Regis Stays at Neutral - Analyst Blog
December 14 2012 - 8:30AM
Zacks
We are maintaining our long-term
Neutral recommendation on Regis Corp. (RGS), the
largest hair salon chain in the world.
Hanrahan, the CEO of Regis Corp., is taking all the measures to
turnaround its business. He is implementing a sound strategy of
transformation, which includes simplifying the operating model,
leveraging the company’s scale and encouraging a performance-driven
environment, which will ultimately improve the customer
experience.
To achieve its objectives, management currently plans to roll out a
third-party point-of-sale (POS) software system (SuperSalon) to all
salons by the end of 2013, replacing another provider (Shortcuts),
which previously replaced an internally developed program. Regis is
optimistic about this new technology, as this new software,
SuperSalon, has adequate capabilities of both POS and customer
relationship management, confirmed by its successful use by Regis
franchisees. To drive traffic as well as profitability, the company
is focusing on an effective promotion and pricing strategy. As a
result, Regis also employed a Vice President of pricing to better
execute the promotion and pricing strategy. Moreover, to increase
sales, the company plans to improve its scheduling and staffing
levels.
During the quarter, SmartStyle
salon witnessed positive traffic for the first time in several
years, benefiting from better staffed hours and the back-to-school
promotion. To enhance guest service, the company has rolled out a
program, ‘The Moments of Truth’, which focuses on the critical
points in a service including the welcome, consultation and check
out. The initial response to the program was great and to
further enhance guest experience, management plans to train its
stylists. The company is still reviewing its technical training
programs, which still have several tests underway. Furthermore,
Regis is also focusing on salons manager training, employee
rewards, promotional activities and use of technology. The company
has also created centralized corporate operations and human
resources groups to standardize and improve business processes
throughout the entire organization and develop a performance-based
culture.
Additionally, its cost saving initiatives, impressive balance sheet
position and divestiture of Hair Club remain encouraging.
However, the persistent sluggishness in traffic due to economic
concerns remains a drag on same-store sales and has resulted in 17
straight quarters of negative same-store sales. Traffic trends
remained choppy and average ticket remained under pressure due to
the comprehensive promotional strategy and lower pricing.
Additionally, United Kingdom retail environment remains
challenging; hence going forward, we expect International salon
business to record weak same-store sales as the segment mainly
includes company-owned salons located in United Kingdom. During the
first quarter of 2012, International same-store sales declined
5.1%.
Moreover, lingering risks from fashion changes and competition from
companies like Ulta Salon, Cosmetics & Fragrance,
Inc. (ULTA) and Sally Beauty Holdings
Inc. (SBH) add to the woes. Furthermore, the absence of
the 2013 guidance until the new CEO completes the evaluation of
business indicates lack of visibility in the near term.
REGIS CORP/MN (RGS): Free Stock Analysis Report
SALLY BEAUTY CO (SBH): Free Stock Analysis Report
ULTA SALON COSM (ULTA): Free Stock Analysis Report
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