Regis Corporation (RGS) Q1 2015 Earnings Report, Transcript and Summary

Good morning. My name is Doug, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corp. Fiscal 2015 First Quarter Earnings Call. [Operator Instructions] If anyone has not received a copy of today's press release, please call Regis Corp. 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 1 (888) 203-1112, using access code 7675796 . The replay will be available 60 minutes after the conclusion of today's call.

Thank you, Doug. Good morning, everyone. Thank you for joining us today. With me today are Steve Spiegel, our Executive Vice President and Chief Financial Officer; Eric Bakken, our Executive Vice President and Chief Administrative Officer; and Mark Fosland, our Senior Vice President of Finance. During our last earnings call, we said the transformational changes we needed to make to lay the foundation for our turnaround for transitioning Regis from disruption to improving execution. Our new field organization and point-of-sale installation are helping our best leaders get traction with their salons. During their first quarter of fiscal 2015, improved same-store sales trends demonstrate where we have strong leaders executing our strategy and providing positive leadership to their salons we are getting results. We are encouraged by the continued progress and appreciative of the leadership our field team is providing the salons. Our senior field leaders' attention is centered on sustaining the improvement in successful districts and salons and improving the performance in salons that have not started making progress. While we are moving along the turnaround journey, we know this will not be a linear process. However, the work we have done to lay the foundation for the turn and the progress we are seeing from our strong field leaders tells me we are moving in the right direction. As I mentioned last quarter, the execution processes we put in place at the beginning of last fiscal year are helping create accountability, driving business conversations at all levels of the organization, fostering best practice sharing and friendly competition while focusing the field on improving guest traffic and selling retail. First quarter same-store sales increased 60 basis points compared to the prior-year quarter. When looking at the service and retail components of our business, I believe we are further along in driving improved service execution, and we will need more time to achieve sustained improvement in retail performance. Service same-store sales were flat in the first quarter, demonstrating continued improvement in our execution capabilities during the past 2 quarters. Our focus on and investments in SmartStyle and Supercuts are producing results, as these core value businesses posted blended positive service comps of 2.8% during the first quarter. As I cited already, more of our field leaders are beginning to drive improved results. However, we continue to have a wide range of performance within our salon portfolio. We are focused on driving consistency in execution across the portfolio to deliver sustainable improvement. Product same-store sales increased 3.5% in the quarter compared to the same quarter of last year. While higher promotional levels and increased service guest traffic contributed to retail sales improvements, we are lapping our most disruptive quarter when we executed the plan-o-gram reset. While this performance outpaced our service sales, I believe we have made more progress on improving our service results. Our retail performance over the past several years tells us we have significant work to do to deliver consistent retail improvement. Let me now shift to what we have done and are continuing to do to make progress. I know I am repeating this slide, but because we are still in the early stages of our turnaround, it's important to review the work we needed to do to control the entire portfolio of salons. The initiatives implemented laid the foundation for us to position Regis for long-term success. We reorganized our field leadership and rounded out our senior leadership team here in salon support, including starting Regis' first ever Human Resources department. SuperSalon, our point-of-sale system, was installed in all North American salons in under 3 months. We implemented processes to drive accountability, execution and business performance. Asset Protection built a team and established standard operating procedures to support field leaders in growing their businesses. Marketing is building exciting new tools that will eventually help drive traffic and retain guests when our field operations in salons are capable of managing these tools. Our franchising business is posting solid growth in new franchisees, units and same-store sales. In summary, an integrated