Welcome to the to the Sally Beauty Holdings' FY '16 First Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. Matt Haltom, Senior Vice President and General Counsel. Please go ahead.

Thank you. Before we begin, I would like to remind you that certain comments including matters such as forecasted financial information, contracts or business and trend information made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934. Many of these forward-looking statements can be identified by the use of words such as may, will, should, expect, anticipate, estimate, assume, continue, project, plan, believe and similar words and 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. 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 CEO and Mark Flaherty, CFO. Now, I'd like to turn the call over to Chris.

Thank you, Matt and good morning, everyone. Thank you for joining us for our FY '16 first quarter earnings call. I'll briefly provide an update on our business performance and Mark will discuss our first quarter results in more detail. FY '16 is off to a solid start. During the first quarter, we drove our same store sales improvement in our Sally business and our BSG business continued to grow sales and gain channel share. In addition, implementation of our pricing and margin improvement initiatives resulted in gross profit margin expansion consistent with our previously stated guidance. We're encouraged by our Sally Beauty segment performance this quarter. Same store sales improved sequentially and resulted in our best performing quarter since FY12. Gross and operating margin expanded by 60 and 50 basis points respectively. This growth is primarily due to the profit improvement initiatives we launched early in the fiscal year, including selective price increases and vendor negotiations. Turning to our Sally initiatives. The refresh of our own brand packaging in ion hair care is nearly complete. The new packaging is highly complementary with the new hair care solutions center and looks comparable to the exclusive professional brands that we carry in our BSG business. We expect to extend this strategy to our other own brand products in the coming months. The merchandise categories located at the front of our 2,900 U.S. Sally stores have been refreshed and continue to realize higher sales growth than they did previously. As we complete the refresh of our larger categories, such as hair care and color, we're optimistic that the sales growth in these categories will also accelerate. These two categories represent over half of the aggregate sales in Sally U.S. We recently began the installation of the hair care solution center. The category…

Thanks, Chris. Consolidated net sales for the first quarter increased 3.5% to $998 million. This increase was driven by same store sales growth of 3.9% versus 2.3% in the prior year quarter, in addition to new stores. The impact from unfavorable foreign currency exchange rates in the quarter, was $22.1 million or 2.3% sales growth. Gross profit margin in the first quarter, was 49.5%, a 40 basis point increase over the FY '15 first quarter driven by both BSG and Sally. First quarter GAAP SG&A expenses as a percent of sales including charges associated with data security instances and our Management transition of $1.4 million, were 34%, a 90 basis point decrease from the prior-year first quarter. Adjusting for these items, SG&A expense as a percent to sales, were 33.9%. Unallocated corporate expenses, including share based compensation, were $41 million or 4.1% of sales, down $510,000 compared to the prior-year quarter. GAAP consolidated operating earnings in the first quarter, including charges associated with the data security instances and our Management transition, were $131 million, an increase of 12.6%. Adjusting for the data security and Management transition charges, operating earnings were $132.3 million, up 13.6%. Adjusted operating margin was 13.3%, 120 basis point increase from the prior-year metric of 12.1%. GAAP interest expense of $63.9 million, includes the loss on extinguishment of debt of $33.3 million in connection with our December 2015 redemption of our senior notes due 2019 and overlapping interest expense on those senior notes of $2.1 million. During the quarter, we improved our capital structure by redeeming our $750 million 6 7/8 senior notes due 2019 and replaced them with a new offering of $750 million at 5 5/8 senior notes due 2025. We expect our annual interest savings to be approximately $9 million. In addition to the…

Thank you, Mark. In summary, I believe the fiscal year is off to a solid start. During the first quarter, we had strong operating performance in both our businesses and opened our 5,000th store globally, an important milestone in the history of the company. We improved our capital structure by refinancing a portion of our long term debt at lower interest rates, saving us approximately $9 million per year. And lastly, we repurchased $62 million of our common stock. I believe we're well-positioned to reach our targets that we laid out at the beginning of the fiscal year. Having said that, we're cautiously optimistic regarding the second quarter, primarily due to additional investments associated with our Sally TV campaigns and potential distraction from the reset of our hair care section in all of our Sally U.S. stores. Furthermore, recent storms remind us that the January through March quarter has historically been the most unpredictable in terms of store closures due to unfavorable weather. Now, I will turn it back to the operator to open it up for questions.

