Good morning. My name is Julie and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation Fourth Quarter and Fiscal Year 2009 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 reply for this call, you may do so by dialing 800-406-7325; using access-code, 4119600 followed by the #. The reply 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. Reconciliation to non-GAAP financial measures mentioned in the following presentation can be found on their website at www.regiscrop.com. With us today are Paul Finkelstein, Chairman, President and Chief Executive Officer; and Randy Pearce, Senior Executive Vice President and Chief Financial and Administrative Officer. After management has completed its review of the quarter and year, we will open this call for questions. (Operator Instructions). I would now like to turn the call over to Paul Finkelstein for his comments. Paul you may begin.

Thank you Julie and good morning everyone, and thank you for joining us. I'm pleased to report operational earnings ahead of plan at $0.59 a share versus the plan of $0.51 a share. Randy Pearce will go into the details of reported earnings and on operational items in his portion of the transcript. In times like these, one must focus on cost control and on controlling margins and major factors for earnings being ahead of plan, on a strong discipline relating to cost control as well as a $0.06 per share tax benefit. Both our product and service margins were better than planned. Product margins are more favorable on our promotional items but our major cost savings initiative relates to payrolls. We've been gradually shifting most of our valued contents to a leverage payroll plan, whereby the stylist earns more dollars on incremental sales but at a lower percentage of the incremental sales. In other words, if the stylist had an effective commission rate of 45% and at same style increased sales by $10, scheduled would now get $12.20 or a 42% commission on the incremental business rather than $4.50 or a 45% commission. This obviously works against us when the sales go down. However in the long run, we are highly confident with price increases and appropriate scheduling, we can increase the productivity of our stylists and at the same time, reduce their effective payroll cost. In addition to improved payrolls, we benefited from reduced travel expenses, and reduced workers comp costs. Fourth quarter same-store sales were negative 4%, which was essentially on plan. Service comps went minus 3.7% versus plus 2.7% last year. May and June customer visits were slightly weaker than trend, primarily due to the stimulus that was paid last year. Our average ticket increased 3.1%;…

Thanks Paul and good morning everyone. Today, we are reporting fourth quarter fiscal 2009 operational earnings of $0.59 a share, which is up from the $0.55 we reported in the fourth quarter last year. For many years, we've talked about the direct correlation of our earnings with our same-store sales performance. With our actual comps coming in at negative 4% during the fourth quarter, we would have expected our operational earnings to be above $0.51 a share, which included an incremental $10 million of planned cost saving initiatives which we discussed with you in recent quarters. Therefore our operational results of $0.59 a share, is $0.08 higher than what are comps would indicate. $0.06 of this upside to our earnings was a result of a lower than expected income tax rate during the quarter, primarily due to the statutory expiration of certain prior year tax positions. The remaining $0.02 of net benefit was derived from strong expense control in a number of areas, including salon payroll costs, partially offset by a greater than expected operational loss from our European salon investment with the Franck Provost business. As you are no doubt aware, we also have several non-operational items running through our fourth quarter P&L that caused our actual reported results to be a net loss of $0.11 per share during the quarter. Let me take a moment to identify and quantify these non-operational items. And there were four items, which on the net overall basis, served to reduce our earnings by $0.70 per share in the quarter. The first and the largest item was a non-cash charge we recorded of $28 million or $0.65 a share associated with the partial write-down of our European investment in the Frank Provost Salon chain. We talked about this in our revenue release in…

Thank you, Paul and Randy. The question-and-answer session will begin at this time. (Operator Instructions). There will be a short pause while our participants register for question. The first question comes from Lorraine Hutchinson from Bank of America - Merrill Lynch. Please go ahead.

Thank you. Good morning. I was hoping that you could provide some color on what your weighted average cost of debt will be now that you've loosened some of the covenants and renegotiated some of your facilities, perhaps you could give that to us excluding the convert?

That's got to be tough because I have it with the convert which is modeled -- the total weighted average cost of our will likely be around 8%. Accounting conventions going -- now that includes the convert and I'm not going to bore your or try to confuse you with all the accounting requirements here but the reason why it's higher than what we initially had even prior to the equity convert offering is that we have to book more of a market rate of interest on for book purposes on the convert link which is causing the overall rate to be about 8%. Cash interest will be about -- will be 5%, right. So we'll pay far less in cash than the book interest. In total we expect our book interest expense for the 2009 -- 2010 fiscal year should be about $40 million comparable to what we reported in '09.

