Ladies and gentlemen, thank you for standing by, and welcome to the Sally Beauty Holdings' Fiscal 2013 Third Quarter Results. [Operator Instructions] And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Karen Fugate, Vice President of Investor Relations. 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 of business or trend information made during this call may contain forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934. Many of these forward-looking statements can be identified by the use of the words, such as may, will, should, expect, anticipate, estimate, assume, continue, project, plan, believe and similar words or phrases. These matters 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' SEC filings, including its most recent annual report on Form 10-K for the fiscal year ended September 30, 2012. 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 information in its earnings press release and on its website. With me on the call today are: Gary Winterhalter, Chairman, President and Chief Executive Officer; and Mark Flaherty, Senior Vice President and Chief Financial Officer. Now I would like to turn the call over to Gary.

Thank you, Karen, and good morning, everyone. Thank you for joining us for our fiscal 2013 third quarter earnings call. I'll begin today's discussion with a high-level review of our financial results and business initiatives. Mark will then take you through the quarter in more detail. I'm sure you saw from our press release this morning that sales performance for the quarter was mixed. Sales growth from our BSG, Sally International and Sally U.S. Beauty Club customers was strong. However, traffic from the Sally nonclub customer was down and impacted overall sales growth. Although we are disappointed with the performance in our Sally U.S. business, we have identified several opportunities to improve customer traffic that I will discuss in a moment. Despite soft revenue performance, our overall financial execution was good with a 50.1% gross margin, 50 basis point improvement in SG&A leverage, and double-digit earnings per share growth. Our consolidated same-store sales increased by 0.7% after growing 5.2% in the third quarter last year. Although we knew third quarter comps would be softer than the fourth quarter, this performance was well below our expectations. The driver that led to the shortfall was the decline in our Sally U.S. non-Beauty Club traffic. Consolidated gross profit in the third quarter reached 50.1%. This performance represents the second time in company history that gross margin reached over 50%. The first time was last year in the third quarter. Now turning to segment performance, starting with Sally Beauty Supply. Same-store sales for Sally Beauty declined 0.8% versus growth of 5.2% in the prior year. This underperformance is primarily due to the decline in traffic from our nonclub customer. We believe the primary reason for this decline is due to a change in our marketing tactics. Historically, we took a very targeted approach to…

Thanks, Gary. Consolidated net sales for the third quarter were $912.1 million, an increase of 2.8%. This increase is primarily driven by 168 net new store openings and same-store sales growth of 70 basis points. Consolidated gross profit was $457.1 million or 50.1% of sales compared to 50.1% of sales in the fiscal 2012 third quarter. Although gross margin was up 20 basis points at Sally and 10 basis points at BSG, on a consolidated basis, gross margin was flat year-over-year due to a higher mix of professional sales. Third quarter SG&A expenses were $295.7 million, growth of 1.4% from the prior year and below our expectations. SG&A as a percentage of sales was 32.4%, an improvement of 50 basis points over the prior year primarily due to expense management across the company. Unallocated corporate expenses, including share-based compensation, were $27.8 million or 3.1% of sales versus the fiscal 2012 third quarter expenses of $27.7 million or 3.1% of sales. Consolidated operating earnings in the third quarter increased 4.4% to reach $142.6 million. Operating margin was 15.6%, up 20 basis points primarily due to the strong performance in our BSG business. Interest expense, including the amortization of debt financing costs, totaled $27 million, which was flat to the prior year's quarter. Adjusted EBITDA for the third quarter was $164.6 million compared to $155 million in the prior year's quarter. For the fiscal 2013 third quarter, our effective tax rate was 37.3% versus 36.6% in the fiscal 2012 third quarter. On a year-to-date basis, our effective tax rate was 37% and continue to believe that our effective tax rate for the fiscal 2013 year will be in the previously stated range of 36.5% to 37.5%. Net earnings were $72.5 million, up 4.3% over the fiscal 2012 third quarter GAAP net earnings…

Thank you, Mark. Despite soft top line performance, our overall financial execution was good with a 50.1% gross margin, 50 basis points improvement in SG&A leverage and double-digit earnings per share growth. Our BSG and Sally International business had an outstanding quarter, and we expect this performance to continue. In the Sally U.S. business, we returned to our original marketing approach and believe traffic will begin to pick up as a result. We have some exciting product rollouts coming soon and believe the buzz around these new products and brands will encourage customers to visit our stores. I have confidence in the steps we are taking to improve retail traffic, but it might take a few months. While we may see a modest improvement in the fourth quarter as comps become easier, I believe the rebound is likely to come in early fiscal 2014. Operator, please open up the line for questions.

