Regis Corp.’s RGS reported dismal fiscal third-quarter 2015 results, wherein the loss was wider than the Zacks Consensus Estimate and revenues missed the estimate mark. Shares of Regis slid 0.8% in response to the results.
The owner, operator and franchisor of hairstyling and hair care salons posted third-quarter adjusted loss of 7 cents per share that was wider than the Zacks Consensus Estimate of a loss of 2 cents. However, the adjusted loss was narrower than the prior-year quarter’s loss of 15 cents, due positive comps posted by the franchisees.
Revenues and Comps Decline
Total revenue declined 3.7% year over year to $454 million, owing to decline in Service revenues and Product revenues. Also, revenues missed the Zacks Consensus Estimate of $466 million by 2.6%.
Consolidated comps were down 0.7%, better than the year-ago quarter decline of 5.7% but worse than the prior-quarter decline of 0.3%.
Service revenues dropped 4.1% year over year to $352 million mainly due to a reduction in the number of North American salons and currency related headwinds. Same-store sales declined 0.7% due to 1.5% drop in guest traffic, partly offset by 0.8% increase in average ticket price.
Product revenues decreased 3.4% year over year to $91.1 million due to reduction in the number of North American salons and the negative impact of foreign currency. Same-store sales declined 0.9%, reflecting 1.2% drop in guest traffic, partly offset by an increase in guest traffic of 0.3%.
Royalties and fees revenues were $10.8 million, up 7.8% year over year. Franchisees posted positive same-store sales and the company added 130 net franchised locations in the last 12 months.
Cost of service and product as a percentage of service and product revenues expanded 10 basis points to 59.1% owing to higher wages and increased field incentives partly offset by improved stylist productivity and lower healthcare costs.
General and administrative expenses were up 2.2% year over year to $44.1 million owing to costs related to planned strategic investments in Asset Protection and Human Resource initiatives, and higher incentives. These negatives were partly offset by the company’s cost saving initiatives.
Adjusted operating margins declined 0.7%, comparing unfavorably with 0.5% drop in the year-ago quarter.
Our Take
Regis has yet to turn around its trend of comps decline. However, the company is focusing on enhancing the scope of its operations to improve execution and performance. Also, a lot needs to be done to maintain traffic and positive comps. Meanwhile, the costs incurred for these initiatives would continue to dampen profits.
Stocks to Consider
Regis carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same sector include ULTA Salon, Cosmetics & Fragrance, Inc. ULTA, CST Brands, Inc. CST and Cabela's Inc. CAB. All these stocks have a Zacks Rank #2 (Buy).
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