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Regis Corporation (RGS - Analyst Report) posted fiscal fourth-quarter 2014 adjusted loss of 10 cents (excluding certain one-time items), which compared unfavorably with the Zacks Consensus Estimate of earnings of 3 cents and the year-ago earnings of 6 cents.

Cost-saving initiatives, reduced bonuses, improved cost of product and lower marketing costs could not offset the impact of weak same-store sales. Share price of this hairstyling and hair-care salon company declined almost 5% in response.

 


Total revenue decreased 3.6% year over year to $483.9 million owing to weak same-store sales. However, it beat the consensus mark of $479.0 million by 1%.

Quarter Performance

Service revenues dropped 2.5% year over year to $380.2 million, mainly due to decrease in North American salon revenues and 0.2% decline in service same-store sales as a result of 1.5% fall in traffic. The decline in net store count also played a role in pulling down service revenues during the quarter. However, a 1.3% increase in average ticket price during the quarter partially offset the negatives.

Product revenues declined 9.2% year over year to $92.6 million owing to an 8.4% fall in product same-store sales.

However, royalties and fee revenues climbed 8.4% year over year to $11.1 million due to positive same-store sales at franchisees and addition of new franchise locations.

Rise in average ticket price of 1.3% could not make up for the 3.1% decline in guest count. Therefore, consolidated same-store sales in the quarter were down 1.8%, better than the year-ago decline of 3.1% and 5.7% drop last quarter.

Cost of service, as a percent of service revenues, expanded 230 basis points (bps) to 61.2%. The primary driver of this increase was stylist hours which increased 3.5% versus the prior year. Also, increases in minimum wages, incentives and the shift of Easter holiday pay to the fourth quarter were offset by savings from the field reorganization.

Excluding the impact of the prior-year change in expense categorization cost of service as a percent of service revenues increased 120 bps from prior-year quarter.

Cost of product, as a percent of product revenues, improved 1,550 bps to 50.3% attributable to lapping of clearance sales in the prior year. Excluding the impact of discrete items in the prior year, cost of product as a percent of product revenues improved 320 bps from the prior-year quarter.

Fiscal 2014 Results

For 2014, the company posted a loss of 27 cents (excluding certain one-time items), compared unfavorably with earnings of 18 cents in 2013.

Total revenue in fiscal 2014 was $1.9 billion, down 6.3% year over year.

Rise in average ticket price of 1.3% in 2014 could not make up for the 6.1% decline in guest count. Therefore, consolidated same-store sales in 2014 were down 4.8%, worse than the decline of 2.4% in 2013.

Our Take

Regis posted loss for the third consecutive quarter. Moreover, it posted a wider-than-expected loss in fourth-quarter fiscal 2014. The company’s bottom line has been reeling under pressure for quite some time now due to lower revenues, higher labor costs and mounting retail expenses.

Owing to the continuous fall in customer count, the company has been witnessing declining same-store sales for the past 24 quarters. Despite the company’s sales-building initiatives, we believe the sluggish same-store sales trend will continue to affect its performance until customer-visit patterns completely rebound.

Regis has a Zacks Rank #3 (Hold). Better-ranked retail stocks include Abercrombie & Fitch Co. (ANF - Analyst Report), Foot Locker, Inc. (FL - Snapshot Report) and J. C. Penney Company, Inc. (JCP - Analyst Report). All these stocks sport a Zacks Rank #2 (Buy).

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