Regis Corp (RGS) 2012 Q3 法說會逐字稿

Good morning. My name is McKayla and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation third-quarter 2012 conference call. All lines have been placed on mute to prevent any background noise. If anyone has not received a copy of today's press release, please call Regis Corporation at 952-806-2154 and a copy will be faxed to you immediately. If you wish to access the replay for this call, you may do so by dialing 800-406-7325 using access code 4531291#. The replay will be available 60 minutes after the conclusion of today's call.

I would like to remind you that to the extent the Company's statements or comments this morning represent forward-looking statements, I refer you to the risk factors and other cautionary factors in today's news release, as well as the Company's SEC filings. Reconciliations to non-GAAP financial measures mentioned in the following presentation, as well as others can be found on their website, www.regiscorp.com.

With us today are Randy Pearce, President; Eric Bakken, Interim Corporate Chief Operating Officer; and Mark Fosland, Senior Vice President of Finance. After management has completed its review of the quarter, we will open the call for questions. (Operator Instructions). Now I would like to turn the call over to Randy Pearce for his comments. Randy, you may begin.

McKayla, thank you. Good morning, everyone and thanks again for joining us. After I make my remarks with respect to our third-quarter results, I am going to turn the call over this morning to Eric Bakken and as McKayla had mentioned, Eric is not only our Interim Corporate Chief Operating Officer, but he is also our Executive Vice President and General Counsel here at Regis.

Eric, I have asked him to provide an update on our strategic plan and the various business initiatives we currently have underway to ensure that Regis grows profitably and operates efficiently in order to enhance shareholder value. Eric has been with Regis for over 18 years and as you know is now leading the Company's salon operations, including the design and implementation of our strategic initiatives.

We are excited about having Eric lead our operations and the Board, the management team and me personally, we all have a great deal of confidence in his ability to not only lead, but also to deliver on Regis's longer-term operational strategies. Many of you have formally met Eric and I have asked him to play an active role in today's call. I believe this increased visibility and continuity is important not only to shareholders, but to the entire Company as we continue to transition from my leadership role.

Mark Fosland, our Senior Vice President of Finance, will then follow Eric and provide additional details as usual behind our quarterly financial results.

Let me now comment on our quarterly financial performance. Today, we recorded third-quarter operational earnings of $0.32 per share and that was $0.07 above the operating results we reported in the same period last year. These results reflect the negative leverage from third-quarter sales, which were more than offset by the continued thoughtful reduction of our expense structure.

As we continue to implement our longer-term operational strategies designed to drive increased customer trial, retention and revenue in our salons, this management team continues to remain laser-focused on achieving increased cost efficiencies throughout our organization.

Our third-quarter results also included certain nonoperational charges, the largest of which was related to our previously announced sale of our minority ownership interest in Provalliance, the largest salon company in Europe. The transaction is expected to close prior to September 30 of this year and is subject to the Provo family securing financing for the purchase price. Today's press release provides additional detail regarding these one-off items.

As evidenced by this planned sale, Regis remains focused on enhancing shareholder value through improving the customer experience in our core North America Salon operations through simplifying our operating model and supporting our distinct consumer segments with differentiated marketing strategies and product offerings.

Before we move on, I would like to provide you a brief update on the Board's search process to fill the Company's Chief Executive Officer position. In January, the Board engaged Korn/Ferry, a leading executive recruiting firm, to assist with the search process. This has been a thorough and deliberate process and is being conducted to identify and interview qualified candidates and to select the most qualified person to lead this Company in the future. The process is well-underway and the Board will update shareholders as soon as a CEO is identified. In the meantime, this management team will continue to work with the Board to execute our operational strategies.

That is it from my end at this time. Let me now pass the baton to Eric Bakken, who will update you on our efforts to further refine our salon operations in order to improve the effectiveness and the efficiency of our performance. Eric?

