Sally Beauty Holdings, Inc. (SBH) Q4 2019 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Sally Beauty Holdings Q4 and Full-Year Results Conference Call. At this time all participants are in a listen-only mode and later we will conduct a question-and-answer session, instructions will be given at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would now turn the call over to your host Mr. Jeff Harkins. Please go ahead, sir.

Thank you, good morning everyone and welcome to the Sally Beauty Holdings fourth quarter earnings conference call. Before we begin, I want to point out to you that we have made a supplemental slide presentation available for today's call that can be viewed from the link provided at our investor site at sallybeautyholdings.com. In addition, I'd 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 our 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, President of Sally Beauty Supply and Chief Financial Officer; and Heather Plutino, Group Vice President of Finance. Chris will start by offering some thoughts on our fourth quarter success, giving an update on our transformation efforts and provide a roadmap on the key transformation initiatives for the company in fiscal year 2020. Aaron will then discuss our fourth quarter consolidated and segment financial results, provide a brief overview of our full-year financial results, touch on our supply chain modernization and our store plans, and then discuss our full-year financial guidance for fiscal year 2020. Now I'd like to turn the call over to Chris.

Thank you, Jeff and good morning everyone. Our financial results in the fourth quarter demonstrate that our transformation plan is tracking well against our expectations. Our assortments, guest experience, technology, and supply chain efforts are all starting to make an impact. For the quarter, we delivered positive same store sales growth in both segments, as well as the overall enterprise. We achieved the modest increase in gross margin and lower operating expenses from our cost savings efforts. All of this yielded solid growth in operating earnings and operating margin and ultimately, a strong increase in both GAAP and adjusted diluted EPS. In addition, we generated strong cash flow that was used to invest in the business, reduce our debt levels, and fund share repurchases all as promised. Work remains, but the pieces are starting to come together. The full fiscal year 2019 was marked by significant change and progress. Yet despite the scale and complexity of our transformation efforts, we achieved our full-year financial guidance. I'm incredibly proud of the teamwork of our global associates. However, significant work still remains and fiscal year 2020 will mark a change in focus as we expect to build on our fourth quarter results, complete many of our investments, and pivot to projects designed to deliver sustainable top line growth. On our last earnings call we discussed the changing landscape of the beauty sector. Competitors are raising their game. Customers have gone digital and technology is everywhere, helping demand and supply chain stores and customer relationships. We also spent time discussing how we are aggressively responding with our transformation plan which builds off our highly differentiated position in hair color and hair care. We detailed our intentions to quickly build a modern digital platform and a more efficient and responsive supply chain. We highlighted our drive towards attractive loyalty and marketing programs, innovative new brands that speak to a younger consumer, and our plans to strengthen our store teams and improve our store experience. The key message you should take away from our Q4 results is that our efforts have gained traction and we are moving ahead at a full speed. I want to spend a few minutes providing you an update on our recent accomplishments on three of our key transformation pillars. First, playing to win with our customers. Differentiation is critical in retail. We continue to build our innovation pipeline, launching new brands, as well as building awareness and momentum of prior brand launches, most of which are exclusive to SBH. These brands are specifically targeted at driving new traffic and expanding the basket. At Sally, we launched My Black Is Beautiful from P&G, All About Curls from Zotos, and the exclusive lines of Mo Knows Hair and Vernon Francois, which is an up-and-coming stylist-driven brand from the UK. These brands further enhance our offering for customers with natural curls. In addition, we continue to build momentum with our vivid and contemporary color lines. Brands like Arctic Fox, Good Dye Young, and Iroiro continue to fuel solid growth and drive new traffic and younger consumers to our stores. We also launched the Kuul color line in the select stores. Vivid color sales represented 18% of our total color business in the fourth quarter versus 15% in the prior year, with the color business also growing overall. On the BSG side, our previous launches of the Swedish vegan brand Maria Nila and the Henkel brand Pravana, continue to demonstrate solid growth. BSG also launched Olaplex Number 6 and Number 7 hair care treatments, which have shown excellent results. In addition, BSG's color growth was accelerated by Schwarzkopf's BlondMe product and other high-lift lightening and color products specifically designed for women who desire fantastic blonde results. Finally, BSG expanded their men's barbering assortment with the launch of the exclusive line Elegance. Second, improving our retail fundamentals. There is nothing more fundamental to retail than having the right talent to drive the organization. We are thankful for the efforts of our existing teams and the successes that we have had in fiscal 2019. As you may have read, we are raising our game and investing in new talent and new capabilities in our marketing and e-commerce teams to carry us forward. Beyond this, we are delighted to welcome to SBH both Pam Kohn, our new Chief Merchant; and April Holt, our new Group Vice President, Stores for Beauty Systems Group. Both of these leaders will have an immediate impact and will help accelerate our efforts. At the beginning of fiscal year 2019, we launched our new loyalty program, Sally Beauty Rewards. The Sally Beauty Rewards program is a free membership where customers earn points toward redeemable cash certificates based on the customer's spend. The program has now grown to 16 million active members and we are pleased with the increasing redemption rates, which should help drive traffic over time. A seamless checkout experience is also table stakes in retail. We exceeded our own aggressive goal for the roll-out of our new POS system at the end of the fourth quarter by completing the installation in approximately 1,500 stores and we have accelerated the implementation to the point where, as of this morning, we are now past the 2,000 store mark. We expect the roll-out to be completed at all 4,200 stores in United States and Canada by March. As a result of this effort, our companywide POS systems will be more streamlined with less technology risk. Checkout will be faster. It will be integrated with our CRM and loyalty platforms and it will provide a direct connection for our digital offerings for our stores. This is a big win for us. Lastly, we implemented the store fulfillment module of the JDA merchandising and supply chain platform and began full testing within a small subset of Beauty Systems Group stores in the West. As we very carefully manage this transition, full testing at JDA will slowly roll out to other territories and parts of the business. Third, advancing our digital commerce capabilities. Our compelling digital experience is a key connection point with our customers. During the fourth quarter, BSG redesigned its e-commerce site with the goal of improving the stylus online shopping experience. Enhancements included better search and navigation features to make it easier for the pro to find the products they need. In addition, we added a stronger focus on key monthly priorities and promotions that are consistent with the monthly shopping guide that is used in the stores and full-service business. I will come back to the BSG digital focus when we discuss fiscal year 2020. Last quarter, Sally launched the new mobile app, which continues to be used by a new, younger consumer with many joining the Sally Beauty Rewards Loyalty Program. The app has been downloaded more than 550,000 times. In addition, in the sign of our continued progress against this part of our transformation, we just completed the launch of ColorView, Color Before You Commit, a new hair color technology on the Sally Beauty mobile app, as well as on NCAP kiosk in approximately 500 Sally Beauty stores. When combined with our hair color category expertise, this technology makes it easier to drive trial for new customers and easier to drive basket of higher priced color options, such as many of our vivid colors. Finally, we continue the technology work in testing our new order management system. As we stated last quarter, this capability will, over time, open up a full range of client service options such as buy online pickup from store; buy online ship from store; and same day delivery. In summary, fiscal year 2019 was a significant investment year during which we built much of the foundation for future growth. During the third quarter of 2019, I discussed that the multi-quarter transformation roadmap was clear. Fiscal year 2020 is a transition year and our strategic pillars from 2019 are largely the same, but