Regis Corp (RGS) 2004 Q2 法說會逐字稿

Good morning and welcome everyone to the Regis Corporation second quarter 2004 earnings conference call. (Operator Instructions) Before management begins their formal remarks, I would like to remind you that to the extent the company's statements or comments made this morning represent forward-looking statements. I would refer you to the risk factors and other cautionary factors in today's news release as well as the company's SEC filings.

Reconciliation to non-GAAP financial measures mentioned in the following presentation can be found on their web site at www.regiscorp.com. In addition, this call is being recorded on behalf of Regis Corporation and is copyrighted material. It cannot be recorded or rebroadcast without the company's expressed permission and your participation implies consent to our taping. If you wish to access the replay of this call, you may do so by dialing 1-800-428-6051, access code 327554.

With us this morning are Paul Finkelstein, President and Chief Executive Officer, and Randy Pearce, Chief Financial Officer and Executive Vice President. After management has completed its review of the quarter, we will open up the call for questions. (Operator Instructions) I will now like to turn the call over to Paul Finkelstein for his comments. Paul, you may begin.

Thank you and good morning, everyone. As you know, we had an excellent quarter. Second quarter revenues increased 14% to over $472 million, with same-store sales increasing 2.4%. Our retail product business, particularly in our Trade Secret division, was very strong.

Operating income for the second quarter increased 9% to $47.1 million, net income for the period increased 17% to $27.7 million or 60 cents a share, exceeding the upper end of our guidance by 4 cents a share.

More than half of the incremental earnings above our guidance can be attributed to stronger than expected same-store sales. Also contributing to the better than expected earnings was lower interest expense as a result of our debt reduction. The lower debt is a result of reduced acquisition spends during the first six months of the fiscal year. This is only a timing issue as there will be plenty of acquisitions in quarters three and four.

Second quarter EBITDA increased 11% to $66 million. We started the quarter with 9707 salons and ended the quarter with (inaudible) salons. (Inaudible) corporate salons and our franchisees opened 66 stores. During the quarter, we acquired 32 salons. After closures, relocations and franchise buybacks, we had a net increase of (inaudible) salons in the second quarter. By the end of the fiscal year, we expect to spend approximately 150 million buying and building beauty salons.

Total (inaudible) at the end of the quarter was 282 million, and our debt-to-cap ratio was 31%. We are projecting our debt at the end of the fiscal year to be approximately $300 million, with our debt to cap ratio to remain in the low 30's.

Let's look at (inaudible) for the third quarter and for the fiscal year. Third quarter revenue is expected to increase between 10 and 11% to a range of 463 to $468 million. Earnings are expected to be in the range of 49 to 51 cents a share based on same-store sales increases of 1 to 1.5%. For the fiscal year, we're expecting consolidated revenue to increase 12% to nearly $1.9 billion.

We are increasing our annual earnings guidance today due to our stronger than expected second quarter results. Earnings are expected to increase 15 to 17% to a range of $2.21 to $2.24 per share. Based on third and fourth quarter same-store sales increases of 1 to 1.5%. Based on our results for the first six months of the year, we now expect full-year same-store sales increases to increase between 1.7 and 2%. There are several other points I would like to discuss with you, the first one being our current sales trends.

As you know, our same-store sales have exceeded our projections. However, this is basically because retail product sales have been so strong. Our service comps, which represent over 2/3 of our business, continue to be sluggish. We believe this is due to both economic and fashion trends.

There is no question that our walk-in business has suffered as there are fewer shoppers passing by our doors. Our request or appointment business continues to be as strong as ever. Part of our current sales picture is due to the economy and part is due to fashion. In terms of fashion, longer hair continues to be in style.

In general, longer hairstyles will negatively affect same-store sales performance because customers reduce the frequency of their visitation patterns. The long hair-short hair cycle has been and will be part of our industry's dynamics forever. It is noteworthy that the company continues to do as well as it has with both the retail environment and fashion having a negative impact at the same time. Thus a positive turnaround either in the economy with resulting increased foot traffic or a change in hair fashions, which is inevitable, will give us a significant boost.