And by the way cash interest will be about $31 million.

Okay. And then just a bigger picture question; you had spoken about once visitation trends stabilize, you'd resume your North American growth strategy. Can you just give us some color on the expectations for that? I mean is it solely focused on value, will it be salon-only or can we expect more of these ancillary investments? Just, if you could just give us a little bit more detail on the future growth prospects.

Oh no Lorraine, where we form centers, is it going to be salon for quite a while. We are not going to go on to pig farming, I can assure you of that. And realistically the returns are much greater on the small investment value salons. So we'll get the lion's share the CapEx. And we're especially focused on areas where we have very-very strong brand equity like North and New Jersey for Supercuts and Hawaii for Supercuts et cetera. So, I mean that's our program.

Thank you.

You're welcome.

Thank you. Your next question comes from Paul Lejuez from Credit Suisse. Please go ahead.

Hey you guys, Paul Lejuez.

Hi Paul.

Hi Paul.

Hey. So I guess I'm just looking, historically I think EPS has been the primary driver for you guys in terms of incentive-based compensation. I'm just wondering how, given the changes in the environment and the capital structure, there are new metrics being considered in terms of how you guys are going to get paid.

Going forward it will be EBITDA which is consistent with what's happening with a lot of our peer group companies. And there'll be some additional components relating to other goals that will be set for such as reduction of debt average check whatever and that all will be highlighted in the proxy that will be coming out next month.

There'd be anything related to return on invested capital in that structure?

Not formally. What we -- believe me Paul, we are focusing on enhancing our return on invested capital as Paul Finkelstein mentioned. Too many Paul's here, as Paul Finkelstein mentioned.

Which is our favorite.

Yeah.

You got to stand for me for that.

Our focus is going to be trying to spend capital in a way that's going to provide us the highest return, including acquisitions of core salon concepts at multiples that would generally be in the 3.5 to 4 times. We have found, we used to have several years ago, a portion of our incentive-based comp plan was based on return on invested capital. And that incentive comp plan covers about 50 officers of the company. And what we found was that people could not translate the decision making that they were making day in and day out to what impact that had on return on invested capital. It was too confusing for most people. So what we're doing is focusing on other things here in terms of metrics; not at the expense of return on invested capital, but I will think that you'll start seeing an improvement to our ROIC.

Got you. And your guidance I believe on EBITDA was 200 to 240 million. Correct me if I am wrong, and I guess on the high side that would imply 60 million per quarter and EBITDA. You just did 80 million plus. So I am just trying to reconcile that too.

Well if you're going to have a little bit that the big year-over-year change is always going to be comps. We've said one percentage point change in comps equates to about $10 million of EBITDA. So if we did this year and Mark help me, I think we did 271 to $275 million of EBITDA, if you assume, remember our tipping point, our inflection point is generally 2% comps. So if you assume that our comps are going to be at, let's say negative one, just pick a number; that's 30 basis points -- 300 basis points below our tipping point which would equate to about $30 million less EBITDA from the 271. That's the major factor there. I will say that we think that that range of 200 to 240 -- I mean, I hope we're going to be at or above the high end of that range.

And you mentioned the time -- you mentioned the monetization of Empire, any sense of timing there?

Oh it's going to be at least four or five years. Franck's Chairman is a young manufacturer. And with relatively high unemployment and we believe it's systemic, the education business should be a very good business. And his projections for EBITDA for the next two or three years are very-very bullish.

Great thanks.

And as you know Paul, EBITDA multiples for education business are pretty strong. So, they are highly confident that we're going to get a lot of our investment back and more.

Yeah. Okay great. Thanks and good luck.

Thanks Paul.

Thank you. Your next question comes from Jeff Stein from Soleil Securities. Please go ahead.

Good morning, guys. Two questions for you Paul; one is the leverage point and maybe Randy you can answer this as well. You've talked historically about 2% is kind of the threshold you need to hold your SG&A flat and achieve leverage. Now in kind of this new world of tougher comps, most companies have been able to effectively reduce that leverage point and I'm wondering; is 2% still a realistic target that we should be looking at go forward or might you'd be able to figure out ways to bring that down below 2%? That would be question number one.