with enhancements and a focus on completing the transformation plan and a pivot back to growth initiatives. Now, I'll spend a few minutes discussing our key 2020 initiatives for each segment. First Sally Beauty segment, let's start with the U.S. and Canadian business. Aaron and the cross-functional team leading our Sally Beauty U.S. and Canada business took the enterprise lead in driving many of our transformation efforts in fiscal year 2019, with great progress in key elements of the transformation. That out-in-front approach by Sally continues in fiscal year 2020, as the Sally Beauty team in the U.S. and Canada has a serious agenda, find more innovation, continue the investments in growing the digital business, re-launch the Sally Beauty brand with a national marketing campaign, support the brand building of our largest own brand Ion, and expanding the reach of our store concept remodels to additional territories. Let me give you a couple of quick highlights. From a product assortment perspective, we will continue to invest in building awareness around prior successful launches of brands like Arctic Fox and My Black Is Beautiful. In addition, we will continue to add new exciting brands to the portfolio with a focus on exclusivity, while building and expanding our own brand portfolio. For the first time ever, Sally will take Farouk's professional color line CHI, to both retail and pro customers of Sally Beauty. We will also test a variety of other programs such as TIGI, Sebastian, Nioxin and Gibbs that do not have exclusive distribution elsewhere. While color and care will remain our primary focus, we are driving improvements in other categories to play through our historical strengths. As an example, this week we have launched Maybelline, on our cosmetic walls in all U.S. Sally stores and expanded the assortment of our COL-LAB own brand cosmetic products. We are not and do not intend to be a cosmetics destination. But cosmetic basics are important basket fill category for us, and we expect improvements in our offering, like Maybelline, to help drive sales. Sally will also build upon the investments we made in 2019 around our Salesforce CRM technology, our new Sally Beauty Rewards program, and our new POS system. Robust customer data will make it easier to drive traffic through targeted marketing to our customer specific needs. Sally will also build off last year's investments in our digital platforms and our order management system. In January, we will launch sallybeauty.ca in support of our Canadian guests, who are already visiting our 139 Canadian stores. That effort will be supported by a shift from store options to add more convenience and speed of delivery to our Canadian DIY consumers. While that effort will start in Canada, it will also test and then likely be expanded later in the year in the U.S. With buy online pickup in store following. When added to the continued evolution of our app and the ColorView technology I already referenced, we have an aggressive digital agenda for Sally in 2020. Rebuilding our brand and driving awareness and traffic are also key to our efforts. In January, we are planning a national brand relaunch of Sally Beauty under the banner Unleash your (PRO)tential. We will reinforce the message that Sally Beauty is the clear destination for salon quality products at a great price, whether you are a DIY consumer who wants to color her own hair, or a Pro that works out of their home or in a salon. While we will wait until after the holiday to go heavy on this investment, we have already soft launched the brand with support of local marketing efforts, and you may notice it in coming days. Now turning to Europe, in recent quarters, we have highlighted the internal and external challenges of our European business, which have impacted the 2019 results of our Sally Beauty segment and the consolidated results of the enterprise. You may recall that our European operations represent about 20% of the Sally Beauty segment and that the business has suffered declines in both sales and gross margins. These challenges have arisen from changes in its go-to market strategy, changes to its vendor relationships, and the impact of the consolidation on the continental operations. However, it is important to note that our European business is a profitable operation and in fiscal year 2019, contributed more than $32 million of EBITDA to the enterprise. As you no doubt will deduce, this is because while revenue and gross margin were challenged, the business delivered significant savings in SG&A every quarter of the year. We frequently get asked the question, so what are you doing about it? We have not been idle, as we've been assessing the strategy and the tactics of this business and considering our options. Since our last earnings call, we have come to the conclusion that the path that best preserves and create shareholder value for Sally Beauty Holdings is not to aggressively downsize or divest the operation, which I want to remind you is a profitable business even with its struggles. Rather, the path forward for us regarding Europe is to drive progress on the top line and to fix our retail fundamentals in a manner similar to the approach we have taken in the U.S. and Canada. To that end, we have launched project search, which takes the successful elements of the North American Sally Beauty transformation and transplants them into Europe with the support and participation of several key leaders from the North American team. Project search is being led by Olivier Badezet, Head of Operations in Europe; and Mary Beth Edwards, our Group Vice President of Global Sourcing and Operations. It contains five key elements first, customer and customer marketing. We will be refreshing our customer knowledge, updating our customer marketing and focusing our brand and value proposition to become more targeted. Store operations, we are in the middle of a review of talent, structure, field communications, and in-store operating procedures with a firm emphasis on rising our game on retail selling skills across the European store network. Third, country specific needs. Much of our recent effort has focused on standardization across borders to achieve cost savings. We are now starting with the customer and looking at what needs to be different in each country and tailoring our approach accordingly. Four, product assortment, we will focus our efforts on improving the innovation pipeline and product offering with the expansion of Olaplex to new territories, launching OPI, launching new vegan brands, and the addition of other new brands such as Cloud Nine appliances. We will also expand our own brand assortment, which allows us to increase our gross margin with brands like [indiscernible]. Finally, technology integration, the business has suffered from localized technology issues, impacting inventory levels and day-to-day operations. So we are changing leadership and are deploying our global technology experts to reinforce the local IT team and get those quickly behind us. Like our broader transformation, the European business requires hard work, investment, and a relentless focus on execution. We have a path, we are working on levers, and we look forward to showing the same progress here that we have in Sally Beauty in the U.S. and Canada. Now turning to the Beauty Systems Group segment. BSG made significant investments to 2019 around product assortment, technology and guest experience and they have built a solid foundation going into 2020. During 2019, we detailed the headwinds that BSG suffered from the lack of innovation, especially around hair care as brands tend to migrate to retail over time in this category. In the middle of 2019, BSG began the process of reinvigorating its innovation pipeline. BSG will continue to launch new brands, including an increased focus on more clean and vegan hair care brands to meet the needs and desires of our professional stylists. This will include a mid-year launch of E2, a successful European vegan brand that would be exclusive to BSG and the Pro channel and expanding Maria Nila's assortment with a new hair styling line. In addition, BSG will leverage the recent launches of hair treatment solutions like Olaplex Number 6 and Number 7, as well as an expanded men's barbering assortment. On the technology front, we've recently refreshed the BSG app to make it easier to shop directly from your phone and as I previously mentioned during the fourth quarter, we redesigned the e-commerce platform to improve the online experience for our professional customers. We will leverage these recent enhancements in 2020 and will also be testing and then expanding buy online same day delivery as an additional convenience for our salon customers in bill price. A new loyalty program will be coming to BSG with our recent announcement of our partnership with Alliance Data to launch a private label credit card program. Testing will begin in select stores during the second quarter with the national roll-out to follow in the back half of the year. The program will benefit both Sally and BSG by providing our customers additional opportunities to earn rewards on their favorite purchases of hair color, care and other beauty supplies. In particular, our Pro customers will benefit from additional payment flexibility to better help them run their business. Finally, BSG will also look for acquisition opportunities that could expand its distribution rights and add additional brands to its portfolio. Now I will turn it over to Aaron to discuss a couple of topics in more detail.

