Regis Misses by a Penny (RGS) (ULTA)

Zacks

Regis Corporation (RGS) reported first quarter 2012 adjusted earnings of 26 cents per share, missing the Zacks Consensus Estimate by a penny. Reported earnings were also below the prior-year quarter earnings of 30 cents per share. The lower-than-expected results were driven by decline in sales and comps.

During the quarter, the company reported a GAAP net income of $8.3 million or 15 cents per share compared with $18.3 million or 30 cents per share posted in the year-ago quarter.

Total revenue dipped 1.7% year over year to $568.7 million in the reported quarter due to sluggish same-store sales. Subsequently, quarterly revenue was in line with the Zacks Consensus Estimate.

Quarter Performance

Service revenues and product revenues fell 1.8% and 1.3% year over year to $431.7 million and $126.9 million, respectively; while fees and royalties inched up 0.2% to $10.1 million.

Consolidated same-store sales plummeted for the thirteenth consecutive quarter to 3.1%. Moreover, the rate of decline was sharper this quarter than 1.5% and 1.7% in the year-ago and the previous quarter, respectively, implying a persistent deterioration in the quarter’s same-store sales. Although service customer visitation improved 30 basis points sequentially, it was not enough to prop up comps. Service same-store sales fell 3.1% versus a decline of 2.4% in prior-year quarter.

Retail same-store sales fell 3.2% as opposed to a growth of 1.7% in the first quarter of 2011, implying that the company is struggling to drive traffic. However, consolidated Hair restoration same-store sales rose 1.3% in the quarter.

Geographically, North America witnessed a narrower loss than the international market. Domestic same-store sales fell 3.0% year over year, while International same-store sales plunged 9.4%.

Operating expenses jumped 2.0% year over year to $555.7 million, reflecting higher costs.

Store Update

At the end of the first quarter of 2012, Regis owned, franchised, or held ownership interest in 12,774 worldwide locations versus 12,701 at the end of the fourth quarter of 2011.

Financial Position

At the end of first quarter of 2012, the Beauty Salon operator’s cash and cash equivalents declined to $75.7 million from $96.3 million at the end of the fourth quarter of 2011. As of September 30, 2011, Regis reduced its long-term debt and capital lease obligations to $275.2 million versus $281.2 million as of June 30, 2011.

Outlook

For fiscal 2012, Regis is expected to make further efforts to improve consumer traffic. The company continues to anticipate same-store sales in the -1% to +1% range and EBITDA between $222 million and $242 million. The company also reaffirmed its earnings guidance range of $1.16 to $1.32 per share.

Our Take

The company continues to undertake a host of initiatives to improve traffic. To boost customer visitation and ensure better service, Regis is planning to install new point-of-sale software across all company-owned salons over the next year.

However, the company has commenced the first quarter of 2012 on a disappointing note amid persistent economic challenges. Hence, estimates for the company are expected to move down in the coming days as same-store sales continue to remain sluggish.

Regis has a Zacks #3 Rank, implying a short-term Hold 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 third quarter 2011 earnings on December 5, 2011.

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