[Operator Instructions] We'll go to the line of Simeon Gutman with Crédit Suisse. Simeon Gutman - Crédit Suisse AG, Research Division: Gary, first, how do you distinguish between an execution issue with the marketing or CRM versus the program maybe just having delivered good results for a long period of time, just going through a normalization now?

I would say that the dropoff that we saw was too quick for it to be a problem with the program. It's really obvious to me looking back now what we did, when we did it and the change that it made. I don't -- there's still too many profiled customers out there that we haven't approached that just tells me that that's not the issue. Simeon Gutman - Crédit Suisse AG, Research Division: Okay. And then I think on the last call, it was mentioned that April started out a little better. Was that better across all of the customers? Was it better with the nonclub customers? And I guess, was -- and then how did it go from there?

You're absolutely right, which is why on the last call, which was the early part of May, I was encouraged about this quarter bouncing back into the range that we stated. But May and June softened up significantly. April did show weakness in the non-Beauty Club Card. But the other parts of the business on the Sally side, Sally U.S., were actually pretty good. Now some of that could have just been time of year. Some of it could have been promotional activity. But it certainly didn't follow through in May and June. Simeon Gutman - Crédit Suisse AG, Research Division: Okay. And then 2 more, I'll ask them together, and then get off. How much longer could you continue to get this good expense leverage if the comps remain soft? And then the second part is not related. The change in leadership that you just mentioned at Sally Beauty, what does it mean for the business? And then what does it mean for you, Gary?

Let me address the first one. A lot of the SG&A leverage that we get when sales are soft, we obviously keep a close eye on store payroll when that happens. We also -- during the year, we're always accruing for bonuses. And as the performance isn't there, you take that accrual down significantly. And obviously, bonuses this year will be significantly less than they were last year. So that's part of it. Mark has also done an excellent job in controlling expenses on the shared services part of the business. So I think that -- I certainly don't want have do that on an undergoing basis. But we've always told all of you that we believed that we could leverage expenses on a very low comp. And if nothing else, I guess, we've proved it the last couple of quarters. That can't go on indefinitely obviously, but I don't think it will have to. I think we know what our issue is, and I believe that we can solve the issue. But a lot of those things will stay in place as long as sales continue to be soft. Store payroll, we'll have a close eye on that. And just overall expenses. We've always been a tightly run company, so we're used to having issues like this. If you recall several years ago, when we ran into the supply issue on the BSG side of the business, we really reeled in some expenses there and made it through quite well. Your second question was regarding Mike. Obviously, I'm disappointed with Mike retiring. I've always felt like my successor would most likely come out of that division since it's the largest and most profitable division. It's kind of the driver of the entire company. So that's disappointed -- disappointing. Tobin, we've been talking to Tobin for quite a while anyway. And I think he's a very likely candidate to succeed Mike, when he leaves in November. Simeon Gutman - Crédit Suisse AG, Research Division: And does it affect it in the way of how long you think of, I guess, running the business?

Myself? Simeon Gutman - Crédit Suisse AG, Research Division: Yes.

No, it really doesn't affect it. I didn't have any plans on retiring anyway. I like what I do. I feel a big commitment, not only to the company, but to 27,000 people that work here. And I've got a terrific board that I would never leave hanging in any way. As long as I'm breathing, I'm going to do what's right for the company as far as succession is considered.

Our next question comes from the line of Meredith Adler with Barclays.

I'd like to start by just going back to the issue with the marketing. Why did you just go to this broader effort to begin with? Were you not happy with the more targeted approach?