Thanks a lot, Randy and good morning, everyone. As you know, Regis is currently going through a period of significant and necessary transformational change. While we remain disappointed with the declines in same-store sales, I am extremely confident that we are on the right track to significantly improve our performance and I am pleased with the progress we made in March.

Transformational change is not easy and it is a long-term process. However, there are significant opportunities to improve our business in the short term as we continue to develop and implement our long-term strategies to drive growth and profitability. As Randy mentioned, I will discuss our short-term initiatives designed to improve the customer experience and I will update you on the development and implementation of our overall transformation strategy, which we have internally branded Regis Reignited.

Let me begin by providing you with some background information. Over the last several quarters, we have completed a thorough data-driven review to determine the root causes of our performance decline. As part of this analysis, we analyzed over 500 million of our customer transactions to better understand our strengths and our opportunities. We spoke with more than 16,000 customers to find out more about what they looked for in a salon experience.

We interviewed hundreds of our salon employees and salon franchise owners to learn about opportunities for success and we researched industry best practices to better understand what our salon competitors are doing well. And all of this research has provided us with a clear picture of our strengths and opportunities.

Our major learnings included, when a customer leaves us, it is primarily because we did not meet their expectations in terms of service and salon experience. Competitors are more consistently meeting these expectations, and certain of our brands are competing against one another.

As a result, our strategy focuses on the following core objectives. We must be more customer-centric and consistently deliver superior service in every salon every day to every one of our customers. We will continue with our efforts to simplify our operating model by consolidating our salons into one of four consumer segments and we have to leverage our scale as North America's largest salon company.

Before I provide more details around our strategies and implementation plans around these three areas, I would like to update you on our short-term initiatives. Organizationally, we are extremely focused on improving the salon experience for our customers. I strongly believe that we can make significant improvements by getting back to the basics. Areas we are focusing on include training and coaching, behavioral observations and staffing and scheduling during peak times.

We are requiring more interaction and more time in our salons by our field supervisors. There is no better way to understand and improve our customer service than to have our field supervisors in the salon coaching stylist behaviors and interacting with our customers.

Last month, we implemented a new customer service program that focuses on specific and critical moments in our customer salon experience. Our regional and area supervisors are bringing together groups of salon managers to train on the salon experience. This includes how to effectively recommend services and retail products, but it also includes rapport building and role-playing. Salon managers then return to their salons to coach and train their stylists.

As part of this focus, we want to generate excitement within the organization and we want to reward our top performers. Accordingly, this fiscal quarter, we have implemented two new compensation programs designed to incent the behaviors we are looking for. One of the programs is focused on service sales improvement and the other provides additional incentives to our stylists to help encourage professional retail recommendations and product sales.

We know that increasing our promotional activities will drive new customer trial. This past February, we ran a one-week haircut sale in approximately 2300 of our salons. Customer traffic was very strong that week, but the majority of the increased traffic coming from new incremental trial. The key to these programs, however, is customer retention. We must be able to bring these customers back with a salon experience that meets or exceeds their expectations.

While we will continue to be more promotional, our primary focus remains on initiatives designed to improve customer loyalty and the overall customer experience. I am encouraged by these efforts and we continue to make good progress on a number of fronts, but we are certainly not satisfied. Let me share with you two areas where we are not satisfied and what we are doing to improve in these areas.

The first area relates to our CRM program. We are currently capturing customer information and have CRM programs in place in about 4500 salons. And I expect that we will have our remaining North American salons on CRM by the end of our current fiscal year.

In the 4500 salons that have CRM, we are encouraged to have seen revenue lift versus our control group. We are committed to a robust CRM program. It is important that we know our customers, that we can communicate with them and that we understand their visitation and purchasing behaviors. Customer loyalty measurements are also critical to our ability to measure and incentivize our stylists who are delivering a great salon experience.

Our progress to date in this area has been slower than I would like. Specifically, the consistency of our customer attachment efforts must be strengthened to more effectively measure loyalty and the backend analysis of the data must be enhanced. We have a plan to aggressively get us back on track and I expect significant improvement in this area in the next two quarters.

