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Why Regis Stock Collapsed 20% on Aug. 31

By Reuben Gregg Brewer - Aug 31, 2020 at 2:01PM

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The haircut specialist reported earnings, and investors were not pleased. Here's why.

What happened

Shares of hair salon operator and franchiser Regis (RGS -0.96%) fell as much as 20% in morning trading on Aug. 31. By 2 p.m. EDT, the shares had bounced off their lows of the day but were still lower by a painful 18% or so. The culprit was the company's full-year fiscal 2020 earnings announcement. 

So what

It's difficult to paint a positive picture here. Regis' revenue fell roughly 25% in fiscal 2020, with earnings plunging deeper into the red, going from a loss of $0.48 per share in fiscal 2019 to a loss of $4.79 in the recently ended year. Fiscal fourth-quarter results were even worse. Revenue dropped 74% year over year in the quarter, with earnings declining from a loss of $0.14 per share to a loss of $2.05. The company tried to highlight the positives, notably that it had increased franchise relationships to 76% of its salon portfolio from 56% at the end of fiscal 2019. This furthers its move toward an asset-light model, but the financial results highlight the bigger picture today.  

A man holding his head with a candlestick chart heading lower behind him

Image source: Getty Images.

Regis' business, whether in a franchise or company-owned store, is basically to provide personal services that require very close contact between two human beings. The business suffered amid the government-mandated closures undertaken to contain the spread of COVID-19. However, even as salons are reopening, there's a lingering impact, as people remain reluctant to engage in activities that require close physical contact with strangers. In other words, the pain is likely to linger despite the fact that Regis continues to push toward its goal of being completely franchise focused by the end of fiscal 2021. 

Now what

In some ways, the coronavirus could actually help speed up Regis' overhaul, allowing it to close company-owned stores without investors or customers questioning why. That silver lining, however, doesn't overshadow the very deep impact that COVID-19 has had on the company's core salon business. Long-term investors should expect continued volatility with its stock until there's more clarity on the long-term trajectory of the pandemic. In fact, even if results improve sequentially from here, it is likely that financial performance will still be relatively weak in the next couple of quarters.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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