We were very happy with the targeted approach, Meredith. Your question is a very good question. It was a mistake, looking back on it. The part of the problem that we had was it's not like we turned off one and turned on the other in a particular month. It was a gradual shift trying to get more exposure. We were very happy with what was happening. But you're always looking to better things. So we gradually shifted toward another method. And I'll try to explain why it was difficult to catch. First of all, like I said, it didn't happen overnight. It wasn't like we turned off the hot and turned on the cold at all. It was a gradual change so that made the results a little more difficult to read. The other thing is, for years now, our list business, our list customer count increases have been declining, but it was because those customers were joining the Beauty Club Card. So we missed kind of the inflection point, where the total traffic was starting to grow at a much lesser rate, and then ultimately, the total traffic slipped slightly negative, which is the situation that we're in right now. The other thing that disguised a little of it was the strength in the categories that we've been talking about last year. They -- I think we accepted too much of the results for the last couple of quarters, given the calendar changes and the category performances from last year that we were trying to compete with. So that disguised a little of it. And primarily, it had a lot to do with us paying too much attention to redemptions on a lot of these mailers and other ways we went to market and not enough attention to the actual traffic counts. So I know that's a lot and it's probably hard to understand, but it's part of the reason we didn't catch it as quickly as we should have.

And let me ask you whether you think you need to do anything else. I'm going to speak a little bit as a customer here, that the stores are not appealing. There's -- even when you first walk into the store, there's nothing that reaches out to a noncore customer. It's so very aimed at the professional customer. Do you think there's anything you can do or should do at the stores to make them more appealing?

That's a very good question. It's one that we struggle with all the time. We do strongly believe that it's that professional aura and that professional look that actually gives us that professional umbrella that actually attracts a lot of retail customers. Now I will also say that given the traffic increases that we were seeing a year ago and for the 18 to 24 months prior to that when we were really in the middle of the marketing program that we were doing, our traffic was growing nicely. And all of the research that we do, believe it or not, does not point that out as a major issue. Now I'm the first one to admit that when you walk into one of our stores, you don't feel like you're walking into an ULTA. But again, we really don't want to create that feel. First of all, we're a bit limited in what we can do with 1,600 square feet. They're not huge stores. Secondly, the professional, which is still 25% of our business at Sally, doesn't expect to be walking into a high-end, boutique-ish type of store because they look at us as a wholesale supplier. And I think the consumer that really appreciates what we are also kind of looks at us as a wholesaler. Now we consistently are testing new looks for the stores. We've got a couple of stores here in Dallas that are, I guess, well, they're going on a year now of a completely changed look. And to be honest with you, it's not showing any results in traffic or in sales. So I'm hesitant to devote a lot of capital expenditure to doing something to the stores that may be the wrong thing and doesn't prove itself out. I'm having a lot of those conversations with Tobin, as we speak, because most of his background was at Bath & Body Works. And Bath & Body Works is a very pleasant, nice-looking store when you walk into it. But it's not going after the customer that we're really going after. And that's kind of the beauty aficionado that is more interested in the products we're selling than what the environment really looks like. So I don't know if I'm answering your question as well as you'd want me to answer it, but that's kind of the way we look at it.

No. I mean, the fact that you're testing things is really what I like to hear. I have one final question. You have now redone your bank facility. Given the softness in some of the sales, is there any reason you wouldn't borrow to buy back stock right now?

Mark, do you want to take that?

Meredith, yes, we have -- we've been very successful this year buying back stock. We've certainly been able to do it within the confines of what we've said our targeted leverage is. We've migrated to the kind of the top end of that and a lot of that just [indiscernible] has been historical and very predictable cash flow characteristics in this business allow us to do so. With that said, going above 2.5 [ph] to 2.6 [ph] to 2.7 [ph] for a short period of time, certainly we've done that. We're doing it currently this quarter. But in terms of actually migrating our leverage target up further than that, that's not something that we feel it's necessary right now in order to continue to affect the share repurchase program that we have under authorization and feel very comfortable with the overall capital structure and where we stand today.

Meredith, I would also keep in mind that even though we had sales difficulties in one piece of one of our businesses, our EBITDA was still above the Street expectations and our margin improvement continued as it has. So at this point, we have a sales issue that we think we've identified. And I don't expect that we would be changing any of the other things that we've done and continue to do because of what I believe is a short-term sales issue.

