[Abrupt Start] [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Jeff Harkins. Please go ahead.

Thank you. Before we begin, I would like to remind you that certain comments including matters such as forecasted financial information, contracts or business and trend information made during this call may contain forward-looking statements within the meaning of Section 27A of The Securities Act of 1933, as amended, and Section 21E of The Securities Exchange Act of 1934, as amended. Many of these forward-looking statements can be identified by the use of words such as believe, project, expect, can, may, estimate, should, plan, target, intend, could, will, would, anticipate, potential, confident, optimistic and similar words or phrases. These statements are subject to a number of factors that could cause actual results to differ materially from expectations. Those factors are described in Sally Beauty Holdings filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. The company does not undertake any obligation to publicly update or revise its forward-looking statements. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. With me on the call today are Chris Brickman, President and Chief Executive Officer; and Aaron Alt, Chief Financial Officer, and President of Sally Beauty Supply. Chris will provide a brief overview of our performance for the quarter and give you an update on our second quarter accomplishments as well as what we’re working on in the second half of the year in terms of our Transformation Plan. Aaron will then provide some thoughts around our full year guidance and update on our capital allocation strategy and supply chain modernization plans, and then discuss our second quarter consolidated and segment financial results. Now I'd, like to turn the call over to Chris.

Thank you, Jeff, and good morning, everyone. During the second quarter we continued to make solid progress on our transformation plan. As we completed the launch of Sally Beauty’s new mobile first e-commerce platform, brought new brands to market, had success against our supply chain modernization plans, and reduced our debt levels, all as promised. While the second quarter was impacted by Easter calendar shift and a cautious retail environment in February, we continue to see a good momentum in our largest business Sally Beauty Supply's U.S. and Canadian retail business which is on the leading edge of many of our transformation efforts. Beauty Systems Group and our international operations are learning from the successes at our Sally U.S. and Canadian business relative to our transformation efforts and they are showing progress as well. In summary we are on track with our transformation plan for the year. Now I'd like to highlight some of the steps we took in the second quarter and so far in the third quarter, as it relates to our transformation plan, as well as what is expected in the second half of the year. First, playing to win in our differentiated core of hair color, and care. As we have stated, in previous quarters, we’re investing to build on our category leadership and deep expertise in hair color and care. These categories represent over a half of our sales, allow for greater differentiation, have a higher penetration of owned and exclusive brands and generally have higher margins. We’re constantly looking for additional opportunities in this area. As an update for the second quarter of fiscal year 2019 owned and exclusive brand comprised of approximately 45% of Sally Beauty Supply's revenue with the majority of those sales being owned brands. Similarly, owned and exclusive brands comprised…

Thank you, Chris and good morning. I would like to start by thanking our global associates for their hard work during the quarter. With a long list of transformation issued this year, the team is doing a great job of getting it done. I have four objectives today to comment to comment upon our full year financial guidance, to provide an update on our capital allocation strategy, to offer an update on our supply chain modernization efforts and finally to review the second quarter consolidated financial details and segment results. Let’s start with our guidance. In November of last year we offered full year guidance that our same store sales would be approximately flat that our gross margin would be approximately flat, that our adjusted SG&A rate would be up slightly, that our adjusted operating earnings would decline slightly, and that we would accomplish all of this, while both making significant investments in technology, stores, supply chain, labor and talent, and executing against an aggressive schedule of transformation initiatives. We are six months into the fiscal year and after taking into account our considerable progress to date, we are confirming our full year guidance for fiscal year 2019. We see solid momentum from our transformation efforts at the enterprise level and from our efforts on our largest business the Sally U.S. and Canadian business. We also see progress and positive results from new brand launches and other initiatives within BSG. The benefit of which should become more apparent in the back half. Finally in the second half of the year, we are also lapping last year's vendor based supply chain disruptions. The European business has been a sales headwind in the first half. However, we are taking steps with respect to that business and are working to overcome the impact…

[Operator Instructions]Our first question is from the line of Mark Altschwager from Baird. Please go ahead.

This is Drew North on for Mark. Thanks for taking our question. It sounds like you had solid momentum again in the Sally North American business, maybe apart from the challenges in February. First, can you quantify how much of a drag February was and then discuss the other drivers to the comp from a traffic or AUR perspective? And then how should we think about the drag from the European business as we look at the second half?

