Good morning ladies and gentlemen. My name is Mary, and Iwill be your conference facilitator for today. At this time I would likewelcome everyone to the Regis Corporation First Quarter 2008 Conference Call.All lines have been placed on mute to prevent any background noise. If anyone has not received a copy of this morning's pressrelease, please call Regis Corporation at 952-806-1798, and a copy will befaxed to you immediately. If you wish to access the replay for this call, youmay do so by dialing 1-800-405-2236, and enter the access code of 11097199followed by the pound sign. I would like to remind you that to the extent the Company'sstatements or comments this morning represent forward-looking statements, Irefer you to the risk factors and other cautionary factors in today's newsrelease, as well as the Company's SEC filings. Reconciliation to non-GAAPfinancial measures mentioned in the following presentation can be found ontheir website at www.regiscorp.com. With us today are Paul Finkelstein, Chairman, President, andChief Executive Officer, and Randy Pearce, Senior Executive Vice President andChief Financial and Administrative Officer. After management has completed itsreview of the quarter, we will open the call for questions. (OperatorInstructions) I would now like to turn the call over to Paul Finkelsteinfor his comments. Paul, you may begin.

Thank you Mary and good morning everyone. Thank you forjoining us. We are all pleased with our first quarter results. Our earnings andour consolidated same-store sales came in right on plan at the midpoint of ourguidance range. First quarter earnings were $0.46 a share, and our consolidatedsame-store sales increased nine-tenths of 1%. North American first quarter service comps increased a veryhealthy 2.7% versus 0.5% or 1% last year. Our sales in the U.K. continues to be disappointingdue to a difficult environment. Our consolidated service comps increased 2.3%for the quarter. Hair Club continues to perform extremely well. Product comps for the quarter were a negative 2.5%, and I'lladdress product comps later on during my presentation. First quarter EBITDA was flat at almost $75 million. Weended the quarter with 12,108 company-owned in franchise locations, an increaseof 81 locations during the quarter. Total locations including businesses inwhich we hold an ownership interest, numbered 12,584. During the quarter, wecompleted nine transactions acquiring 133 salons, including 42 franchise salons.Our franchises built 57 locations and closed, relocated or sold 89 salons. Company-owned salons as of September 30, numbered 8,315.Franchise locations were 3,793. We also have investments in salon companieswhich have 476 locations. This is a very important number, as after the Provostis completed, this number will exceed 2,500 locations, and will have an impacton sales and EBITDA, although EPS should not be significantly affected, ifanything EPS should grow. Total debt at the end of the quarter was $719 million andour debt to cap ratio was 43.3%. As you can see from the strengthening of ourservice comps, our core business is starting to recover nicely. I’d like to share with you an additional perspective on thewhole issue of customer visitation patterns. I really don’t like to makehistorically references, because I am more concerned about the present and…

Thanks Paul and good morning everyone. We are very pleasedtoday to report first quarter earnings of $0.46 a share. Perhaps over mostencouraged buy is the marked improvement in our service sales which represents70% of our overall business. Service comps increased 2.3% in the first quarter,up 100 basis points from the preceding fourth quarter. As we said many times before, our earnings guidancecorrelates to our same-store sales guidance. For example, guidance for ourfirst fiscal quarter was for earnings to be in the range of $0.43 to $0.49 pershare based on a forecasted same store sales range of flat to 2%. Our actualcomps for the quarter came in near the midpoint at positive 90 basis points,and therefore our earnings of $0.46 also met the mid point of the range. Our reported earnings of $0.46 would have been a pennystronger, had it not been for a higher than expected effective income tax ratein the quarter. The higher tax rate was simply a timing issue related to ourfirst quarter adoption of the new FIN48 accounting pronouncement, which I willdiscuss further during my segment's discussions. Other than that, our first quarter operating results weregenerally pretty straightforward. Please also note, that effective August 1, wedeconsolidated our Title IV school business due to our joint venturepartnership with Empire Education Group. As we've discussed with you before, deconsolidation has noimpact on our bottom line earnings. However, it does cause a reduction in ourconsolidated revenues and expenses. As a result, deconsolidation of our schoolbusiness reduced our overall first quarter revenue increase from 6.6% to 4.4%.That was a reduction of 220 basis points in our revenue because of thedeconsolidation. I'll now transition my comments and give you a bit moredetail behind first quarter operating results for each of our business segmentsand a breakout of our segment performance as found in…

(Operator Instructions). Our first question comes from JeffStein with Keybanc Capital Markets. Please go ahead.