Jeff, it could very easily be 1.6, 1.7. But two is certainly conservative. There are costs that we just have very little control over, such as taxes, our occupancy cost, for instance our basic rents, are very much in control, the cam and taxes are beyond our control, certain insurance categories, certain utilities, they are going down but they will be going up as mayflower's night (ph) and its those costs primarily that create the 2% number and we'd rather be conservative but to your point, it could be slightly less than 2% but not much.

Okay. And the other thing Paul is you've talked historical about somewhere between 250 and 300,000 salons in the United States. And it's a highly fragmented space, largely mom and pop. Consolidation has been a big story across retail and I'm wondering if you have any statistics that might help us understand what if any consolidation trends we should be looking at in the hair salon industry? How much capacity, in other words might come out of the industry over the next 12 months?

There's excess capacity Jeff, as you know and largely every industry in America, whether it'd be manufacturing or retail. Now it's interesting I have been talking about, I think too many stores in America about 15 years only came through. There will be a historically the number one seller in urban communities would be restaurants and number two would be salons and barber shops. That probably will accelerate. Of the 300 and some add thousand salons and barber shops, 70 or 80,000 we'll encounter in people's homes, but we are seeing about 5 or 6% industry shrinkage. We think we're there in the middle of it and that shrinkage will create more salon closures than before. Because the model doesn't work to that modern parlor as well as it did years ago. So that ma and pa owned now frankly is better coming to Regis and earning a 50% commission rate and staying where he or she is, in a private salon. And those customers and those dollars closed salons have to go somewhere. So I mean we are quite confident that they'll come to us. We have the locations and we have brands and we have the training. So we should be able to increase share just because of that dynamic.

Okay. And finally if you could address the issue, you talk about taking your commission rates down and I am wondering how the turnover within your hair stylists to pull so to speak, would affect your ability to continue to succeed in driving that payroll percentage down? In other words, what percent of your hair stylists turnover on an annualized basis?

No, I get it. Look and this just return is about 60%. The average new hire is a 21 year old female, a very mobile part of the population, our return is 40% and that's overstayed it. Because if somebody goes from downtown to Beachwood in Cleveland, and I assume the store in Cleveland?

Yeah.

That's a time for us because we close him on a payroll. And if somebody leaves us and comes back three years later, and comes back a month and year later, that's the time for us. So our turnover is been well under the industry turn because they can develop business far more quickly with us than going with the ma and pa. Our return and especially given the fact that most of our concepts are value-driven concepts rather than appointment-driven concepts, the power really rests with the store rather than the stylist. So our return should not be affected. Demand has proven to be very -- and the last thing. And we make sure that our people are going to earn more money because we raise prices. So we are happy campers.

Okay thank you.

Welcome.

Thank you. The next question comes from Erika Maschmeyer from Robert W Baird. Please go ahead.

Good morning, nice job in a tough environment.

Thank you.

Could you give some additional detail on the aspects of your cost saving initiatives that you expect to continue to benefit in 2010 which ones you can repeat and then may be talk a little bit about expectations for full year for company operating expenses and G&A in 2010?

Erika that was a multiple.

Sorry...

Let me take a little bit of stab at it unless Paul wants to but -- all right. The cost saving initiatives; we achieved about $32 million in this current fiscal year that just ended 2009. About 25 million was incremental to '08. We are expecting -- and we've said it before, you can only save a dollar once. We expect though that incremental cost savings could be close to $10 million in our current 2010 fiscal year. We continue to have here Regis gross mart initiative that we implemented a couple of years ago. We have people from all levels and all departments within the corporate organization that continue to get together and look at ways to save dollars and we've had a lot of ideas that we are continuing to work on. But I would say that we would have about 30 -- I am sorry, about $10 million of incremental cost savings that we should be able to achieve, and hopefully more in our current fiscal year. Now Erika you were then talking about corporate G&A going forward?

Yes.