Thank you, Chris. Good morning. I have five objectives today to review the fourth quarter consolidated financial details and segment results, to provide a brief overview of our consolidated full-year financial results, to offer an update on our supply chain modernization efforts, to offer perspective on our store plans, and finally to discuss our full-year financial guidance. Before I go there, I do want to extend my thanks to our stores teams and to the technology and digital teams across the enterprise. The positive progress made by these teams against our massive transformation agenda in fiscal 2019 was remarkable. Let's start with our financial results. We had a successful fourth quarter, we are very pleased with the results which help us deliver on our full-year financial guidance. Fourth quarter consolidated same store sales increased by 1.1%. Consolidated revenue was $965.9 million, essentially flat to the prior year, driven by an increase in same store sales, notwithstanding both a smaller store base with 95 fewer stores and an unfavorable impact from foreign currency translations of approximately 70 basis points. Our global e-commerce business grew by 27.4% versus the prior year. On the top line, broadly, our U.S. and Canadian retail business within Sally Beauty and the Beauty Systems Group Pro business continued to demonstrate sales momentum from our transformation efforts. However, we did experience headwinds in Europe. Consolidated gross margin for the quarter was 49.6%, which was 10 basis point increase compared to the prior year. Significant increases in the gross margin rate of our U.S. and Canadian businesses of Sally Beauty Supply and Beauty Systems Group were partially offset by gross margin challenges in Europe. Selling, general and administrative expenses, including depreciation and amortization were $364 million in the quarter, a decrease of $1.9 million or 0.5 % in the prior year. As a percentage of sales; selling, general and administrative expenses declined 20 basis points to 37.7% compared with prior year. The decrease in SG&A expense represents the continued benefit of our transformation effort and tight control over discretionary expenses. GAAP operating earnings and operating margin in the fourth quarter were a $116.1 million and 12% respectively compared to a $103.1 million and 10.7% respectively in the prior year. Adjusted operating earnings and operating margins were a $115.3 million and 11.9% respectively compared to a $112.2 million and 11.6% respectively in the prior year. GAAP diluted earnings per share in the fourth quarter were $0.58, compared to $0.46 in the prior year an increase of approximately 26% driven primarily by lower restructuring charges, reduced operating expenses, and lower interest expense. Adjusted diluted earnings per share, excluding charges related to our transformation efforts in both years, and the adjustment of a one-time net benefit for the U.S. tax reform, were $0.58 in the fourth quarter, compared to $0.51 in the prior year, an increase of approximately 14%. Our company continues to generate strong cash flow from operations, which was a $116.6 million in the quarter. Net payments for capital expenditures in the quarter totaled $37.7 million, which included cash proceeds of $3.3 million from the sale of our Wisconsin warehouse. The capital expense was primarily driven by information technology, projects related to the Oracle based point of sale system, the JDA merchandising and supply chain platform, and our e-commerce platforms, as well as store remodels and maintenance. Free cash flow was $78.9 million in the quarter, up $12 million or 18% as compared to the prior year. We used our free cash flow in the fourth quarter to reduce our debt levels by $16.9 million with $15.5 million related to our ABL credit facility and $1.4 million from our Term Loan B. The ABL credit facility had a zero balance at the end of the quarter and the company's leverage ratio declined again to 2.63 times. In total, we reduced our debt levels by over a $185 million for the full fiscal year. In addition, we repurchased 3.6 million shares at a total cost of $46.6 million. Let's turn to segment performance. For the fourth quarter Global Sally Beauty same store sales increased by 1.3%, driven by an increase in same store sales in the U.S. and Canada up 2%, which by the way is the highest same store sales rate for that territory since the fourth quarter of fiscal 2012. Europe continued to be a headwind for the entire segment. The Sally Beauty businesses in the U.S. and Canada represent 78% of the segment sales for the quarter. The Sally segment generated consolidated revenue of $571.9 million in the quarter, a decrease of 28% compared to the prior year, driven primarily by 66 fewer stores, the unfavorable impact of foreign currency translation of approximately 110 basis points and Europe's softness. We also continue to make meaningful progress with Sally's U.S. and Canadian e-commerce business in the quarter, which helped deliver e-commerce revenue growth of 35%. Gross margin for this segment declined by 10 basis points in the quarter to 55.8% with the expansion of the U.S. and Canada up 30 basis points, offset by weakness in Europe. Segment operating earnings were $93.9 million in the quarter, an increase of 3.2% versus prior year, driven primarily by the favorable operating expenses resulting from our cost savings efforts. Segment operating margin improved by 60 basis points to 16.4% compared to the prior year. Now turning to our beauty systems group segment. Same store sales increased by 0.8% in the fourth quarter. Net sales for this segment were $39.4 million in the quarter, an increase of 1.2% compared to the prior year. Foreign currency translation had unfavorable impact of approximately 10 basis points on revenue growth. Additionally, we refreshed BSG's e-commerce platform in the quarter which helped deliver e-commerce revenue growth of 26.3%. BSGs gross margin was 40.6% in the quarter, a notable increase of 60 basis points from the prior year. As we've stated on recent earnings calls, BSG's gross margin has been a key focus area for us and while we have more work to do, we started to see progress on our efforts to stabilize and improve BSG's gross margin. There is still more opportunity on this front and our efforts will continue in coming quarters. Segment operating earnings for BSG were $59.2 million, an increase of 10.2%, driven by an increase in same store sales, gross margin expansion, and lower operating expenses from our transformation efforts. Segment operating margin improved by 120 basis points to 15% compared to the prior year. Now turning to our consolidated full year financial results. For the full fiscal year, consolidated same store sales increased 0.3%, consolidated net sales were $3.88 billion, a decrease of 1.4% driven by 95 fewer stores, unfavorable foreign currency translation of approximately 80 basis points, and challenges in Europe. GAAP diluted earnings for the full fiscal year were $2.26 per share, an increase of 8.7% compared to the prior year. Adjusted diluted earnings in fiscal 2019 were $2.26 per share, an increase at 4.6%. Cash flow from operations for the full year was $320.4 million. Capital expenditure projects totaled $120.9 million, with $107.7 million paid and $13.2 million pending in accounts payable and prepaid expenses. Including, offsetting cash proceeds of $15.3 million from the sale of our warehouses in Texas and Wisconsin, our net payments for capital expenditures were $92.4 million. Free cash flow was $228 million for the full year, a decline of $58.6 million or 20.4% compared to the prior year. The decrease is primarily attributed to the -- attributed to the approximate $50 million investment made in accounts payable in the first half of the year to get current with vendors and make sure we're scooping all cash discounts. Now switching over to our supply chain modernization efforts, we started the year with 15 distribution centers across our network in the United States and Canada. We finished with 11 distribution centers, after closing nodes in Texas, Alaska, Wisconsin and Nebraska. We've finalized the new lease for our new 500,000 square foot distribution center in North Texas, which is expected