The second area that needs improvement relates to the rollout of our new Shortcuts point-of-sale computer system. As you know, our new point-of-sale system will provide improved functionality and enhanced information about our customers. The rollout is taking longer than originally expected due to various connectivity issues within the salon. We have focused on this issue and we have a plan that will get us moving again and we plan to update you on our progress on the next conference call.

Let me now comment on our long-term operational strategy. Over the last couple of months, we have made significant progress developing a comprehensive strategy, development and implementation plan. We are finalizing our plan for fiscal 2013 and we will share these expectations with you on our next quarterly conference call.

Let's now discuss Regis Reignited. As Randy discussed with you last quarter, we are laser-focused on a consumer segmentation strategy. Our research shows that over 90% of customers fit into one of four distinct consumer segments. The majority of our salons will be categorized into the value, value full service, enhanced full service and mass premium segments. We will then be able to achieve scale by simplifying and consolidating our operating models around these four key operating segments.

In addition, by simplifying our operating models, we can convert existing brands within the consumer segment and drive leverage in our marketing spend by having a larger voice to the consumer. Brand consolidation will continue to evolve around a best brand, best market approach.

As part of this process, we are about to realign our salon field organization to more effectively support these four consumer segments. In the past, we have asked our field supervisors to be a generalist or a jack of all trades. As we look forward, we see the supervisor's role as being more focused on the in-salon customer experience and helping stylists and salon managers execute on the overall customer experience program.

We will then supplement our field structure with dedicated resources to help out with HR, training, technical education and marketing. And this will free up our supervisors to be in the salons more with a clear focus on improving the salon experience.

Our strategy to improve the customer experience begins in our salons with our stylists and salon managers. And a major component of this includes providing them with the appropriate training to ensure we deliver the high-quality experience expected by our customers. We must then measure and reward our stylists based on performance and our salon pay plans will be enhanced to be more competitive and to reward behavior that is aligned with customer loyalty.

Our marketing strategy will also be aligned with each consumer segment rather than brand by brand and as I just mentioned, brand consolidation will help drive scale efficiencies and increase effectiveness.

The use of technology will also be an important component in supporting performance-based measures and will allow us to gain better customer visibility. We will make the necessary investments in technology such as our new salon point-of-sale computer system. Increased use of technology will help us further leverage our scale and deliver back-office efficiencies.

I look forward to the next time we talk when I will provide more detail on our strategy and our financial expectations. I am extremely excited about our transformational strategies and I am confident that we will reignite our business and be in position to deliver excellent customer experiences and tremendous value for our shareholders.

Before I turn the call over to Mark Fosland, I would like to quickly address our recent Provalliance announcement. We are very satisfied with the terms of the sale agreement with Provalliance. Once the sale has been completed, which we expect to occur prior to September 30, we will provide you with more details on our plans for the use of the cash proceeds. Our Board and our management team continues to evaluate all options as it relates to our non-core assets and we will provide you with additional updates as appropriate. Thanks. That is all I have for now and with that, I'm going to turn the call over to Mark Fosland.

All right. Thanks, Eric and Randy and good morning, everyone. Today, I will begin by discussing our consolidated financial and operating performance, followed by a review of the major items impacting each of our business segments. Our actual reported results for the third quarter were a net loss of $0.02 per share; however, this included net after-tax nonoperational items of $21 million, or $0.34 per share, primarily related to two items -- the impairment of our Provalliance investment, as well as severance costs related to our workforce reduction, which we discussed with you on our second-quarter earnings call. Excluding nonoperational items, our third-quarter operational earnings improved by $0.07 per share over last year's third quarter coming in at $0.32 per share.

Third-quarter sales were negatively impacted by a decline in same-store sales of 3.4% partially offset by an extra day of revenue due to leap year. If you net these two items together, we would have expected our operational earnings to be about $0.22 per share. We are pleased with our operational results of $0.32 per share, which are about $0.10 higher than our sales would indicate. The majority of the increase in our operational results is related to aggressive and responsible expense control and lower-than-planned income tax expense.

