Good afternoon. My name is Ian, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation First Quarter 2013 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 the access code of 4570477. The replay will be available 60 minutes after the conclusion of today's call. I would like to remind you that to the extent the company's statements or comments this afternoon 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. With us today are Dan Hanrahan, Chief Executive Officer; Eric Bakken, Executive Vice President; 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] I would now like a turn the conference over to Dan Hanrahan. Please go ahead.

Thank you, Ian. Good afternoon, everyone, and thanks for joining us. After I make my remarks today, I'll turn the call over to Eric Bakken, our Executive Vice President, for his operational update, and then to Mark Fosland, our Senior Vice President of Finance, who will provide additional details behind our first quarter financial results. Also with us today is Brent Moen, our Chief Financial Officer. Let's start with the obvious. Regis remains a work in progress. We are blocking and tackling to improve the operations of the business. Improved results take a little time, but we are excited about the immense opportunity. Eric and Mark will walk you through the details of the quarter. I would like to focus on what I've been doing since the last call. When I joined Regis 2.5 months ago, I had some initial perceptions on the salon business and how Regis operates. I shared some of my views with you on the August call. I spent a good part of my time at Regis so far in the salons. I focus my time on salons where we are performing well. It's very encouraging to see how well we run those of salons. Unfortunately, these are the minority of our salons. Our opportunity is to roll out this better execution over a broader base of our salons. My time in those salons has helped me get a better understanding of what we need to do to get Regis running well. We need to improve operations throughout the business. We need strategic alignment, from the stylist to me, on what we need in order to drive acceptable levels of profitability, which in turn, will drive shareholder returns. I'm not ready to provide you with our overall strategic plan and the financials yet, however, I would…

Thanks, Dan, and good afternoon, everyone. Today, I'll give you an update on the operational progress we made in the first quarter. And as Dan mentioned, we're disappointed with our first quarter financial results. Today, I'll give you an update on our progress to improve the guest experience and our financial results. Let's start off by reviewing our North American same-store service sales results in a little more detail. Our service visitation trends improved 170 basis points versus the fourth quarter. And comp trends improved 100 basis points versus the fourth quarter. Overall, service customer visits declined 210 basis points versus the fourth quarter. In other words our same-store service comps are better this quarter than last quarter, even though versus last year, they're still down. So we do see some improvement, but the overall results are still unacceptable. A large portion of the improvement in trend versus fourth quarter is related to our 2,400 salons located in Wal-Mart. For the first time in several years, customer traffic was positive in SmartStyle. This was due to a couple of reasons. First, we ran a back-to-school coupon event, which was successful in driving traffic, with redemption rates far greater than planned. With the significant increase in redemptions, our service margins were impacted more than we had expected, as we paid full commissions to our stylists on discounted transactions. The execution of this event could have been better, and we're fixing that. More importantly, we noted in June that we had a significant staffing opportunity with this business. Starting in July, we made a focused effort to increase our staffing. To date, we have added over 1,900 stylists in SmartStyle, and I believe the investments we've made in our stylists are necessary and will provide long-term benefit. Traffic is up, but what…

Thanks, Eric, and good afternoon, everyone. Today, I will begin by discussing our consolidated financial and operating performance, followed by a review of the major items impacting each of our business segments. Before I get started, I just want to make sure everyone is aware that we are now accounting for our Hair Club business as discontinued operations. Hair Club's revenues and expenses have been cleansed from both the current and prior year P&L, and are now accounted for on one line item in the P&L labeled discontinued operations. As a result, this year's first quarter operational results were lowered by approximately $0.07 per share, and last year's first quarter operational results are also lowered by about $0.04 per share. On our website, we have provided historical pro forma results that have recast Hair Club as discontinued operations. For the first quarter, Regis recorded earnings of $0.45 per share. This included a net after-tax nonoperational benefit of $24 million or $0.30 per share, primarily related to the realization of a favorable foreign currency translation gain from the sale of our Provalliance business. Excluding nonoperational items, our first quarter operational earnings were $0.08 per share, down from the $0.22 we reported last year. With first quarter same-store sales declining 3.1%, we would have expected our operational earnings to be about $0.15 per share. Our operational earnings per share of $0.08 are about $0.07 per share lower than our sales would indicate. Increased salon labor costs, offset by cost reductions and lower levels of marketing spend accounted for the remainder of the decline. I will talk in more detail on these items in a moment. We have included in today's press release, as well as on our corporate website, a concise reconciliation that bridges our reported results to our operational earnings for…

[Operator Instructions] Our first question is from the line of Lorraine Hutchinson with Bank of America Merrill Lynch.