foundation has been built for the turnaround, and all of these initiatives are beginning to stabilize the business and will add significant value when we are executing well at all levels within the organization. Let's turn our attention to concrete examples that illustrate how the interaction of people, process and metrics is continuing to drive and improve execution and results. Having properly-staffed salons helps grow revenue. The key is to match growth and stylist hours to corresponding revenue growth. As you may recall, in the first half of last fiscal year, we saw increases in stylist attrition. Leveraging new reporting tools that provide early warning to stylist turnover by salon, we moved quickly in the second half of last fiscal year to hire new stylists to replace those who left. Stylists' hours grew faster than revenues and labor costs increased, demonstrating our opportunity to merge strong leadership, solid process and appropriate metric to drive better execution and results. To that end, we made significant progress in the first quarter in closing the gap between hours and revenues. For the entire first quarter, hours came in just slightly ahead of sales, and for the month of September, we closed the gap between hours and revenue. This was achieved by training our field leaders on standardized scheduling and staffing processes, utilizing performance metrics to identify opportunities to better balance staffing with guest traffic, and holding our salon leaders accountable for profitably staffing their salon. Turning our focus to underperforming salons. We began an initiative in the third quarter of last fiscal year where we targeted our worst-performing salons for interventions. Leveraging detailed playbooks, our regional directors worked in these salons to improve their performance. While we saw immediate improvements from their presence in the salons, we were unable to sustain results over a longer period of time. Last quarter, I noted we made significant progress improving their sales trends, but the salons as a group were still posting negative same-store sales results. The momentum continued into the first quarter as these salons posted positive same-store sales in aggregate. We've been able to sustain improvements by supplementing our regional director business with training so our district leaders, salon managers and stylists have the requisite skills to execute and sustain performance. This is an example of the results we can achieve when people, process and metrics interact to drive improved execution and performance. While we are encouraged by the progress, we realize we have significant work ahead of us to drive these salons to their full potential. We're now extending this initiative to our next tranche of underperforming salons during the second quarter. To drive overall improved results, we need our field leaders improving execution across the entire portfolio of salons. As you can see on this slide, over the last 2 quarters, the percentage of our regional vice presidents, regional directors and district leaders posting positive same-store sales service -- positive same-store service sales is growing. Two factors are driving this improvement. First, we are benefiting from easier comparisons since last year's performance was impacted by disruption from transitional -- transformational initiatives. Second, and more important to our long-term success, execution is beginning to improve as we leverage the foundation we built in the prior year and focus on our 3 objectives for the current fiscal year. We need to ensure those who are beginning to execute stay on track while we expand our reach to those leaders and salons posing sales declines who have opportunities to improve. I now want to provide an update on how we are doing against our 2015 objectives; asset protection, leadership development and technical education for our stylists. Each of these objectives are focused on improving our ability to execute in the salons. Let's start with asset protection. Creating an environment where stylists are working together, positively contributing to the success of the salon and salon team is the key outcome of our asset protection activities. Our first priority was to build an Asset Protection organization, and I am pleased to say the team is fully staffed. The next priority was to implement our stylist asset protection awareness program, encouraging field leaders and stylists to make the right choices to maximize our revenues. During the first quarter, we conducted approximately 700 awareness training sessions with our field leaders and our stylists. Although early, results indicate sales performance improves post-training as we educate our employees and hold them accountable for acceptable asset protection behaviors. As with