Good morning. My name is Cassandra, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation Fiscal 2015 Fourth Quarter Earnings Call. [Operator Instructions] If anyone has not received a copy of today's press release, please call Regis Corporation at (952) 806-2154, and a copy will be sent to you immediately. If you wish to access the replay for this call, you may do so by dialing 1 (888) 203-1112, access code 9656366. The replay will be available 60 minutes after the conclusion of today's call. I would like to remind everyone that to the extent the company's statements or comments this morning represent forward-looking statements, I refer you to the risk factors and other cautionary factors in today's news release as well as the company's SEC filings. Reconciliation to non-GAAP financial measures mentioned in the following presentation as well as others can be found on their website at www.regiscorp.com. Speaking today will be Dan Hanrahan, Chief Executive Officer; and Steve Spiegel, Chief Financial Officer. After management has completed its review of the quarter, we will open the call for questions. [Operator Instructions] I would now like to turn the call over to Mr. Hanrahan for his comments. Dan, you may begin.

Thank you, Cassandra. Good morning, everyone, and thank you for joining us. With me today are Steve Spiegel, our Executive Vice President and Chief Financial Officer; Eric Bakken, our Executive Vice President and Chief Administrative Officer; and Mark Fosland, our Senior Vice President of Finance. Because it is the end of the year, I want to look back at where we started our turnaround, where we are today and where we are headed in the future. It's a good time for me to summarize our progress to date and the work we still have to do. Over the past 2 years, we have significantly changed the way Regis manages the salon business. These changes, while necessary, created disruption. However, after years of declining traffic and revenues, we have begun to stabilize the business. My confidence in Regis' future grows as we continue to execute our strategy to build a performance-based culture and make Regis the place for stylists to have successful and satisfying careers. I'd like to take a couple of minutes and remind everyone of the steps we've taken to position Regis for success. A complete cultural transformation was necessary to break the cycle of declines we were experiencing. We began to implement our strategy in mid-2013. We executed a number of transformational initiatives that laid the foundation for our turnaround. We began by restructuring our field operations team to ensure our salons were getting the leadership support they needed to grow. We put in place our first-ever Human Resources and Asset Protection teams. With 7,000 salons and over 47,000 employees, these teams are crucial to our future success. Adding Human Resources and Asset Protection has allowed us to train and develop our field leaders in salons on an ongoing basis. To the vast majority of our field leaders,…

Thank you, Dan, and good morning. Before discussing our performance for the fourth quarter, I want to cover several housekeeping items. First, included in today's press release as well as on our corporate website is a reconciliation bridging reported results to earnings as adjusted for the impact of discrete items for the fourth quarter of the current and prior years. Second, the presence of a valuation allowance against most of our deferred tax assets affects comparability of reported and as-adjusted results to prior periods. Income tax benefits for the quarter of $2.2 million includes a $2 million reversal of previously recorded charges relating to tax benefits we claimed for goodwill amortization and do not recognize for GAAP purposes. Taking into consideration this reversal, we've recognized $8.9 million of noncash tax charges relating to this goodwill amortization for the full fiscal year. As I've mentioned in the past, this noncash charge will continue annually in decreasing amounts as long as we have a deferred tax asset valuation allowance in place and could continue to fluctuate significantly from quarter to quarter as a result of how the effective tax rate is determined at interim periods. Third, in reviewing our accounting for noncash impacts of deferred rent, we identified a $5.3 million understatement of our deferred rent liability. As a result, noncash rent expense increased $63,000, $157,000 and $471,000 in fiscal 2015, 2014 and 2013, respectively, and $4.3 million of this understatement related to fiscal 2010 and prior. In addition, this did not impact our operating cash flows in any year. Because the overall understatement was deemed material to fourth quarter and fiscal year earnings, we revised our annual financial statements for fiscal years 2011 through 2015 and quarterly financial statements for fiscal years 2014 and 2015. To assist you with your modeling,…

[Operator Instructions] And we'll go first to Steph Wissink with Piper Jaffray.

A few questions. Dan, if you could just start by giving us some directional guidance on the spread in comp between your Salon Managers or field managers that have achieved some of the curricular and learning attributes that you're trying to depart [ph] on them and then those that aren't. I'm just trying to appreciate, with the blended comp right below kind of a flat range, what is the span or the spread of the low to the high? And how do you inch more and more of your managers toward a higher level?

