Regis Corp (RGS) 2014 Q4 法說會逐字稿

Good morning. My name is Jessica and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation fiscal 2014 fourth-quarter earnings 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 of this call, you may do so by dialing 1-800-101-2009 using access code 1131937. The replay will be available 60 minutes after the conclusion of today's call.

I would like to remind everyone 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. Reconciliation to non-GAAP financial measures mentioned in the following presentation, as well as others, can be found on their website at www.regiscorp.com.

Speaking today will be Dan Hanrahan, Chief Executive Officer; and Steve Spiegel, Chief Financial Officer. After management has completed its review of the quarter, we will open the call to questions. (Operator Instructions)

I'd now like to turn the call over to Mr. Hanrahan for his comments. Dan, you may begin.

Thank you, Jessica. Good morning, everyone, and thanks for joining us today. With me are Steve Spiegel, our Executive Vice President and Chief Financial Officer; Eric Bakken, our Executive Vice President and Chief Administrative Officer; and Mark Fosland, our Senior Vice President of Finance.

Last quarter, I outlined the path we have taken since I joined Regis in August of 2012. I highlighted there was, and still is, a clear need for transformational change to lay the foundation for the turnaround. I also said, although early, we are seeing the first signs of transitioning from disruption to execution. I emphasized the interaction of people, process and metrics is key to improving our execution and performance.

Today, I will spend some of my time updating you on the progress in these areas during the fourth quarter, then I will switch gears and provide some insight into emerging thoughts for fiscal 2015. Afterward, I will turn the call over to Steve to cover fourth-quarter results in greater detail.

When we started 2014, we said it would be a year where change would continue to be disruptive, but we would begin to manage change and get control of the business. Our quarterly same-store sales trends for the first three quarters of fiscal 2014 demonstrate our field organization, salons and stylists struggled with the foundational changes we made at the start of the year. However, as discussed on previous calls, our good field leaders, who are executing our strategy and providing positive leadership to their salons, are getting encouraging results. Where we have people, process and metrics working, we are getting good execution.

The fourth quarter saw the disruption caused by the field reorganization and SuperSalon begin to wane. The execution processes we put in place at the beginning of the year are helping create accountability, driving business conversations at all levels of the organization, fostering best practice sharing and friendly competition, while focusing the field on improving guest traffic and selling retail.

Same-store sales were down 1.8% during the fourth quarter of the current fiscal year compared to declines of 5.8% for the nine months ended March 31, 2014. We are at a point where the field organization is beginning to slow the service revenue slide. In fact, consolidated same-store sales -- service sales were near flat in the fourth quarter, mainly driven by Supercuts and SmartStyle. During the fourth quarter, overall same-store service sales were down 20 basis points and our value salons were up 90 basis points.

The last time these kind of numbers were reported was in the first quarter of fiscal 2009. However -- and I want to stress -- there is still significant work to do before we say we are turning the business. While our same-store service sales were near flat, we still have too wide a range of performance across our salon base. A significant number of salons have yet to see traction and continue to comp negatively. Additionally, during the fourth quarter, our same-store retail sales were down 8.4%.

Let me shift now to what we are doing to continue to make progress. I showed this slide last call. And given we are still in the nascent stages of the turnaround, I think it's important to remind ourselves how much we had to do to be in a position to begin controlling the business. The initiatives we executed against laid the foundation for us to position Regis for long-term success. We reorganized our field leadership; rounded out our senior leadership tier in salon support, including starting Regis's first-ever Human Resources Department.

SuperSalon was installed in all salons in less than three months. We implemented processes to drive accountability, execution, and business performance. Asset protection is building a team and establishing standard operating procedures to support field leaders in growing their businesses. Marketing is building tools that will eventually help drive traffic and retain guests when our field operations and salons are capable of managing these tools.

An integrated foundation has been built for the turnaround, and all these initiatives are beginning to stabilize the business, and will add significant value when we are executing well at all levels within the organization. All the work we are doing is focused on building our capabilities around people, process, and metrics. They are completely interrelated, and we need all three firing in our salons and markets to drive execution and results.