to begin operations by the second quarter of fiscal 2020. Eventually this distribution will service Sally and CosmoProf stores and e-commerce platforms, as well as BSG's full service and Armstrong McCall franchise business. We continue to make progress on lowering our freight costs, reducing damages and improving our on-time delivery to stores as a result of new pooling delivery arrangements. We now have over 750 stores on pooling delivery service and we will expand this model to another 250 stores over the next couple of quarters. Most of the early benefit of this effort went to the Sally business, BSG will follow. Europe is also in our sights. We are expecting to optimize our supply chain in Europe by closing three distribution nodes in Spain, The Netherlands and the UK, while expanding capacity and support our main warehouse in Belgium. A few brief words on stores. As we laid out in Q3, we believe that our large network of stores in the U.S. and Canada is a competitive advantage. With almost 4,200 corporate owned locations across Sally and BSG, we are close to the consumer and of the Pro in the U.S. and Canada. Our store locations provide median convenience when paired with our associates training as color experts. Our business cannot be wholly replicated in the online channel by others. When our store network is combined with our own growing digital capabilities and an efficient supply chain, we can really give her what she wants when she wants it, where she wants at a cost and a price that makes sense for both of us. In this way, we are able to be both with those traditional retailers who are going digital and with those digital retailers who are now building out their own physical footprint. We will continue to invest in our stores. As previously announced for Sally Beauty U.S. and Canada, we expect to complete the Charlotte market remodel, and then to remodel up to 175 Sally Beauty stores in the North Texas for state region, consistent with our concept design in Las Vegas. We will also be adding smartly stores to white space opportunities for the first time in several years. With the exit from the marketplace of less stable retailers, we are being presented with attractive opportunities by landlords, who are eager to partner with a stable retailer such as Sally, who's investing in its overall business. BSG will also be rolling out its new store concept to additional territories based on learnings from its own successful Las Vegas test. The roll-out will start in the second quarter in Cincinnati, followed by Charlotte and then the rest of Ohio in the back half of the year. Now let's turn to our full year guidance for fiscal 2020. Before walking you through the numbers, I want to reiterate some context. First, last quarter, we discussed what differentiates our company from the competition, from our core categories of color and care, our strong owned and exclusive brand penetration, our color training in stores, and our strong cash flow generation. Chris already discussed our progress during fiscal 2019 on our strategic pillars. Our transformation efforts will continue in fiscal 2020, as we will build on the foundations of these same pillars, but with enhancements. During fiscal 2019, we put a long list of initiatives behind us. Some of the initiatives like our POS roll out, and others you see on the slide presentation, continue and is complete in fiscal 2020. With our pivot to growth, we will also launch additional efforts. In fiscal 2020, SBH will pivot to growth and will deliver growth in revenue and growth in same store sales. Growth will come from continued improvement in our guests experience, assortment and in-stock inventory positions within the 4,300 Sally Beauty, BSG and Armstrong McCall locations across the U.S. and Canada. Growth will come from continued expansion of our digital capabilities in both Sally Beauty U.S., Canada and BSG, including new fulfillment model such as same day delivery, ship from store and eventually buy online pickup in store. Growth will come from investments against our largest banner starting in Q2 as we relaunched the Sally Beauty branch to consumers nationwide. Growth will come from growth in our store base. Growth will come from stabilization within our full-service BSG sales force business across the country. Growth will come from targeted acquisition of key brand distribution rights for BSG that are synergistic to our existing store base and immediately accretive to same store sales. And growth will come from an effort to optimize both our existing franchise business in BSG International, as well as a focus on new business models. Work remains, particularly with respect to reinvigorating the top line in our international operations, and a couple of specific regions of our domestic retail and wholesale businesses. With all of that backdrop, here is our specific fiscal 2020 year financial guidance. Consolidated revenue is expected to grow by approximately 1% to 2%, reversing the downward trend in overall revenue existing since 2016. Our store fleet will grow by 30 to 50 stores. We will continue to actively close, remodel, and relocate stores as the individual circumstances dictate, but our overall store portfolio will grow. Consolidated same store sales will be up and in the range of 0.5% to 1.5%. We see continued opportunity to increase our gross margin at both Sally and at BSG as a result of cost savings, the impact of prior-year pricing and working more productively with our vendors. This is true regardless of our need to respond to tariffs or other actions impacting our international sourcing efforts. To that end, we see full year gross margins increasing modestly. With respect to SG&A, the year will be impacted by our expectations of the rising wage rates in key markets. The year will also be impacted by an increased investment in marketing and Sally Beauty, continued technology investments and talent capability builds in digital, marketing, merchandising and elsewhere. As a result, full year SG&A, as a percentage of sales, will also increase modestly. This investment in SG&A will be offset by two things. First, we continue to pursue cost savings opportunities within our larger SG&A structure. This effort was a success story for us in fiscal 2019, and we see further opportunity to fund our investments. Second, increases in our gross margin rates will also be deployed to achieve the pivot to growth that we have been discussing on this call, without negatively impacting the bottom line over the course of the year. To that end, full-year GAAP operating earnings are expected to be approximately flat. Full-year adjusted operating earnings are expected to increase by low-single digits. We expect our tax rates to be approximately 27%. All of this should lead full-year GAAP and adjusted diluted EPS to increase by low-to-mid single digits. With respect to cash flow, cash flow from operations for the full year is expected to be in the range of $340 million to $360 million. Capital expenditure for the full year are expected to be approximately $120 million as we continue to invest. We expect to generate strong free cash flow in the range of $220 million to $240 million. We will continue to focus on optimizing our inventory levels, while making investments in relation to our JDA implementation and our new supply chain node. On the balance sheet, you can expect that we will continue on our efforts to bring down our leverage 2.5 times over the course of the year. We will also take advantage of market opportunities with respect to our equity as the market may present them to us, as we saw in Q4 of this year. Now we do not provide quarterly guidance. However, it would be fair to say that given the continued implementation of our transformation initiatives, including our distribution, no changes in Q2, our brand relaunch in Q2, our delivery model work in Q1 and Q2, and our POS implementation completion in Q2 we expect Q1 and Q2, in particular, to be heavier OPEX, CAPEX and inventory investment quarters. And overall, revenue and profit opportunities to be slightly skewed to the back half of the year. Thank you for your time this morning. Now I'd like to turn the call back over to the operator, so Chris and Heather and I take your questions.