Our next question comes from the line of Ike Boruchow with Sterne Agee. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: I guess, Gary, my question is, from the last call, you had given an outlook for a 3% to 4% comp for the back half of your fiscal year. Obviously, Q3 came in light. Is there a new outlook? I'm just trying to figure out how we should think about Q4 because it sounds like towards the end of May and June softened. I'm curious, is there any comment you can give us on July quarter-to-date and just how to think about the cadence? Because it sounds like you're saying it's going to take a few months for some of the changes that you're implementing to really take place.

Yes. You're absolutely right. Ike, I would tell you at this point that I think we'll end up with comps maybe slightly better than 1% for the year. I don't think that there's enough that we can do in Q4. And as I said, when we turn this marketing thing around, we know from experience in the last time that we did this, it takes a few mailers to get the customer to react. We are doing some other things in the way of retail advertising for the first time, not really because of this issue, but more related to what I said in our prepared remarks regarding some of the new brands that we're bringing in. If you recall in the past, I've always told you that we don't do traditional retail advertising because the brands that we have are not well-known to the consumer. So it's difficult to come up with a message that they react to. We do have some brands coming in that are very well known to the consumer. And it's something for us to shout about. I think it's something that will drive traffic, so we're going to try that as well. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: Okay. I mean, it seems like that would -- the comments that you made get to a little bit of above a 1 for the year, would kind of imply like 1 to 2 positive comp for Q4. Is that fair?

Yes, when you do the math, that's exactly where it is. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: I guess, not to beat it to death, but, I guess, the question that I have is, if May and June, soft, and July has been a pretty tough month for retail, in general, to get to a 1 to 2, would that take gradual improvement through the quarter?

Yes. But when I look at things from last quarter, one that I mentioned on the call where the categories we've really been struggling with, were only up 3% last year. So we have definitely anniversary-ed those category issues. I also look at, again, I mentioned this Curl Genius thing. It's a neat electrical appliance that we happen to have a bit of a jump on over our competition. We did really well with it at BSG. I think is going to add some traffic. It will also add something to sales, obviously, but it's one of those things that's getting a lot of buzz, and I think we'll get a lot of people in, if no other reason, to just look at it. Whether they buy it or not, and they come into the store, we're going to get something out of it. Irwin Bernard Boruchow - Sterne Agee & Leach Inc., Research Division: All right. And just a quick last question. On the gross margin line, your gross margins were flat. I know and appreciate all the drivers that you've had to the business and you've had some great margin expansion past couple of years. Is this kind of just a 1 quarter phenomenon? Or should we expect that while the sales remain a little softer than usual, could the gross margin gains be a little slower than usual as well?

If you put the math to it, it has to be, because the piece of the business that's struggling right now is the non-beauty club, the list retail customer. That's our highest margin customer in all of our divisions everywhere. So when that's soft, it is going to have some impact on the Sally margins. Now the margins in other parts of our business are increasing nicely, however, there's still a drag on the total because the Sally margins are the highest to begin with. So, I've kind of always said, as international gets to be a larger and larger percentage of our business, and as -- if BSG continues to grow faster than Sally for a while, it will put some pressure on gross margins. Now having said that, we are in kind of the next phase of LCC sourcing, and I've also told you in the past that we took the low-hanging fruit in that project first, now we're down to things like clips and pins and rollers and shampoo capes and stuff like that, but it all helps. Obviously, we've got a good margin structure on this new curling appliance, and a couple of the brands that we're bringing in I was referring to are also going to be very good margins for us. But those may not see much of an impact until Q1 of '14.

Our next question comes from the line of Taposh Bari with Goldman Sachs.

I wanted to ask you a question just about the marketing tactics. So can you tell us when the change was made? And if you could, it'd be helpful if you could provide metrics whether that be comp or for traffic, before and after, just to kind of help appreciate the magnitude that, that change may have had.

Unfortunately, I can't. And it isn't because I wouldn't like to, but I said that this change didn't happen like turning one off and then turning the other one on. It was a gradual change. We have a lot of graphs that kind of pinpoint it to actually starting a year ago, starting the problem. But as I've said a few minutes ago, in explaining it, for a lot of reasons, it was difficult to read and it wasn't until probably 2 or 3 months ago, really, after April, when we got into May we said, hey, this is too big of a change, too quickly. What are we doing, when did we do it and let's turn it around, and that's when we really started peeling back the onion and figured out what we had done. So I wish I could tell you that, hey, this started last September and this was the impact and we changed it back in July, and this will be the impact, but it's not that precise of a science.

