Regis Corporation (RGS) reported fiscal fourth-quarter 2010 net profit of $18.4 million or 30 cents per share. The company had earned 34 cents a share in the reported quarter, unadjusted for a goodwill impairment charge of 4 cents per share. The results were below the Zacks Consensus Estimate of 37 cents. The company had incurred a loss of $4.6 million or 11 cents in the prior-year quarter. Results reflect the benefits of cost-containment measures and improved gross margin.
For fiscal year 2010, the company reported net income of $42.7 million, or 75 cents per share versus a loss of $124.5 million, or $2.89 per share, a year earlier.
Fourth Quarter Performance
Regis’s total revenue plunged 5.6% year over year to $590.0 million due to lower footfall at its salons and decline in total same-store sales. The company also missed the Zacks Consensus Estimate of $596.0 million.
Service revenues decreased 3% to $451.9 million; whereas product revenues inched down 0.5% to $127.8 million and royalty and fee revenues grew 1.5% year over year to $10.3 million.
Consolidated same-store sales fell 2.7%. However, same-store sales witnessed a gradual improvement in the quarter as the rate of decline was lower than the year-ago period.
Domestic sales were down 5.7% while International sales decreased 9.8%. Hair Restoration sales were up 1.6% in the quarter.
Operating expenses were $554.2 million, shrinking 4.5% year-over-year, reflecting the benefits of expense-control initiatives. However, due to lower revenues, operating margin contracted 100 basis points year over year to 6.1%.
Fiscal Quarter Performance
Revenues for fiscal 2010 were down 2.9% from the prior-year to $2.36 billion, as consolidated same-store sales decreased 3.2% and were in line with the Zacks Consensus Estimate.
At the end of fiscal 2010, operating expenses were $2.26 billion, contracting 2.6% year-over-year.
Financial Position
Management has taken steps to strengthen its balance sheet and improve its financial debt covenant ratios. Regis has significantly reduced its total debt in fiscal 2010. This was driven by a reduction in overhead expenses and a more efficient management of its working capital.
At the end of fiscal 2010, Beauty Salon operator increased its cash and cash equivalents to $151.9 million as compared with $42.5 million at the end of the prior year. As of June 30, 2010, Regis reduced its long-term debt by $190.5 million year over year to $388.4 million.
Outlook
In fiscal 2011, Regis will focus on its top-line growth and expects same-store sales to improve, with positive comps expected in the second half of the year.
Our Take
The economic downturn has severely impacted the company’s earnings in the last few quarters, as consumer behavior has changed in this difficult economic environment. People are cutting back on expenditure, resulting in a slowdown in spending and longer recesses between salon visits. Thus, we have a Zacks #5 Rank (short-term Strong Sell recommendation) on the shares.
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