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Earnings Preview: Regis

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Regis Corp. , the largest hair salon chain in the world, will unveil its fourth quarter and fiscal 2012 results on Thursday, August 23, 2012. The current Zacks Consensus Estimate for the fourth quarter is 31 cents per share, representing an annualized negative growth of 16.2%. The current Zacks Consensus Estimate for 2012 is $1.21, which also reflects a year-over-year negative growth of 3.94%.The Zacks Consensus Estimate for revenues in the fourth quarter and fiscal 2012 remains at $577 million and $2,281 million, respectively.

Over the trailing four quarters, Regis earnings surprise was in the range from negative 3.7% to positive 33.3%, with an average of positive 19.0%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Preliminary Fourth Quarter Results

Based in Edina, Regis reported fourth quarter 2012 revenues of $568.0 million, down 4.0% year over year and 1.0% sequentially, in a pre-earnings announcement.

Same-store sales (comps) for the fourth quarter fell 3.0% year over year. The rate of decline was steeper than the year-ago drop of 1.7% but lower than the previous quarter’s decrease of 3.4%, indicating a persistent deterioration in the company’s same-store sales.

Service same-store sales fell 3.7% versus a decline of 1.7% in the prior-year quarter.

Retail same-store sales fell 0.5% versus a decline of 1.1% in the fourth quarter of 2011, implying that the company has experienced slow but improving traffic. However, the consolidated hair restoration business remained bright with same-store sales growth of 4.4% in the quarter versus 1.3% in the prior-year quarter.

Geographically, North America performed better than the international market. Domestic same-store sales fell 3.3% year over year, while international same-store sales even more by 6.6%. The international trend was assuring as it showed a huge improvement over the last quarter’s decline of 10.6%.

The company’s higher-priced, mall-based Regis Salon division provided weaker results as compared to value salon concepts, which were relatively better positioned owing to the price sensitivity of consumers in the backdrop of the economic uncertainty. The turbulent economy has persisted consumers to cut down expenditure on expensive and discretionary items.

Zacks Consensus

The analysts covered by Zacks expect Regis to post earnings of 31 cents per share for the fourth quarter of fiscal 2012, lower than the prior-year earnings of 37 cents. Currently, the Zacks Consensus Estimate ranges between 35 cents and 29 cents a share.

Estimates Revisions Trend

Estimates have not budged in the last 30 days, implying that the analysts do not expect any meaningful surprises for the time being. The current Zacks Consensus Estimate is pegged at $1.24 for 2013 (reflecting a year-over-year growth of 2.98%).

Agreement of Estimate Revisions

In the last 30 and 7 days, one out of the seven analysts covering the stock, revised the estimate downwards for the fourth quarter of 2012, while none of the analysts moved in the opposite direction.

For fiscal 2012 and 2013, there has been no movement in the earnings estimates over the last 30 and 7 days, implying the absence of any meaningful catalyst to drive the estimates up or down.

Magnitude of Estimate Revisions

Over the last 30 days, the earnings estimates of 31 cents, $1.21 and $1.24 for the fourth quarter, fiscal 2012 and fiscal 2013, respectively, remained static. This implies that the analysts expect the company to report in line.

However, over the past 60 days, the estimates for the fourth quarter, fiscal 2012 and fiscal 2013 have dipped from 33 cents, $1.22 and $1.25, respectively.

Maintain Neutral Rating

We have a Neutral recommendation on Regis as the company continues to spend on a host of initiatives, such as installation of the POS system, and CRM system, “Regis Reignited” initiative, remodeling of stores and marketing expenses to reinvigorate the brand and drive traffic. In addition, we remain positive about Regis’ stake sale in Provalliance and the offload of one of its subsidiaries, Hair Club. Both the deals will help the company to shift from its no-core assets and focus solely on enhancing the salon experience. Moreover, the company has a proven track record of achieving growth through acquisitions and unit growth. Furthermore, impressive balance sheet and cash position along with the enhancement of shareholders’ value augur well for Regis.

However, continuous sluggish same-store sales due to decline in traffic, stemming from rising unemployment and uncertain economic conditions and lingering risk from fashion changes, make us cautious on the stock.

One of Regis primary competitors, Ulta Salon, Cosmetics & Fragrance Inc. (ULTA - Free Report) is slated to release its second quarter 2012 results on September 6, 2012.

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