Our corporate G&A, and again I am going from memory here, is about $120 million a year and that includes our corporate office as well as our two distribution centers. It's been running about $30 million a quarter and coming down. We are going to see that -- there's two counter-bailing factors. One was that, the largest expense item made up within our corporate G&A are going to be the salaries for the 1300 people that we have here in Minneapolis and in our distribution centers. So if you assume normal inflationary salary increases, that would cause G&A to go up. Having said that, we will see G&A come down by other initiatives, other cost saving initiatives. I would expect that our corporate G&A shouldn't move much in our fiscal year. It maybe up slightly but not materially.

Okay, great. And then, how do you think of marketing expense for next year?

Well, we're -- overall there was some give and take. We are continuing to -- marketing is not going to be -- at this point in time, nothing is been contemplated to reduce marketing expenses even further. We continue to work with Gordon Nelson and Mary Kiley in our marketing group as to how to best redeploy existing dollars. So no, I think we're going to see more stability in our marketing spend in 2010.

Okay. And then could you talk about, I guess any updates on your expected price increases for 2010 and benefit on ticket?

Yeah, we've traditionally over the last few years, taken a more aggressive hard look at price increases to be implemented during the January, February, March timeframe. So when we look at beginning of calendar 2010, we'll likely be looking at price increases. We are anticipating that the overall impact in 2010 to average ticket would be in that perhaps 2 to 3% range.

Okay, great. And then any update on trends to-date in Q1 and back-to-school for comps?

Well there's comps as you know on a quarterly basis and it's really business as usual at this point in time. This sort of mirror fourth quarter of fiscal 2009 as we are in the middle of August. We contemplate comps being weak for the first quarter. And then they should start strengthening significantly during the Christmas quarter.

Okay. Thank you.

Welcome.

You're welcome.

Thank you. The next question comes from Daniel Hoffkin from William Blair and Company. Please go ahead.

Good morning, guys. Just a question -- clarification. Had you indicated that you felt last year's June quarter or perhaps the first part of your fiscal 2009 first quarter benefited from the stimulus tax last year? Just wondering if that's a part of maybe what you think you are seeing quarter to-date why that hasn't necessarily picked up? And if so, where did you see that most significantly across your concepts? And then second; can you just sort of tie together, what given the comp sales range that you've provided on an EPS diluted basis using the new share account where you think that would come out top end and bottom end for the quarter and the year?

Yeah, we'll go last question first. We are not giving the EPS guidance. I think you can -- we are sort of giving EBITDA guidance of 200 to 240. And as Randy pointed out, we expect our results to be at the high end of that guidance. With respect to the stimulus checks, now it's interesting, obviously they effected us. One of our state divisions is more style (ph) in Wal-Mart and as you know Wal-Mart had one or 2% negative comps in large for us it is a stimulus checks last year on June and July, and we had the same effect with respect to stimulus checks last June and July contrast with this year. I think our -- I think the effect on us is pretty similar to most retailers. As you know, last six months of last fiscal was ended June '09, we have the stronger service comps in North America in what eight years. So stimulus checks definitely help.

If that ended June '08.

Yeah.

June '08.

June '08. I am sorry.

I am sorry. Could you just clarify that last comment, if then you're saying through...

The last six months of last fiscal, I mean in June '08 we have the best service comps we had North America in eight years, in part due to the stimulus checks but that was just a small part.

Okay. So you're talking 12 to 18 months ago?

12 to 18 months ago, correct.

Thank you.

Thank you. The next question comes from Jill Caruthers from Johnson Rice & Company. Please go ahead.

Good morning. If you could address the service margins again on a consolidated basis, that came bearish on 44%, I can't really find in the past years where you've posted that strong of a number and now you've addressed the change in competition. If you could just talk a little bit more about that why that that's kind of fall from the 44% had into fiscal?

Jill there are two factors; one related to the fact that we are trying to obviously parts of the leverage in our payroll. The second fact that relates to mix but we have better service margin and Smartstyle and Supercuts that we have in Regis. And the Smartstyle and Supercuts continue to garner a greater share of the total sales mix. Obviously that affects our overall consolidated service margins. So it's really a mix play.

Okay. And what do you see that level going out in the future as the Smartstyle becomes a bigger part of your mix and what not?

Now it's glacial but there should be marginal improvement for several years.

We continue to tweak...

10, 20 basis points in that range Jill.