Let's now talk about the Vidal Sassoon Studio. We opened our first Vidal Sassoon studio in Nottingham, England in December, and its sales are above plan. We plan to open two more in the U.K. and our first in the United States in a high-end shopping mall in a suburb of Chicago this spring. We're very bullish about the prospects of the Vidal Sassoon Studio concept. Let's now talk about our retail product mix.

We continue to have strong retail product sales and Trade Secret is leading the pack. Because of our success at Trade Secret, we're looking at additional opportunities to differentiate the merchandise offered in other divisions, especially the Regis Salon division. We're looking at slightly higher -end product lines, which will complement Regis's top selling lines.

We have shown that price has not been an important element in the retail product end of the business as Trade Secret's average check has increased by 20% over the last three years.

I'd now like to talk about future growth opportunities. We have recently hired Mitsubishi Securities to help us identify potential acquisition targets in Japan. As we've discussed with you in the past, this market is attractive to us for many reasons. The beauty business is highly developed, and the Japanese are extremely fashion-conscious with a much higher price point for salon services, perhaps two or three times that of the U.S. There are many large chains in Japan, and they do not have an exit strategy. We would not go into Japan unless we were able to make one or several meaningful acquisitions in order to have the infrastructure from which to expand.

Should we consummate a deal, we would likely expand our SmartStyle division with Wal-Mart as they introduce super centers to this country. We would also have the ability to expand in Asia with Shanghai and Hong Kong being other potential targets. Realistically, a Japanese acquisition will take time - perhaps one to three years. This is something that will not be completed in the short term.

In addition, we're looking at the possibility of acquiring and building beauty schools. As you know, as part of the Vidal Sassoon acquisition, we acquired four Vidal Sassoon beauty academies. These are highly profitable, and with the outlook for U.S. unemployment continuing to be at a relatively high level for many years to come, we feel that the school business could be extremely profitable for us.

The fact that we can place our graduates in our various regional salon concepts will create a situation where student default rates will be controllable and thus our profits should be even greater than the profits of the schools prior to the acquisition date.

There are hundreds of schools in the United States which are acquisition candidates. We could add a tremendous amount of value not only in terms of placing graduates, but also in terms of enhancing the school's education programs. Our interest in expanding into Asia and the school business should not in any way indicate that we have run out of domestic or European growth opportunities. Nothing could be further from the truth.

To summarize before Randy takes over, I'd like to share with you my bullishness concerning our company. I think that our future is extremely bright. We are having an excellent year, and the last two or three years have been excellent as well. The fact that we're able to produce excellent results with the economy and hair fashion both working against us makes us feel very bullish.

There are other factors as well that add to our bullishness. The nightmare scenario for me as a CEO is to have all divisions operating at full speed because this puts tremendous pressure on future growth. During the last 12 to 18 months, Trade Secret, United Kingdom and Wal-Mart have exceeded plan. Our other divisions have not faired badly but they have a significant growth opportunity in terms of top and bottom line.

In terms of acquisition opportunities, they continue to be abundant and, in fact, probably more abundant than ever. If we finish the year closing deals we have handshakes on, our acquisition program will be ahead of plan and should set us up for a strong fiscal year of 2005.

We continue to project both top and bottom line double-digit growth for a long time to come. If you add to that the prospects of Asia coupled with the school business, you're looking at a company positioned to double its size within the next five to seven years. Randy will now continue the presentation.

Thanks, Paul. Good morning, everyone. As Paul mentioned, we're very pleased today to report record performance both in terms of our second quarter revenues as well as earnings. Our revenues increased nearly 14% during the quarter and our earnings grew over 15%, to a record 60 cents per share, and that's up from the 52 cents a share that we reported in the same period last year.