So we don't release quarterly results - or monthly results obviously, so we're not going to specifically release February. That being said, we did hear from a lot of other retailers that February was a challenging month and I'm sure you'll hear that from them in their earnings reports as well. In terms of Europe, obviously there's a lot of disruption there. It was - same-store sales were negative for the quarter and as a result, it was a drag. We do see that they're making some progress in their promotional activity and hopefully we see that stabilizing in the back half. But at this point in time, I'm not going to quantify the change we expect between this quarter and next quarter It will be a continuing challenge but we think it can be better than it has been in the first half of the year.

And then I just wanted to ask a higher level question on the back half margin outlook. I guess can you discuss some of the drivers or the key drivers that give you confidence in the pace of margin improvement in the second half to reach flat for the full year? And then any moving pieces between Q3 and Q4 that we should be aware of other than the easier comparisons in the third quarter?

Fair. Let me start with the second half of the question which is that we don't provide quarterly guidance. As I look at the year-to-date, we are about spot on where I expect that we would be from a business performance at the consolidated level for the year. As we think about the back half, as I talked about during our Q4 earnings release last year, we are investing heavily against the business not only in technology and talent, but also in process, and in our conversation with our vendors. And a lot of what we're doing was frontloaded in the year so that we could start reaping the benefits, investments as we moved through the year. As Chris highlighted in his comments, the Sally U.S. and Canadian business has been leading the curve, if you will, more aggressively on many of the elements of how we talk with our vendors, how we partner, how we bring innovation to play. We will continue to benefit in the Sally U.S. and Canadian business on our speed so far there and we're seeing good progress now within BSG as well relative to the refill of the pipeline and our ability to drive progress on both the sales line and the gross margin line in the back half of the year.

And next we move to the line of Rupesh Parikh with Oppenheimer. Please go ahead.

So, I wanted to start out with full-year guidance. So you guys still expect operating earnings to be down, I think slightly for the full-year and first half it declined, I think around 5% per, per my calculations. So just curious what are the key drivers that's going to help to drive that improvement to be down only slightly for the full-year?

Well, Rupesh let me take a first cut at that and I'll let Aaron step in after that. So first of all as you know, BSG has been going through what is a normal life cycle in terms of brands leaving the pro-channel and moving to retail that's been going on for decades. But when there is more brands leaving than coming in you end up with headwinds, we're seeing that begin to shift where the number of brands that are at later in their maturity phase and as a result are tapering down that decline is slowing, meanwhile we've got a lot of innovation that's coming in, that’s also high margin. So we see stronger performance in the back half for BSG especially and that's probably the biggest single shift in our in our financial performance between first half and second half. After that, there's a whole bunch of other things going on in terms of just to the getting payback on the initiatives as Aaron mentioned, that we've been making in the first half that most of which you're going to pay off in the back half of the year. Obviously, we'd like to see improved performance in Europe and we're working on that but I’m, that one I think we have to be a little bit more skeptical of. In addition I think we've got additional SG&A savings we can drive in the back half as well. So Aaron if you want to pile on to that at all?

I would, hi Rupesh. I guess I would observe that what has become clear to me is that as expected we have, we have opportunities across the profile, sorry, across the portfolio through the rest of the year on pricing in select areas on continuing to drive promotional efficiency, particularly within BSG. We have COGS negotiations with several of our vendors are underway. Some of them are on this call. We are in process of introducing higher margin mix products to the portfolio as well. And then there are a variety of other initiatives we have underway. A lot of those are coming. We've seen the proof points in parts of the business already and we expect that continued progress will help us to get there. The BSG team in particular is going to be very aggressive in addressing the gap that exists in this quarter as we push ahead.