[Operator Instructions]. We will go to the line of Meredith Adler with Barclays. Your line is open.

This is Shaun Cross on for Meredith. Just a question on expense growth. At both segments, it was quite impressive. I was wondering if you could discuss a bit how it was so low in the quarter? And also, on a consolidated basis, share based compensation was a bit lower than our forecast and I was wondering if we should expect this expense item to be slightly higher year-over-year on a going forward basis?

Part of it was that the success that you saw in the BSG business, we got great expense leverage and I think that certainly when you see on a percent sales basis that was the flow through there and certainly the story. On the Sally business, we're seeing good leverage out of our international businesses as they begin to grow and they comped very well during the quarter. And the Sally business in terms of some of the investments in advertising and promotions during the quarter, are bit of a timing issue going into the second quarter, as Chris talked about in his prepared remarks. Overall, when you look at the guidance that we put out there for the street in terms of the 34.2%, we're still maintaining that guidance for the year. We still have a considerable amount of investments that we're making in our business development, the $16 million that we put in the guidance that we gave for next year. That is a bit of a timing issue from one quarter to the next. That is the way I would look at the outlook of our SG&A structure for the remainder of the year.

So perhaps a little bit of a step up on a going forward basis. Got it. With regard to the gross margin increase at Sally, I know a lot it was due to price increases in certain U.S. geographies. I was wondering if perhaps you were considering expanding the number of geographies or even broadening the number of products with price increases? Thank you.

And the answer is, yes. And part of that was also that we did a little less, what I'll call deep discount promotional activity during the first quarter as well. Yes, we're looking at expanding. In fact, we're expanding the number of stores that will be in a slightly higher price zones and we're doing that in this quarter. And we will continue to work on other changes to our pricing structure in order to optimize price and gain some gross margin leverage.

Our next question will come from the line of Taposh Bari with Goldman Sachs. Your line is open.

Chris, I wanted to follow up on the second quarter comments that you made. So at a high-level, where are you more uncertain? Is it the same-store sales outcome due to the fact that you're implementing the changes on the hair care side? Or is it really an EPS growth comment regarding to the ruling for the SG&A investments that you're making?

I really don't want to make too big of a deal of this. The reality is we know that we're making some investments in advertising. It is the right thing to do for the business. We know that we're making a pretty substantial investment in resource and time to reset the hair care category in all of our stores. We're a couple of weeks into that and it's going pretty well so far. But the reality is that those were unpredictable as well as obviously, as I mentioned, the weather can be unpredictable. We didn't want to, given the performance and the strong performance in the first quarter, people to get too ahead of us in the second quarter.

Understood. I wanted to go back to the zone pricing initiatives that you are taking. Last time we spoke you had outlined that as a potential risk. It sounds like it is working, but I was hoping to get your postmortem on A, where you stand in terms of that initiative? And B, how it's actually playing out versus your original expectations?

It's playing out pretty well. When we originally gave guidance, we discounted that a little bit assuming that there would be some dealing that we would have to do in order to make sure we maintained our trajectory. I would say it pretty much worked maybe a little bit better than we expected, overall. And as a result of that, we're expanding it to a couple hundred more stores here this quarter and we're continuing to look at other price optimization opportunities. We're going to continue to nibble away at this and we're going to do it cautiously and watch the data. So it won't be a big seismic move, but we will continue to make progress at it.

One quick housekeeping. Can you give us an update on BCC sales growth, membership growth and list sales growth in the quarter?

Mark, do you have that data with you? I know we have it here. I know we did continue on trend with BCC. List was improved. List made nice sequential progression.

Sure, Chris. The BCC customer transaction count for the quarter was up about 6.5%. And then the total retail transactions which is I think a really important tagline for us was up 1.9%. Which is I think the first time that has happened since almost FY13. These were very positive movements in the right direction. We certainly saw little bit -- kind of a flat cadence on our professional which we're certainly looking into and I think we can do a lot of work around that as it relates to professional from some of the lessons that we have learned on the retail customer in terms of some of our advertising and being able to reach out to them digitally. We're pretty encouraged on what we can leverage out of that.

