Regis Corp.’s (RGS) fiscal second-quarter 2015 loss was wider than the Zacks Consensus Estimate and revenues missed the estimate mark. Following the dismal results, share price fell 4.35%.
The owner, operator and franchisor of hairstyling and hair care salons posted second-quarter adjusted loss of 16 cents per share that was wider than the Zacks Consensus Estimate of a loss of 5 cents and the year-ago loss of 3 cents. The downside was mainly due to a decline in revenues.
Total revenues declined 2.7% year over year to $455.9 million, owing to decline in Service revenues and Product revenues. However, revenues missed the Zacks Consensus Estimate of $466 million by 2.2%.
Performance in Detail
Consolidated comps were down 0.3%, better than the year-ago quarter decline of 6.2% but compared unfavorably with prior quarter rise of 0.6%.
Service revenues dropped 2.9% year over year to $350.3 million mainly due to a reduction in the number of North American salons. Same-store sales declined 0.2%, driven by 0.9% drop in guest traffic, partly offset by 0.7% increase in average ticket price.
Product revenues decreased 3.1% year over year to $94.7 million due to reduction in the number of North American salons. Same-store sales declined 0.6%, reflecting 2.4% drop in average ticket due to increased promotional activity this holiday season, partly offset by 1.8% increase in guest traffic. Royalties and fees revenues were $10.9 million, up 12.8% year over year.
Cost of service and product as a percentage of service and product revenues expanded 50 basis points (bps) to 60.2% owing to higher field incentives, state minimum wage increases and costs related to higher retail promotions.
General and administrative expenses were up 9.6% year over year to $44.5 million owing to costs related to planned strategic investments in Asset Protection and Human Resource initiatives.
Adjusted operating margins declined 0.7%, comparing unfavorably with 0.5% drop in the year-ago quarter.
Our Take
After posting positive comps over the past quarters, the comps decline in the reported quarter reflects that Regis is yet to recover from its problems. However, the company is focusing on enhancing the scope of its operations to improve execution and performance. However, a lot needs to be done to maintain traffic and positive comps. Meanwhile, the costs incurred for these initiatives would continue to dampen profits. Regis currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the same sector include ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA), CST Brands, Inc. (CST) and KAR Auction Services, Inc. (KAR). All these stocks have a Zacks Rank #2 (Buy).
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