The reason why I asked, because it sounds like you're pretty convinced that this is the issue with the Sally Beauty and non-beauty Club business. And so as we look out over the next, call it, year or so, just trying to get a better handle around your conviction that that's in fact the problem. Because, I mean, as I look at other companies in our universe, I wonder if there's a macro issue here, if there's a low-end customer issue, if you could just elaborate on what you think about those potentials drivers of the business.

I don't think it's a macro issue, and I don't think it's a low-end customer issue. I think that, at least 90% of the issue is what we're describing. When you look at our customer count going back into the early 2000s, the retail part of our business was -- the traffic increases, percentages, had been declining, and I've made this comment before, through the early 2000s. And when we started going after this whole Beauty Club Card program, it started increasing pretty significantly, and I think you saw in 2011 and '12, our customer count increases, our traffic increases, were really healthy. And again, we can kind of -- fortunately, we have that experience to look at and say, okay, this is what we did and this is what happened. And if I was looking at this, as I said earlier, and looking at a situation where we've exhausted this pool of profiled potential customers, then I would say, hey, we might be, as you guys like to call this, in the 8th or 9th inning of this game, but I don't see that at all. I see our Beauty Club Card traffic increasing, sales increasing and membership increasing, and that's without a significant funnel of retail customers, which is where most of those conversions come from, that's without that being a full funnel at this point. So I really believe that the issue is filling that funnel back up, getting retail traffic into the store, and that's going to help Beauty Club Card conversions.

Okay. Just a quick follow-up then. I mean, it seems like a lot of the focus today is on the non-beauty Club Card piece and I guess, it's kind of related. But I look at your -- what I think was your Beauty Club Card sales growth last year, north of 20%. This year, at least this quarter, it was up around 6%, so there's also deceleration -- albeit positive, there's still a deceleration in the business, too. Is that all just a function of the funnel not being there? Or is there something else to be said about the Beauty Club Card business?

I think that's 2 things. Number one, it's part of the funnel not being full; number two is, it's getting to the law of large numbers, at some point, also, because a percentage increase in the new cardholders has to slow at some point. We're at 7.2 million right now and where the card membership count was going up well over 20% 2 or 3 years ago, that is not going to continue. It's not realistic to think that it will. However, I think when you look at the fact that the funnel really isn't there right now, that's a significant part of the problem. But I don't expect Beauty Club Card memberships or Beauty Club Card sales to be 20% -- over 20% any more. And if you graph that, you'll see that the bigger this thing gets, percentage-wise, the lower the percentage of new members and, therefore, sales will be. Now another thing that's offsetting that, as I also mentioned in my prepared remarks and I've mentioned several times in the past, the renewal rate on these members is up 32%, and I put 90% of the reason for that on the new POS, the next gen POS system. It's almost completed in the Sally stores. That's going to help enormously because it's like -- it's almost like bringing in a new Beauty Club Card customer, however, the new Beauty Club Card customer generally spends more in their first year than the ongoing or the renewal customer. It's kind of like when someone is approached with this and they know they're going to have a savings in joining the club, they kind of spend more than is normal the first couple of visits. And then they get into a pattern where they're spending about 20% more than a normal retail customer and visiting more often, but you don't have that big lump of them first joining. So when you kind of put all that together, I'm still pretty convinced that over the long haul, the Beauty Club Card business can still grow upper single or low-double-digit growth and the new Beauty Club Card members, or the membership growth rate, can also be in the mid- to upper-single digits. If we get the retail business back where it needs to be, even if it was flat, the retail business, that's still going to give us a comp -- since both pieces of that are about 50% of the retail business now, that's still going to give us a comp somewhere in the neighborhood of 3 to 4 on the Sally side. So that's kind of the range that we believe we should be operating in.

Our next question comes from the line of Olivia Tong with Bank of America.