Good morning Paul. Just a couple of questions; first withregard to visitation you stated the fact that you are beginning to anniversarywith your numbers and just kind of wondering, in the quarter did you see ayear-over-year increase in visitation, in your domestic salon?

We were still slightly down but--

On a comp basis.

On a comp basis, but 2.7% service comps is very, verystrong.

Sure.

And we probably got an average ticket increase of slightlyin excess of 3%. So, we are marginally down in terms of foot traffic, butthat’s a considerable improvement from being 3% or 4% down in customer count acouple years ago.

And the 3% increase that you saw in average ticket is thatprimarily price or is it more related to mix, offering things such as hairextensions?

It's everything. It’s a hair color and Supercuts, its price,maybe 2000 of our salons have price increases. It's hair extensions which nowis a couple million dollar business, $3 million business, probably it will be$6 or $7 million business within the next year. It's just a whole bunch oflittle things, Jeff?

Okay. And can you talk a little bit about what you're tryingto do over the near term to improve your product sales, because it seems likeyou have got some secular headwinds in this business with diversion The factthat from that channel, was taking shareof market, and yet, it seems that the initiatives call that you have underwayare really very long-term initiatives, things like this, the retrofit that youhave planned and the test that you have planned for Trade Secret, it doesn'tseem like this is a fiscal 2008 initiative. So, is there anything thatinvestors can look at over the next 12 months that will kind of hold out hopethat we might see a pick up on the product side?

Jeff, I really don’t think these new initiatives are alllong-term at all. We'll be testing within the next 60 days, new lines -- newassortments. And we'll be putting those new skills and many of our Trade Secretstores long before they are remodeled. We also -- believe it or not, our TradeSecret business is getting marginally better, not worse. So, I think ourinvestors are going to see -- I don't look at it total negatively at all. Theyhave the professional pack or category for all the reasons you mentioned, asthose additions over the last year. And we perhaps should have a little bit ofself-flagellation and that we haven't come up with our new plans early enough. But we will identify now, we have identified vendors, and Ithink, certainly the last quarter, I think you are going to see much improved results,Jeff. And that's not long-term, that's intermediate term.

Okay. So, I just want to make sure I understand, Paul. Whenyou were talking about bringing in new vendors, are we talking about the beautycare products specifically or are you talking about other professional linessuch as Intelligent Nutrients?

No, I am talking about beauty care products. I'm talkingabout --

Okay. So beauty care products, they are going to startshowing up, in the Trade Secret salon in the back half of the year?

Correct.

Okay. And just out of curiosity, I mean, it would seem to methat unless -- let's use Bath & Bodyworks as kind of comparable, because Iwould assume that that -- you it's a mall-based competitor, and they are veryextensively involved in beauty care. I guess, how would you intend to competeagainst a company like that, when your store size would seem to be a limitationin terms of the assortments that you could offer to be competitive, you knowacross, let's say a broad spectrum of beauty products, whether its skincare,shampoos, just the whole range of products that they offer?

Jeff, I think we have to go back to the topics I talkedabout in our conference call. All these sales will be incremental sales. So, itdoesn't take that much to really have a significant impact on Trade Secretcomps. And we will be standing out our hair care lines. Bath & Bodybasically is a private label concept. We will be selling branded merchandise.So I think we are comparing apples and orangutans. We have the locations. Thelocations are excellent. Over 600 and 30 odd line in most of the major malls inthe country. So, I think our locations in our foot traffic will create a hugeopportunity for us to push the needle slightly to the right. That's all weneed.

Okay. Thanks.

Welcome.

Thank you. Next question comes from R.J. Hottovy with NextGeneration Equity Research. Please go ahead.

Good morning everyone. Paul, a quick question for you justin terms of the diversion data. I don’t know if it was referred to at the firstpart of the call, but the beauty industry fund website doesn't seem to haveanything past June of '07. I just wanted to get a sense of where the thingswere tracking in the third quarter there. I guess your first quarter, in termsof that diversion number if we are seeing any improvement on that front?

You have the most -- whatever is on the website is the mostcurrent number. And we continue to have L'Oreal affect us negatively, and yetcompanies like Joy Co. and Mitchell are doing extremely well fightingdiversion. So, I think it's pretty much same all same all in terms of -- Idon’t think there's anything that’s really new in our diversion front, otherthan it gets marginally worse.

Okay. I guess my next question I guess, just has to do with,you talked a lot about the different JVs and taking a different stance overlast couple of years in terms of being more open to these strategic alliances.Is there anything else out there that you might be looking at or anything else-- its probably too early to talk about, but what other types of things you maybe looking at on that front?