In addition, we have included in today's press release, as well as on our corporate website, a concise reconciliation that bridges our reported earnings to our operational earnings for both the current year and prior year third quarters.

I will now address our third-quarter operating results and performance for each business segment. A breakout of our segment performance can also be found in today's press release. My comments this morning will focus on our operational performance and I will begin with our largest segment, our North America Salons.

Our total North America Salon revenue, which represented 88% of our consolidated third-quarter revenue, decreased 1.3% during the quarter to $503 million. Total same-store sales declined 350 basis points. Partially offsetting the comp decline was a 240 basis point benefit from leap year, which provided an extra day of sales.

Service comps declined in the quarter by 4.1%. Our third-quarter North American service customer visits declined 230 basis points, which was a 20 basis point decline from the trend for the first six months of the fiscal year. Year-to-date customer comp trends have improved 170 basis points over fiscal 2011.

Average ticket declined 180 basis points in the third quarter, largely due to our strategy to be a bit more promotional to induce trial. For example, as Eric mentioned, in February, we executed on a successful haircut sale with about 2300 salons participating. These promotional programs are working as planned and the returns are solid and will only get better as we improve our customer loyalty scores.

Retail product comps performed stronger than service during the third quarter although they did declined by 80 basis points. Let me highlight a couple of areas that performed well. As part of our overall program to focus on customer service, we have encouraged our stylists to make selected product recommendations to our customers as part of the service consultation and salon experience.

MasterCuts enjoyed an increase in product same-store sales of 4.3% and Supercuts posted an increase of 2.3%. We know there is a significant opportunity to improve the service experience by recommending the products that are used in salons and are essential to creating and replicating the salon look. As Eric mentioned earlier, in order to help motivate and encourage our stylists, we are testing a program in April and May that will reward our stylists for increased product sales.

Third-quarter royalty and fees from our North American franchise salons were up 6% when compared to the same period last year and came in at $9.8 million. Our franchisees posted positive same-store sales during the quarter and we have added 84 new franchise locations this fiscal year. We are very encouraged by the increased growth in new franchise units and by the overall strong performance within our franchise system.

Let's now talk about our gross margins. We are pleased to report that our combined gross margin rate for our North America Salons came in at 43.4% and was 30 basis points higher than the rate we reported in the third quarter of 2011.

Let me now provide you some highlights on our service margins. Our third-quarter service margin rate of 41.6% improved by 10 basis points over the same period last year. Reduced health insurance costs are the primary reason for the improvement. As we discussed in the third quarter of last year, health insurance expense was higher than normal due to several unusually large claims.

Additionally, labor costs improved over last year by 10 basis points. This improvement in labor rate was slightly lower than we had originally planned. During the quarter, we began a program to determine whether we could drive incremental sales by increasing our staffing levels during peak business periods. We are still adjusting our staffing model; however, we are confident that there is opportunity to staff more efficiently at our peak times.

Partially offsetting the improvement in health insurance costs and labor cost was an increase in payroll taxes of 30 basis points. As we discussed with you over the last couple of years, mandated increases in payroll taxes continue to impact our service margins. As we look forward to the fourth quarter, we continue to expect year-over-year improvement in our North American service margins.

Our retail product margin rate for the third quarter of fiscal 2012 came in at 50.1% and was 40 basis points favorable to last year. We continue to realize savings in our commission expense, the result of a lower retail commission structure for new stylists. As we look forward to the fourth quarter of fiscal 2012, we expect product margins for our North America Salons to remain strong and should improve as we benefit from our lower retail commission program. However, offsetting a portion of the benefit is the incentive program that I mentioned earlier.