Starting with metrics, we discussed over the last several quarters the challenges we experienced when rolling out SuperSalon. Our IT Department's priority is focused on continuous improvement of technology to drive better stylist and guest experiences. In the fourth quarter, we made further advances in improving speed and transaction efficiency in the salons.

Now on to people. As I have said repeatedly, where we have the right talent in leadership positions, we win. To that end, we are continually assessing, developing, and upgrading our leadership talent. Last quarter, we established clearly defined role expectations across all levels of field leadership. We've leveraged these guidelines in evaluating our leaders, identifying knowledge gaps, and providing requisite training. In the past couple of weeks, we have provided extensive hands-on leadership training to our field leaders.

On the last call, we also discussed our staffing issues and the progress we made to respond quickly to increases in stylist attrition. Over the last two quarters, we continued to leverage new reporting tools that provide early warning signs of stylist turnover by salon. While staffing progress was made, this slide highlights the work ahead of us in terms of overall execution. We moved quickly to hire new staff to replace those who left. Having salons properly staffed helps us grow revenues. The key is to match growth in stylist hours to corresponding revenue growth.

During the fourth quarter, our stylist hours grew faster than revenue. This is an example where strong leadership, a solid process, and appropriate metrics must merge to drive execution results. It's a very important part of our turnaround. Historically, Regis cut stylist hours to protect profits. Today, we are investing in stylist hours to grow profits.

In order to better align stylist hours with guest demand patterns, we continue to provide scheduling training, expectations, execution guidance and reporting for our field leaders, and we are holding them accountable for staffing plans and results. This is an example of where we are getting better at managing change while highlighting the need for continued training and leadership development.

Another example where people, process, and metrics is gaining momentum is in our efforts to improve underperforming salons. You may recall we began an initiative in the beginning of the third quarter where we targeted our worst-performing salons for an intervention. Leveraging detailed playbooks, our RDs worked in these salons to turn around their performance. As we mentioned last quarter, initial results were indicative of the strong potential that exists when we operate a salon well. While the Regional Director was present, we saw very good results, but we were unable to sustain results over a longer period of time.

During the fourth quarter, we continued aligning people, process, and metrics, and drove improved results and better sustained these improvements. Overall trends have improved by 900 and 500 basis points in these salons when compared to the second and third quarters, respectively. While encouraging, their salon comps are still not positive, and we have significant work to do to drive these salons to their full potential.

When comparing the fourth quarter of this fiscal year to the nine months period ended March 31, a greater percentage of our RVPs, RDs, and DLs are posting positive same-store service sales. While we remain in the early innings, it is encouraging the people, process, and metrics work we are doing is indicating a bit of traction.

I would like to spend the remainder of the call outlining our priorities as we head into fiscal 2015. Our number one asset is our people -- our 50,000 stylists and the talented individuals who lead and support them every day. As I outline our priorities, you will continue to see the theme of people, process, and metrics permeating our activities next year.

In fiscal 2015, we will continue to make investments in our people by providing leadership development, stylist training, actionable information, and incentives that motivate performance aligned with shareholder interest. Execution will be the key to making fiscal 2015 the year where changes we've put in place over the past 12 months begin to add value. Our ongoing focus is on improving our ability to execute across our entire base of salons. Helping stylists have successful and satisfying careers through strong leaders, executing against initiatives already in place, is a lens we use to prioritize our focus for fiscal 2015.

We are focused on three key corporate initiatives during 2015. First, we plan to build asset protection capabilities. Second, we will continue to improve field leadership talent and capabilities, and leverage recruitment pipelines. Third, we will invest in our stylists by strengthening technical education programs. These objectives are directly tied to what motivates stylists, and they are well-linked to our key strategies.

Let me provide some color on each of these initiatives. Creating an environment where all stylists are working together, positively contributing to the health of the salon and salon team, will be a key outcome of asset protection activities. We are off to a very good start with our asset protection organization, and Ken Warfield has done an excellent job building his team. Ken's team is in the process of implementing our Stylist Asset Protection Awareness Program.

These training sessions will be ongoing as we continue to educate field leadership, conduct salon investigations and interviews, and partner with operations. We will also continue to leverage technology to improve execution by providing regional dashboards and risk rankings to help asset protection, prioritize efforts against our most compelling opportunities to reduce loss.