I think most of that which we even feel we should jointventure with or have a strategic alliances have already been implemented. Weare not working on anything new right now.

Okay. I guess that's it. Good luck in the next quarter.

Thank you.

Thank you. Your question comes from Mike Hamilton with RBCDain Rauscher. Please go ahead.

Good morning everyone.

Hi Mike.

I was wondering given what's going on in establishing theJV's expense with IN, can you take a stab at what we were running in one timecost here in and in the big picture where it’s showing up in line items?

Yeah, let me take a stab at that. In terms of where it’sshowing up on line items, on the page of the P&L, I referred to the newline item it’s called equity and income or loss of affiliated companies. And wehad $334,000 loss, now that's an -- on an after tax basis. So that's showing up,that includes IN, which was the major contributed for the loss this quarter, aswell as offsetting, a slightly offsetting it was some profit coming out of theEmpire School business for the quarter. In terms of overall financial impact, INcontinues to sell product to other third party retail outlets, as well as to Regisand we in turn are selling products to our consumer. So in terms of sales, we ended up -- we are probably selling$0.25 million to $0.50 million of product in our salons each quarter. Mike and,once again, we ended up with a net after tax loss around $200,000, $300,000 forthe quarter. I don't see it, once again, we've talked about the implementationof the rollout of the professional line, which I think Paul had indicated willcome later in the fiscal year. So I don't see until that launch takes place,but there will be much change in terms of revenue or operating impact.

Yeah, fair enough. Is there any thing worth noting in termsof one time expense related to either schools or the continental Europeanchanges that have shown up during the quarter?

No.

Thanks. That's it from me.

Alright, Mike.

Thank you. Next question comes from Jon Christensen with KayneAnderson Rudnick Investment. Please go ahead.

You mentioned 3% increase of price and mix. Could you tellus what same-store sales growth you need to offset inflation and gain positiveoperating margins?

2%.

Alright. And if I look at your operating margin at above 9%in 2004, 7% last year, 6% currently, we understand that same-store salespressure is a big part of it, but could you give us the other contributors tothat decline in order of magnitude?

It's modestly comps, but our franchise business haveactually shrunk and has a much higher margin, 40 somewhat percent margincontrast to a company owned business. And our company owned stores have grownfaster than our franchise division, in part, because we bought so manyfranchisees back.

Are there other reasons for the shrink in the franchisebusiness besides your purchase as the business been less franchisees?

No, our franchisee are very well. We've cutback on highergrowth, company owned growth. I think our franchisee have as well, because theyare in a last three or four, five years. We have reduced visitations and rampups have taken longer. And we have more resources, more financial resourcesthan they. But if you take a look at the total franchise stores, coupled withthe buybacks, we've had about a 4.5% increase in total units from thatfranchise division compounds that over the last four years.

And when I looked at total systemized salons in your pressrelease, I see the numbers for salons constructed going from 420 in June of '07to 85 September, I see a similar decline in acquired? What do I read from that?

Help me with it, when you say 422 salons acquired that's forthe full fiscal year. And you are comparing it to the 85 that we built in thefirst quarter this year I believe?

Okay. That is, that goes a long way to…

Yeah.

Right. Because overall, we continue to expect that our newstore construction, as well as the acquisition should be comparable in thecurrent fiscal year with that of last year.

Thank you

You are welcome

Thank you. Your next question comes from Justin Hott with Bear Stearns. Please go ahead.

Hi. Just have another question on diversion. You havementioned before, Paul, that it was sort of business as usual on diversion. Canyou update sort of the strategy you have for when companies divert too much? Ifany of them are seeing any decrease shelf space so far?

Yeah, they are, we have moved Matrix from a prime spot toless prime spot, and we just have -- we've published on our website, thoselines that are getting are more footage, and those are lines are getting lessfootage.

You also made a decision about hair color as well, lotlarger because of diversion, where we switch from L'Oreal color to --?

Yeah, we felt in Regis, the Regis division would be betterof having one brand. We had split Regis between Matrix and Wella, and weobviously picked the brand that we felt was more committed to reduce diversion.It doesn’t mean that Matrix hair color won't grow with us in other divisions,but I mean, we warn our friends.

What has the response been from some of the supplier so far,as you decrease or give them les prime spots? How are they responding?

Some of them are not euphoric.

Are they changing their behavior yet?

No. They are say they are, but the numbers all dictate.

And, can you give us maybe just a little bit more on theIntelligent Nutrients roll out on the brands, some of the discoveries and learningyou've had? How you are working with Mr. Rechelbacher so far? Hope you couldtell us?

