Hair care salons operator Regis Corp. (RGS), Wednesday, reported a turnaround to profit in the second quarter from a loss last year, reflecting the absence of charges incurred last year. On an adjusted basis, earnings declined from the prior-year quarter, as same-store sales dropped 3.7%, yet came above analysts' consensus. Looking ahead, the company said it believes same-store sales in the second half to improve over the first half.
For the quarter, net income was $18.15 million or $0.30 per share compared to a loss of $143.25 million or $3.34 per share last year.
Adjusting for special items, earnings declined to $0.28 per share from $0.37 per share last year. On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.26 per share. Analysts' estimates typically exclude special items.
Special items include a benefit of $1.9 million compared to $6.7 million last year related to an unplanned adjustment to prior year's workers' compensation and other insurance claim reserves. In addition, the prior-year quarter had a $117.5 million charge related to loss from the now discontinued Trade Secret business, a $41.7 million expense related to goodwill impairment, a $7.8 million expense related to investment in and loans to Intelligent Nutrients, LLC and $0.8 million expense associated with lease termination costs as part of the initiative to close up to 160 under-performing company-owned salons.
Revenue declined 2.1% to $575.37 million compared to $587.43 million last year. For the quarter, eight analysts expected revenue of $576.97 million.
Service revenue was $435.13 million compared to $445.08 million last year. Revenue from Product segment was $130.67 million compared to $132.77 million last year. Revenues from royalties and fees were almost flat at $9.57 million.
Concept wise, total North American salons revenue was $499.90 million, lower than $511.41 million last year. International salons had revenue of $40.35 million compared to $41.27 million last year. Revenues from hair restoration centers was $35.12 million compared to $34.75 million last year.
Same-store sales for the quarter declined 3.7% compared to 3.8% decline in the prior-year period. "Second quarter same-store sales results were below plan, primarily due to lower than expected customer traffic in December," said Paul Finkelstein, Chief Executive Officer.
"However, we did see a significant improvement in both service and product same-store sales in the latter half of December. Over the last three weeks, North American same-store sales are flat," he added.
Consolidated gross margins improved 70 basis points year-over-year, primarily attributable to leveraged salon pay plans as well as new retail commission plan for new stylists. Operating income for the quarter was $32.06 million compared to a loss of $6.65 million last year.
For the six-month period, net income was $25.93 million or $0.45 per share, compared to a loss of $128.77 million or $3.01 per share last year. Revenues declined to $1.18 billion compared to $1.20 billion last year.
The company maintained cash dividend at $0.04 per share for the quarter and $0.08 per share for the first six months.
Looking ahead, Finkelstein said, "We are highly confident that with the inability of the consumer to outsource a haircut or hair color, coupled with favorable demographics due to the aging population, sales increases should materialize within the next six to nine months."
"While it is difficult to predict when customer visitation patterns will completely anniversary and stabilize, we continue to believe same-store sales in the second half of our current fiscal year should improve over the first half of the year," he concluded.
RGS closed Tuesday's regular trading at $14.99 per share on the NYSE.
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