Regis Corporation (RGS) continues to struggle due to sluggish same-store sales results. The company reported third quarter 2011 adjusted earnings of 25 cents per share, missing the Zacks Consensus Estimate of 31 cents as well as prior-year quarter earnings of 37 cents.
During the quarter, the company reported a GAAP net loss of $25.3 million or 45 cents per share, well above the loss of $1.5 million or 3 cents per share posted in the year-ago quarter.
Quarter Performance
Total revenue inched down 1.1% year over year to $581.0 million due to lower footfall at its salons and a decline in total same-store sales. The company also failed to beat the Zacks Consensus Estimate of $586.0 million.
Service revenues dipped 1.7% to $440.1 million; whereas product revenues and fee revenues spiked 1.1% and 0.7% year over year to $131.4 million and $9.8 million, respectively.
Consolidated same-store sales plummeted for the eleventh consecutive quarter to 2.3%. Notably, this rate of decline was higher than the year-ago quarter's drop of 1.8% as well as the first and second quarter drops of 1.5% and 1.3%, respectively, reflecting a significant plunge in the quarter’s comps. The decline was due to inclement weather condition in the month of January and the calendar shift of Easter holiday from March to April this year, resulting in a slowdown in customer visits.
Domestic sales were down 1.4% year over year while International sales inched up 0.2%. Hair Restoration sales were up 2.2% in the quarter.
Operating expenses jumped 9.3% year over year to $640.8 million, reflecting a rise in costs.
In the reported quarter, Regis owned, franchised, or held ownership interest in 12,691 worldwide locations versus 12,728 at the end of the fourth quarter of 2010 and 12,744 at the end of the second quarter of 2011.
Financial Position
At the end of third quarter 2011, the Beauty Salon operator’s cash and cash equivalents declined to $145.5 million compared with $151.9 million at the end of the fourth quarter of 2010. As of March 31, 2011, Regis reduced its long-term debt to $371.3 million versus $388.4 million as of June 30, 2010.
Outlook
Regis outlook for the fourth quarter of 2011 remains below market expectations owing to wavering consumer behavior and a hike in state unemployment taxes. The company expects adjusted earnings for the fourth quarter of 2011 to be in the range of 30 cents to 33 cents per share, implying earnings per share of $1.11 and EBITDA of approximately $225 million for fiscal 2011.
For fiscal 2012, Regis is expected to make efforts to improve consumer traffic. It 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.
Our Take
The company reported disappointing third quarter results and continues to remain skeptical about the next quarter. The economic downturn has severely impacted the company’s earnings in the last few quarters, and Regis now expects same-store sales to be in the range of -1% to +1% for 2012, reflecting persistent economic challenges. Estimates for the company are expected to move down in the coming days due to lack of improvement in customer visits.
Regis has a Zacks #2 Rank, implying a short-term Buy rating on the stock. Our long-term recommendation for the stock remains Neutral.
One of Regis' primary competitors, Ulta Salon, Cosmetics & Fragrance Inc. (ULTA), is expected to release its first quarter earnings on May 30, 2011.
REGIS CORP/MN (RGS): Free Stock Analysis Report
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