Paul is absolutely correct. I mean if you look over a long period of time, the largest expense item in our business model are salon payrolls and the related benefits we pay. That's in our service and our product margin. You'll see both of those line items in good times and in tough times, be remarkably stable. Paul has and operating folks here at Regis have started becoming aggressive in with new hires on tweaking some of the new commission arrangements that should give us more positive leverage. Paul talked about that. So that's a positive going forward. I just -- may be we're a little cautious but we continue to see some of the benefit side like healthcare costs are continuing the increase. Ours are not auto controlled but again nationally you just see cost increasing. That's going to dampen some of the service margin, service gross margin rate. Supply costs, we are holding those down best we can but some of the supply cost for hair color for example, indications are, they could go up a bit this year; not sure yet. So, we are just tempering expectations a bit right now to say that, a lot of good things going on to control payrolls. Some of that that we saw in the fourth quarter may be dampened a bit from some cost increases in the current fiscal year. But Paul's right. You will see over a long period of time more stability but slight increases in margins.

Okay. And then just last question kind of broad. Now we're kind of looking for the fall October, November act as sort of an inflection point of just anniversaring some of the drops in traffic. If you could talk about may be the environment out there, are you seeing kind of price wars right now with other salons, increased marketing coupons type deals that might dampen that stabilization in comps? Thank you.

We aren't seeing greater discounting happening industry wide. I think demand has proving to be quite in the last with respect to price. And we just don't see it.

Thank you

Welcome

Thank you. The next question comes from Mike Hamilton from RBC. Please go ahead

Paul, if you could give your thoughts on hair trends at this stage as we go into 10.

You must be kidding.

I'm...

He is not kidding obviously. Randy, you want to take a shot at it? The hair trends are so individualized. It isn't like Dorothy Hamile, years ago. I mean people do their own thing today. And we don't really see a trend per se by the male or female. And you guys have a fashion business in terms of trend. Our business is really glacial in terms of change. Most people have their same hair styles year in-year out. And that's what's so good about this business. I mean I don't know how many retailers could state, didn't have a negative comp for 87 years. And we'll get back there whether it's this year or next year. It's a very stable and predictable business and there should not be a significant trend issue. We just don't see fashion moving that way. Fashion is so individualized.

Thanks. Let me may be put it a fairer way. In the last couple of years we've seen a steady trend in expansion of the time between visits. Is it going to purely a functional economy that changes that?

With our average customers spending about $130 a year on service, we -- and especially those out of work, have to look good if they want to get work. Eventually at last, if a guy got his haircut every three weeks and now in four weeks, then its highly unlikely that on average they are going to go five or six weeks it lapse. We don't expect it to go back to the prior level. We expect that to last at the current level not the prior level. And if someone who went every four weeks, now going in to five weeks, we have no expectations that that individual's going to go back to four weeks.

Yeah.

We also don't expect him or her to go to six weeks.

Thanks.

Welcome.

Detailed question for Randy; to the best you can, could you walk through timing and implications on the repatriation on the tax side?

Yeah, effectively it's been done Mike because we've been able to through the balance of our latter half of our 2009 fiscal year, able to repatriate cash on a more -- I think it was a 90-day basis. And then we had some of the cash back to our international banks and then it comes, were able to re-borrow it. Everything was done on a temporarily basis. I think there had been some government legislation that enabled companies like us to do that. What we've been doing over the last several months is trying to come up with a permanent solution, because we've got a lot of cash largely in Canada, but we've got some cash in the UK and a little bit in Europe as well that is sitting there and we'd like to be able to utilize it here in the United States. So we have reached a solution for that; a permanent repatriation. And so cash -- you're not going to see debt levels come down incrementally more Mike as we've been able to do it on a temporary basis, now it'll be permanent. So we can sleep at night.

And we aren't going to see anything that's going to have an impact on tax rate?

No, no. This is more of a -- the strategy has virtually no impact to our tax rate.

Okay. Yeah thanks for the clarification.

Alright, you're welcome Mike.

Thank you. If there are no other questions, I will now turn the conference back to Paul.

Thank you very much for joining us everyone. Have a good day.

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 number of 4119600 followed by the hash. This concludes the conference for today. Thank you for your participating and have a nice day. All parties may now disconnect.