So great question. I won't give exact specifics. But we've got -- if we look at just our positive performers, we would be in low single-digits positive area if you added them all up. The spread on that is pretty big. We do have District Leaders that are doing well into double-digit comps. And so where we've got people that are executing well against our strategy, they're doing a great job delivering the results. The ones below are similar. They're low single-digit comps. So what we don't have is we don't have a broad spread around the mean. But there also, we have a fairly wide spread. We have people that are just under flat and some that are down close to double digits. So what we're doing is all the stuff that we were pointing out in the call. This is really about developing talent, getting the right leaders in place and having -- helping them to execute our strategy. And where we're getting that right, we're getting very good results. It gives me a lot of confidence about our business because we've seen that the strategy works, so our challenge is to continue to develop our people and where we can't, quite honestly, to upgrade them. And we haven't been shy about doing that at all. We prefer to develop the talent, but if we have to upgrade the talent, we'll do that as well.

That's very helpful. So if I could just paraphrase, not a broad spread around the mean would imply that getting your Salon Managers from the low single-digits negative to a positive low single digit, is that directionally far of a move? And so can you maybe give us some insight into what has changed in the incentive model at the field level to really motivate them?

Yes, I can. Our District Leaders are -- we put a program in place where we're compensating them to drive not only sales results but also contribution. And we've improved that program. It's actually a -- it's a very creative program that rewards them a little bit like being an owner. If you talk to any kid coming out of beauty school, they will all tell you that their aspiration is to own a salon, and that aspiration really doesn't go away ever. They all aspire to be salon owners. So what we did is we put a program together, where if they overachieve their target, they can earn money that will sit there next year for them as long as they continue to grow. So a portion of their bonus will also be there next year. So it's a great retention tool for us, and it is also a tool that really incentivizes them to perform. And as I was pointing out in my transcript there, I was actually in Seattle recently, and I had lunch with 4 District Leaders. And the conversation had shifted from talking about what we still need to do to help them to what they can do to drive the business themselves. And they're thinking around, "Geez, if I have something that needs to be done in the salon, I now think about can I do that myself rather than having to call somebody in to come and do it." And it may be a simple task, changing a lightbulb, floors need to be scrubbed. I mean, it was just an amazing conversation for me because what it said was that they were thinking like business people and they were thinking about four-wall contribution rather than just getting through the day. And each of them was so motivated by the fact that they had earned that extra bonus above the target that they were already talking about things they were doing differently this year that would drive even better results for next year, so they could be in that pool again. So we've tried to treat them like owners and make them feel more like partners with us. And the ones that are earning it, it's an incredible motivational tool as well as a great retention tool.

Great. And then just final question with respect to the hire of a new CMO role regarding your product merchandising effort. Can you just update us on the timing of some of those changes and what we should be looking for at the store level regarding some of those updates?

Sure. So we were lucky enough to get Annette Miller, and Annette came -- started with us right after the first of the year. She comes with a terrific background from Target and has actually proven to be a great partner on the leadership team. She's doing a lot of work around 3 areas. She's working very hard on something that we call combo sales. So one of the things that we believe is a quick way to grow our retail business is that when somebody's in getting their haircut, we want to make sure that they buy product. And she's come up with some very creative ways to help educate and incentivize the stylists. She's also working on assortments. We have pretty much a one-size, fits-all across our salons, and she's been much, much more thoughtful about that. And then also on inventory management, not only in our warehouse but at the salon level, making sure that we have the right in-stock on our best sellers. We have a pretty good replenishment program. But again, it was sort of a one-size, fits-all. So she's been very, very thoughtful about how we can drive retail with tools like that, and she's done a lot of good, competitive assessments, too, on the category as a whole. So we need to give her time to put it in place. As you know, with any kind of retailer, you can't just make plans with your suppliers and change things the next day. You need time to get it to work through the system, get the right POS in the salons. But I think the things that Annette and her team are doing are really thoughtful and will have a nice impact on our retail business over time.

Our next question comes from Bill Armstrong with CL King.

Just a couple quick ones. It looks like you bought some shares back in the fourth quarter. I wonder if you could tell us how many you bought and at what average price.

We bought about just over 900,000 shares, and the average price was in the mid-$14 per share range. It's in our -- it's actually in our 10-K.

It is? Okay. I'll take a look at that. And you had an inventory -- a book-to-physical inventory adjustment during the quarter. How much was that?

