Bear Of The Day: Regis Corporation (RGS)

While personal service companies like salons and barbershops are technically lumped into the broader retail sector, these operations have the benefit of being “un-Amazon-able.” However, an improved economy has sparked a trend toward higher-quality brands in this space, leaving low-budget options like Regis Corporation (RGS – Free Report) in the dust.

Regis Corporation owns, franchises and operates beauty salons. Regis’ corporate and franchised locations operate under concepts such as Supercuts, SmartStyle, MasterCuts, Regis Salons, Sassoon Salon, Cost Cutters and First Choice Haircutters.

This company has a lackluster earnings performance history and has witnessed declining earnings estimates. The stock is currently a Zacks Rank #5 (Strong Sell) and should probably be avoided as we head towards the New Year.

Latest Results and Outlook

In early November, Regis posted its latest quarterly results. The company reported earnings of 10 cents per share, missing our consensus estimate of 13 cents. Regis also posted revenues of $310 million, missing our consensus estimate of $334 million and declining from the $431 million reported in the year-ago period. The company has now missed estimates twice this year.

Since this lackluster report, estimates for the company’s upcoming fiscal periods have moved lower. In fact, the Zacks Consensus Estimate for its current quarter is now nine cents lower than it was just 60 days ago. We now expect Regis to witness just breakeven earnings in the current quarter.

Key Stats

What may be more concerning than the company’s shaky earnings picture is its worrying balance sheet. Regis’ cash flow is retreating at a rate of 3.74% right now, and its total liabilities at the end of the most recent quarter were $528 million, up from $505 million at the end of year-ago period.

The stock has a Forward P/E of 83.00, meaning that its share are trading at a significant premium compared its earnings outlook. RGS has earned an “A” grade in our Growth category, but that is mostly due to softer year-over-year earnings comparisons. And the stock is sporting a PEG of 11.86, so investors are not getting a great price for that earnings expansion.