I know you said it's early days, but is there anything you can provide us to give us a sense of early signs of change after the shift in focus on marketing back to the way it was? And what exactly was the change? What was it before and what did it turn into and what is it going back to? And then, just following up on that, when you are done with this marketing shift, where do you think that same-store sales will rebound to? Is it back to -- is it to 3 to 4? 4 to 5? 3 to 5? If you could give us a color on that, that would be great.

Well, I believe it may take a little while, but I believe that we'll take back to the comps that we've always said we believe our business is capable of doing, and that is in that 3 -- I would say 3 to 5, maybe 3 to 4. The other part of the question, Olivia, I don't want to give too much detail on the specifics of what we did, and the reason for that is, I always felt like, as far as this loyalty program in the Beauty Club Card program, that we were kind of a step ahead of our competition in this area. And the mistake that we made, I can see, could be a common mistake that other people would make, and I really don't want to give out a lot of detail on the specifics of that just for competitive reasons. I don't want our competitors learning on our mistakes, let them learn on their own.

Got it. And then in terms of -- you mentioned a couple of new products and innovation, is the pace of new product introductions changing at all? Is it accelerating? Or is this the a normal pace of new product introductions?

The new product introductions is a normal pace. However, we're bringing in a couple of fairly well-known brands over the next several months that will be different and will cause -- I guess, if you look at all as new product introductions, it will cause that to go up a bit over the next few months, but most of the new product introduction or the normal flow of it isn't really changing. It's the new brands coming in that will add to it.

Okay. And then just lastly, it doesn't sound like an answer to a previous question that revitalizing the store is just really part of the equation to get that non- -- that infrequent customer into the store. So what kind of things are you going to do to bring that infrequent customer back? Is it additional promo, is it flyers, what have you? What sort of is your thinking process behind that?

Well, it's twofold. One is going back to a very targeted marketing approach to a very well-profiled customer to get them into the store; number two is the new brands that we're bringing in and the impact that I think some pretty significant retail-type advertising announcing these brands will have on the general retail customer.

Next, we'll go to the line of Grant Jordan with Wells Fargo.

This is David Eller standing in for Grant. On the Sally side, you mentioned that margins improved partially due to improvements in international. Can you talk a little bit about what international areas are outperforming and then any notable underperformers?

Sure. Well, first of all, as I said last call, the distribution issue in the U.K. is behind us now, and that business looks very positive going forward. That was a very difficult year we went through. Sales were up there nicely, comps were up there nicely, and a lot of the SG&A leverage that we got compared to LY [ph] was due to not having the additional expense of the 3 PL [ph] and everything else that we we're going through last year in the U.K. Secondly, our European business is performing very nicely. We had a great quarter in Europe. All of the countries -- I think all of them were up double-digit comps. There might have been one that was high-single digit. But right now, we're opening a lot of stores in France. We're actually opening a fair amount of stores in Northern Spain. Even though you hear horrible things about Spain, the Northern half of the country is performing well for us, so we're opening stores there. Belgium, we're pretty much built out in Belgium, but we continue to pick up new brands, which helps that business. The Netherlands, we are opening new stores in. And I think we have -- might have finally turned Germany around. And also, this isn't European, but we had a supply issue with a couple of vendors that I think I mentioned in Chile for the past 12 months. We've anniversary-ed that, and July is really coming on strong, which we knew it would because this is the 13th month of the issue we had, so we're going to be adding more stores there. I mentioned to you that we're going to be opening a store in Peru this fall. We hope that will be the first of many. I think that market is going to be very similar to Chile. Most of our stores will be in upscale malls and margins should be similar to Chile, things are working there. And Mexico is just kind of knocking the cover off the ball. They are really doing well. The Mexican economy, as you've probably been hearing very recently, has been really picking up strength. That's kind of leading to more of these mall developments, which we do well in. We're up to close to 170 stores in Mexico right now, and when you can open 20 stores on a base of 150 and still maintain double-digit EBITDA, it's a pretty nice thing to see.

And then on the inventory side, it looks like inventory per square foot was up about 4% sequentially and closer to 6% year-over-year. Was any of that growth related to the start-up of the U.K. warehouse? And then, you called out new product offerings as a driver as well and if you could maybe just detail new price points for those new products and how that compares with prior inventory.

