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Bear of the Day

Regis Corporation (RGS - Analyst Report) recently delivered another disappointed earnings report as same-store sales continued to fall, prompting analysts to revise their estimates significantly lower yet again. The company has missed the Zacks Consensus Estimate is 5 out of the last 6 quarters.

It is a Zacks Rank #5 (Strong Sell) stock.

Since I last wrote about Regis Corporation as the 'Bear of the Day' on October 18, 2013, the stock has fallen more than -13%. Considering the negative earnings momentum and lofty valuation, the near-term future still doesn't look very bright for the stock.

Regis Corporation is focused primarily on hair salons. It owns, franchises or holds ownership interests in nearly 10,000 locations across the globe under the brands Supercuts, Sassoon Salon, Regis Salons, MasterCuts and Cost Cutters, among others.

Second Quarter Results

Regis Corporation delivered disappointing quarterly results once again. On January 27, it reported adjusted EPS of -$0.04 for the second quarter of its fiscal 2014, missing the Zacks Consensus Estimate that called for EPS of +$0.01. It was the company's 5th earnings miss in the last 6 quarters.

Sales fell -7% to $468.4 million, which was below the Zacks Consensus Estimate of $480.0 million. This was driven by a -6.2% decline in same-store sales as guest count fell -7.4%.

The adjusted cost of service and product as a percentage of revenues increased 50 basis points to 59.9%. This was driven in part by negative leverage of fixed expenses. The adjusted operating profit margin declined from +1.7% of revenue to -0.7%.

Estimates Falling

Not surprisingly, analysts continued to revise their earnings estimates significantly lower for Regis Corporation. This sent the stock to a Zacks Rank #5 (Strong Sell).

The Zacks Consensus Estimate for 2014 is now -$0.01, down from $0.16 just 30 days ago. The 2015 consensus has fallen from $0.38 to $0.25 over the same period. You can see the steady decline in consensus estimates over the last several months for Regis:

Valuation

Shares of Regis Corporation have sold off a bit since the Q2 earnings miss. But the stock still does not look like a value here.

Shares of RGS trade at a lofty 87x 12-month forward earnings, which is well above its historical median and the industry multiple. Based on the current consensus estimate for 2015, Regis trades at a pricey 51x. Its price to cash flow ratio of 37 looks expensive too.

The Bottom Line

With negative same-store sales, persistently falling earnings estimates and premium valuation, investors should continue avoiding Regis Corporation until it can turn things around.

Todd Bunton, CFA is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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