Yeah. He is an amazing man, and we have groundbreakingproducts. We are like him in terms of all the fix that they had done. And weare in the final stages hopefully of coming up with a shampoo and conditioner.And his objective is to have 100% of it food-grade organic, and we believe that90 somewhat percent of the SKU's will be 100% food-grade organic, and nobodyhas that in the world. There may be some SKU's where we'll be organic, but nottotally food-grade organic. We are going to have something very special, veryunique.

And Paul, just one more question. Just for people out there,I guess the Phantom salon come to things like Ulta, the large 10,000 squarefoot store play, something people are paying close attention to right now. Canyou talk about how you think, we are not talking thousands of stores, but canyou talk about, how you think that could affect your business over thelong-term, next five years?

It's not only Ulta, its Victoria's Secret, I mean it's become a morecompetitive category; shampoo is not -- its like Starbucks and Coffee. Coffeewas nothing years ago and really, the shampoo business was a commodity business15 years ago, and now it's become a hot category, so there is more competition. Ulta has a big box, 10,000 feet, that's we're going to have$4 million. That's an awful lot, Justin. We like power lower risk footprint, wethink it’s a lot easier for us to continue to grow, and have a model that workslong-term, but I’m not here to throw stones at Ulta, yes, they have done a goodjob. Well, good, fine. Anybody who sell shampoo competes with us, whether it'sUlta or whether it's Banana Republic.

But I’m thinking more about the large floor play where thereis couple of salons chairs in there as well too.

Yeah, but I’m not terribly concerned about that.

Can you just flush out a little bit more of why, outsidethat you have 12,000 stores.

Well, once again, if we continue to add 500 to 1000 stores ayear, and the locations are good, we'll get off that share, especially now,when we are morphing into beauty. And this is not something which we are tryingto invent, we are not inventing the wheel here. Some of our competitors havedone it, and done it extremely well. And we'll do it even better. We know whathas to be done, it’s a question of cherry-picking the line, and just findscomments or right on the mark, we have a smaller footprint. So, we are justgoing to have to grow a lot smarter, but we will be.

Paul, one more question I guess on long hair, when, you know-- can you talk a little bit --

I hate long hair, Justin.

It's in your press release, I understand.

Yeah, I know.

You put it out there, I am going to ask. And just with acomment, I am seeing some of the things you are saying now on the trend. Butsome of the things I see worry me them just being part of change in season, andpeople wanting a change in hairstyle. Can you point to something in your datathat would give us more comfort that this trend is in?

Yeah, 2.7%.

More than that, more than what we saw to that.

Well, it's only then and in our business, the numbers meaneverything. And if you had 2.7% North American service comps, contrasted to0.5% or 1% the year before, then more people are coming in more often to gettheir hair cut. It's simple as that. The numbers tell everything in ourbusiness, when you have 12,000 stores, the only thing you can look at is thenumbers.

Any signs in October that’s sustainable, that's not just onequarter so far that its never going to go?

Our service comps continue to be just fine.

Alright, thank you very much.

Thanks Justin.

Thank you. (Operator Instructions) One moment please. Ournext question comes from Justin Boisseau with Gates Capital Management. Pleasego ahead.

Hi, thanks. Did you repurchase any stock in the quarter, andwhat are your plans to repurchase? The rest of the years are going to be sortof evenly distributed through the quarters or do you have particular timeperiod where you can get the most of it?

Yeah, we did not repurchase any stock in the quarter,because we are precluded from trading in the stock because of the [Provo] joint venture thatwe were sitting on here. So absent that we still are planning on repurchasing a$100 million worth a stock and I would just assume that it would come ratablythroughout the remaining three quarters. Having said that, if we find that, theopportunity present itself for us to get a little more active based on stockprice we may do it sooner. If we find acquisition opportunities, that come ourway above the $75 million that we budgeted for the year, we may do less of it.But at this point, we are still looking to repurchase a $100 million over thenext three quarters.

And then your for 780 of debt at the year end. It lookedlike an update on the numbers I have, I thought I have something closer to 660,has something changed there?

We end at the year at 709, just three months ago. So I don'tknow where the 660 was.

Okay, that may have been my fault. And then, one more thingon traffic. I just want to make sure I was clear you out, talked about theimprovement in the service comp, but traffic was down, right for periodyear-over-year?

On a comp basis slightly down.

Alright, okay thanks

Thank you. Next question comes from Daniel Hofkin with William Blair. Please go ahead.

Good morning, guys. Just a quick question, first on the comptrend and the improving trend that you are seeing in service, is thatexclusively what you say in customer traffic has or has there been someincreased stability to move product or cost or mix up or is it primarilytraffic so far?