Talent development is an ongoing refrain that our team hears from me on a daily basis. Nothing is more important than developing our field leaders. Where we have the right talent and leadership positions, we win. Stylists depend on their salon and field leaders for coaching, mentoring, and motivation. Salon leaders set the tone for a positive salon environment, which we know motivates stylists to perform.

In fiscal 2015, we will build on the work we began in fiscal 2014 to strengthen field leadership. We also plan to step up our recruiting efforts across all levels within our organization. We are proactively cultivating a pipeline of field leaders through succession planning and recruitment venues from within and outside of the salon industry.

We have rethought the traditional approach to recruiting stylists by building a story on the advantages of pursuing careers at Regis. We will equip our field leaders and salon personnel to become more influential in telling this story. We will also leverage beauty school relationships, and participate in job fairs and industry events.

From a senior leadership perspective, we are very pleased with the team we have built. Two key areas remain to be filled. We are recruiting for our merchandising and premium business leaders. Both leaders will need to develop strategies to stabilize trends in each of their businesses and help drive executional excellence. Training must become a point of difference in attracting and retaining stylists at Regis.

Supercuts is most illustrative of this point. It has the most robust training program within our portfolio and has performed the best over the past year. Supercuts' same-store service sales for the fiscal year ended June 30 improved 1.7% versus year-ago, compared to our overall business, which was down 2.9%. In fiscal 2015, we are focused on expanding technical education to all of our salons. This will involve the phased approach to align technical trainers with our field leaders.

Our three key corporate initiatives are focused on creating an organization where stylists can have successful and satisfying careers. This will lead to improved execution, allowing us to build upon the groundwork we laid in 2014. We will continue to follow our execution processes in the field to drive guest counts and retail sales, and will leverage its data management capabilities to identify correlations of activities that lead to significantly improved performance. We will continue to intervene in underperforming salons, do a salon makeover that includes staffing, training, store cleanup, and use of our execution disciplines.

As we continue to learn from these efforts, and as we reach a greater number of salons, we expect to realize further trend improvement. Partnering with IT, we will continue to make improvements to SuperSalon, making it easier for stylists and guests to interact, and better leveraging real-time reporting capabilities in the salon and field. We are also focused on improving and standardizing the way we plan and execute against -- across our banners. This will have the biggest impact in the areas of scheduling, salon execution and reporting, and will make it easier to lead and execute in a multi-unit environment.

Because we are a people organization providing services, investments we make often flow through our earnings instead of our balance sheet. While this impacts near-term profitability, these investments will provide significant operating leverage once we turn around our business. We think of all investments, whether funded by earnings or through our balance sheet, as cash outlays. Consistent with our capital allocation policy to maximize shareholder value, we will stay focused on cash flow, and diligently manage the investments necessary to turn Regis around.

Funding investments and managing inflation through disciplined cost management and rigorous review of all spending will ensure we continue to protect the balance sheet we have built. Improving profitability will be dependent on our ability to drive same-store sales growth. Simply stated, we will be very careful with the cash on our balance sheet. Investments will be thoughtfully made, where they will contribute to our turnaround and add to shareholder value.

We are seeing early signs of traction where we have great leaders in place and where we focused our attention. While we are cautiously encouraged by these early signs, significant work is ahead of us before we achieve similar results across 7,000 salons. As we leverage the foundation we've built in the past year, I expect execution to improve in fiscal 2015.

I am proud of what the team has accomplished this past year. We recruited and hired a strong leadership team. We've built a balance sheet, which we will continue to protect, that allowed us to settle our convertible debt without diluting our shareholders. And we will remain focused on building our capabilities around people, process, and metrics. We still have a lot of work to do, but we are beginning to create the cultural transformation needed to turn Regis.

I would now like to turn the call over to Steve. Steve?

Thank you, Dan, and good morning. Before discussing our consolidated financial and operating performance for the fourth quarter, I want to remind you of two housekeeping items.