We remain vigilant in controlling costs and increasing operating efficiencies. Similar to our second-quarter results, third-quarter expense levels in our North American site operating and G&A categories were both down over last year. Combined, we saw a year-over-year expense reduction of $5.2 million. Our advertising spend was down about $1.6 million in the third quarter, primarily due to the timing of expense. The remainder of the decrease was related to expense reductions in several other areas such as supervisor travel, insurance costs, salaries and many other small areas.

We are pleased that our efforts to improve gross margin rates and reduce operating expenses caused our operational operating margin to increase to 12.3% of sales, up from the rate of 11.1% we reported one year ago. As we move forward, Regis will continue to aggressively and efficiently manage costs and expenses.

Let's now move on to our International Salons segment, which includes our Company-owned salons located primarily in the United Kingdom. As we have discussed with you over the course of the year, the retail environment in the UK remains challenging. Our same-store sales in the third quarter declined 10.6%. This decrease in sales contributed to a 240 basis point decline in service gross margin as stylist productivity was lowered during the quarter.

Our site operating, G&A and rent expense categories declined year-over-year in terms of dollars, but due to the negative same-store sales, we experienced deleveraging and saw a decline in the operational operating margin of 420 basis points coming in at 2.2% of sales.

Next, I will provide you with a couple of comments on our Hair Club business. Third-quarter revenues grew 5% to $37.7 million, essentially due to positive same-store sales growth of 4.3%. Despite favorable leverage from the sales growth, Hair Club's operational operating margin declined 40 basis points during the quarter to 7.3% due to higher supply cost for hair systems, as well as a service sales incentive program. Hair Club's EBITDA margin came in at 15.9%.

Let me now transition into a discussion of our corporate G&A expense. As expected, our third-quarter operational G&A expense came in at $28.1 million, or 4.9% of consolidated revenue. This represented a 50 basis point improvement over the same period a year ago. The majority of the year-over-year rate decrease is related to our expense reduction initiatives. As Eric discussed, we continue to be focused on being more effective and efficient in supporting our salon operations. As we look to the fourth quarter, we expect our corporate G&A spend to approximate third-quarter levels.

All right, that concludes my comments concerning our individual business segments. Let me now comment on our effective income tax rate. Our third-quarter operational tax rate came in better than planned at 33.6% due to the release of certain income tax reserves. Looking ahead, we anticipate that the underlying rate for the fourth quarter of fiscal 2012 should be approximately 39%.

Our balance sheet remains strong. We have no borrowings under our $400 million revolving credit facility and we have no liquidity issues. We remain in good standing with all of our financial debt covenants and we have plenty of covenant cushion. At March 31, total cash was $98 million and total debt was $292 million. Inventory levels at the end of our third quarter stood at $161 million, but we continue to expect our inventory levels to be in the $155 million range by the end of fiscal 2012.

Next, I will provide a quick update on our salon development. During the quarter, we built 46 company-owned salons and closed or relocated 127 others. Our franchisees built 26 salons, offset by the closure of 20 locations. We are encouraged by the increased level of franchise growth during the quarter and we expect franchise openings this year to be double that of last year.

I would now like to make a couple comments on our updated guidance, which was included in this morning's press release. Our same-store sales and earnings guidance has not changed. We believe our fiscal 2012 same-store sales will be in the range of negative 3.5% to negative 2.5%. At these same-store sales levels, operational EPS should be in the range of $1.11 to $1.21 per share. Operational EBITDA should be in the range of $210 million to $220 million. We expect CapEx for the year to be about $95 million and acquisition spend will be less than $5 million. At these sales and earnings levels, we expect to generate $75 million to $85 million of free cash flow after our CapEx and acquisitions.

All right, we would now like to answer any questions you may have. Operator, can you please provide the instructions for the Q&A portion of the call?

(Operator Instructions). Lorraine Hutchinson, Bank of America-Merrill Lynch.

Hi, good morning. This is Rick Patel in for Lorraine. Just had a question on your various sales-driving initiatives. Can you just give us your latest thinking on the timing of when you think these programs will really begin to gain traction aside from the CRM initiative, which I think you highlighted and perhaps highlight those initiatives that you already see gaining a lot of traction?