Our second quarter performance exceeded the upper end of our guidance by 4 cents a share. Our second quarter earnings performance was highlighted by stronger than expected same-store sales growth. Same-store sales for the quarter exceeded our expectations by about one full percentage point, which resulted in 2.5 cents of incremental earnings. Let me now give you more detail behind our second quarter results and I'll start first with the discussion of our revenues.

Our consolidated revenues in the second quarter of fiscal 2004 were slightly above our expectations, growing by 13.9% to a record $472,452,000. Each of our operating divisions reported an overall sales increase for the quarter. As you know, our long-term growth expectations include both organic and acquisition growth, with each representing roughly half of our total revenue growth. This quarter, organic growth represented 43% of our total revenue growth, while acquisitions represented the remaining 57%.

We're very pleased with the execution of both strategies during the quarter. Obviously these percentages will vary on a quarter-by-quarter basis due to the timing of new store openings and acquisitions. However, over a longer period of time, the mixture of organic and acquisition growth should be very consistent with our long-term expectations.

Service sales grew 13.3% in the second quarter, and our higher margin retail product sales increased exactly 18%. Our product sales mix increased to a new record of just over 31% of our total company-owned sales in the second quarter, and that was up 90 basis points from the sales mix we reported in the same period last year. The improvement in our product sales mix can be largely attributed to the strong retail product comps that we reported this past quarter of 8.4%.

In addition, total franchise revenues grew about 2% in the second quarter to $26.6 million. Breaking this out into its various components, our franchise royalties and fees increased over 6% in the second quarter, while franchise product sales declined by about 7%. The decrease in franchise product sales can be primarily attributed to the 113 franchise salons we bought back as company-owned stores through the first half of fiscal 2004.

Our franchise business remains quite healthy, as evidenced by the 66 new franchise salons we added during the second quarter. We anticipate that our franchisees will add over 300 salons system-wide during the fiscal year.

You'll find a table in our press release that breaks out our second quarter revenues for each of our salon concepts. As we reported in our press release on January 8th, our consolidated same-store sales in the second quarter came in at 2.4%, which was nearly a full percentage point higher than our expectations. Service comps, which decreased 20 basis points in the quarter, continued to be impacted by the economy, a lengthening of hairstyles and weak mall traffic. Paul has discussed these factors with you a few moments ago. Long term, we anticipate that our service same-store sales will return to the range of 2% to 4%.

Our retail product comps grew a very strong 8.4% in the quarter. Our retail product business continues to benefit from very good merchandising execution. This execution has allowed us to annually expand our market share in the professional hair care product market, while establishing Trade Secret as the only nationally recognized retail product salon. Today we estimate that Regis Corporation has anywhere from a 12% to 15% share of the professional product market in the United States.

Through the first six months of our current fiscal year, our consolidated same-store sales have increased 2.5%, which again is a full percentage point higher than what we initially projected. The strength in our comps has largely been due to retail product sales therefore, until we see a sustained improvement in our service business, we're reluctant to increase our near-term comp outlook of 1% to 1.5%. I'll now talk a bit about our second quarter gross margin rates.

Our second quarter consolidated gross margin of 45.7% was better than planned by approximately 70 basis points. However, as we expected, our second quarter gross margin rate of 45.7% was a bit lower than the second quarter last year, largely due to our retail product margins, which I'll address with you in just a moment.

Let's first discuss service margins. Our second quarter service margin rate improved to exactly 44% and that was up 40 basis points over the same period a year ago and was above our annual service margin guidance. The quarter-over-quarter improvement primarily related to lower service payrolls, a direct result of improved payroll controls in some of our acquired salons such at Baul Rex and Vidal Sassoon.