First, as a result of our field reorganization at the start of this fiscal year, district leaders' labor costs are now reported within cost of service, and their travel costs are now reported within site operating expenses. Previously, these costs were reported as general and administrative expenses. Recasted historical annual and quarterly financial statements are available on our corporate website to better assist you with your comparisons.

Second, because of the valuation allowance against most of our deferred tax assets, associated, reported, and as-adjusted results of operations have not been tax-affected. Consequently, current-period reported results are not comparable to tax-affected prior periods.

For the fourth quarter, Regis reported a net loss of $17 million or $0.30 per diluted share. This includes approximately $16.4 million of non-cash charges or $0.29 per diluted share relating to our investment in Empire Education Group, which I will discuss in more detail shortly. Adjusted EBITDA for the quarter came in at $25.9 million compared to $37 million in the prior-year quarter. Excluding net discrete charges, fourth-quarter diluted net loss per share as adjusted was $0.10 compared to earnings of $0.06 in the prior-year quarter, declining $0.16 per share.

This can be explained by three main impacts. $0.04 per share is driven by negative same-store sales; $0.05 per share is mainly the result of higher salon labor costs relative to same-store sales, increased marketing and lease termination costs, partly offset by improved product costs and cost savings; $0.07 per share represents non-cash losses associated with our equity investment in Empire Education Group.

We included in today's press release, as well as in our corporate website, a reconciliation bridging reported results to earnings as adjusted for the impact of discrete items for the fourth quarter of the current and prior years. Regarding fourth-quarter operating results, my comments this morning focus on as-adjusted results. References to prior-year numbers are on a basis recasted for our field reorganization.

Revenue in the quarter of $483.9 million declined $18.3 million or 3.6% compared to the prior-year quarter. While same-store sales declined 1.8% compared to the prior-year quarter, we estimate the shift of Easter from March of last year to April of this year positively impacted same-store sales by approximately 70 basis points. Year-over-year, total company-owned store counts decreased by 158 locations. During the quarter, we built 40 company-owned salons, closed or relocated 67 other company-owned locations, and sold 13 locations to franchisees.

Service revenues were $380.2 million, a $9.9 million reduction or 2.5% compared to the prior-year quarter, mainly driven by declines in North American salons. During the period, same-store service sales declined 0.2%, driven by a decline in guest traffic of 1.5%, partly offset by an increase in average ticket price of 1.3%. The remaining 230 basis point decline in service revenues compared to the prior-year quarter was primarily due to a net reduction of 167 North American salons.

Product revenues were $92.6 million, a decrease of $9.3 million or 9.2% compared to the prior-year quarter. Product same-store sales for the quarter declined 8.4%, lapping significant clearance activity last year in anticipation of planogram standardization. Royalties and fees were $11.1 million, an increase of $0.9 million or 8.4% compared to the prior-year quarter.

Our franchisees posted positive same-store sales during the quarter and added 97 net locations in the last 12 months. In the quarter and last 12 months, we added 39 and 144 new franchisees to the system, respectively. Cost of service and product as a percent of associated revenues increased 30 basis points compared to the prior-year quarter, coming in at 59%. I will discuss this increase in greater detail by reviewing service and product components separately.

Cost of service as a percent of service revenues for the quarter increased 120 basis points versus the prior-year quarter, coming in at 61.2%. The primary driver of this increase was stylist hours, which were up 3.5% versus the prior year. Also, increases in minimum wages, incentives, and the shift of Easter holiday pay into the fourth quarter, were essentially offset by savings from the field reorganization. As Dan said earlier, we swung the pendulum too far and experienced year-over-year increases in stylist hours that put us out of balance with guest traffic. Fixing this imbalance is a top priority of the organization.

Cost of product as a percent of product revenues was 50.3%, a 320 basis point improvement when compared to the prior-year quarter. This improvement was primarily the result of lapping clearance sales in the prior year. Site operating expenses of $52.4 million increased $3 million compared to the prior-year quarter. This was primarily driven by increased marketing expenses and lapping a favorable adjustment to self-insurance reserves. Partly offsetting these items were lower freight costs.