all of our efforts, sustaining the improvement is fundamental to our progress with the turnaround. During the quarter, we also continue to leverage technology by building new regional dashboards and risk rankings to help Asset Protection prioritize efforts against our most compelling opportunities to improve. There is a big opportunity to reduce losses at the salon level and improve results. The Asset Protection team are just getting started and I am encouraged by their progress. Improving field leadership talent and capabilities and leveraging recruitment pipelines are critical to improve our ability to execute. Developing our field leaders is central to our progress. Where we have the right talent and leadership positions, we win. Stylists depend on their salon and field leaders for coaching, mentoring and motivation. Historically, many of our field leaders focus on solving day-to-day salon issues and putting out fires instead of developing leadership capabilities at all levels within the field. To that end, we have taken significant steps to develop and, where necessary, upgrade our field leadership. We conducted extensive training for regional vice presidents and regional directors, focusing on positive leadership, employee development and coaching skills in order to positively impact the development of our district leaders and salon managers. It's important to note that this is not a onetime event, but rather an ongoing effort to build a leadership culture that creates a great environment for our stylists to be successful. To enhance our recruiting efforts, we aligned Human Resources business partners with field leaders. We continue to leverage our cosmetology school relationship with Empire Education and have begun a national campus recruiting program to help build our stylist talent pipeline. In cases where we've had to upgrade leadership talent, experienced multi-unit leaders have been added to the organization and help drive results. At salon support, we are actively recruiting for merchandising and premium leaders. We are focused on creating technical education programs that will become our point of difference in attracting and retaining stylists. To that end, we are building our technical education team and the requisite programs and processes. With the exception of our Supercuts brand, where we already have industry-leading technical training, we are early in the development of this important effort. However, even at Supercuts, we have worked with our franchise partners to make the training program even stronger. We've enhanced Supercuts' technical training to better align service execution to the brand's positioning, and most importantly, to our guests' expectations. We're also piloting new SmartStyle training programs to improve our guest experience, and we have pilots underway in coordination with certain retail partners to strengthen core technical skills and help improve retail sales. Before I conclude, I would like to make one additional comment on our quarterly results. While same-store sales trends improved in the first quarter, adjusted EBITDA declined. As I mentioned last quarter, because we are a people organization, investments we make often flow through our income statement instead of our balance sheet. Our investments in Asset Protection, training and hours will impact near-term profitability. However, these investments will provide significant operating leverage once we turn around our business. Funding investments and managing inflation through disciplined cost management and rigorous review of all spending, coupled with the fact our field leaders are rewarded for profitably increasing revenues, will ensure we continue to protect the strong balance sheet we have built. We are seeing continued signs of traction where we have great leaders in place and where we focused our attention. Continued improvement and execution at the salon level demonstrates we are starting to leverage the foundation we built in the prior fiscal year. We've made progress against key corporate priorities, focusing on Asset Protection, leadership development and technical education programs. All of these demonstrate our commitment to building capabilities around people, process and metric to drive results. I am encouraged by the trend improvement we saw in the first quarter and appreciative of the hard work coming from the entire Regis organization. That said, we still have a lot of work ahead of us to realize the full potential of all of our salons and to fix our retail business. As I said at the beginning of my remarks, our turnaround will not follow a straight line. However, our strategy is beginning to take hold, and we are progressing to drive the cultural transformation needed to turn Regis. I'd now like to turn the call over to Steve. Steve?