Thank you. [Operator instructions] We'll go to the line of Oliver Chen with Cowen and Company. Your line is open.

Hi, good morning. This is Ross, on for Oliver. Thanks for taking our question. Just on the gross margin, I guess, can you speak to the opportunities to improve your COGS, so you mentioned in your guidance for the coming year do they exist more at Sally Beauty or BSG? And then looking at BSG in the fourth quarter, the expansion of gross margins, can you just speak a bit more to what you attribute that expansion toward and how we should think about that moving into 2020? Thanks.

Great question. Here's the context I would give you. In the fourth quarter, we saw expanding gross margins at both BSG and Sally Beauty, reflecting the significant effort we were putting behind improving that metric in both businesses. Some of it was driven by pricing earlier in the year. Some of it was driven by more -- better relationships with the vendors as far as contributions from there. Some of it was driven by better discipline around ensuring that we were implementing changes across our systems. We have been doing a deep dive for the last two and a half quarters around the analytics we've put on the gross margin by category, by business. And so what I would say to you is, we do believe we have modest gross margin opportunities that continue to exist at BSG and at Sally notwithstanding the progress that we made in Q4 and over the course of the year. That is equally true, of course, for the European business as we look at the trends in that business as we apply the learnings that we had in the U.S. and Canada to the European business.

Got it. Thank you.

Thank you. Next we'll go to the line of Olivia Tong with Bank of America. Your line is open.

Great, thanks, good morning. First, I want a little bit of perspective on your guide. Looks like you're implying a low single digit increase on the SG&A, and you talked to a multitude of initiatives. So one may understand in your view it's enough of the investments to do all the things you want to do on both the retail and digital capabilities? And to the extent that sales do perform better after the implementation of some of that spend, what's your view on reinvestment versus dropping the EPS? And then also -- sorry, last thing, I guess on gross margin, can you help us to find what you think of as modest? Thanks.

Okay, a couple of thoughts. I am not going to provide more definition around modest. But what I want you to take away is that in fiscal 2019 the business has made good progress on unlocking the basics of the business and identifying additional profit opportunities that were inherent in how we operate. That will continue as we carry into 2019. But to your question on SG&A, as we unlock some of those opportunities even within the SG&A structure, our mindset is really -- the second part of our transformation is getting the basics done and behind us, so that we can drive the top line growth of the overall enterprise. And so, as I alluded to in my prepared remarks, we have significant technology change behind us. And if you look at the presentation, you can see some of the list -- a laundry list of things that we've gotten done. That's good news, because we're able to build on the foundation of 2019 and carry that forward into better data, better granular views of the business and more progress. But we do still have things to do. And so you're right to call out the fact that we do have more investment to come. We're comfortable with the level of capital that we called out. We're comfortable that in the context of the opportunity we have to improve our gross margins or take cost out elsewhere that we can manage the business appropriately. We were purposeful in guiding the way we did relative to the impact of the combination of gross margin and SG&A -- sorry sales, gross margin, SG&A to provide -- to call out the low-to-mid single digit growth on the EPS line. Of course, we would love to over deliver. But for the moment, we're going to stick to our knitting and try to deliver on what we promised.

Yeah. And Olivia on the mindset, I think, hopefully, you heard it in the prepared remarks that our focus is on growth. We will invest in profitable opportunities to drive growth and that is our first bias as we go into the year.

Very helpful, thank you. If I could just follow-up, obviously, in third quarter Cody announced that they're looking to explore alternative or their professional business. So would love your perspective on Wella and Clairol potentially changing hands again. There was obviously a lot of volatility in supply challenges over the last few years, given that change, so interested in your perspective on the deal or potential deal.