General and administrative expenses of $44 million decreased $1.4 million compared to the prior-year quarter. This improvement was primarily driven by lapping SuperSalon rollout costs in the prior-year quarter, cost savings, and reduced healthcare costs. These were partly offset by the lapping of favorable adjustments to reduce incentives and certain other costs in the prior-year quarter, and purposeful investments in asset protection capabilities in the current-year quarter.

Before moving on to our liquidity, I would like to cover a few housekeeping items in the areas of income taxes, and equity and loss of affiliated companies. In the fourth quarter, we recognized a $1.7 million income tax benefit. As we discussed earlier in the fiscal year, our GAAP tax rate will likely fluctuate from quarter-to-quarter because we have a valuation allowance against most of our deferred tax assets.

Within our tax provision going forward, we expect to incur non-cash tax expense relating to tax deductions we claim for goodwill amortization that we do not recognize for GAAP purposes. This non-cash tax expense will continue as long as we have a valuation allowance in place. Also in the fourth quarter, we incurred $16.4 million of non-cash losses relating to our equity investment in Empire Education Group. $12.6 million of this loss was discrete and represented Regis's share of Empire's non-cash goodwill impairment.

The remaining $3.8 million was primarily attributable to Regis's share of Empire's non-cash fixed asset impairment. These non-cash losses are the result of declining enrollment revenue and profitability in the for-profit secondary educational market.

Moving on to liquidity, we ended the fiscal year with $379 million of cash, total debt of $294 million, and no outstanding borrowings under our $400 million revolving credit facility. During the fiscal year, our business generated $117 million of operating cash flow, which included $34 million of one-time benefits. On July 15, we settled with cash our $172.5 million convertible notes at par value, staying true to a key tenet of our capital allocation policy of minimizing dilution to existing shareholders.

This concludes the financial portion of the call. We would now like to answer any questions you may have. Jessica, can you please provide the instructions for the Q&A portion of the call?

Thank you, Dan and Steve. The question-and-answer session will begin at this time. (Operator Instructions) Jeff Stein, Northcoast Research.

Dan, just a question on product sales. Since the planogram reset, there really doesn't seem to be much progress in terms of gaining some positive momentum in the -- on the retail side of your business. Where do you stand in terms of -- I mean, where do you go from here? What's the next step to get the momentum moving in the right direction?

Thanks, Jeff. A number of things that I'd like to clarify for you. First is, our results this past year have been a little bit more challenging in the fourth quarter, because we lapped the largest clearance activity in the Company's history. So, it's made it a little more difficult to analyze and maybe a little worse than it really was.

As we look forward, we are moving into a period that's a little softer performance, so we do have that. But then, beyond that, we are testing a number of things in the first quarter here. And it's too early to comment on it, but we've done a lot of work around where we are with the product. And we've looked at everything from our assortments to -- on a macro scale, down to geographic. We are testing some promotional activity; we're testing some things that we think can get stylists more engaged.

And like I said, it's early in the quarter. But we've done a number of things that we put in place in this first quarter that we'll be reporting on next call.

Okay. Would you expect over the near-term that you will continue to see your salon payroll grow at a faster rate than sales?

A good question. You know, that's -- we've historically been pretty good at cutting hours and managing to profits by that way. We can't get to glory by cutting hours, so we need to increase hours. And we've done a lot of work -- Mark Fosland and his team in particular are in constant contact with the field. We've built out a team that supports each region, a financial team that supports each region, so that they can have help and guidance. And we have done what I think is a lot of work on that.

We are starting to gain some traction. If you look at it over the fourth quarter that we've just finished, we got better in each month. And in the last few weeks of the quarter, we are actually getting better week by week. And it's a new thing that we're doing, investing in hours. But where we've got good operators in place, they are matching the hour increase with the appropriate sales increase. And when they go up like that together, it generates a lot of extra profitability for us.

So I think that as we move through this year, we'll get pretty good at this. But we'll have -- we still have work to do on it. And in particular areas, we have more work to do than others. But it is something that I see a lot of progress on.

Okay. And final question for you, Dan. Can you kind of discuss with us the current state of your field service organization and the progress you've made? I mean, what -- kind of what inning are you in? How many high performers do you have? How many kind of average performers? And how many below-average performers within that group?