And then if I can slip in one more question. Just on the cash flow, I know you provided some of the color in terms of - some of the headwinds in Q2. As we look out for the balance here, I mean, do you expect the cash generation, the declines to moderate or is there any more color you can provide in terms of how we are thinking out…

We are going to aggressively bring our inventory down both from a cash generation perspective, but also as we seek to increase our returns and drive newness, we're clearing out - we’re clearing out some of the old stuff in favor of new stuff down the path. We won't reinvest all of it. So that will be a cash generator for us. Similarly, as we've been talking about our gross margin, it's been the case that over time the company has allowed their terms to lag and we haven't been paying vendors and we have invested this quarter some of our cash to bring vendors current with terms, as we discuss new terms with those same vendors, as we carried forward. So, I remain confident in the cash generating capacity of the company. I'm not at all concerned. And like I said, we were going to pull multiple levers to set us up for success as we carry forward.

Next, we’ll go to the line of Oliver Chen with Cowen and Company. Please go ahead.

Regarding the new loyalty program, how has that interacted with traffic in number of sign-ups relative to how you thought that would? And then a modeling question as we model free cash flow, it looks like free cash flow declined at a faster rate than EBIT. What are your thoughts on the full year guidance of free cash flow? And some of the items that led to the year-to-date free cash flow results, it sounds like inventories were up more than you expected? Thank you.

Why don’t take cash first here.

A couple thoughts, we gave cash flow guidance earlier in the year as well. We remain on that guidance. We all are pulling all the levers, and so whether it's bringing inventory down as I just alluded to or taking other steps we are confident in the both the profit generating capacity of the business as well as steps that we can take to generate more cash as we carry forward. So I guess that's all I can tell you with respect to the cash. The second question was on…

On the loyalty program Oliver, you know what I'd say is - you know a lot of retailers have struggled as they've implemented new loyalty programs with disruption in the first couple of quarters. We have not seen that, it's been a pretty smooth transition, as I indicated in my comments and we continue to see a growth in the overall program and accelerated sign-up. So from our standpoint it's working as well as we expected or better in the first six months. And you're right the next - now the next step is to take that larger database of customers, and more intimate knowledge of them and translate that into better traffic in our stores which we expect we'll be working on in the back half of the year.

And the testing and innovation you've been doing around new stores. Is that alter or give you more contemplation about your overall store base at either division and where that right number is? I would love your thoughts on what you're thinking for - what's a great idea for the long term on the store base?

Sure. A couple observations using just the Sally portfolio for a second, the average - our average is 17 year age on our stores. So that means that we know we have need to invest over time. Las Vegas is proving useful to us in both how fast can we move and how do we keep the costs down as we do that to keep out of what we’re assessing as we carry forward. Too early to say given we've just completed the market and just launched the marketing testing there as well as to how many of the components will roll out across the portfolio. But we do expect over the course of the rest of this year as well as, as we move into the long range plan to invest both in the digital experience and the store experience pushing forward. I thought I heard maybe indirectly a question around, how do we feel about the size of the portfolio. And the short answer is, is that as we promised at the start of this year we are cleaning up elements of portfolio this year. And then you will see a pivot from us that we will talk about more as we get to the end of the year.

And our last question is just related to the second half initiatives including and there is technology and product and the point-of-sale how would you prioritize which ones would be stronger or you would prioritize them in terms of traffic drivers or would they be somewhat equal weighted above your thoughts on prioritization?

Well I mean it depends on what you're prioritizing Oliver but if you're thinking about what’s one is going to have the greatest financial impact in the back half of the year, it will be probably the new product launches at BSG and the tapering off of some of the products, the decline in the products that have kind of reached the end of their pro-lifecycle. So that will be the biggest change financially. In terms of long-term, obviously we believe the changes we're making in our e-commerce platforms as well as our core technology platforms and POS would probably have a greater or longer term impact on the business and we won't see as much of that this year it's going to be something that’ll build over time given we're building off a small base. But those are the more important longer term investments.

Next we go to a line of Oliver Tong with Bank of America. Please go ahead.

I wanted to first ask you about some of the announcements by Regis. You know talking about refranchising and in doing so requiring some of their franchisees to buy a portion of their private label compressional project - products from them instead of other guys like potentially you. So could you talk about the potential impact that decision has on your sales?

Olivia, this is not a major impact for us. We don't have a - to do a lot of volume with Regis. And the reality is - as we already have that, they're already in a franchise situation. There are some chain accounts that we do serve through BSG and those chains continue to do quite well. It's not the highest margin business for us, but it's something that we absolutely do on behalf of our customers. But no I don't expect much of an impact associated with Regis changing their purchasing or their approach to products.

