We continue to rate shares of Regis Corp. (RGS) a Hold. Given the current challenging operating environment and the recent weakness in same-store sales, we believe that a multiple nearer the lower end of the company's average historic range is warranted at this time. The positive comps in the third and fourth quarters are an encouraging sign.
However, we believe the outlook remains challenging. RGS is the dominant company in the industry and its platform should allow it to leverage its position should operating trends turn in the company's favor. But we believe that investors will have time to react to such a move. Our twelve-month price target of $25 equates to a multiple of roughly 12.5x our 2009 EPS estimate.
Although Regis is by far the largest company in the industry, with annual sales at least eight times greater than the next competitor, the company still controls only 4% of the domestic market share, leaving ample room for continued growth. A significant portion of that growth is likely to come via the company-owned SmartStyle concept stores.
While the hair salon business will remain the dominant operating segment for Regis, generating at least 90% of annual sales, the company's other segments have strong growth outlooks. We also view the company's recent acquisition of PureBeauty and BeautyFirst favorably.
The company believes that it requires same-store sales growth of 2% annually to offset fixed inflationary costs. However, same-store sales increased only 0.6% during fiscal year 2008. Regis' net income for the fourth quarter was $23.1 million or $0.54 per diluted share. Earnings for the quarter were $0.55 per share, $0.03 below our estimate. Fourth quarter consolidated revenue grew 5% year-over-year to $709 million.
Read the full analyst report on RGS
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