It's Paul Alexander for Lorraine. Dan, a couple of questions on your areas of focus. First one on the last one you spoke about the staffing. So this effort to staff better, to drive traffic, is this -- should we expect this to last throughout the year? And maybe Mark, you could maybe chime in on, should we see the same kind of impact on the margins throughout the course of the year? And then just on how you're thinking about the staffing, you've been doing a lot of market research of trying to get closer to your customer and understand the problem. Have you been hearing from the customers that they're unsatisfied with wait times? I guess, what I'm trying to get at is, how do you know that adding stylists will drive traffic. And then I have a follow-up after.

Okay, I'll start, Paul. Thanks for that. The answer to "Will it last the year?" is that I don't think it will last though the whole year. We aren't going to see what we saw in the first quarter. We will get better at optimizing schedules than we were in the quarter that we just finished. But we have, historically, cut hours as we saw declines in the business. That's not a good recipe for success. I think what gives me confidence is we've seen some real pockets where we've added people back in, where we've added stylists back in, where it's really worked. And we've seen nice increases by putting stylists on the floor. Now it's a bit of a chicken and the egg. Just because we put a stylist in doesn't mean that people are going to walk right into the salon. But we have found situations where we're just understaffed, wait times get long and people leave. They haven't left because they're dissatisfied with the service. I'm not hearing that. What we're hearing when I've been out in the salons is that they're leaving because we just don't have enough stylists on staff, and what ends up happening is they get used to that. So they don't come back. But there's been some testing that we've done that's been very encouraging. And the salons that are doing well, where I focused all my time is on salons that are performing well, they're fully staffed. They haven't cut in to the hours, they have good stylists, well trained and we see a lot of repeat business.

And then on the first point that you said you're focusing on is the complexity and needing to remove complexity. Could you talk about that a little bit? And is that -- can you give us examples of things that are too complex and it hurts sales? Because we can understand to think how complexity could add to costs, but how does complexity hurt sales?

Well, we've got -- with all the brands we have, we've got websites built for all those brands. We've got processes built for all those brands, and what it does is it affects our marketing. One of the things it does is it has an impact in our marketing effectiveness. So when you think that we're trying to manage 30 plus websites to support the brands, you have a marketing department that's distracted on just trying to maintain websites, which I don't think today that we do as well as we can because we've given them such a big task. When you look at the promotional materials that we need to put in the salons, there's 40, 50 versions of that. So it's just not as effective as it could be. I think our marketing -- one of the things that will improve is our marketing will be a lot more effective. But you're right, one of the areas also that we'll get benefit is that it will help us reduce costs as we drive complexity out of the business.

And just one last follow-up. Could you talk about the competitive environment and just anything you saw from JCPenney this quarter? It seems like maybe you didn't see too much of an impact, but it would stand to reason that there's got to be something out there.

Yes. Good point, Paul. There is -- I don't think that we have good enough information to tease that out. We saw some shortfalls in our Kids business, but I don't know that I can complete it to the free haircuts at JCPenney's. I think as we get SuperSalon into our stores, we'll have much better data. We'll be able to see that we've got a very strong repeat business with a certain guest, and then if somebody runs a big promotional effort and we lose that guest for a cycle, and then we get them back, that will be a pretty good indication that we might have lost them to a promotional effort. But today, we don't have that level of sophistication in our information for me to give you a really good answer on that.

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

I'm kind of curious on getting back to the labor situation again. Are you increasing labor hours across all of your salons or just, at this point, a select number of salons? Is there a control group?

