regis corporation: Trading at Book with High Growth Prospects

regis corporation: Trading at Book with High Growth Prospects

Regis Corp. (RGS).

Introduction:

Regis Corporation (NYSE:RGS) owns, operates, and franchises hairstyling and hair care salons for men, women, and children in the United States, the United Kingdom, Canada, Puerto Rico, and internationally. Regis’ salons operate under the Regis Corporation (NYSE:RGS) Hairstylists, Supercuts, MasterCuts, Trade Secret, and SmartStyle banners.

Stock Snapshot:

As of Nov 15’ 2012, the stock for Regis Corporation (NYSE:RGS) stood at USD 16.09 representing a total market capitalization of USD 910.74 million. The stock has traded between a range of USD 15.02 and USD 19.59 over the last 52 weeks.

Major Competitors:

Modern Beauty Salon Holdings Limited (HKG:0919) operates beauty salons, spas, and fitness centers. The Company offers services that include beauty and facial, spa and message, slimming, and fitness services.  The stock has traded at HKD 1.0 as at 18th Nov’ 2012.

Multiple Analysis:

The stock for Regis Corporation (NYSE:RGS) has been trading at a price to sales ratio of 0.41 and a price to book ratio of 1.02, whereas the stock for Modern Beauty Salon Holdings Limited (HKG:0919) has been trading at a price to book ratio of 3.21 and a P/S ratio of 0.91.

Financial Analysis:

  • For the 3 month period ending 30th September’ 2012, revenues decreased 4.9 percent to USD 505.4 million driven by the consolidated same-store sales decrease of 3.1 percent, caused by a decline in guest visitation and average ticket price and the closure of a cumulative 439 salons during the trailing twelve months, as calculated on September 30, 2012.
  • Consolidated revenue primarily comprised of service and product revenue, as well as revenues from franchise royalties and fees.  For 3 months ended 30th September’ 2012 , the Company registered a 5.2% drop in service revenues, due to decreases in same store sales as guest visits declined; a 4.2% drop in product revenues due to decline in same store product sales and the closure of 376 company-owned salons during the twelve months ending September 30, 2012. The revenues from franchise and fees remained relatively stable and increased 1.1% YoY.
  •  For the 3 months ending 30th September’ 2012, the Company registered a gross margin of 42.4%,  as compared to 44.7% in the corresponding period last year. The cost of revenues primarily includes labor costs related to salon employees, the cost of product used in providing services, and the cost of products sold to guests and franchisees.
  • During the year, the Company completed the sale of its investment in Provalliance for €80 million.
  • During the 3 months ended 30th September’ 2012, the company did not acquire any corporate salon locations. The company built 57 corporate locations and closed, converted, or relocated 99 locations.
  • As of September 30, 2012, the company had 7,680 company-owned salon locations and 2,023 franchise salon locations.
  • The Company has maintained a strong balance sheet to support its  growth, registering a debt to capitalization ratio of 23.8% for the period ending 30th Sep’ 2012,  as compared to 24.4%  as at 30th June’2012. The decrease in capitalization ratio was achieved as a result of debt reduction through repayments during the most recent quarter.
  • In addition there was no material change in assets during the most recent quarter.

 Conclusion:

Interesting value investment, due to its strong growth prospects.

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