Looking ahead to the future, we expect that our service margin rate for all of our 2004 fiscal year should be in the mid 43% range of service revenue. And I'll now switch and talk about retail product margins. During the second quarter, our product margin rate came in at 49.2%, and that was 110 basis points better than the 48.1% rate that we reported last quarter in our preceding first quarter. However, as we expected, our current year second quarter rate was lower than the retail product margin rate of 52% we reported in the second quarter a year ago.

As you recall, last year's second quarter results included a favorable book to physical inventory variance. Our retail product business continues to involve having increased 76% in just the past four years alone. This fiscal year, we expect to sell around $535 million of retail product in our company-owned salons, plus we sell product to our franchisees, and again our product sales represent about 12% to 15% share of the professional retail product market here in the United States.

In recent years, our merchandising strategy has taken on a more traditional retail focus, with the introduction of retail planograms in all of our salons and the implementation of the JDA merchandising systems our retail product margins are expected to show improvement. In addition, we continue to manage our promotional buying and our opening orders of new product lines better than ever before. Given the strength of our retail product business during the first half of our current fiscal year, we're raising our product margin guidance today. We now expect retail product margins to be in the 49% range.

OK, so let me now address our other expense line items impacting our second quarter operating results and I'll first start with ret expense. Our consolidated ret expense in this second quarter of this fiscal year came in at 14.5% of company owned revenue, which improved 10 basis points over the same period last year. Rent expense was better than a year ago, primarily due to the stronger than expected same-store sales results, particularly at Trade Secret and with our international division. We expect our rent expense for all of fiscal 2004 to come in at around 15% of sales for the year.

Let me now address the direct salon expense category, which includes costs directly incurred by the salon such as salon advertising, worker's compensation insurance, utilities and janitorial costs. The direct salon expense category in the second quarter came in at 8.8% of company owned revenue, which was identical to the rate we reported in the same quarter last year. Looking ahead to the balance of our current 2004 fiscal year, we continue to expect the direct salon expense category to be approximately flat with the 9% rate we reported for all of fiscal 2003.

I'll now address the line item titled "franchise direct costs." This line item includes the cost of the product that we sell to our franchisees as well as the direct costs we incur at our home office and in other countries to support our franchising activities.

Our second quarter franchise direct costs represented exactly 57% of franchise revenues compared to 59% in the second quarter last year. This quarter-over-quarter improvement was primarily due to our amalgamation of the two French franchise offices, offset by some costs we incurred during the quarter on some personnel moves. Looking forward, we continue to anticipate that our franchise direct costs should come in around 53 to 54% for all of fiscal 2004.

I'll now address our corporate overhead expense, which is labeled on the P&L as corporate and franchise support costs. All of the expenses within this category relate to costs associated with our field supervision, our salon training and promotions, our corporate office, and our two distribution centers. This expense category for the second quarter of our 2004 fiscal year represented 9.6% of total revenues, up slightly from the 9.5% we reported in the same quarter last year.

Second quarter corporate and franchise support costs increased slightly, primarily due to the timing of advertising expenses. We saw the benefit of this timing in our first quarter of fiscal 2004, and we had expected it to turn in our second quarter, and it did, so again, there was no surprise here. Looking ahead, we continue to expect our corporate and franchise support cost for the entire 2004 fiscal year to come in 10 to 30 basis points better than the 9.7% rate we reported for all of last year.

Let me now switch to our two depreciation and amortization expense categories, and there's not a lot to talk about here, as both categories came in essentially on plan for the quarter, and as a percentage of sales, our second quarter rates were virtually identical to the same period a year ago. During the second quarter of our current year, the salon portion of this expense was 3.4% of company owned sales compared to a 3.3% rate we reported in the second quarter last year. This slight increase of 10 basis points is due to the timing of some salon closures in the quarter.

Offsetting this modest increase in salon depreciation was the corporate portion of our D&A which represented 70 basis points of second quarter sales, and that was a 10 basis point improvement compared to last year. The combined effect of all of the revenue and the expense items I've just discussed have caused our four wall salon contribution rate, now this is before any corporate overhead allocation, its caused our salon contribution to come in at 18.9% of second quarter company owned sales.