Thank you, Dan, and good morning. Before discussing our consolidated financial and operating performance for the first quarter, I want to remind you of one housekeeping item. As a result of the valuation allowance against most of our deferred tax assets associated reported and as-adjusted results of operations are not comparable to prior periods. For the first quarter, Regis reported a net loss of $9.1 million or $0.16 per diluted share. This includes approximately $0.7 million of discrete charges or $0.01 per diluted share. Adjusted EBITDA for the quarter came in at $22.1 million compared to $27.4 million in the prior-year quarter. Excluding discrete charges, first quarter diluted net loss per share as adjusted was $0.15 compared to earnings of $0.01 in the prior year quarter. Excluding the $0.12 per share impact of our deferred tax valuation allowance on income tax expense, this represents a decline of $0.04 per share, which includes a decrease of $0.12 per share, mainly due to planned strategic investments around Asset Protection and Human Resource initiatives, higher field incentives as we anniversary against an incentive-lite year, lapping of certain onetime benefits, state minimum wage increases, higher retail promotions, lower salon productivity and reduced earnings from Empire Education Group. These were offset by improvement of $0.08 per share, primarily driven by positive same-store sales and higher royalties and fees associated with our franchise business, cost savings to fund strategic investments, reduced health insurance costs and lower interest and depreciation expense. We included in today's press release as well as on our corporate website a reconciliation bridging reported results to earnings as adjusted by the impact of discrete items for the first quarter of the current and prior years. Moving on to first quarter operating results. My comments this morning focus on as adjusted results. Revenue in the quarter are $464.6 million, declined $4 million or 0.9% compared to the prior-year quarter. Same-store sales increased 0.6% compared to the prior-year quarter. Year-over-year, total company-owned store counts decreased by 185 locations. During the quarter, we built 32 company-owned salons, closed or relocated 81 other company-owned locations and sold 10 locations to franchisees. Service revenues were $364.7 million, a $7 million reduction or 1.9% compared to the prior-year quarter. During the current period, same-store service sales were flat as the decline in guest traffic of 0.6% was offset by an increase in average ticket price of 0.6%. The remaining 190-basis-point decline in service revenues compared to the prior-year quarter was primarily due to a net reduction in North American salons. As Dan mentioned earlier, SmartStyle and SuperCuts, our core value businesses, posted blended positive service comps of 2.8% during the first quarter. Product revenues were $88.8 million, an increase of $2 million or 2.3% compared to the prior year quarter. Product same-store sales for the quarter increased 3.5%, comprised of an increase in guest traffic of 4.1%, partly offset by a decrease in average ticket price of 0.6%. In the current quarter, higher promotions and improved guest traffic contributed to retail sales improvements. Also remember, we are comping against our most disruptive quarter when we executed the plan-o-gram reset. As Dan mentioned earlier, we still have significant work ahead of us to deliver consistent retail improvement. Royalties and fees were $11 million, an increase of $0.9 million or 9.2% compared to the prior-year quarter. Our franchisees posted positive same-store sales during the quarter and added 111 net locations in the last 12 months. In the quarter, we added 26 new franchisees to the system. Moving on to cost of sales, cost of service and product as a percent of associated revenues increased 70 basis points compared to the prior year quarter, coming in at 59.2%. I will discuss this increase in greater detail by reviewing service and product components. Cost of service as a percentage of service revenues for the quarter increased 80 basis points versus the prior year quarter, coming in at 61.3%. The primary drivers were higher field incentives as we anniversary against an incentive-lite year, state minimum wage increases and stylist productivity, partly offset by lower health insurance costs. Cost of product as a percent of product revenues was 50.7%, an increase of 90 basis points when compared to the prior year quarter, representing the impact of higher retail promotions undertaken during the current quarter. Site operating expenses of $51.7 million increased $0.8 million compared to the prior year quarter. This was primarily driven by lapping last year's favorable impact from adjustments to self-insurance reserves. General and administrative expenses of $44.5 million increased $0.9 million compared to the prior-year quarter. This increase was primarily driven by planned strategic investments in Asset Protection and Human Resource initiatives, partially offset by cost savings. In the first quarter, we recognized $5.6 million of income tax expense, which includes a $4.1 million noncash charge relating to tax benefits we claim for goodwill amortization we do not recognize for GAAP purposes. This noncash tax expense will approach $9 million for the current year and will continue annually in decreasing amounts as long as we have in place a deferred tax asset valuation allowance. Finally, let's shift to liquidity. During the quarter, our business generated close to $16 million of operating cash flow. We ended the quarter with $186 million of cash, total debt of $120 million and no outstanding borrowings under our $400 million revolving credit facility. This concludes the financial portion of the call. We would now like to answer any questions you may have. Operator, can you please provide the instructions for the Q&A portion of the call?