And then just thinking on the retail you know obviously Amazon announced that they're moving to one-day shipping, which clearly rattled off a fair number of retailers. How do you think that that potentially impacts you? I know that you know the sale is particularly the booth renters are always looking for product immediately which you know has always been something that's benefited you because they need to go - they need to have that relationship they need to have that known factor in that immediacy. If there is - if Amazon starts moving to an ability to move to one-day, do you - like how do you think of that impacting you? Is that enough for you - in your view for the stylus to kind of bridge that gap?

Well, you know, first of all, let's make it clear that a lot of the investments we're making are specifically for us to be able to ship from store and get the same day. So down the road, we expect to be there certainly in key markets. And so I don't see that. I think that's the bar, given the fact that many stylists are you know very hand-to-mouth in terms of how they buy product. Second is you have to have the full array of brands especially color brands available within that timeframe. You can't just have a few products available there because it really comes down to what's the services they need to provide on their customers during that day or two days that they want the product for. And so as I had mentioned before, many times stylists come in with their schedule book in hands, walk into our BSG stores and walk the color aisle, picking out specific colors and products for specific customers and services they're going to perform in the next to couple of days. And so the reality is that that suits our model very well and it will suit us when we move to same day delivery capability over the next 12 months.

And then just lastly in terms of the BSG lifecycle, the brand lifecycle impact that you talked about, from what you can see, when you think that starts to lap and things start to turn back to either normal or better relative to the number of brands that are coming in versus the ones that are sort of maturing and coming out?

Yes. And let me make sure I make it clear. It's on us to constantly be refilling our pipeline. And I - we take full accountability for the fact that we didn't get aggressive enough in doing that. We think we've done it now and we've got a lot of great innovation launching in BSG, but we still - we have to be accountable for always being prepared to refill the pipeline as brands move out of the lifecycle. That being said, there - there we do see a significant tapering that's going to happen here in terms of the headwinds as we go in the next two quarters. And I won't get specific about which brands by quarter, but some of that happens in Q3 and some of it happens in Q4and we’ll be lapper, lapping that those brands reached kind of a more retail focused stance and the net result is that the headwinds will start to subside and the tailwinds will build and that's the shift we're seeing for BSG in the back half.

Next, we’ll go to line of Simeon Segal with Nomura Instinet. Please go ahead.

This is Steve McManus on for Simeon. Thanks for taking our questions. Just wanted to see if you can give us an update on how planned wage investments are trending verse initial expectations heading into the year and maybe give us a little bit more color as to what's baked into the full year guide?

What I can tell you is, is that we have been investing in wage rate in key parts of the country as we are watching both the mandatory minimum wage laws as well as the competition in key parts of the country and we have started, we invested both at the back end of last year and the first half of this year and parts portfolio where we felt like we needed to, to remain competitive. Our investments in wages are not yet done, we continue to have investment in front of us both this year and next year. I'm comfortable that what we need to invest this year is already baked into our plan on our guidance I don't think I've broken it up by dollars, so I'm not going to do that now. But it is absolutely a - we're going to have to overcome and we’re going to use part of our cost savings to try to get there.

And just to follow up on the pressure in Europe and have the headwinds predominantly been within the U.K. or is a more broad-based and maybe if you could speak to how the rest of your international markets been trending that be great?

Yes it's, it’s more broad-based. France, specifically in continental Europe has seem some declines as well. It was worse in our Q1, but it was still negative in Q2. We do see the potential to improve build on that and improve that, but again we're still cautious about Europe overall.

Next we move to the line of Simeon Gutman with Morgan Stanley. Please go ahead.

This is the Xian Siew on for Simeon. In diagnosing the transformation initiatives such as marketing and e-commerce we've talked about a lot of them, what is going better than expected and maybe what is behind expectations?