Yes, well, we had -- there was a control group study that had been put in place before I got here. And so we were able to look at that and see that -- a couple of things. Number one was increasing the number of the stylists in that control group and training them well, we got good increases in comps. What we're doing is the focus on this effort is to optimize. And what that essentially means is that hours -- our plan is to keep hours flat year-on-year. Over the last few years, we've had a decline in hours each year. What we want to do is keep them flat to 2012. That means that in many salons, we're just going to put the stylists at a different time during the week. Some of the salons will increase the hour. We want to minimize the number of salons that we would end up decreasing hours, but if it was just so compelling to do so, we wouldn't say, "Well we're just going to keep people in it," and be stubborn about it. So it's more about optimization. But overall, the way you should think about that is that hours will be flat for the year. That's our goal.

And that would be across all your salons?

That would be across all our salons, yes.

Okay. is there any connection and have you been able to measure any connection between cutting hours and just losing a stylist because you're not giving them enough hours to earn a living?

Yes, yes. We see that. Our turnover is higher than we'd like. A key part of our success is the stylist. That's why I made the comment about that we need to have alignment on what drives profitability from the stylist all the way to me, Jeff. And if we cut a stylist's hours back too much, they're going to go work someplace else. That's not a good thing for us. We've got a lot of good stylists out there. I don't want to be losing those good stylists either to competition or to their own business.

Got it. Got it. And I got a question for Mark, and maybe this is a better offline question. But I'm going to ask it anyways. Mark, I know you've provided restated numbers on a pro forma basis last year to account for discontinued operations. But those numbers from what I've gathered, from what I'm looking at, don't adjust for non-recurring items. And I'm wondering if you could just give us an earnings per share number, fully diluted for fiscal 2012, excluding discontinued operations and excluding non-recurring items. So we have some base to model off of for the new fiscal year.

So Jeff, it might be a question better off-line, but let me just tell you that Hair Club in fiscal 2013, I've got the number in front of me, Hair Club contributed about $0.20 of earnings. But let me -- let's have it off-line, because I got it right here.

Okay, we'll do that off-line.

And because -- I'll give you the operational -- actually Hair Club contributed $0.17 of earnings operationally in fiscal 2012. And so our operational earnings were $1.30. So you'd remove $0.17 from that number.

And how about Provalliance?

And Provalliance, for fiscal 2012, contributed $0.15.

$0.15?

Yes.

Okay. One more question for Dan real quick. And that is JCPenney is going to continue its promotion beginning in November on Sundays, and I'm just kind of curious, when you look at your Kids business, kind of a daily basis, is it a Saturday, Sunday business? Is it an after-school business? How does it kind of flow and do you have any type of plan to kind of combat future promotional events that JCPenney is intending to run?

Good question. One of the benefits of getting SuperSalon in is I'll be able to answer questions like that a lot better than I can today. I can give you aggregates. We can look at aggregate numbers on Kids and what happens with Kids. But getting into that level of detail, we don't get great information on that today. SuperSalon will give us that, but the other part of that question or the other answer to that question is the Head of Pricing that we've hired. We need to have a much better understanding of price elasticity and what really drives consumers to make their purchase. We've also done a fair amount of marketing research around what really drives our guests into the salons and what it is that they value. At the end of the day, there's a couple of things that stick out. One is the quality of the stylist. So the quality of the stylist is going to win out over a free haircut. And we have to really think through, better than we do today, how we do our pricing and what it is that the consumer values. So that we aren't running pricing and promotions where we're just giving money away and not getting any value back for it.

Got it. Okay. One -- and I'll ask one more real quick. You're giving up a lot of earnings, it looks like over $0.30 a share, selling Hair Club and Provalliance. So at this point in time, are you willing to just hold the cash on the balance sheet and try to fix the core business and forgo, potentially, some financial engineering to try to boost earnings per share? Or how are you kind of thinking about the cash you're raising from the sale of these assets?

That's good question. It's early. It's early days. I mean, I could tell that our focus is around shareholder value. The board is thinking of it exactly the same way as I am, because we need to improve shareholder value. And that will be what drives all of our thinking.

Okay. So you haven't made a decision yet?

We haven't made a final decision. We did put a 10b5-1 out there. I think you probably -- if you've been following for us for a while, you know that we had about $73 million left on the April 2007 buyback. The 10b5-1 is lighter than that. It's a smaller number than that. But we have done that, but we're evaluating all our options.

