Edina-based Regis Corp. (RGS) recently reported its fourth quarter 2010 revenue of $590 million, down 5.6% year over year and its comparable-store sales saw a 2.7% decline. This rate of decline was, however, lower than the year-ago period implying a gradual improvement in the quarter’s same-store sales.
In fiscal 2010, consolidated revenues and same-store sales declined by 2.8% and 3.2%, respectively. Slower traffic and limited new product introductions, due to economic concerns, continued to hurt same-store sales. Consumers are cutting back on expenses resulting in spending slowdown and lengthening of visit patterns.
Results remained weak in the company’s relatively higher-priced, mall-based Regis Salon division but relatively stronger in the value salon concepts due to changed consumer behavior in this difficult economic environment. Supercuts (located in strip centers; around $16 average ticket) posted flat comparable-store sales, while higher-end Regis (85% located in malls; around $40 average ticket) posted the largest decline of 5.4%.
In February 2009, Regis divested its Trade Secret retail product division to Premier Salons Beauty Inc. (Premier). Under the agreement, Regis had agreed to provide certain administrative and support services, such as the supply of some retail products, to Premier during the period of transition. Consequently, fourth quarter 2009 product revenues from North America included $20 million of sales to Premier at Regis’ cost. Excluding these sales, fourth quarter 2010 total revenue dropped 2.5%.
Outlook
On its third quarter earnings call, Regis has provided its guidance for 2011 reiterating same-store sales guidance of -1% to +2%. At the same-store sales level, and before any investment to reinvigorate the Regis salon division, EBITDA is expected to be in a range of $235 million to $270 million. Regis is still optimistic about its performance build-up in fiscal 2011 with positive comparable-store sales and top-line growth estimated for the second half of the year.
Management expects sustained growth in average ticket prices. Regis is poised to achieve its operational target in 2011 through more cost-containment efforts, solidifying financial position, incremental closures of under performing salon and by limiting its growth strategy.
Regis did not provide any earnings guidance for the fourth quarter and fiscal 2010. The company is slated to release its fourth quarter 2010 earnings on August 26, 2010. However, the Zacks Consensus Estimates for the fourth quarter and fiscal year 2010 are earnings of $0.42 and $1.39, representing an annualized growth of (28.8%) and (25.8%), respectively.
Regis owns, franchises or has stakes in more than 12,700 salons, hair restoration centers and cosmetology education services. Its more popular brands include Supercuts, Cost Hutters, Cool Cuts 4 Kids and Hair Club for Men and Women.
We maintain a Zacks #3 Rank on Regis Corp, which translates into a short-term Neutral recommendation.
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