I think I would answer it this way. The combination of things happening at the same time at Sally has been - we've been able to push that faster than we had anticipated and that has led to a more positive same-store sales growth and a more positive margin progress than we had planned. And that has helped us to offset some of the trailing elements of the BSG margin profile as well as the headwind in Europe so far year-to-date. And of course since we guide at the consolidated level we don't provide quarterly guidance you don't have a lot of visibility to the pieces, but what I tell you is we're managing the full portfolio and this is - one of the other things have gone well is because of the progress at Sally we've been able to manage that business to help us to address whatever the headwind of the month of the quarter happens to be as we look at the overall enterprise. As we think about things that are a little bit behind the curve, it's absolutely clear to us and to Mark Spinks and the merchants here Chad Selvidge that we have got to fix the BSG gross margin profile, and we're already working hard both internally and with many of our vendors on how do we go about doing that. Right we have great hopes for that business we believe, we believe we can get there, it’s a known, it’s a known problem. We have a plan and but we have to we have to move faster than we have.

I think that's well summarized. I think overall our technology investments and supply chain investments are going on-track or ahead of track for the most part. And I think we should feel proud about that in the sense that the reality is those can be those can trip a lot of companies up. That being said, I personally feel like we should have moved more aggressively to refill the pipeline in our BSG business. We're doing that now which I’m excited about. But I think we probably should have done it sooner. And Europe is a bit of a quandary, I do think that there is some systemic issues there in terms of the marketplace but also we need to get better at kind of bringing the teams together and executing.

And can you please quantify the Easter shift and how that kind of reverses in the third quarter?

Now, we really don't quantify we don't give the kind of month to month results like that. It just it was a small shift it does affect the core.

Okay, so this is small though?

Yes.

Next, we go to the line of Shannon Coyne with BMO Capital Markets. Please go ahead.

My first question, Estée Lauder, they reported this morning declining sales in Bumble & Bumble in the Saloon channel, they gave that as a reason and that coincides with the run all time. Just curious to get your thoughts if you think that dynamic is specific to Bumble & Bumble or if you think that could deter other branch and going into specialty or what you think is happening there and how can impact you guys on the other brands? And then secondly I was just wondering if you could maybe help to quantify or give more specifics on the impact of the vendor issues and give us a sense how long you guys got that wealth continue to last? And that’s it.

Well let me do the first one. Yeah, prestige hair care well let me do the first one, you know prestige hair care and Estée Lauder Salon brands, you know has not been a big category for us historically, we tend to compete at a level below that. Honestly Maria Nila is our first big venture into it. It's going really well. So, I can't really comment on Bumble and Bumble, I don't know where it's at, and it's lifecycle, it's obviously been around and a very successful brand for many years. But the reality is, as we begin to push more into that prestige or the higher end, we're actually seeing growth and success in that channel and getting access to accounts that we historically didn't have access to. So now - I don't feel that as a headwind, I actually see that as a growth opportunity for us I just - I don't know enough about Bumble and Bumble to comment on it directly. And Aaron I don’t know if your comment …

I’ll answer your question on a quarterly impact of the vendor supply chain issues. We estimate it's a 20 basis point impact to BSG same-store sales as a result of a key vendor not being able to ship to us for a defined period of time. The good news is that issues that has been resolved, and so we're not expecting it to carry forward, but it presents the actual reality of that we have to bob and weave each quarter as we have key vendors who are also going through their own transformations.

Next we go to line of Ike Boruchow with Wells Fargo. Please go ahead.

This is Lauren on for Ike. Thanks for taking my question. You mentioned that you're seeing progress at Sally Beauty Europe and at BSG. Could you identify some of the specific areas that are giving you confidence today that comps will be able to inflect in the back half? And as a follow up if Europe continues to remain weak for whatever macro factors can you believe that consolidated Sally Beauty can still inflect? Thank you.

Well let me take the BGS one first. So as I mentioned a couple of times here there - what's really driving our optimism about BSE is the innovation we're launching there. Whether that be new brands like Pravana expanding the all OpEx line the launch of the Joico to find damaged products and the growth of the Maria Nila brand. So it's that acceleration of some of the new innovation that then offsets some of the declines associated with brands that are later in their lifecycle and moving some of their business especially care, this is not color this is care into more of a retail channel. In Europe, I think the primary thing we can do we obviously can't control the environment. The primary thing we can do is get much better at aligning our promotional strategies with our vendors up front, making sure we hit crisp price points that drive traffic to our stores and making sure we communicate with our customers effectively. Team has been working on that. It has been a trial and error process of bringing our businesses together there, I’d say we're getting better at it which is why you hear some optimism there. That being said I think the marketing environment, market environment will still be challenging to some extent.