Its price of new services, it’s a combination of whole bunchof things.

I am just looking in terms of the sequential acceleration.Is it -- it's all of that, it's not just the traffic is getting closer to flat?

It’s all of that.

Okay. And then with regard to just the guidance in the backhalf and in the last three quarters on the comp sales. Is the slight change inthe comp guidance strictly on the retail product side, because if anything?

Not fully.

Okay. So then would that be correct then in inferring thatthe service business, if anything is a little bit ahead of what you would haveexpected three months ago?

You are correct.

Okay. Thank you.

Thank you. Next question is follow up from Jeff Stein.Please go ahead.

Randy, just a follow up question on G&A. You indicatedin your presentation that there were some consulting fees in the first quarternumbers and I am just kind of wondering have you kind of identified a chunk ofexpenses that you could perhaps quantify, that we could may be look forward toon an annualized basis upon seeing reduction at some point this year and whendid the consulting fees begin to disappear?

We – yeah, it’s a good question Jeff. Deloitte, we areasking Deloitte to really scale back and hand the reins to us at the end ofthis calendar year. So I think you are going to see a precipitous drop in theconsulting fees beginning January 1. We've got a lot of very good and I mean avery good momentum going on here at Regis on a number of fronts in terms ofcost savings, And what we are finding is that certain things have beenimplemented, certain cost saving ideas will be implemented this year and so weare not going to enjoy the full benefit of the annual run rate. Certain things,as well Jeff, we've seen on cost saving initiatives that over the next severalyears, they are going to be phased in and the savings will continue toaccelerate. In terms of this current fiscal year, we’ve got $4 millionto $8 million of gross savings, that we are estimating and I hope it maybe alarger than that, but I’m not going to create that expectation. $4 million to$8 million of savings, we will be paying Deloitte about $3 million of that. Sobut again, the Deloitte cost go away and savings will continue to accelerate inthe future. We are also, when you look at G&A one could assume that all ofthis savings will flow through G&A, the cost certainly does to Deloitte, butas a matter of fact much of the savings will appear in other line items of theP&L, maybe its in the form of interest expense when we reduce inventorycarrying cost, it might be in the site operating expense line item and even thedepreciation expense line item.

Got it. And could you care just take shot at the kind of theannualized run-rate that you hope to achieve by the end of this year?

Over $10 million.

Over $10 million, okay thank you.

You're welcome.

Thanks. Your final question is follow-up from JonChristensen. Please go ahead.

What is your average storage age and how does yoursame-store sales vary by store age?

You should have had that question out of the last. We shouldhave stopped --- we are just fine. I don't know. We'll come back to you withthat number. Now it’s a very difficult number to compute, because of so manyacquisitions. We have to go back to see when those acquired stores were buildand when they were remodeled. But obviously, comps with respect to store thatare fully matured aren’t strong as stores that are two or three years old, butwe'll get back to you.

We do see, I mean it's intuitive that 350 to 400 stores thatwe've built from scratch, on average, it takes five years for a store to reachmaturity. Some are faster, some are little bit longer, but on average fiveyears. And we do see in terms of total revenue that after the first year, it'sabout 60% of the way thereof mature revenue. And then it adds 10 points a yearfor each year thereafter. So Paul is right, we do see that as we open up newstores, you get a bigger boost to comps in the earlier years as they were inthe maturation cycle.

And once the store is open five years and you get consideredmature, do you still get increased customer visit per store?

Yes, but on a modest basis. Again, I don't want to state thelast couple of three years was indicative, because it's not, but we use to seefor example, our largest and most mature salon concept is our flagship conceptof Regis Hairstylist and we would see that the Regis Salon division was stillcomping positive, but modest, largely because of increased traffic, notnecessarily price increases.

And if I look at--

Fully matured stores.

Fully matured stores.

If I look at customer visits per store, its sort of acapacity utilization measure, has there been a consistent trend, what is therange and where are you today?

Would you talk, Paul if asked about capacity is really toughin this business because of--

Yeah, because Monday mornings, you consider can beintuitive. I don't think it's a significant issue for us, it's not a metricsthat we utilize.

Thank you very much.

Thank you.

Thank you. There are no further questions. I'll turn it backyou, Paul. Please go ahead.

Well, thank you Marian, and thank you all. Have a good day.

Thank you. Ladies and gentleman that will conclude today'steleconference. If you would wish to access a replay for this call, you may doso by dialing 1-800-405-2236, and enter the access code of 11097199 followed bythe pound. This concludes the call. Thank you all for participating, and have anice day. All parties may now disconnect.