Yes, this is Eric. Hi, Rick. We believe that the initiatives are gaining traction already. We talked about the product initiatives. We believe that that is gaining some traction. The service comp initiative as well. We are confident they are gaining traction and will continue to do so as we move forward.

Thanks. And then can you also discuss the tailwind to margins from the changed commission structure for stylist? I think you made this change a couple years ago and given how old the commission structure change is now and the turnovers that you are seeing with the stylists, how many more years do you think you can continue to see a benefit from that?

Yes, right now, we have got about 70% of our workforce is on the lower commission level, so there is still 30% that are grandfathered in. Those are people that have been here long term. So the benefit of the remaining 30% likely happen over a longer period of time. So most of the benefit is realized, but there is still a little bit more to go.

Thank you very much and good luck for the rest of the year.

Bill Armstrong, CL King & Associates.

Good morning. It sounds like your CRM rollout is on schedule, but you did mention the POS system is not. Could you give us -- maybe elaborate a little bit more of what is holding it up and what the outlook might be for getting that rolled out?

Yes, we have been a little bit delayed. We were hoping to originally be done by the end of next year and our current plans look like it may take a little bit longer. One of the things that we are doing is looking at how we can fix that, so we are trying to accelerate that. But as a result, we looked at our current POS system and we had an ability -- we had CRM in 4500 locations and rather than wait for new POS, we put in a, for lack of a better term, a patch that allows us -- that was in existing -- it's in an existing 4500 stores, but we are putting it in the remaining stores so that we can accelerate CRM data collection.

And as you use that CRM system, can you give us maybe some color on how that is helping you to reach out to customers and to -- what sort of learnings are you getting from the data gathering?

Yes, to date, we have seen incremental lift in terms of test versus control and various programs and e-mail messaging, a lot of communication reminders. Don't want to get into too many of the specifics from a competitive reason, but we are definitely seeing some lift in control. But one of the things that is critical is getting to know our customer better and having improved data. And so that is one of the things we are really focused on today is making sure we know who our customer is, understanding their visitation trends, understanding why they are coming back, why they are not coming back and using that data to be more efficient operationally. But a big part of that is really focusing on data and making sure we have got clean data and we have made a lot of progress recently and we expect to make a lot of progress in the next couple months so that the data we have got is much more effective going forward.

Got it. And then a quick accounting question. The old POS accelerated depreciation. Are you done with that or will there be a little bit more in the fourth quarter?

There is a little bit more coming in the fourth quarter, but very insignificant.

Less than $1 million?

Yes, yes.

Okay, thank you.

Jeff Stein, Northcoast Research.

Hey, guys. I am wondering how long it is going to take for you just to roll out some of the long-term operational strategies that you outlined. In other words, converting all -- consolidating all the salon nameplates, realigning the field organization and so forth. Can you kind of run through a timeline on each of those?

Some of it -- Jeff, hi, it's Eric. Some of it is going to happen very quickly and we are going to roll out others as we progress. And when you talk about conversions, there are two components. There is converting the operating models within the segments. That will help it happen real fast and then the conversion of brands within segments will take a little bit more time. We are going to be thoughtful about doing that. We have really stepped up our game with respect to the conversion process. We have learned a lot based on our prior conversions and we know how to do it more ineffectively. So that will take a little bit longer, but it is going to be a little bit of a mix. Some of the field reorganization will happen sooner, but that will continue to evolve as well as we move forward.

Any way, Eric, that you could kind of put a timeline on each of the initiatives? I mean are we talking 12 months, 18 months, two years? Just aligning the field organization, when is that going to be done?

Yes, Jeff, I don't want to avoid your question. It is going to happen fast and the answer varies depending on the area that we are referring to. Our plan is to give you a further update in August and we will be able to give you significant detail in our August call.

Sure. And I don't know if you mentioned this or you said you can't mention this, but what kind of lift are you getting from the CRM system in the 4500 locations that you currently have it?