One thing I would add is what you're hearing from Chris and I is we're seeing signs of recovery and progress. Keep in mind that our guidance is either emprise consolidated level and around the same-store sales basis, our guidance is approximately flat across the portfolio for the year. We don't give you, we have not guide and we will not guide on the segment level or relative to that.

Next, we’ll go to line of Steph Wissink with Jefferies. Please go ahead.

I have a two part question guys if I could if you step back and survey the landscape and look at the competitive marketplace, I think the hair care market is actually accelerated. Can you maybe talk a little bit about the business trends you’re seeing relative to the market specifically within Sally Beauty and I think also the professional division you’ve seen an acceleration in the, the demand takeaway side, maybe help us reconcile that relative to what you're seeing in your business?

I think I would offer a couple of things. Care and color are the two largest parts of our business and we are seeing strength in our results relative to the focus strategy that we have there. I'm not going to comment on how much hairspray is selling. It's not for me to comment on. What I am pleased with in the Sally Beauty side is us continue to build our baskets both leading with color adding care to it as well and then driving the basket filled elsewhere as we push ahead. The same is true for BSG as we pivot in that business, which is it's believed approximately 70% more than 70% actually of the business is both color and care. And so, at a higher ticket higher basket then the rest of retail given who is doing the shopping there. Much of the product there is actually going on someone's head in the salon versus being used at home. And so it's not a direct compare as some of the retailers, but we're seeing progress.

And just from a category perspective just to build on what Aaron said. As our core is in color and care those categories have been our strongest categories with some headwinds in BSG as I talk about the lifecycle issue I mentioned for BSG that we're now refilling. The reality is that some of the weaker categories have been categories like the electrical appliances where there has been greater price transparency and more online competition. And we're really working hard right now to reset that category and reduce some of the headwind we've experienced from that category.

And then the second part of the question I think I asked of you about a year ago you've a lot of initiatives going on if you can just help give us some comfort that it’s not overwhelming your store level associates, and your managers. Help us understand - kind of how the cadencing of some of these initiatives are taking place?

Yes.

And then as you demonstrated some confidence today in the back half recovery is that really a recovery at the store level that you anticipate seeing? Or is it something more around the balance between field level activities and the corporate activities that we're going to see that improvement?

And I think I would give you similar answer what I gave you, when I joined which is this transformation is incredibly complex. There's no getting around it. We have a couple hundred initiatives underway. What I have seen here in contrast to what I've seen elsewhere is just a dramatic focus and the teams both at headquarters and in the field on both sides actually on all three sides of the business and they are just getting it done. That's why I started my comments the way I did. We have - at the same time we have the technology investments are happening with respect to digital, and with respect to our merchandising supply systems. The store leaders in BSG and Sally are rolling out - new approaches to ours, new approaches to best practices from a selling technique perspective. New parts are rolling out across the stores and so there's no getting around the fact that we have a lot going on. The good news and I would point you all to this as well as notwithstanding everything we have under way, we've made dramatic progress in the first six months and we're being purposeful on earnings releases of telling you both what have we gotten done as well as what's coming next. And I think if you compare the lists, they’re pretty consistent where we have gotten down in, where we said where we're going to get done and we're going to continue to take that approach. And so teams are focused, the leaders are doing an awesome job of guiding the various parts of the organization. And as we sit here today we are confident that we are - where we need to be on the transformation plan for this year and in turn that will set us up for the transformation plan the continuation of the effort and the results of some of the investments as we move into next year as well.

And the only thing I'll add to that is my experience with our store associates who are incredibly dedicated and are great beauty enthusiasts. They're thirsty for many of these changes. The investments and things like POS and store technology and other capabilities and revamped stores. They’ve watched a lot of that erode over many years in some cases. And they're thirsty to get their hands on new technology and new things that help them serve customers better. So I'm not worried about the execution at the store level. Obviously, we monitor it constantly. But the reality is as we have some excited people at our stores who are glad we're finally investing.