Well, listen, we're the largest customer in the U.S. of that business and they're one of our largest vendors. We've enjoyed a long and strong relationship with them and we're working to drive growth for their brands. We've already managed through one transition and obviously if there's another, we'll manage that as well jointly with our partner. But I think -- I would hope that most of the supply chain changes are behind them and that can be done stably and we'll work with them to make sure that we support our customers and their customers.

Fair enough. Thanks so much.

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open.

Good morning. Thanks for taking my question. So going back to your Sally Beauty Supply U.S. Canada comp of 2%, I was wondering if you can provide more perspective on what the contribution was from traffic and ticket and then how you're feeling about the sustainability of the recent comp strength?

Great, question. Let me start with some of the causal factors for why we saw the success we did. I start with, with our focus on color and care, our assortment expansion, the return to newness, that really helped drive traffic and increased basket within our business overall. Then with some of the improvements we made in other categories as well, that was certainly helpful to the comp. While we don't release traffic numbers, per se, as part of our disclosure calls, what I will tell you is that we have seen a rising tide of traffic over the course of the year, particularly in Q4, which we believe is tied to the improvements we've been making in both the customer service model, as well as the assortment overall. As we look at our data, what we see as well is that we've been performing better with respect to traffic than other specialty retailers in the same regions that we're comparing against. And so we are pleased with that and expect that given the changes we're making that that -- those positive trends should continue into the next year.

Okay, great. And then going back to your comment about restoring store growth for both segments, just curious from a timing perspective, as you continue to experiment with concept stores, so I was surprised to see it at this juncture in your return to store growth, so maybe if you can just provide more color in terms of the decision to restart growth at the current juncture?

We have in the background, but aggressively addressing the store portfolio in Sally, as well as BSG over the course of this year, going market and market to understand where do we have locations which are fine, where do we have locations which are great and where do we have a couple places where we need to take some action. And as a result, we did close the net 95 stores over the course of the year. What we've come to realize is with the progress we're making on the model and with the offers that are being made to us by landlords in areas where we have white space. That we do have opportunity from a geographic representation of the brands and the business models across the United States and Canada. And so we're going to be quite strategic in where we do add those stores, but we have added that pillar to our growth strategy in connection with our continued aggressive recycle of the stores that we currently have.

And if I could sneak in one last question, on your guidance, does that include share buybacks?

Does our guidance incorporate share buyback? No.

Yeah, the EPS. No? Okay, thank you.

No, and that's just maybe to take advantage of that question, Rupesh our capital allocation strategy has not changed, which is the first thing we're going to do is reinvest in the business. And you see that with $120 million of capital that we've called out. As we sit here today, we believe that's the right amount of capital dollars to invest over the year. As additional resources make themselves available to us from the success, we will of course look at our debt positions and where we can opportunistically bring that down. And if we do have something materialized like we did in Q4, with an opportunity on the equity, we'll consider that as well. But investing in a business is a key priority for us.

Great, thank you.

Thank you. And we will go next to the line of Stephanie Wissink with Jefferies. Your line is open.

Good morning, Stephanie.

Good morning.

Good morning.

Good morning. Thanks for taking our questions. The first one is just on the pricing increase you took earlier this year wondering how much of a factor that was in the improvement in the comp rate and if that's a function of mix, meaning, the brands that you've brought in, carries slightly higher pricing or more premium pricing, or if that was a like for like pricing increase that you took across the board?

What I would tell you is its category specific. It is brand specific as well. We were in part responding to price increases that are -- from our vendors, which of course wouldn't be accretive for us. We did not do a storewide price increase, if you will. And that's about as specific as I can be. The one other thing I will note, though, is that we saw unit growth in those areas where we did take pricing.

Okay, that's very helpful. And then just a follow-up to couple of the earlier questions to bridge the 2019 to 2020 -- the 2019 performance to 2020 guidance, if you could just help us understand the CAPEX with your net store growth, looks like your CAPEX is going to be relatively consistent year-over-year. So where are you pulling back in other investments or where are you in the phases of investments? And then also just one more on that, with respect to the currency effect what are you embedding in terms of FX headwinds in your guidance?

Give me that first question again.

Sorry, Steph, can you -- it has to do with our FX --

Yeah, sorry.

Where are we cutting back and where are we adding.

So, Steph, what I'll tell you is much of the capital in fiscal 2019 was not run rate capital per se, rather it was project based. And so the way you should think about that is the substitution of one project for another is what's leading us into 2020. And I would use the digital investments as an example where we were investing heavily in Q2 and Q3 around the Sally digital investments. That will tail off to a degree as we move into the fiscal 2020. But we do replace it with additional projects. And so there's a mix shift between technology investments and store investments as we ramp-up the store investments over the course of the year as well. We're feeling pretty good on that capital number. We don't expect to exceed it. We are, of course, going after efficiency opportunities as well to help ensure that we have the capital available to us. And then with respect to your FX question that I was contemplating, we have not assumed swings in FX in connection with providing guidance.

Okay, great. Final one from me, just housekeeping, your guidance does assume a GAAP to non-GAAP adjustment. I'm just wondering if you can help extrapolate where some of those adjustments might be coming from and help us scale that or size that up?

Why don't we talk about it on the call after?

Okay, sounds great. Thank you.

Thank you. Our next question comes from the line of Mark Altschwager with Baird. Your line is open.

Great, good morning, and congratulations on all the progress this past year.

Thanks, Mark.

First question, just on international, the plan for Europe sounds very comprehensive and if I did my math correctly, I think you're running maybe low-to-mid single digit EBITDA margins today versus perhaps mid-teens for the U.S. Canada business. So how should we be thinking about that margin trajectory in the near to intermediate term? Would you expect the international margins to get worse before they get better as you make these investments and growth? Just bigger picture, how should we be thinking about that over the next one to two years?

So Mark, good question. The reality is, I don't think it gets worse before it gets better. But I do think it takes time to get the progress we want to make here. Because we're working across all parts of their P&L, in terms of store execution, marketing, execution, gross margin performance, as well as new brands and assortment innovation and finally technology stabilization. So our view is, "Hey, this will take time and it will build." But I don't think it gets worse before it gets better.

Okay, thank you. And then on the loyalty front, it's been a little over a year since the roll-out. Just hoping you could give us an assessment of how the various aspects of it have trended versus your expectations? Sounds like sign ups of the program has been have been positive, very little disruption, very little push back from the pricing. Curious if you're seeing the incremental trips that were anticipated and just if there's a broader way to summarize the overall impact on the P&L for the past year, given all these moving pieces?