Sure. I won't get into really specific detail on that, but let me talk about that a little bit. Because you've hit on the thing that's the most important part of our turnaround, and that's good leaders in the field.

Jim Lain, who is our COO, and Carmen Thiede, our Chief Human Resource Officer, have done an absolutely terrific job putting training and development programs in place. And we are seeing that take hold.

We just had our -- all of our Regional Directors -- so that's about 100 people -- and our Regional Vice Presidents, which is 10, in a couple of weeks ago for very in-depth leadership training, ranging from how to conduct an effective one-on-one, how to work in a multi-unit environment, how to conduct a performance evaluation, how to conduct a productive salon visit, and then how to train your people on how to do that. They were in for the week. I have to tell you I left that meeting excited, because it was a very, very motivated group.

We still have work to do. Definitely have work to do in that area. And we have found that the people that we are bringing in from the outside that have multi-unit experience are doing well. They are quickly understanding the industry. Historically, we've had pretty much all stylists in those roles that have grown up through the business. And now we're bringing in strong multi-unit people. And we're finding that with the story we have to tell about the progress we're making on the turn, it's never simple to recruit good people, but it's not as hard as it was a year ago to bring good people in.

Got it. Thank you very much.

You bet, Jeff.

Bill Armstrong, CL King & Associates.

A couple of things. So I was wondering if you could maybe expand on Supercuts a little bit where you have the comps up 7%. That number certainly stood out. Was that just the Easter shift? Or is there something else going on that may point to improved performance ahead?

So, there's a few things going on there. That's a good question. We did benefit from the Easter shift there. We also benefited from some change in promotions. We had a pretty aggressive loyalty program that we believe was the subject of some abuse. And so we pulled that a year ago. And so we saw some benefits by pulling that.

It's also the area where we have the most robust training program. The operating procedures there are very well-laid-out and well-thought-out. And so I think all three contributed to it. And as you can see, as I mentioned in my comments, that Supercuts is up 170 basis points for the year.

So, in the quarter in particular, it's those three things that drove it. But I think the reason that we were up 170 basis points for the entire year is also driven by the fact that it's got a great training program, we've got well-laid-out operating procedures, and we are executing well in the Supercuts.

It sounds like pulling a loyalty program would reduce comps. How would that (multiple speakers) --?

Yes, well, this loyalty program, it was an eight-equals-nine program, is the way it works. So eight haircuts gives you your ninth free. We didn't have very good controls around that. And so we believe that there was a lot of abuse around it. And when we pulled it, we think that the abuse heightened. And when -- and then we are comping against that, so we got some benefit against comping against that.

So I didn't want you to misinterpret what I'm saying about loyalty programs. We think that loyalty program will play a very strong role in our success at Regis, but we need to do it in the right way. And this was a program that was open to abuse.

I see. Okay. It looks like from one of the charts that you have in your presentation that stylist turnover increased somewhat in the fourth quarter versus the third. Could you address that? What's going on there?

Nothing that we were worried about. It's sort of the regular run-of-the-mill turnover that we have. We do believe that as we get better at managing our people and having good leaders in place, that turnover should go down. But in general, the position -- the way our stores were staffed in the quarter, and the fact that we were actually up in hours, I think is indicative of the fact that we are doing a better job being staffed in the salons, so we can limit wait times and provide a better guest experience.

Got it. Okay, thank you.

Thank you.

Jill Nelson, Johnson Rice Investment Firm.

If you could talk about, in the fourth quarter, your total adjusted expenses dollar amount was actually up; the first time we've seen growth year-over-year in about five quarters. Could you just talk about that trend going forward? I know you've seen a lot of progress on cost savings, but it seems as though now we are investing more in the business versus netting off those cost savings.

I just want to make sure I heard you. Were you speaking about our G&A expenses?

Actually, total expenses; adding kind of all the four line items together.

Well, in our -- excluding our cost of service and cost of product?

Yes.

Okay. Well, I'll start with G&A, just because I went there in response to your question. On a G&A perspective, where the movement in our fourth quarter was largely driven by the buildout of asset protection and training activities. And so, as a result, we saw those costs begin to elevate relative to the earlier quarters.