A quarterly salon contribution rate in the upper teens reflects the health and the profitability of our company's salon operations, and quite frankly, in this economic environment, we continue to be quite pleased with our salon operating performance. After factoring in corporate overhead, our overall operating income increased in the second quarter to over $47 million, or 10% of sales.

Let me now speak to our interest expense and our debt levels. Interest expense in the second quarter came in at $3.9 million, or 80 basis points of total sales. That represented a 50 basis point improvement over the second quarter a year ago. As Paul mentioned, debt as of the end of December of 2003 was $282 million, and that was down $20 million from our previous June 30th fiscal year-end. The decrease in debt was primarily timing related, due to a lighter acquisition activity during the first half of our current fiscal year versus that of a year ago. Our debt-to-capitalization ratio continues to remain solidly investment grade, standing at 31% at the end of December, and that was about 400 basis points better than our June 30th rate of 34.9%.

We continue to feel that our internal cash flow and our available debt capacity will be sufficient to cover all of our salon expansion costs, as well as our scheduled debt retirements and dividend payments. We also continue to expect that our fiscal 2004 EBITDA should increase to about $250 million, and our after-tax cash flow should grow to approximately $175 million. We expect to spend $75 to $80 million on salon and corporate capital expenditures in fiscal 2004. As we've also said in the past, our acquisitions are always a bit harder to predict due to the timing of when opportunities present themselves.

However, we are budgeting to spend up to $80 million on acquisitions this fiscal year. Based on these assumptions, we expect our overall level of debt at the end of our fiscal 2004 to be in the range of $300 to maybe $320 million, which represents very little change from our total debt position at the end of our prior fiscal year. We're expecting that our debt-to-capitalization ratio will remain in the low 30% range due to the continued growth of our earnings and the favorable impact that has on the equity portion of our balance sheet and just a few more items. Our second quarter consolidated effective income tax rate came in on plan at 36.5%, which was lower than the basic underlying effective rate of 37.5% that we reported last year for all of fiscal 2003.

We continue to budget that our consolidated effective tax rate for all of our current 2004 fiscal year should be in the neighborhood of our second quarter rate of 36.5%. I'll now move on to net income. The second quarter earnings that were reported today increased to a record $27,661,000, or 60 cents a share, up from the 52 cents a share we reported in the same quarter last year. We're forecasting third quarter earnings per share to increase up to 11% to a range of 49 cents to 51 cents per share. Third quarter revenue is expected to increase to a range of $463 to $468 million, with consolidated same-store sales growing 1% to 1.5%. For the entire 2004 fiscal year, our budgeted revenues are expected to grow to a range of $1.87 billion to $1.89 billion, while earnings are expected to increase 15% to 17% to a range of $2 and 21 cents to $2 and 24 cents per diluted share.

We've increased our annual guidance to reflect the better than expected second quarter earnings that we're reporting today. We're currently in the process of developing our grass roots budget for our upcoming 2005 fiscal year. As we did in April last year, we plan to provide you with our initial financial outlook for fiscal 2005 during our third quarter earnings release and conference call.

I'll now provide you some information regarding our salon counts. At the end of our second fiscal quarter, which is the end of December, we had a total of 9,775 salons, and that was a net increase of a 158 units over the number of salons, we had at the end of our previous June 30th fiscal year. And you'll find in today's press release a table that breaks out our store counts for each of our salon divisions. At the beginning of this fiscal year, we had budgeted to construct anywhere between 525 and 575 brand new salons. This was an aggressive increase from the 397 new stores we built last year.