Our next question is from the line of Jill Caruthers with Johnson Rice & Company.

Could you talk about -- you talked about rolling out the SuperSalon system by year end, and it seems as though it will gather some good data to run the business more effectively. Could you talk about kind of the timing of gathering that data and actually being able to put that to use in the salons? Just to give us a better timeframe.

Sure. Our goal is to have it into all of our salons by the end of our fiscal year, which is end of June of next year. As soon as we start to get SuperSalon into our stores, we'll start to be able to gather data. It's a terrific system. And the beauty of it is that, this is not something that we need to rework, that we need to invent. This is truly the wheel. The wheel is there. It's a good system, our franchisees use it very successfully. So that as soon as we start to roll it out into those salons, obviously, we won't be able to get system-wide data, but we'll be able to use it effectively right off the bat in those salons that we get it in. I mean, we'll have real-time information for our field leadership, that could essentially look at a salon and what's happening in the salon, essentially real-time. The data comes to us 2 to 3 minutes after it happens. So we'll get, start to get some immediate feedback, but it will be on a smaller scale because it will take us a while to get this into all of our salons.

Understood. And just a couple of questions. Anymore update on consolidating some of your salon brand names? I know you've acquired quite a many brand nameplates throughout the years, and any update on that will be appreciated.

Yes, I'll let Eric take that one.

Jill, it's Eric. We are in the process of converting our SmartStyle locations in Houston to TGF. TGF is a strong brand that we have that operates in Houston and we're changing the name right now. I believe all of the signs have now been changed. We've gone through some other activities in those stores to staff them up and get people trained, and we're pretty excited about the way that's going so far. So that is just happening right now.

Okay. And then just last question. The thought process behind organic growth at this time, building out new salons. Just given you're making a lot of changes and trying to figure out the model to make it more efficient, your thoughts on that?

Yes. We have a plan in place that I think Mark outlined where we are so far with new salons. The focus is on the basics. We need to get the things right that I described and that Eric described in our comments. So I'm not thinking about a great deal of salon growth at this time. I'm thinking about how we can make the salons that we have today really work. And as I said in my comments, I have focused my time on where we do well. What I wanted to do is learn where we do well, so then we can spread that out through the rest of the organization and replicate it. We have salons and we have groups of salons that really perform outstandingly well. And so we need to get that replicated. So that's where the majority of the focus will be. We'll continue to open and close salons as it makes sense, but the focus is on the blocking and tackling and getting that right.

Our next question is from line of Erika Maschmeyer with R. W. Baird.

This is Jacob in for Erika. Dan, you mentioned on the last call you are looking at the franchises, trying to figure out how they're outperforming the company owned suites. Were there any take aways there? Was it the POS that was making the difference there? Any color would be appreciated.

Yes. I have worked in a number of franchise -- with a number of our franchises in a number of their salons. But I've also worked with a number of our field leaders that run real good operations. And really what I've talked about is what drives the business that I've talked about today, is we need to have the best stylists in place. We need to make sure that the business is not complex. We don't want to make it more complex for our salons. We don't want to give them a lot of initiatives. We need to be very, very focused on the guest. What I've heard consistently, when I ask the franchisees and when I ask our field leadership team why they're doing well, I get a couple of things back, is one, that I've got stylists in the salons at the right time. So I'm optimizing guest flow. And then the other is I'm providing a great service. This is not a complicated business. And we need to keep that in mind and keep it simple. The advantage that many of the franchisees have over us is they do have SuperSalon. And that system is a terrific system. They've got realtime data, they manage it very well, and that's not something that we have today, but we will. And then I think that the other thing I've seen from our franchisees, these are good business people. They do a really good job running their business. They're very focused, they've got good processes in place and it's very similar -- the way they run it is very similar to the way I see our field leadership teams that run it well. So I see it on both sides, which I'm actually quite encouraged by. When I talked last time, I hadn't spent as much time in the salons, so I hadn't been able to see, at that point, that we've got a lot of salon field leaders and salon managers that run excellent businesses.

Okay. Great. And then also, in July, I think you reorganized sort of the back end with the HR and corporate team increasing the span of control of the district managers. Any initial takeaways there, any adverse effects from increasing span of control? Are you getting benefits you had wanted?