In rent, I would argue that the percentage of rent increase is largely due to two things. One is, some lease termination costs we incurred, and also we are getting negative leverage as a percentage of sales. In site operating -- or salon selling, I'm sorry -- we are seeing increases predominantly in marketing expenses. We spent more this quarter than we did in the previous year at this time.

Okay. If we look at marketing spend, kind of how are you approaching that for fiscal 2015? And then maybe the additional question within that area is, for back-to-school, I saw you were running some $10.95 haircuts at Supercuts. If you could just talk about maybe just take out back-to-school holiday, how you approached it on a pricing perspective versus last year? And just trying to get a handle on how you feel the pricing environment is out there right now. Thank you.

Yes. Sure. In terms of marketing, Jill, we see marketing being about flat for the year. We'll watch it carefully and we'll see where we can generate the kind of return that we do look for in every single investment that we make.

In terms of pricing, that's an excellent question. We built out a pretty good pricing capability here. We've been very, very careful to not take price unless it makes sense. So we haven't done much price-raising at all. We have been much more thoughtful about the way we measure promotions to see what kind of returns we get.

So, for example, we are -- a couple of years ago, we ran a $7.99 promotion in our Walmart stores. This time, this year, we ran a $9.99, and we actually saw improved take-up from the consumer on that program. In terms of Supercuts, we are not doing anything on a holistic basis. We are being much more surgical. So, we are going into markets where we feel like there's enough elasticity where, when we drop the price, we can get the kind of demand that will give us overall better results.

So it's a very thoughtful approach to pricing. It's not a one-size-fits-all. And we -- afterwards, we take a -- we do a very deep dive on the results, and use that to inform us for what we're going to do going forward. So, in terms of the Christmas holidays, we are going to see what happens during the whole holiday period; we're going to see what happens during back-to-school. And we'll use that to help inform us on what we are going to do in the fourth quarter and through the holidays.

Okay. Thank you. And just a last one. Kind of if we look at CapEx for fiscal 2015, as well as acquisition spend, it looked like you're pretty inactive on acquisitions. Could we expect that activity going forward? And kind of what's a good CapEx maintenance type number for this coming fiscal year?

You know, we don't usually give guidance on those kind of numbers. You know, what I'll go back to is Dan's comments earlier. We're going to manage our capital very carefully, whether it's through the earnings statement or through the balance sheet, and manage it to the appropriate level relative to the cash flow we generate.

And, Jill, we don't have any plans to be acquisitive. So, the capital that we will spend is focused on making sure that we execute well within our business, and we deliver the kind of returns that this Company should be delivering. We are going to be very, very careful with our balance sheet. We are going to be smart about the way we spend capital.

So we won't plow money into salons unless we feel like we can get a return. We've worked hard to build this strong balance sheet. We are going to make sure we protect it and be really smart about the way we invest our money.

All right, appreciate it. Thank you.

Ben Franklin, Intrepid Capital.

Thanks for taking my question. This is sort of a follow-up on Jill's question about pricing. There is a competitor out there that has discussed some 38 quarters of same-store sales growth. Their prices are well below yours; some of the cheapest I've seen.

I've looked at this competitor's franchise disclosure documents as well as Supercuts, and it looks like they make more money and have higher margins than either corporate or franchise Supercuts stores. Now, I'm just thinking philosophically here, but it seems like this model of lower prices and higher volume and also higher earnings could grow its market share perpetually if competitors don't react. Is there a point when you start lowering prices to compete with maybe this competitor and others like it?

So, interesting question, Ben. We believe that the main focus that we need to execute against is to be good executionally in the salons. We watch competitive pricing. So, in a market where we are right next door, we will price competitively if we think we need to. What we will be careful of doing is not just dropping prices without a way to increase store traffic. So we need to make sure that those do go hand-in-hand. Because we can drop prices, and without an increase in store traffic, we'll decrease our profitability; we'll drop our top line pretty dramatically.

So, we're -- we've, like I said, we've -- like I told Jill, we've built out what is a pretty strong pricing team that's analyzing all of our businesses across the entire fleet of salons that we have. And we're being very thoughtful about how we use price. Doesn't mean that we won't use price as a promotional tool to drive traffic. We're just not at a point today where we are going to drop prices on a wholesale basis and expect that we'll see the kind of traffic that we need to generate the kind of returns that would be acceptable.

