Regis Corporation (RGS) reported fiscal second-quarter 2010 net profit of $18.2 million or 30 cents per share. Excluding an actuarial gain, the company had earned 28 cents a share in the reported quarter. The results were ahead of the Zacks Consensus Estimate of 26 cents.
The company had incurred a loss of $143.3 million or $3.34 per share in the prior-year quarter. Results reflect the benefits of the cost containment measures and improvements in gross margins.
Revenues for the quarter were down 2% from the prior-year quarter to $575 million, primarily due to less foot traffic at its salons. Consolidated same-store sales decreased 3.7%. Domestic same-store sales were down 4.0% while International same-store sales decreased 1.6%. Hair Restoration same-store sales increased only 0.1% in the quarter. The company had also experienced improvements in both service and product same-store sales in the latter half of December.
Operating expenses were $543.3 million, down 8.5% year-over-year, while gross margin improved 70 basis points year-over-year, reflecting the benefits of the expense control initiatives.
Consumer behavior has changed in this difficult economic environment. People are cutting back on expenditures, resulting in a slowdown in spending and lengthening of salon visitation patterns.
However, management has taken steps to strengthen its balance sheet and improve its financial debt covenant ratios. Regis has significantly reduced its total debt in fiscal 2009. This was driven by a reduction in overhead expenses and a more efficient management of its working capital.
Regis has updated its outlook for full fiscal 2010. The company expects operational earnings before interest, taxes, depreciation and amortization to be towards the higher end of its previous guidance of $200 million – $240 million. Same-store sales are expected to improve in the second half of the current fiscal year from the first half. Excess cash flow is expected to be at least $90 million, which the company intends to use for debt repayment and for building cash balances.
Regis, the dominant company in the hair care industry, should leverage its position on its platform. Though the economic downturn has severely impacted the company’s earnings in the last few quarters, we believe the recent signs of economic recovery and the company’s implementation of cost curtailment measures including debt reduction augur well.
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