It now looks as if our current year construction will be in the range of 450 to 475 new stores, or about 75 units less than our original goal. The 450 to 475 new stores we plan to build this year will represent a sizable increase over last year's growth, and the current year shortfall is certainly not due to lack of real estate opportunities, rather, it's a timing issue. Our new store construction will be more back-end-loaded this fiscal year due to our real estate department taking time to get staffed up for increased deal-making. The 75-unit shortfall this year will simply spill into and be opened in early fiscal 2005. And this has no material impact on our current year earnings expectations.

So let's recap our salon growth expectations for our entire 2004 fiscal year. We now plan to build about 450 to 475 new company-owned salons from scratch, and we plan to open around 300 new super cuts, cost cutter and international franchise units. In addition, our salon base continues to grow for our real estate acquisition strategy. We forecast that our acquisitions this year should be in the range of 350 to 400 new corporate salons. So with that, Paul and I would be happy to answer any questions you may now have, so Chris, can you step in and provide some instructions? We'd appreciate that.

Thank you, Paul and Randy. [OPERATOR INSTRUCTIONS] thank you. Our first question comes from Mark Chekanow from Sidoti. Please state your question.

Good morning, gentlemen. Looking at your third quarter guidance, your estimate is based on a 1 to 1.5% comp but you're coming up on a very favorable comparable basis last year. Is this just conservatism you're seeking with that 1 to 1.5% annual or is there any softness that you are seeing that would cause you to only do 1 to 1.5% off I believe it was a negative 0.7, considering you've been (inaudible) about 2% recently?

Yeah I'll handle that, Mark. First of all, January is not a significant profit month for us. So whether the comps are flat, a little bit off, a little bit up, it really will not affect us much at all in terms of EPS. As we pointed out, our service comps have been negative, and our retail comps, retail product comps have been outstanding. So I think if you take a look at the long hair scenario, and that's not getting shorter right away, it is prudent for us to keep the bar as low as possible, and you know us pretty well, Mark, we do try to be conservative, but 1 to 1.5% does make sense for us at this point in time. There is nothing on the horizon, which would make us change our comps to go to the 2 or 3% range. It's just not going to happen short term.

Also can you talk a little bit more about the inventory? It's used to have come down sequentially a little bit and you're making some improvements there. When you look out at the rest of the year do you expect to use a significant amount of cash to build up inventory as the product comps continue to be strong?

Well it's a good point, Mark. As we've talked about in the past, we have been focusing internally on inventory and trying to control the growth of inventory and as we've seen, despite the fact that our store base continues to increase, our inventories have actually come down, and this is on the heels of a seasonally strong buying season with the holidays. So we're very pleased with inventories. We've said, I think may be six months ago, that despite adding, you know, 7, 8, 900 stores this year, our inventory levels, we hope, should remain pretty flat with $156 million that we're seeing last year, and as you can see, despite controlling the growth in inventory not having any adverse effect on our product sales.

You're still looking at year-end inventories still in the kind of 150 to 160 ranges?

That's correct.

Great. Thank you.

You're welcome, Mark.

Thank you. Our next question comes from Ellen Zigman from William Blair. Please state your question.

Hello. Thank you. Nice quarter, you guys a couple of questions. I wanted to talk a little bit about product comps, which have been so strong. I know that there's been a couple trends out there, one with the appliances with the flat hair iron or whatever you call that thing, and that you had launched a new brand, I believe it was matrix at Trade Secret last year which had done very well, and I think that's just about anniversaries right now.

I was wondering if you had a sense of how much the appliance business has helped product comps since it is a higher ticket item if you were to strip that out, what the comps would look like, when we start to anniversary that and what the trend line for appliance sales has been, is that slowing down as we start to anniversary, if we are anniversarying or is it continuing to be quite strong? And also is there another brand that you expect to introduce to Trade Secret or other divisions, basically what's next that we should be looking for to help continue to drive product comps, or do you expect them to slow down if we are anniversarying some of these trends?

That was a lot of question there, Ellen.

All about product comps.