[Operator Instructions] And our first question is from Jeff Stein with Northcoast Research.

Dan, a couple of questions. First of all, you indicated several times in your presentation that you don't expect the recovery to be linear, so I'm kind of wondering if that's a function of some investments that you're still going to have to make along the way. And if that's the case, maybe you can discuss what some of those are and of what magnitude those might be. Or are there -- is it because the revenues are just -- have just been kind of lumpy or is it both?

Jeff, thanks. Yes, we believe that the key to our success, we've been talking about for some time now, is getting good leaders in place and giving them the tools to be successful. I think that we've done a nice job putting the tools together and I think that we've done a really good job training our people. But I think that there's still opportunities to continue to improve our ability to lead at the salon level. And I think that's what will create the lumpiness in our progress. What we do see though is we have good leaders in place, and executing against our strategy, they're doing very well. Also, I think we're further ahead on the value business than we are in the premium business, and so I think that will also contribute to some of the lumpiness. But in general, we feel good about our strategy. We think we've got the right strategy in place and where we've got good people matched up against the strategy and executing it well we're seeing good results.

Maybe you can talk a little bit about the gap in performance in the premium salons versus the value salons. But I know that value's kind of been your focus, but it would seem that there are some structural issues in the premium side, given that most of those units are located in malls. And maybe you could talk about some of the strategies that you have in place to try to address that issue.

Sure, good question. When I came and looked at the business when I joined a couple of years ago, and I looked at the business and looked at where the opportunity was, just given the sheer size of the value business, just 5x, 6x the number of salons, we've focused our initial efforts on the value side, and we're seeing the results of that. We've hired a really strong COO in Jim Lain who's done a terrific job with the value side of our business. We're out recruiting for a leader to help drive the premium business. So value's ahead of the game. When I look at the structural aspects, when I spend time in our premium salons, again, I see where we've got good leaders in place, we're getting good results in our premium salons. So I'm a little hesitant to blame our results in the premium business on mall -- on malls. I think that where we are with the premium business is because we haven't executed as well in those salons across the board as we are today in the value group. So I'm hesitant to blame it on mall traffic. I believe that there's an opportunity to do well in the premium salons also.

And our next question is from Bill Armstrong with CL King & Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: On the service side, your average ticket was up 0.6%. Could you flesh that out for us a little bit in terms of whether that was a result of price hikes, a mix of service changing or any other color you could give us on that?

I would say it was mostly related to promotional activity. As you will remember from the prior year, we had a lot of promotional activity going on that didn't necessarily drive a return for the business. And so we cleaned up a lot of those, we'll call less ROI-oriented promotions. And this year, we're probably just a little bit more focused on making sure that the promotions we put in place are driving returns. William R. Armstrong - CL King & Associates, Inc., Research Division: And that, that's on the service side, right, not on the retail side.

On the service side. William R. Armstrong - CL King & Associates, Inc., Research Division: Yes, okay. And then you also mentioned higher retail promotions. What's - I guess why -- given the fact that you really cleaned up retail, you reduced your SKU count, et cetera, what was the -- what drove the need for higher promotions? And what type of promotions or products are we talking about?

So in the quarter, we were up against a pretty weak quarter because it's when we made the plan-o-gram changes a year ago, so I think that drove some of it. The other thing is I think the retail business is just a complicated business. You got to get the right mix in all the stores. You've got to get the promotions right. You got to have the right incentives for stylists to sell and you've got to train the stylists to sell well. We also had -- we we're up against some clearance business from a year ago. So I think that we're making progress on retail. But I think we're making more progress on the service side of the business. I continue to think retail is a big opportunity for us, but I think we're further down the road on the service side. William R. Armstrong - CL King & Associates, Inc., Research Division: Got it, okay. And finally, I was wondering if you could update us on what the turnover -- employee turnover among the stylists was during the quarter?

We were about flat with where we were a year ago. So it's still not where we wanted to be because over time, we want to see it to decline. And the reason that we're making the investments that we're making leadership development and training and Asset Protection is that we believe that over time, we will make this a better place for stylists to work, which will reduce our turnover. And as a result of that, it will create opportunities to grow our revenues. So we're about flat, Bill, but that's still an area for us to improve in.

And our next call is from Jill Nelson with Johnson Rice & Company. Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division: If you could talk about -- you saw a nice improvement in your service comp, however, the service margins felt quite a bit of pressure in the quarter. If you could talk about kind of what comp do you think you need to lever that margin line and just some more of the factors that drove the additional pressure in the quarter.

