Good morning. My name is Michaela, and I will be our conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation Third Quarter 2012 Conference Call. [Operator Instructions] If anyone has not received a copy of today's press release, please call Regis Corporation at (952) 806-2154, and a copy will be faxed to you immediately. If you wish to access the replay for this call, you may do so by dialing (800) 406-7325 using access code of 4531291#. The replay will be available 60 minutes after the conclusion of today's call. I would like to remind you that 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, www.regiscorp.com. With us today are Randy Pearce, President; Eric Bakken, Interim Corporate Chief Operating Officer; and Mark Fosland, Senior Vice President of Finance. After management has completed its review of the quarter, we will open the call for questions. [Operator Instructions] Now I'd like to turn the call over to Randy Pearce for his comments. Randy, you may begin.

Michaela, thank you. Good morning, everyone, and thanks again for joining us. After I make my remarks with respect to our third quarter results, I'm going to turn the call over this morning to Eric Bakken. And as Michaela had mentioned, Eric's not only our Interim Corporate Chief Operating Officer, but he's also our Executive Vice President and General Counsel here at Regis. Eric, I've asked him to provide an update on our strategic plan and the various business initiatives we currently have underway to ensure that Regis grows profitably and operates efficiently in order to enhance shareholder value. Eric has been with Regis for over 18 years and as you know, is now leading the company's salon operations, including the design and the implementation of our strategic initiatives. We're excited about having Eric lead our operations. And the board, the management team and me, personally, we all have a great deal of confidence in his ability to not only lead, but also to deliver on Regis' longer-term operational strategies. Many of you have formally met Eric, and I've asked him to play an active role in today's call. I believe this increased visibility and continuity is important not only to shareholders, but to the entire company as we continue to transition from my leadership role. Mark Fosland, our Senior Vice President of Finance, will then follow Eric and provide additional details, as usual, behind our quarterly financial results. Let me now comment on our quarterly financial performance. Today, we reported third quarter operational earnings of $0.32 per share, and that was $0.07 above the operating results we reported in the same period last year. These results reflect the negative leverage from third quarter sales, which were more than offset by the continued thoughtful reduction of our expense structure. As…

Thanks a lot, Randy, and good morning, everyone. As you know, Regis is currently going through a period of significant and necessary transformational change. While we remain disappointed with the declines in same-store sales, I'm extremely confident that we're on the right track to significantly improve our performance, and I'm pleased with the progress we made in March. Transformational change is not easy, and it's a long-term process. However, there are significant opportunities to improve our business in the short term, as we continue to develop and implement our long-term strategies to drive growth and profitability. As Randy mentioned, I'll discuss our short-term initiatives designed to improve the customer experience, and I'll update you on the development and implementation of our overall transformation strategy, which we have internally branded Regis reignited. Let me begin by providing you with some background information. Over the last several quarters, we've completed a thorough data-driven review to determine the root causes of our performance decline. As part of this analysis, we analyzed over 500 million of our customer transactions to better understand our strengths and our opportunities. We spoke with more than 16,000 customers to find out more about what they look for in a salon experience. We interviewed hundreds of our salon employees and salon franchise owners to learn about opportunities for success, and we researched industry best practices to better understand what our salon competitors are doing well. And all of this research has provided us with a clear picture of our strengths and opportunities. Our major learnings included when a customer leaves us, it's primarily because we did not meet their expectations in terms of service and salon experience, competitors are more consistently meeting these expectations, and certain of our brands are competing against one another. As a result, our strategy…

All right. Thanks, Eric and Randy, and good morning, everyone. Today, I'll begin by discussing our consolidated financial and operating performance, followed by a review of the major items impacting each of our business segments. Our actual reported results for the third quarter were a net loss of $0.02 per share. However, this included net after-tax nonoperational items of $21 million or $0.34 per share primarily related to 2 items, the impairment of our Provalliance investment, as well as severance cost related to our workforce reduction, which we discussed with you on our second quarter earnings call. Excluding nonoperational items, our third quarter operational earnings improved by $0.07 per share over last year's third quarter, coming in at $0.32 per share. Third quarter sales were negatively impacted by a decline in same-store sales of 3.4%, partially offset by an extra day of revenue due to leap year. If you net these 2 items together, we would have expected our operational earnings to be about $0.22 per share. We are pleased with our operational result of $0.32 per share, which are about $0.10 higher than our sales would indicate. The majority of the increase in our operational results is related to aggressive and responsible expense control and lower-than-planned income tax expense. In addition, we have included in today's press release, as well as on our corporate website, a concise reconciliation that bridges our reported earnings to our operational earnings for both the current year and prior year third quarters. I'll now address our third quarter operating results and performance for each business segment. A breakout of our segment performance can also be found in today's press release. My comments this morning will focus on our operational performance, and I will begin with our largest segment, our North American salons. Our total…