Well, I guess a couple of thoughts. More than 70% of sales and more than 60% of transactions are now within the loyalty program. That's a positive. And I can get the exact percentages as we called out previously. We are seeing excitement with the customers who are participating in the program, particularly when they discover that it's free in that respect. And so we would -- we view the last 11 months as being a successful implementation of the program really, getting us to the baseline, because the real magic of the loyalty program would be, OK, now that we've built it, how do we take advantage of the more direct connection we have with our consumers within Sally carrying forward? That means better marketing, that means better engagement. And all of those are part of our planned for 2020. Some of the investment we've been talking about so far on this call is tied to building greater granular visibility into the data to allow us to optimize the assortment, allow us to optimize those offers, regardless of channel, whether it's digital or in-stores. Because we have the -- well, the one view of the consumer whether she's in the store, on the app or in the digital or on the website, per se. So we view that as part of the build for 2020.

Mark, one of the exciting things about all this is that it's, as we talked about pieces coming together, when you think about having relaunched that program and reached the scale of transactions and participation that we've reached, combined with our new POS system that allows us to recognize the customer in store, combined with better CRM tools and more exact targeting of customers. As all of that comes together in the next few months and quarters, that's where you get the real payoff from all this in terms of being able to offer -- make really relevant offers and recognize the customer app purchase. So all of that's now starting to come together, which is what's exciting. There's still more work to be done, but we're close.

That's great, thank you. And maybe one last one from me if I could, curious if you could talk a little bit more about the strategy of bringing more pro hair brands to Sally Beauty. Is this targeting primarily a retail customer or a pro customer and how do you think about potential cannibalization of BSG stores if you're successful in attracting a pro customer to Sally?

It's a great question, Mark, and here's what I'd tell you is. Pros are shopping in both Sally and BSG already, right? They're coming for different reasons, different trip types. We've done a fair amount of research over 2019 to confirm that to us. And so as it relates to the pro consumer, Sally has always serviced the pro. And what we view this is doing, whether they're coming in for an Ion color packet or CHI or anything else is, we're serving a different part of the market than BSG is as we carry forward. It is also a case that we have retail customers who don't want to go to the salon. They want to do it themselves. They're creative, they're being economical, and they're looking for a higher-level offering that they wouldn't have access to at BSG. And so we believe some of the more higher end pro like offerings like CHI, like some of the care products we've talked about, that that will be both supportive of the pro and supportive of our retail business and not cannibalistic to BSG.

That's helpful. Thanks for all the details today.

Great, you bet. I should take one moment and reflect on a number that I tongue-tied as I was talking earlier. Of course the segment sales for BSG were $394.1 million not $39.4 million.

Thank you. We will go to the line of Simeon Gutman with Morgan Stanley. Your line is open.

Thanks. Good morning, everyone.

Good morning.

I wanted to ask maybe a follow-up, I guess, on this quarter and the improvement in Sally Beauty, which I think is pretty notable. If you look back on the two and the three year stacks, they've been getting better. But this quarter really -- it looked like it abruptly improved pretty sharply. And I realized it's reflecting the innovation that's been in the brands for the whole year. But going back, thinking about what else could have occurred in this particular quarter, it sounds like traffic improved. Maybe it was just a culminating quarter, but anything else you could provide color on?

Sure, A couple of thoughts. First, I want to call out there while we're very pleased with the quarter for Sally Beauty Supply, we are not declaring this to be a breakout quarter. Right? It was a good quarter for us and we need to build on the successes that we've achieved. It was driven by a couple of things. The first thing is the retail discipline, where the stores teams across our organization in Sally Beauty have been focused on training, have been focused on retail fundamentals, have been focused on how do we serve the customer better. And while we've been making good steps over the course of the year, Q4 was the first point where we're seeing the real benefit of that across the enterprise. Second thing going on is, of course, the better assortment around what are we offering to the guest. The third is we've made significant improvements in the connection point between our marketing organization and how we're talking to our consumer and then how we're showing up in stores, online or otherwise. And so those three things, I think, are the primary factors that are helping to drive the Sally Beauty numbers up and of course they should be translatable as we carry forward.

Got it, that's helpful. Can you give us a sense of what the professional market is growing -- the market that BSG operates in? And then for next year your assumption on -- you gained share, you hold the share one versus the other?

Yeah, I mean, Simeon, really it's hard to track that and get good numbers on just the pro category through stylus. That being said, we see growth opportunities for BSG. Some of that is better execution on our part and we're slowly improving both the execution on both the margin side and the sales side and that will continue. And, obviously, one other reasons we've continued to add new talent into our BSG team is to continue to improve our execution, both in-store as well as through our digital platforms and we're going to add new service models and we're going to add new innovation. So it's like anything in retail. It's all the pieces that have to add up to get to the total performance, but we see growth in the channel.

Great, okay, thank you. Nice quarter.

Thanks, Simeon.

We will go to the line of Linda Bolton-Weiser with D. A. Davidson. Your line is open.

Good morning, Linda.

Good morning, Linda.

Hi, how are you? So I was wondering if we should just revisit your strategy to have a certain percentage of your products and exclusives brands. Could you update us on what that percentage was just for Sally Beauty in FY 2019 versus FY '18 -- exclusive brands?

Yeah, so Sally is about 45% owned and exclusive with the bias toward owned and BSG, I believe, is low 50s, 53% with the bias toward exclusive.

And for Sally how did that -- did that percentage stay flattish or did it go up or down versus prior year?

I would call roughly flattish. In the last couple of quarters one of our initiatives has been to bring in some national brands to help drive some basket fill in key areas. And Maybelline is a good example where we have historically been a largely private label or our owned brand business in cosmetics. And Maybelline, while late in the quarter, is an example of where we've -- we're spreading it out.

Another exciting example that is Color where we've been bringing an influencer back brands like Arctic Fox and Good Dye Young, which are driving growth and bringing in younger consumer. But our overall Color business is up as well, which is -- well, that's the terrific story there.

And our largest vivid color line is still Ion our own brand business.

Yeah, absolutely.

Okay, thanks very much.

Thank you, Linda.

Thanks, Linda.

Thank you. Our next question comes from the line of Lauren Frasch with Wells Fargo. Your line is open.

