On Aug 30, Zacks Investment Research downgraded Regis Corporation (RGS - Analyst Report) to a Zacks Rank #5 (Strong Sell), following the announcement of disappointing fiscal fourth-quarter 2013 results in late August.
Why the Downgrade?
On Aug 27, Regis announced weak fourth-quarter results, missing the Zacks Consensus Estimate for both earnings and revenues. The company’s adjusted earnings of 6 cents per share missed the Zacks Consensus Estimate of 10 cents by 40% and the comparable year-ago quarter’s earnings of 36 cents by 83.3%.
Regis’ earnings have been under pressure for quite some time now due to lower top line, higher labor costs and mounting retail expenses. The company has delivered negative earnings surprises for the last four quarters with an average negative surprise of 69.31%.
In the fourth quarter, total revenue declined 5.0% year over year to $502.3 million, missing the Zacks Consensus Estimate of $514 million by 2.3%. Quarterly revenues were hurt by a 3.1% decline in consolidated comps resulting from a 3.7% fall in traffic. Notably, Regis missed the Zacks Consensus Estimate for revenues for the fourth time in a row.
Following the dismal fourth-quarter results, the Zacks Consensus Estimate mostly moved downwards. The Zacks Consensus Estimate for fiscal 2014 decreased 41.7% to 21 cents over the last 7 days.
Owing to the continuous fall in guest count, the company has been witnessing declining comps for the past 20 quarters. Although the company has taken several sales-building initiatives, we believe that the sluggish comps trend will continue to affect its performance until the customer-visit patterns completely rebound. Apart from this, in the concurrent quarters, the company’s profit is also expected to be under pressure due to higher labor costs
Other Stocks to Consider
Some other retail stocks with a favorable Zacks Rank that are performing well and are worth considering include Five Below, Inc. (FIVE - Snapshot Report) , Steiner Leisure Ltd. and Tractor Supply Company (TSCO - Analyst Report) . All these companies carry a Zacks Rank #2 (Buy).