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Regis (RGS) Strong on Strategic Initiatives Despite Risks

RGS BGFV ULTA HZO

Trades from $3

On Oct 12, we issued an updated research report on Regis Corp. (RGS - Free Report) .

Headquartered in Edina, MN, Regis owns, operates and franchises hairstyling and hair-care salons worldwide.

The company’s Supercuts and SmartStyle brands, representing more than 50% of its overall salon portfolio, have been performing consistently well over the past few quarters. Also, the SuperCuts and SmartStyle websites offering information on beauty, products and styling trends and aligning more appropriately with each brand's position saw combined growth of 56% in traffic in fourth-quarter fiscal 2016.

Moreover, several sales building initiatives undertaken by the company like the launch of SuperCuts mobile app, digital check-in service and upgradation of its point of sale system bode well and should drive the top line and comps, going forward.

In Aug 2016, the company launched its first SmartStyle advertisement in order to enhance its brand position and reach out to customers.

Regis also continues to make efforts to reduce costs and augment profitability through initiatives like modifying its plan-o-gram to properly manage inventory level and augment supply chain efficiency. The company is trying to improve productivity levels through efficient staff scheduling which would enhance margins in the North American salons, going ahead.

Also, the company has been consistently adding franchisees to its system, which is proving to be beneficial. Refranchising a large portion of the Regis’ system reduces the company’s capital requirements and facilitates earnings per share growth and return on equity expansion.

REGIS CORP/MN Price

Meanwhile, Regis has been mostly witnessing declining comps for the past several quarters due to a continuous fall in guest count. Notably, sluggish traffic is affecting the top-line growth. Unless the company reinvigorates its brands to maintain its relevance in the current hair salon business, the trend is unlikely to improve.

Moreover, operating margins have been under pressure due to a combination of declining revenues as well as increased investments in technology and sales building initiatives.

In addition to an unfavorable consumer discretionary spending in the domestic market, the post-Brexit challenging economic and political conditions are taking a toll on the company’s major portion of international operations too.

Zacks Rank and Other Stocks to Consider

Regis currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in this sector include Big 5 Sporting Goods Corp. (BGFV - Free Report) , ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA - Free Report) and MarineMax, Inc. (HZO - Free Report) . While Big 5 sports a Zacks Rank #1(Strong Buy), ULTA Salon and MarineMax carry a Zacks Ranks #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5’s current quarter estimates have moved north by 7.14% to $0.30 per share over the past month. Its current year earnings estimates have moved north by 5.56% to $0.57 per share.

ULTA Salon’s current-year growth estimate is pegged at 24.8% compared with the industry average of 5.3%. It also posted earnings beat in each of the four trailing quarters with an average positive surprise of 7.68%

MarineMax’s current year growth estimate is pegged at 17.3% compared with the industry average of 5.3%. It has a record of positive earnings surprises in the trailing four quarters with an average beat of 78.94%.

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