Good morning, everyone. Congratulations on a great quarter. I have a quick follow up on gross margin stuff at Sally Beauty. Can you talk a little bit about your approach to promotional strategy? I know you've been driving margin improvement in the U.S. and Canada through shifting that around a little bit. Does it get more difficult to drive gross margin expansion in this segment as you've lapped these initiatives? Thank you.

I think it's a fair question you're asking where we are now a little bit over a year into the change in our promotional cadence, where we've been more focused on driving impact with fewer deep promotions than driving breadth of promotion so to speak. We did see gross margin improvement as a result of that effort over the course of this year. What I would tell you is, by category, we still have some opportunities there. But the magnitude of the opportunity driven just by promotional cadence is smaller than it was in 2019, and that puts it more on us to really find the other opportunities there.

Thanks.

Thank you. Our next question comes from the line of Adam Kozek with Raymond James. Your line is open.

Looks like I put my name in there instead of Joe's. But I just kind of wanted to give a quick update on the target leverage. Last time you guys -- I believe, pointed at 2.7, I was wondering if that was still consistent, maybe a timeframe on that, I noticed you guys were at 2.63 which was an improvement from last quarter, so just quickly on that will be great?

We landed last quarter at 2.69. We landed this quarter at 2.63. We continue to bring the leverage down. We have the cash flow. We certainly have the strong cash flow that can support our leverage. But our goal is to bring the leverage -- our ratio down over time and you saw that this quarter as well.

Great, and then just a quick follow-up. I know you guys have talked a lot on Europe and give a lot of good color on the headwinds, of course, and the improvement potentially. But just the fact that that deadline for Brexit keep getting pushed back, does that prolong the uncertainty here? Are you seeing signs that consumers have adjusted to this?

I would say in general, I think, consumers are kind of adjusting to the uncertainty. We are seeing some improvement in our U.K. business. And so I would argue it's a little bit of wait for it to happen at this point in time. My guess is it would be less impactful than the original news and fears. But we're going to have to let it happen before we know that.

We will go to the line of Carla Casella with J.P. Morgan. Your line is open.

Hi, I had a follow-up question on -- someone asked you about your vendors and Cody. Is Cody one of your top five for BSG? And I'm also wondering is Henkel -- do you currently work with Henkel as well?

Cody is one of our top five. And we do work with Henkel across both businesses and they are one of our largest vendors as well.

Okay, and then I am just trying -- you look to the holiday stocking and just any kind of highlights there were to look for in terms or key items or key focus promotional areas in the stores as we go into the holiday season?

So one point of context for you is, for the last several years Sally has not been a seasonal business, and that our business has been pretty steady. It doesn't vary dramatically for the holidays. We started to adjust to that in mid-October last year with a focus on some holiday offerings. This year the offering is quite different where we have a gifting strategy on NCAP at Sally tied to our key appliance items, tied to some care items, tied to some of our cosmetic items. So we're eager to see how that performs given the relatively flat seasonality of the business over time.

Okay, great. And then just one follow-up on the DC consolidation that you're doing in Europe, as well as the new facility in Texas, what's the timing of both? And will there be some inventory adjustments or kind of stocking of additional inventory to make sure you don't have any disruption during the DC roll-out or DC conversion?

Yeah, it's a great question. So let me answer it in a couple of ways. In the U.S. and Canada for fiscal 2020 the only change to know that we are anticipating is the addition of the North Texas facility, which is currently under construction and should be live servicing the BSG business by the end of March. Right? We will naturally need to load that building with inventory in support of the enterprise. While that is going on, we also have a JDA implementation starting elsewhere within the network. That we're probably testing through as well. And so those two things would say there may be some inventory coming in. What I would tell you on the opposite side of the coin is that we are very focused on ensuring that our inventory levels do not rise materially and we're working aggressively, both in the Sally business and in the BSG business, to bring our inventory levels elsewhere down. At the same time they were investing within the North Texas facility and the JDA implementation. That will be a work-in-progress and a key focus area for us in fiscal 2020.

The Europe consolidation is that -- anything from that?

The European consolidation is spread out over the course of the year. We're not expecting that consolidation to have a material impact on inventory as we've worked the inventory levels down, as we come out of the nodes and so I'm not anticipating a problem.

Okay, great. Thank you.

Thank you.

Thank you. And our final question will come from the line of William Reuter with Bank of America. Your line is open.

Good morning. You mentioned in the prepared comments that there could be some acquisitions of exclusive brands on the BSG side this year. I think we've heard about that from time-to-time. But I guess if you can give us any context of the size of these acquisitions that you might be looking at?

Well, we're not going to comment on the specific acquisition. What I would say is, what you should take from this is two things. The first, part of BSG's model, over time, as you look at where they've driven growth, is to require new brands. Either a new, new brands or distributions rights on existing brands and put them into their existing store network. That, of course, has a quick impact on same store sales. We've been focused elsewhere for the last 18 months to two years and you know, what I want you to take away is we're moving back to that model of being -- of looking for opportunities like that to help the overall business. Second thing I want you to take away is that, while none of these acquisitions would be material to the enterprise per se. Right? They will result in the use of cash. Right, that we'll have to -- that we would put into the -- investing in the business bucket that may offset other things.

Okay, and just as one follow-up. Couple of callers ago -- or callers ago, you mentioned that your goal is to bring leverage down. The last time I'd seen your leverage target it was two and a half times, is that still what your leverage target is at this point?

Our first success point is two and a half times. I think what I've said in the past is, as we get to two and a half times, we're going to look around at the investments we need in the business, our leverage ratios and other demands on our cash and we'll go from there.

Great, thank you very much.

Thank you. And I'd like to turn it over to Chris for any closing comments.

Well, first of all thank you for your questions today. To summarize, we made tremendous progress in 2019 as we invested in the key initiatives and capabilities that will drive future growth. We acknowledge there is still work remaining in 2020. We're seeing positive results from our efforts and we remain confident that we are on track as we transition the company back to long term growth. Thank you for joining us today.

And ladies and gentlemen, today's conference call will be available for replay after 9:30 A.M. today until midnight November 14. You may access the AT&T teleconference replay system by dialing 1-800-475-6701 and entering the access code of 472895. International participants may dial 320-365-3844. Those numbers once again, 1-800-475-6701 or 320-365-3844 and enter the access code of 472895. That does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.