The one to watch out for us that we're digging in, as Mark mentioned, is this issue around the Pro and the team's got research right now that's coming back from they have been fielding over the last couple of months to really think about how do we maintain that while we accelerate our retail business.

Our next question comes from the line of Oliver Chen with Cowen and Company. Your line is open.

Regarding the commentary on the list customer, can you elaborate on how you're feeling about the list customer and the marketplace versus others in terms of the non-BCC at the Sally division and the dynamics you're seeing and where you are with how she is coming back? And then a related question is, as you engage in the marketing programs and the targeted marketing programs and that works in conjunction with the changes you are making, how are you feeling about the frequency of her traffic and how the whole story is working in tandem?

I think Oliver, it's the key thing we watch. These are the metrics we're so focused in on. And the reality is, we made nice sequential improvement to list. She is not back to zero yet, but was less than 1% last quarter in terms of decline. What we want to do is continue to think about how do we take the changes that we're making in the store and start talking to her and give her reasons to come back and see us. And obviously some of that is advertising and some of the things we want to do around that. Some of it is the progress we're making in connecting with her through our digital and social advertising as well as CRM. And so, we're really expanding our media coverage in reaching her in a lot more ways than we ever were. I'd still call it a learning experience. I don't think we're all the way there yet. I do think overall mall traffic and retail traffic in general is pretty flat but we're in a unique position and have a unique value proposition. So it really comes down to us getting -- as we get the store improved and our marketing improved and our products improved, communicating that unique value proposition through a number of mediums that are relevant to her. We're still experimenting with all those mediums. It's nice to see the progress happening, but in my mind we have a lot of work left to go.

And Chris, a big topic amongst longer term investors is the reality of online. This is been a topic with retail and holiday in general. How do you think about your unAmazonable competitive advantages in terms of how you're positioned and capabilities and the consumer interaction with your banners?

That is a new word for me, Oliver. UnAmazonable. I like that. We may have to coin that. Listen, I think part of what we wanted to do in our own turnaround and our own improvement initiatives, was really upgrade all of those products and brands that we own that are unAmazonable. We have made an enormous effort over the course of the last year to upgrade all of the packaging and the look and feel of these products. We have more to go but we have done a lot of it and it looks terrific. And we want to keep going down that path and then be investing around the fact that we have all these unique salon secrets that are not available elsewhere and that give consumers a great value proposition which is the opportunity to trade up to salon quality solutions at a better value because we can give them those solutions under our own brands and obviously in a unique way through our stores and through our online business. The reality is our online business has been growing. It's slowed in the last quarter. But our real focus is on building our own brands and our own solutions and helping her understand our value proposition and how it stands out from the rest of the crowd.

And we do have a final question. The hair care solution center sounds like a really dynamic positive strategic effort. What kind of market research do you have or what have you done to really point to why this is a good decision and why it's what the customer wants in terms of the choices you are making here? Because it seems like a very big deal.

Exactly right, Oliver. The first research we fielded way back there a 1.5 years ago, said that the list customer was very confused at times in our store, especially in the hair care aisle. That there were so many options and so many SKUs and of course, they are own brands, so in many cases they were brands she didn't know, that aisle was overwhelming to her. I watched lots of videos, lots of focus groups where literally the consumer said maybe a pro gets this but I don't get it. This really has been our focus for most of last year building up to now, to really figure out how do we simplify that shopping experience for her and make it easier for her to navigate our aisles. And that is why we're so excited about implementing this in February now to finally see this come to fruition. Our store managers are ecstatic about it and they're investing a lot of their own personal time to bring it to life in our stores. I think we're going to see this pay dividend for a long time afterwards. It came out of the very first research, both quantitative and qualitative that we did, that this was a big thing for us to solve and so we're glad to be finally reaching the precipice of solving it.

Our next question comes from the line of Simeon Siegel with Nomura Securities. Your line is open.