Well, you're absolutely right, the U.K. was part of it. New product flow is part of it. That part of it will probably continue to be an issue from an inventory standpoint through the rest of the calendar year because of the new brands that we're bringing in. And part of it is simply a sales issue at Sally. We have the inventory for the comps we expected. We didn't hit the comps, so you can't slow the inventory down quite as fast as that. So part of it is we just have too much inventory, and we understand that's an issue. And again, barring the new product and the new brands that we're bringing in over the next few months, we're definitely addressing inventory.

And then lastly for me. You mentioned exclusive distribution rights to certain hair care brands with acquisition of the Essential Salon Products. Could you give us a little bit more color on what brands are included and any additional plans for integrating the asset?

Yes, sure. That Essential Salon Products was primarily a Goldwell and Moroccan oil distributor. And what we've done there, I think, was a great thing for us and a great thing for Goldwell. They prefer, particularly in densely-populated areas, to do -- to have direct distribution. So it was kind of a unique situation where Goldwell themselves bought part of the business, the street business. We brought the store part of it and then, obviously, we're their store partner there, but it also enabled us to put the brand in a lot of other stores we already had in that geography. Moroccan oil, we are the distributor of that. It did go to our sales consultants as well as going into our stores. So it's another one of those little acquisitions I talk a lot about with BSG where we really didn't take on much at all in the way of expenses. We took on a nice hunk of sales at a good margin, and over the next 12 months, even though it's relatively small to the size of BSG, all those things add to the margin improvement that we get at BSG. The synergies are easy to do, we didn't take any distribution assets, so it should be a good thing going forward. But again, it's small in size.

Our next question comes from the line of Karru Martinson with Deutsche Bank.

Not to beat a dead horse here, but when we look at the Sally side and the club members, I mean, how much of the Sally sales are driven by that club membership?

Half of the retail business. The retail business is 75% of Sally and the Beauty Club Card sales are half of that. So it's about 37% of total retail sales or half -- I'm sorry, total sales and about half of the retail sales.

And when you look at that club membership, I mean, did you see a change at all in their basket size or their frequency of visits?

No, we didn't.

Okay. And now when you look at the new products that you're bringing in, we've talked in the past about the exclusives or proprietary brands, private label, in other words, that you guys have. I mean, where are you guys in terms of that mix today in the Sally store?

We report that annually. I think we're at 45% or 46%. Through the end of last year, we are at 45% of Sally sales are at brands that we own. And this year should prove to be similar to past years and the depth percentage will go up slightly.

Okay. And then, when you look at the e-commerce side, I mean, were you seeing similar order patterns that you were seeing on the retail side in your actual store? Or was that customer behaving differently?

No. That customer wasn't behaving any differently.

Our next question comes from the line of William Reuter with Bank of America.

This is actually Spencer in for Bill. I was wondering if you could just give us an update on the new stores that you've opened this year. I think that you were planning on opening 165, and then remind us again what the kind of economics differences between domestic stores and international stores.

Absolutely. We're right on target to hit our 4% growth, which I think was the 165 stores. The economics of our international stores are not as good as the U.S. stores. They take about another -- first of all, the CapEx to open them is larger and secondly, they take about 1 year longer to get the same types of contribution rates and returns that the U.S. stores have. And obviously, a higher and higher percentage of the stores we opened each year are in the international space.

Next, we'll go to the line of Kevin Coyne with Goldman Sachs.

This is Celeste Everett on for Kevin. First, you pulled back on SG&A as a percent of revenue this quarter even with the shifts in your marketing. And so as you return to the targeted marketing to your list customers, will this result in an increase in consolidated SG&A as a percentage of revenue in the near-term? Or is it more just a redirection of your total marketing spend?

No, it's a -- it's just reallocating it. We really didn't pull back on our expenditure, we just did it in a different way, thinking we could reach a larger audience with the same expenditure, which, the math there was true but, unfortunately, it wasn't right thing to do and it -- we reached more people, but they were not profiled the way our targeted mailing was doing.

Okay, got it. And then with the revisions to your ABL covenants, can you please update us on your current restricted payment capacity under the facility? And then, what are you ultimately limited to under your governing indentures?

