $42.6 million decreased 3.4% year over year. Excluding the impact of certain one-time items in the current and prior periods, general and administrative expenses decreased by $1.9 million compared to the prior year quarter. The decrease was mainly due to certain costs lapping in the prior-year quarter, cost savings and foreign currency, partly offset by planned strategic investments.

Our Take

Having posted negative comps throughout fiscal 2015, Regis started 2016 on a promising note – comps witnessed 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. Further, Regis still has a long way to go to maintain traffic and positive comps. Meanwhile, costs incurred to execute these initiatives would continue to dampen profits.

Stocks to Consider

Investors interested in the same sector may consider ULTA Salon, Cosmetics & Fragrance, Inc. ULTA, Marinemax Inc. HZO and Sally Beauty Holdings Inc. SBH. All these stocks sport a Zacks Rank #1 (Strong Buy).

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ULTA SALON COSM (ULTA): Free Stock Analysis Report
 
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