And Aaron one more for you I just want to make sure I heard you correctly on the free cash flow bridge relative to EBIT. A significant change in inventory is your expectation, but you also mentioned receivables. I'm wondering if you can just help us maybe quantify or force rank where the biggest benefits are going to come from to close that free cash flow GAAP to for your full year expectations are?

I think I referred to two earlier one was that we're bringing our inventory down aggressively for unproductive inventory in particular, right. On the other side of the equation, we have been using cash to pay our vendors faster and we’ll of course always look at our receivables and where we can bring it down. But my answer to the question really was focused on payables and inventory. Right…

Okay. Thank you.

Our models do confirm the cash flow guidance that we gave at the start of the year. We expect to be about where we said we would be.

And ladies and gentlemen, we have time for one final question. It’s from the line of Karru Martinson with Jefferies. Please go ahead.

When you look at average store age at 17 years, what is the percentage or source that are strip malls, standalones and how do you see that tenor changing as you go forward with these remodels?

Almost all of our stores are strip mall based. There are some that are in - especially in BSG that are in some more unique real estate that I describe is anywhere from light industrial to light retail. But for the most part we're in strip mall locations. I don't think that's going to change right away because there is a lot of stores that are sitting in that footprint. We will see how - what we learned from Las Vegas and some of our other store concept test to see if we want to modify the type of real estate we go into. So I'd say that's a decision that hasn't been made yet in terms of how much it might change in the future. But we're certainly open to it if it needs to change.

Couple of important thoughts about the portfolio, first is as you have to keep in mind that the Sally stores are generally below or if not well below 2,000 square feet. BSG stores are 3,000 square feet or below as well. Our store asset base is productive, right. We have very few stores which are not cash flow positive right in the stores and we are incredibly flexible because we have leases that are five years or less virtually across the entire portfolio. And so while prior management teams have purposely taken the approach of it's all about supply and keeping it a very more warehouse supply feel. We are investing our stores, but we don't aspire to be Alta right in that respect. It's not the real estate we're looking for, it's not the guest experience of rafter that said we do know that we need a freshen elements of our portfolio we need to serve the guests better from a guest experience. At the same time that we're delivering value and differentiation to them from an assortment perspective.

And then just in terms of the portfolio, do you have any - what other remaining owned assets do you have that you may consider selling? And then just given that you know you're undrawn on your ABL, how do you look at paying down debt this year?

Fair question so I would be a bad CFO if I said anything other than we look at our assets all the time, to look at what's productive or not. The supply chain is a key area of focus for us and we took our first steps there. We'll continue to look at all of our assets for the benefit they bring to our overall operations and whether or not they present us with an opportunity to generate some cash. I don't want to be - I don't want that too much to be read into that though, given that our store portfolio is almost entirely least and many of our distribution centers are as well. And so we're going to be smart about that is really what I would say. From a leverage perspective, you should take me at my word with what I said in my introductory comments that we expect to be right about 2.5 times at some point in Q4. When we started this journey - at least when I started this journey nine months ago, it was where we’re going to get to and we promised to get to that leverage ratio. If we get there by Q4 as our models are predicting, then we’ll again have the conversation of we need to invest more in the business or not, consistent with our long range plan. How do we feel about our debt or is it time to return capital to shareholders and that's all I can really say.

And I'll turn the conference back to the CEO, Chris Brickman for closing comments.

Thanks everyone for your questions today. To summarize, we are playing to win by refocusing our business around our differentiated core of hair color and care, improving our execution of basic retail fundamentals and advancing our digital commerce capabilities. We are executing as planned against an aggressive transformation plan and we are maintaining our financial guidance for the full fiscal year. Thank you for joining us today.

Ladies and gentlemen, this conference is available for digitized replay after 9:30 AM Central Time today through May 8th at midnight. You may access the replay service at any time by calling 1-800-475-6701 and enter the access code of 465851. International participants may dial 320-365-3844. Again those numbers are 1-800-475-6701 and 320-365-3844 with the access code of 465851 and it is available after 9:30 AM Central Time today through May 8th at midnight. That does conclude your conference for today. Thank you for your participation. You may now disconnect.