That's very helpful. Thanks. Also, going along with that, have you sort of looked at the market to see what percentage of the market goes in just for price versus service versus maybe a combination of both, and how you think that's sort of broken up?

So, we've done a lot of work around the consumer over the past year-and-a-half. We do know that there are consumers out there that are just price-focused; that they're pretty agnostic in terms of what brand that they'll take, and they'll move for a price. But we also know that there's consumers out there that are pretty loyal.

So, understanding exactly what you have in any given salon is important. But we think, as a whole, that what we need to do is we need to execute very well, and that we need to provide a great guest experience, and that we need to get the price right. So, I'm not saying that we have our prices completely right, but it's ongoing work to make sure that we bring all three of those pieces together to deliver the kind of results that this Company should deliver.

Okay. Thank you, guys.

You bet.

Jeremy Kahan, Bow Street.

Thanks for taking my question. I was wondering if you could help us think about the size and scale of some of the investments you are making?

Yes, we don't usually break our investments down into that level of detail. You know, so we wouldn't be investing in things like asset protection unless we thought it was going to provide a return on investment to shareholders that was more than acceptable.

Got it. And is that a one-year payback? Or would you expect that to build through 2016?

Well, in terms of asset protection, we think that that is -- what we've built out there is an ongoing team that we believe will provide a lot of benefit for a long time. We are a business that depends heavily on cash sales and we've got a lot of traffic through the salons. We have -- still, to this day, we have a fairly high turnover in stylists. So we need to be constantly educating the new stylists that come in on our asset protection policies, and what is an appropriate discount; what isn't an appropriate discount -- an inappropriate discount, rather.

So, that's an investment that we think will definitely pay back for us. And we think it will pay back for us within the year, but we think it will be one of those investments that continues to pay back.

And then given the investments you're making, what sort of positive comp do you guys need to start getting EBITDA going in the right direction?

You know, we -- again, we don't give guidance on where we think our numbers need to be prospectively. But, again, we always plan our business to make sure that we understand what headwinds we are facing going into a particular year, whether it be investments or inflationary pressure that we are having on our business. And so, again, we don't give guidance, so it's hard for me to give you any more specifics than that.

And then I would add that we are running this business to generate cash and that we've built a very, very strong balance sheet. And we want to manage this turnaround within our P&L, so that we are not dipping into that balance sheet to manage our turnaround. We think that all the investments we are making today are very, very thoughtful. And we -- when we've got some cautious optimism about what we've seen in the business in the fourth quarter, and we believe the investments that we are making over the long run will help us be very successful.

Got it. And then just last question on the Empire Education Group. Would you guys consider selling that as kind of a noncore asset?

Actually, we -- we're actually excited about upcoming efforts with Empire Education. We've recently started, with the help of Carmen Thiede in Human Resources, to establish a partnership with Empire, where we can begin to leverage their pipeline of graduation candidates to fill our staffing needs. So, in doing so, it not only helps Empire navigate the regulatory environment that they've been facing, but it provides sort of a ready stream of placement for their graduates, which not only helps our underlying business, but it helps our underlying investment in Empire.

Thank you.

Bill Armstrong, CL King & Associates.

Just a follow-up on the pricing issue. You had a 1.3% increase in your average ticket. Could you break that out between pricing and mix? Or was it driven by one or the other? Or was it a combination?

You know, if it's all right with you, just to keep this going, we'll have Mark Fosland cover that with you after the call.

Okay. No problem.

And if there are no further questions, I will now turn the conference back to Dan.

Thanks, Jessica. Thanks, everybody, for calling in for the -- to spend some time with us today. And we'll look forward to talking to you after the next quarter. Take care.

Ladies and gentlemen, if you wish to access the replay for this presentation, you may do so by visiting regiscorp.com in the Investor Relations section of the website, or by dialing 1-800-101-2009 using access code 1131937.

This concludes our conference for today. Thank you all for your participating, and have a nice day. All parties may now disconnect.