This is Eric. So far, so good. We're still building out those functions. We found a lot of value in having the corporate ops folks helping as well as the HR folks. So we have expanded span of control. We've limited, to a certain degree, the responsibilities of our field leaders, allowing them to be more focused on improving the guest experience. So nothing -- no significant issues that we've encountered so far.

Okay, great. And then just lastly on the service margin declines, just trying to get a sense of sort of how much each of those three factors you had discussed Mark, played into that and sort of which of those will continue for the remainder of the year?

Yes, the largest was the fact that we didn't cut hours, that probably accounted for 35%, 40% of it, maybe a little bit more. And then the rest were fairly equal. The price increase of it -- we obviously don't -- a little bit in October, but we don't expect to continue. And Supercuts and the hours, those are things that the impact is dependent on sales. As we drive sales, there is a good [ph] impact, and we don't -- we're still, as Dan mentioned, we're still working on that formula where we see a lot of progress in salons, but we're still working on it. So it's hard to predict what the exact impact is going to be throughout the rest of the year. But we're trying not to reduce hours. We're trying to create an environment where we can drive sales. And when we get the sales benefit, that's when we'll see the real upside.

Jacob, I think it is -- this is Dan again. I think it is important to point out that we did learn over the course of the quarter on the optimizing of hours. We have seen that we're getting better at this. I would, as Mark said, I would suspect that we still have learning to do with 7,500 salons out there, that's a lot of salons to manage. But it's an area of focus for us. And matching up the hours against what happens with the guest load is something that we have to get right. I think you should think of it as you're modeling our goals to try to keep our hours flat with this year. We didn't -- we were not successful doing that in the first quarter. Our hours were actually, when you looked at it, overall our hours were up. So we've got work to do. Like I said at the end of my comments, we've got a lot of experimenting and learning to do, but we'll learn fast.

And our next question is from the line of Mike Hamilton with RBC.

I'm wondering if you could comment on the areas that you're primarily focused on in looking at the competition at this stage.

How I'm looking at the competition?

Yes, and what things you're paying the most attention to.

I've focused a lot of my time -- I've focused more of my time on our salons than I have on our competitors. More than anything else, as I look at our competitors, it's more about where they're located and where we're located, and are we positioned well within markets to take full advantage of the value consumer within those markets. So I've looked at it more from that aspect. I've been in the competitors, but I haven't focused a lot of my attention on how they operate in their salons. I've been thinking of it more in terms of where they are located, where we're located and how we compete in the markets.

As a subset of that question, what's responsiveness to promotions on the part of competitors? How are you thinking about that at this stage?

Our responsiveness to their promotions?

Correct.

That's the reason that we hired the VP of Pricing, and why we're doing the marketing research, Mike. I think that we need a better understanding of what price elasticity really is. And that is something that the Vice President of Pricing is going to help us quite a bit with. As we've looked at the marketing research, we're also trying to understand what is it that will drive the value consumer to -- from 1 salon to another, how strong is the loyalty. So I would say at this point that I'm not trying to dodge your question, but just I don't think I have enough good information to answer that question well. But I think you're asking the right question. It's something that we need to understand better. So through the combination of marketing research, starting to build some pricing algorithms and all the information we have today, and being smarter about how those 2 work together, is how we're going to be successful driving traffic. And then other piece is, is that when we get the SuperSalon in, we'll have -- we'll be able to do the customer relationship management that we just can't operate very well today. We've got e-mail addresses and we're sending e-mails out to people, but doing real CRM work, we've got a ways to go. But by the end of our fiscal year, we'll be there. We'll be doing that real CRM work, and I think the combination of all 3 of those will make us successful. So if I can -- I just can't answer your question well, but I think it's a fair question and then I would ask if you ask me that again in the future.

And there are no further questions at this time. I'll turn it back to Dan for any closing remarks.

Thank you, Ian. I'd like to thank everybody that joined us on the call today. I appreciate the questions and the opportunity to talk with all of you. Thanks, and have a good rest of the 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 the ID of 4570477. This concludes our conference for today. Thank you for your participation, and have a nice day. All parties may now disconnect.