We're really -- bond is, we're below 3.25x leveraged, we really have no restriction. So -- and we operate, given the fact where we're operating, in that 2.5 to 2.75 range, there's plenty of headroom to do whatever we need to do from a restricted side. Also the triggering point, in terms of what improved from the last facility, was it's just our -- the provision of the availability has actually been reduced to about 15%, so it actually has -- that's improved as well. But from a restriction standpoint, today, as it stands, we really -- we are not operating under any restriction.

We'll go to the line of Linda Bolton-Weiser with B. Riley.

So not to beat a dead horse here, but I'm still not sure I understand. You mentioned that the list of potential people out there to draw into your stores is not less, that you still have lots of opportunity. And yet, I thought you said that the list of potentials actually was smaller for the mailings. And so, I guess I'm trying to understand, did you actually kind of send out fewer mailings? Or is it just that you changed the nature of what you sent out so the targeting wasn't as effective? And then also, just on that topic, is it something where like a low-hanging fruit concept where the first ones you target are the best customers and it's going to provide the highest ROIC, whereas later customers are kind of -- you're kind of more scraping the bottom of the barrel, so the return is going to be less. So i.e., you're increasing your investment to draw those customers into the store. So I guess, that's my question.

That's about 5 in 1, let me see if I can remember the first part of it. First of all, I don't believe I said that the pool of retail -- potential retail customers was smaller. Now if you look at it from the standpoint of once you get one into the Beauty Club Card program, then the pool becomes smaller by one. Then you might -- I guess, you would say that the pool of potentials would be smaller. However, the pool continues to grow because it's constantly reevaluated and people that were not in the pool before can come into the pool and vice versa. So we're -- I'm still very comfortable in the size of the pool out there that we believe are profiled and can be good potential customers for Sally. Now secondly, we did increase our exposure by the change that we made, but what worked for us was approaching a very highly profiled customer. And the other approach was much more broad, and even though it was less expensive, particularly on a per head basis, it wasn't nearly as effective because we were -- a lot of the people that were approached were not potential profiled customers. So the last part of your question, I believe was, is it -- are we spending more money to go after less profiled people and, at some point in the future, we will probably reach that. But I believe, given the size of this pool that's out there, we're a long way from that. So if we go back to this thing and if we go back to our profiled approach and we don't see over the next several months improving traffic, then, I would say, look, what you're saying is possibly right, but I just don't see that. If we were much deeper into exhausting what we believe are potential customers, I would have a bigger concern on that.

That's very helpful. And then just with regard to your competition out there. Ulta is a very different concept than yours. But when you hear them talk about what's really been driving their same-store sales growth, they really talk a lot about these in home treatments that people can do at home. Some of them are devices, some of them are consumables, something like for hair regrowth. These are the hot areas they mentioned. And I keep thinking that you as a of professionally-based store, are not going to be carrying products that are going to help the customers move their beauty treatments from the salon into the at-home realm. So I wonder if this is a competitive disadvantage you have because of the positioning of your retail.

Well, first of all, Linda, that couldn't be more untrue. Because so much of our business is retail, we carry a lot of the same types of products that they do, not in the way of the same brand, but we have all of the same type of do-it-at-home treatment things that they do, unless you get into the cosmetic and fragrance business, which is really not what you're talking about anyway. We do really well with hair growth kits. We do really well with hair removal at home. We do really well with all of the nail treatments and the lights and everything that you use to accomplish that at home, so that really isn't true at all.

Thank you. And with that speakers, I'd like to turn it back over to you for any closing comments.

All right. Well, thank you, operator, and thank all of you for joining us today. I just like to summarize by saying that our performance was solid despite soft revenue growth. We hit another record for gross margin in the Sally segment, we improved our consolidated SG&A by 50 basis points and we grew earnings per share double digit. As Mark mentioned, during the quarter, we repurchased approximately 3.1 million shares of our stock for almost $94 million, and I'm pleased with our progress in returning capital to our shareholders. As always, thank you for your interest in Sally Beauty Holdings.

Thank you. And ladies and gentlemen, today's conference call will be available for replay after 12:00 p.m. today until midnight, August 8. You may access the AT&T TeleConference system by dialing (800) 475-6701 and entering the access code of 298475. International participants may dial (320) 365-3844. 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.