Well, the pressures that were affecting our comps in the quarter are related to the fact that we were lapping an incentive-lite year from a field perspective. We were combating minimum wage increases, and we were just overall trying to offset some of those negative impacts with our comps. And ultimately, we probably have to be closer to the 1% to 1.5% comp level if we're going to be able to overcome some of those negatives that we see that are hitting our comps in the quarter.

Let me comment a little bit, too, Jill. Last year, we had a promotion in place in Supercuts that was 8 per 9. So essentially, you get 8 haircuts and you get the ninth free. We didn't think that, that was a very effective promotion. We actually thought that there was some fraud around that, so we eliminated that, so we got a little bit of benefit from that. But to really think about our service business, I think the best way to think about that is to look at the opportunity that we have to grow it. So I don't think there's a specific margin that we think about. We look at the difference between what our best salons operated at and where our salons that aren't operating very well operate and where our franchisees operate. And we see a lot of opportunities to grow our service business. What we have to is we've got to get the right mix of hours so that we're growing it profitably. But there's -- we think there's tremendous opportunity on the service side for growth and margin will take care of itself in that growth. Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division: Okay. And then just last question. It looks like you were active on your share repurchase program this quarter and just kind of wanted to tie that with, I believe, when you announced kind of the new strategy of capital location. You talked about a buyback would kind of take place when the business stabilize. So kind of wondering if you feel like the business is now stabilized and thoughts around that.

We obviously feel better about the business, and we think we've made a lot of progress. And we think the investments that we're putting in place are the right ones. We do think that we have a lot of room to improve, though, and we think that all the things that we talked about today around Asset Protection, leadership development, investments in stylists and stylists' education are all things that will help us grow the business. And what we were doing with the buyback was just consistent with the capital allocation policy. We felt like there was an opportunity to buy some stock back, we bought it back. We feel good about the business, but we do believe we still have a ways to go before we reach the full potential that we have.

And our next call is from Jamie Yackow [ph] with Moab Partners.

So I followed you guys, for a number of years, EBITDA is the lowest it's ever been, excluding some of the divestitures. I mean, can you give me a sense -- the negative guest counts continue, where are the customers going, and frankly, why are you guys so optimistic when EBITDA continues to decline 20% year-over-year?

I'll start, and then if Steve would like to jump in, he can. Jamie [ph], the comps have been declining for a number of years now. And we feel like what we've been able to do is arrest that decline. And I would say that our optimism and our confidence is tempered, that we feel good about the fact that we've been able to arrest the decline, but as we said throughout the call today, we believe that we still have a lot of work to do to reach the full potential that is available to us. In terms of where the guest is going, I think the guests have continued to get haircuts and get their hair colored so they're going to competitors. I can't tell you specifically which one because we don't have a good way to track that. But I do believe that what we're starting to see is where we've got good leaders in place, and it's what makes us feel good about where we're headed -- where we have good leaders in place, we are seeing guest counts grow versus continued decline. And with 7,000 salons, we know we need to be able to execute that across the entire portfolio.

And with that growth, we should be able to eventually provide enough leverage to cover some of the headwinds a business like ours faces like minimum wage increases, inflation, and the investments we're making today.

Can you guys talk a little bit more about the investments you're making today and when do you think you might see a return?

Is there a specific one you'd like us to refer to, Jamie [ph], or?

Well, you mentioned some of the new initiatives that you put into place in the quarter and that was why -- that was one of the reasons why there was a drag on your EBITDA, and maybe if you could talk more specifically?