We didn't specifically mention, but it is several million dollars.

And percentagewise, Mark, roughly what would that represent?

Jeff, I am guessing here, but I think it is 20, 30 basis points, something like that.

Okay, great. And final question, you mentioned that you are going to be testing a new reward incentive system for product sales beginning in April and May. How many salons will that encompass?

All of our salons, Jeff.

All of them. Okay. Thank you.

Jill Caruthers, Johnson Rice.

Good morning. You mentioned the franchise salons have comped positive during the quarter. Could you maybe talk about the variance between their performance versus your company-owned stores and just maybe in generality the profitability between the two?

Yes, in terms of performance, their comps compared to -- like a Supercuts franchise compared to a Supercuts corporate, it's 150 to 200 basis points. It's a very similar trend as to what we talked to last quarter. And profitabilities, at various sales levels, are relatively similar between corporate and franchise. Just they have a royalty component, both pay and (inaudible), similar levels of profitability in terms of just -- the franchise system has been around longer and they have some -- they have more mature stores and they are in some more solid markets that have been around for a long time.

Okay. And then could you talk about -- I know the CEO search is ongoing. Could you talk about other top executive positions that you're looking to fill with a permanent role?

Look, we are looking to get better everywhere we can. We don't have anything specific that we would talk about today, but we are looking to improve wherever we can make improvements.

Okay. And then just last question, any update on the Hair Club review? I know you took an audit fee in the quarter. Didn't see much other mentioned. Any update there would be appreciated.

Yes, the process is moving forward. You did mention the audit fee, so we are moving forward, but we will comment when we have something definitive to say. It's just we can say the process is moving forward.

Thank you.

(Operator Instructions). Blair Mlnarik, Robert W. Baird.

Hi, thank you. A couple of quick questions on promotions. You noted timing had changed in this quarter. Just wondering what that was and secondly, are you planning on running fewer promotions in the current quarter?

That specifically wasn't necessarily -- the advertising spend decline in the quarter was more due to timing of just more corporate initiatives that we do, so that wasn't specifically related to any specific promotion. We did have a haircut sale in February and last year, we ran a similar level of sale, but in fewer locations. And then I am sorry, what was the second half of your question?

Just wondering if there would be kind of any other timing changes or plans for running fewer promotions in the fourth quarter.

I am not going to get into too much detail, but we are really -- we will be more promotional just as we have been over the last year, but primarily where we are focused on in terms of driving retention and operationally improving performance, that is our primary focus. But we will be slightly more promotional in the fourth quarter in terms of a lot of the local level activities that are going on just as you have seen over the last several quarters.

Okay, great. And then a quick question, when you consolidate banners, how much of a lag is there until you are able to cut out some of the redundancies or start to see efficiencies from doing that in certain markets?

There is very little time lag. We are able to realize the efficiencies in the real short term. There is a short period of transition time, but it happens very quickly.

Okay. And then you hinted at you are trying to get that re-accelerated. Will that happen quickly as well or is that more of a fiscal '13 event?

More of a fiscal '13 event.

Okay, great. One follow-up on the new incentive plan. I guess just how different is that than your current service incentive plan than what you had before this past March?

It is different because we have never really done anything like that. It is focused on trend improvement and larger dollars. So really trying to focus those who are doing -- reward those who are doing well. And on the products side, it is similar, rewarding stylists for creating two customers out of one, giving them some real strong incentives to do that.

So more of like an hourly wage before this and not an incentive on performance?

Well, it is more around same-store sales improvement and trend improvement.

Okay, great. Thank you very much.

Thank you. At this time, I would like to turn the conference back over to Randy Pearce.

Thank you very much, McKayla. And Eric and Mark, nice job today. Thank you and thanks, everyone, for joining us. Talk to you soon.

Thanks, everyone.

Thanks.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-800-406-7325 with an ID of 4531291#. This concludes our conference for today. Thank you all for participating and have a nice day. All parties, you may now disconnect.