Right. Let me address some of it and Paul can maybe chime in as well. Our overall product comps have been outstanding in our Trade Secret division, and we just don't ever budget, we never budgeted for them to be that strong, nor looking forward do we continue to budget that they will continue to be that strong. You're right the flat iron sales have been very beneficial to us but there's always new product introductions. I mean and there always will be. Flat iron sales probably just in the month of December within our Trade Secret division alone was a couple of million dollars, so that is a hot item right now.

But you asked about the anniversarying of Matrix. You're right, we anniversaried in December, so that will cause some of the growth that we've seen this past year to start slowing down a bit. All the more reason that, you know, we remain very bullish that we have the systems (inaudible) merchandising, we feel very good that we'll be able to continue marketing our product sales. The consumer wants the national brands. We expect that it will continue to grow at a faster rate than service, and yet I think all the more reason that we are just going to still remain cautious that overall, our comps for both service and products should still be in that 1% to 1.5% range.

Do you have a sense of how much the iron and Matrix impacted the comps?

Certainly less than 20%. Ellen, I think we should understand that both service and product is the quintessential replenishment business. So, I mean, over time, you're just not going to have these huge spikes in this kind of business when you're basically selling shampoos and conditioners and styling aids. The appliances happen to be a very good holiday gift. Nail care has been very, very strong. But the good news is, we have not had one brand new category or one brand new line like we had TG's for three or four years ago going from zero to $30 million.

Right.

That's not the case. It's just blocking and tackling and being even better at being a product merchant. And from a competitive point of view, the ma and pa salon just doesn't understand merchandising. The group really - they have no desire to have huge investments in inventories, so we have a huge competitive advantage.

Right. OK.

But it is still a replenishment business. You have to moderate your product comp expectations.

Right. OK. Second question, the reduction in the planned new builds for this year, can you give us a sense of which divisions you're pulling back in, or is it even across the board?

It's pretty much across the board.

Except for -- that pretty much dictated, right?

Pretty much.

OK. And then my last question regarding service comps, you talked about a couple of the things that you thought were impacting that. How long does the long hair-short cycles usually last, if there is such a measure? And do you think that there's anything else going on there? Is there any pricing issue that's impacting the comps? Have you had to be sharper in your price points? Do you think there are any management issues at the field level that you need to address, or are you confident it's just strictly the issue that is you outlined in your remarks?

No it's just the issues that we outlined and we have no way of predicting. The fact of the matter is, Ellen, obviously you do not qualify because you are not an old person. But generally speaking, older people will look better with shorter hair. And as the population ages, that is a very good thing for us long-term. You have this disheveled look today that probably will not be there tomorrow, but, you know, the fact that we have both a relatively weak retail economic environment coupled with long hair, and we're still making these numbers, it creates a very bullish situation for us.

OK. Thanks.

You're welcome.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from Neil Goldfarb from McDonald Investments. Please state your question.

Hi, guys just a real quick question. Can you review for us how many salons you've acquired in the first half, and do you have any deals currently in the pipeline that will get you to the 350 to 400 numbers by the end of the fiscal year?

I'll answer the second one, Mark. We have handshakes and we should have no problem getting to that number. We never have a pipeline. If someone calls us, we're interested or we're not, and two out of three times, we're not interested. But once again, the handshakes that we already have give us a good feeling of bullishness that we will close the number needed to make that number.

And to the first part of your question, we've acquired through the first half 129 stores, and as we mentioned, over 100, about 113, I believe to be precise, were franchise buybacks. But as Paul mentioned, we still are spending I think we've spent around 30, $35 million on acquisitions through the first half of the fiscal year. We expect to be up to $80 million for the entire year.

All right. Thank you.

And as you also recall, we have sold the street that as far as we're concerned, the oval 300 store acquisition which took place mid May from our budgeting perspective accounted as a 2004 acquisition.

OK. Thank you very much.

Thank you sir. There are no further questions, I will turn the conference back to Paul to conclude.

Thank you for joining us, and thank you for your support.