Yes, sure. So where -- I think where the -- probably the furthest salon in the investments that we talked about today is with Asset Protection. We've built that team out. We've got a terrific leader that has a lot of Asset Protection experience. And where -- this is a matter of being able to get to all the stores and do training and where necessary take the appropriate actions if we have real fraud in the salons. And where they're -- where they've been getting to, we're seeing good progress. In terms of leadership development, we -- actually, our regional vice presidents are in this week for more leadership development and training. And we've got a good team there that I've got a lot of confidence in. And what we're seeing is we're seeing that filtered down through the organization. But I think what I should do is just remind you that it was -- it's been 6 years since we've had same-store comp increases. It took us a while to get to where we are, it's going to take us a while to pull out of it. But I think that what we're putting in place, we're seeing results. We don't give guidance, so I won't get specific on when we'll see the results, but I can tell you I feel good about good leaders and the way they're executing against those results.

All right. Without giving guidance, I mean, can you give us a sense of what comps were in October?

No. We don't -- again, we don't give guidance and we don't talk about the quarter we're in.

Okay. And then just lastly, I've asked you guys a couple times on prior calls, but as it relates to ObamaCare, I mean, you guys are kind of the poster child, right? You have a ton of company-operated stores, tens of thousands of employees. So I mean, it's my understanding that this will be a kind of a 2015 affect. How do you guys address this issue? And I could be wrong, but my back of the envelope math shows it could be up to half of the existing EBITDA potentially.

Well, right now, I'm not sure anybody really knows the answer to that question, because still a lot of the ObamaCare uncertainties remain unclear whether and when ObamaCare will require auto enrollment and whether those will kick in. It's also unclear whether -- where states are going to land on, whether they're going to extend coverage for Medicaid. And then you have to look at our employee base and a majority of our employees don't currently participate in our healthcare plans, and it's very difficult for us to predict employee behavior. So it's hard to really pin a number on what we think that's going to do to our EBITDA. What we're noticing is, though, currently, our health insurance costs are actually giving us a slight benefit in the quarter. And that's driven by the fact that we're -- part of our enrollment process is that employees don't qualify for eligibility until they've been here for a year, and then we do a look back on an annual basis to see whether they qualified as a full-time employee eligible for medical coverage, so we may be getting a slight timing benefit associated with that. Unclear to tell. So from our perspective, there are still a lot of uncertainties out there as it relates to ObamaCare. And we're only now starting to lap a year in and beginning to see -- we'll only begin to see in the current quarter what the impact of the 1-year look-back period is going to be. So I think it's too soon for us to predict a scenario that you're suggesting, but I would tell you, it still lacks clarity.

Bill, let me add to that. In none of our math do we get to it being half of our EBITDA as you suggested, so we don't even come close to that number. The other point I'd like to make around that is ObamaCare is effectively been in place for a year and we didn't see any increase. Many of our stylists are under 26 years old so are still on mom and dad. Many are married and so are on somebody else's and stayed on somebody else's. And it's never been -- our insurance has -- our health insurance has never been a big uptake from our stylists to get it from Regis. They've -- historically, they've got it from someplace else. I think that you've got to factor that into your math when you think about it, but I want to stress that in -- none of our math do we come even close to a number like that.

Okay. And then, but assuming that there are some expenses, I mean, how do you combat that? Are you going to raise prices? Is there even room to raise prices at this point?

Talking about healthcare now?

No. I'm talking about -- any expenses associated with healthcare is pure margin, right? So do you have any offsets on the revenue side?

So here is what -- in terms of price increase, we have a very strong pricing team. We aren't just going to raise prices for the sake of raising prices. Our opportunity is to execute better at the salon level and to grow our top line and our bottom line as a result of better execution. And all the things that we talked about today are things we're doing to help good leaders get better and develop strong execution capabilities at the salon level. Pricing is not -- raising prices is not the answer. The answer is to execute better in our salons, which is what we've been focused on for the past 2 years.

And this concludes today's question-and-answer session. At this time, I'd like to turn the conference back to our speakers for any additional remarks.

Doug, thank you very much. Thanks, everybody, for joining us. We look forward to talking to you at the next earnings call.

This concludes today's teleconference. Thank you for your participation.