Well, we don't actually spell out the exact amount. But actually, throughout the year, as our execution has been improving in the salon, we've been seeing tremendous compliance from a cycle count perspective. And that's been, through the year, starting to give us a lead indication that our shrink rates were improving. And so in the end of the year, when we actually trued up the full book-to-physical, we saw the benefit of that. It was the large impact that really helped our retail margins in the quarter.

Got it, okay. So I'm just trying to figure out what sort of retail margin to maybe model going forward because it looks like there's a nonrecurring benefit there with that 53%.

Yes. We don't give guidance, but what I'll tell you is that we probably had some de minimis margin deterioration because of the mix of business to combo versus retail only. A combo ticket is a little bit lower. Other than that, not much else.

Okay, understood. And then maybe a little bit bigger picture, your company-owned salons, you're shrinking the base a little bit, and you're adding some -- a little bit to the franchise store base. And the franchisees on average or as a group have been comping positive. Any thought or discussion at the board level or amongst the managers about maybe accelerating a move towards maybe a greater mix of franchise versus company-owned salons?

So I'll take that one, Bill. Good question. We have, over the last couple of years, really accelerated the growth of our franchise business for a couple of reasons. We saw that there was an opportunity to protect markets that we were in, and we did see that there was also an opportunity to grow revenues out of that. The franchise business today performs better than we do. So while we have hunkered down and focused on fixing the salons we have today, we have been growing the franchise business aggressively.

Right. So any thought as far as making maybe a much greater push and shifting to a bigger mix of franchise salons?

So if I read between the lines and say -- and make sure that I get your question, if we were going to take a large number of our shares and convert them to franchise, no, we believe that we can fix them. We believe that we know that when we run a salon well, we generate an awful lot more cash flow from a salon we run well than we do from a franchise. We think that we're an interesting hybrid. We like both, but we believe that we can fix the base business and that we can generate a lot of cash as a result of fixing that base business.

And we'll go next to Jill Nelson with Johnson Rice.

If you could just talk about looking at the cost structure for fiscal '16, any levers that you can pull to lower the structure down? And then just thinking about the investments you made in HR and Asset Protection in fiscal '15, will those sort of trail off in '16 and we start to reap even more benefits? Just how do we think about that?

Yes, so we don't give guidance as to our cost structure, but what I'll tell you is a couple of things. One, to the extent we are making investments -- or continuing to make investments next year, we're funding it through our cost structure. So we're continually looking for ways within our own cost structure to offset the impact of future investments in our business. But where we get the real leverage in the business is by growing, and I think when we suddenly see our business grow in that 1.5% to 2% range, that's when we begin to see leverage of growth.

Okay. And then can you just talk about -- I know we're seeing higher minimum wage pressure, call it, labor pressure. Could you talk about -- I assume that's going to be a headwind for next fiscal year.

Well, I won't speak about it from a guidance perspective, but what I'll tell you is minimum wage is, in the short term, what I would call our headwind, and in the long term, it's our opportunity. In the short term, when we're not executing as well as we'd like to be, a larger percentage of our stylists are not commissioning. So as a result, when minimum wage goes up, it creates cost pressure for us. In the long term, when all of our portfolio is executing as well as the half that Dan referred to earlier, a greater percentage of our stylists begin to commission. And then minimum wage becomes a theoretical argument because they're making more than minimum wage once they're hitting the commission scale. Does that help?

It does. And then just one last quick one. Online booking at Supercuts, could you talk about how -- what are you seeing there? It sounds like you're pleased with it. Do you feel like you're getting new customers? Or is it more just your existing customers come in more on a repeat basis?

It's the combination of the 2. It's a mix. So what we are seeing, though, that once somebody gets into the online booking tool, be it through the mobile app or through the website, is they become a consistent guest. It's a really easy way to get a service from Supercuts. And I think our marketing team did a great job building out both the website and the mobile app and will continue to bring improvements to that. I saw some improvements yesterday that I was really excited about. So I think that while we're pleased with where we are today, I think we're just scratching the surface of where we can go with that technology.

And at this time, I will turn the conference back over to the speakers for closing remarks.

Okay. Well, thank you, Cassandra, and thank you, everybody, for joining us today. We look forward to talking to you again in a couple of months. Have a great weekend.

And this does conclude today's conference. Thank you for your participation.