[Operator Instructions] And our first question comes from the line of Lorraine Hutchinson from Bank of America Merrill Lynch.

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

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

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

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

And our next question comes from the line of Bill Armstrong with CL King & Associates.

Sounds like your CRM rollout is on schedule, but you did mention the POS system is not. Can you give us or maybe elaborate a little bit more what's holding it up and what the outlook might be for getting that rolled out?

Yes, we have been a little bit delayed. We were hoping they'll originally be done by the end of next year, and our current plans look like it may take a little bit longer. One of the things that we're doing is looking at how we can fix that, so we're trying to accelerate that. But as a result, we looked at our current POS system, and we had an ability -- we had CRM in 4,500 locations. And rather than wait for new POS, we put in a, for lack of a better term, a patch that allows us -- that was in existing -- it's in existing 4,500 stores, but we're putting them in the remaining stores so that we can accelerate CRM data collection.

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

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

Got it. And then a quick accounting question. The POS -- the old POS accelerated appreciation, are you done with that? Or will there be a little bit more in the fourth quarter?

There's a little bit more coming in the fourth quarter but very insignificant.

Okay. Less than $1 million?

Yes.

And our next question is from the line of Jeff Stein with Northcoast Research.

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

Some of it -- Jeff, it's Eric. Some of it is going to happen very quickly, and we're going to roll out others as we progress. And when you talk about conversions, there are 2 components. There's converting the operating models within the segments. That will help it happen real fast. And then the conversion of brands within segments will take a little bit more time. We're going to be thoughtful about doing that. We've really stepped up our game with respect to the conversion process. We've learned a lot based on our prior conversions, and then we know how to do it more effectively. So that will take a little bit longer, but it's going to be a little bit of a mix. Some of the field reorganization will happen sooner, but that will continue to evolve as well as we move forward.

So any way, Eric, that you could kind of put a timeline on each of the initiatives? So I mean are we talking 12 months, 18 months, 2 years? Just aligning the field organization, when is that going to be done?

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

Sure. And I don't know if you mentioned this or you said you can't mention this, but what kind of lift are you getting from the CRM system in the 4,500 locations that you currently have it?

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

And percentage wise, Mark, roughly, what would that represent?

It's -- Jeff, I'm guessing here, but I think it's 20, 30 basis points, something like that.

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

All of our salons, Jeff.

And our next question comes from the line of Jill Caruthers from Johnson Rice.

You mentioned that the franchise salons, comp positive during the quarter. Could you maybe talk about the variance between their performance versus your company-owned stores and just maybe in generality, the profitability between the 2?

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

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

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

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

Yes, there's -- the process is moving forward. You did mention the audit fee. So we're moving forward, but we'll comment when we have something definitive to say. It's just we can say the process is moving forward.

[Operator Instructions] And our next question comes from the line of Blair Mlnarik from Robert W. Baird.

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

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

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

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

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

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

Okay. And then you hinted at you've -- you're trying to get that reaccelerated. Is that -- will that happen quickly as well? Or is that more of a fiscal '13 event?

More of a fiscal '13 event.

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

It's different, because we've never really done anything like that. It's -- some focused on trend improvement and larger dollars, and so it's -- really trying to focus those who are doing -- reward those who are doing well. And on the product side, it's similar, rewarding stylists for creating 2 customers out of 1, giving them some real strong incentives to do that.

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

Well, it's more on same-store sales improvements and trend improvements.

And at this time, I would like to turn the conference back over to Randy Pearce.

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

Thanks, everyone.

Thanks.

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