Chris, any way to quantify the lift of comps in margins this quarter and go forward from the zone pricing and vendor negotiations? And within that Sally comp, how was ticket verses transaction? Where do you see that going forward?

We really haven't done that analysis on that level of depth. What we really watch is we watch the same store sales in the stores where we have moved price as well as the categories where we slightly reduced the discounts. And what we have seen is that we continue to progress forward and we're not seeing any adverse impact from it. So as we do that, we continue therefore, to move gradually forward and implement in other stores. Our view is it's just a little too early in implementation for us to have real data that we can share with you on that. I think six to nine months from now, we will have that in a way that tells us, but suffice it to say, we haven't seen much adverse impact in neither the stores or the category where we're making these relatively small moves. And that gives us the confidence to move forward in additional stores and some additional areas in the store. We did some of that this quarter, actually. We're doing some of that this quarter and expect it to have a benefit for next quarter. We will continue to watch what happens with comps and sales.

The traffic versus the ticket at Sally, did you have that?

Traffic versus the ticket? They were both up for the quarter.

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

I just wanted to start with BSG. Another high single-digit comp there. You've cautioned that comps do need to slow in that segment. Can you update us on you're thinking and anything beyond the tougher comparison that would be driving that outlook? And along those lines, any additional color you can provide on the divergence between what you're seeing on the BSG segment versus what you're seeing with the professional buyer at Sally? Wondering if you have customer data that points to any channel shift that happens there?

It's interesting. Yes, I'll answer your last question first. We ask this question of our team and the reality is that we don't see an obvious shift between the Sally customer moving over to that. We're digging into that to try and understand it better to see if she's shopping more there. We need to complete the basket analysis there on that customer to make sure. It's okay. We want to make sure she is in the Sally family even if it's over to BSG. But let us complete the analysis there. What I feel overall, I think the BSG team is executing extremely well. They have continued to win new brands and there's some additional brands and territories that are actually coming in this quarter. That gives us confidence that the business will continue to grow. The reality is that we're lapping, as you point out, some better comps as well as we're lapping some new business we brought in last year. So there was some additive brands that we brought in last year that now we're going to obviously, have had them for a year. And so that's why we expect the business to slow a little bit but the team continues to make progress and do a great job. I don't think it's going to slow a lot. It will slow down a little as we have to lap a business that last year, we were bringing in brand new.

One more, if I may? Chris, you brought on Sharon Leite as the president of Sally. Can you talk a bit more about her background? Why she's a good fit for the role? Much of the change at the Sally stores thus far, has been focused on the product and the merchandising, could you outline the opportunity you see from a store operations perspective to drive better comps and margin? And to that end, what will Sharon's top priorities be as she comes on board?

First of all, Sharon's got a long history of retail experience. She did a terrific job at Pier 1 in helping them reinvigorate their retail experience and motivating the team and the operations team as well as the merchandising and marketing team to reinvent what they did for the customer. She is going to add a lot to our business and to our team over time, so I'm excited about her joining. The reality is that we have a pretty good store operations team already. I am very proud of that team. We have great people in our stores who are very compelling. But, we need to make the entire value proposition sing. We've got to have great salon quality products that people know about. We have to have good looking stores that are easy to shop. And then, we have got to have highly motivated people with great expertise in the stores who can communicate that unique value proposition when the consumer walks in. I would say store ops was not our weak link when I got here 1.5 years ago. It was the merchandising and marketing pieces and the look and feel of the stores and that's where we invested first. To me, what it is about now is making it all be integrated and making all of them move forward in a concerted way. Adding more expertise in store in terms of our training programs. We're going to be putting iPads in all the stores so that our employees have access to all of the great product information and all of the secrets that we want them to be communicating with the customer. I think Sharon will just help us take to the next level in terms of a truly integrated program that touches a consumer, whether it be online, in store, when they pick and feel up our products or when they see our marketing.

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

I just want to go back to your comments about the SG&A investments in Q2. Is there anyway you can give us more color to help us quantify what that impact could be on a year-over-year basis?

Again, I don't want to overemphasize this. Yes, we're doing some TV advertising in March. That's the primary SG&A and it's a little bit of a spike in marketing, but it is not enormous. The other investment obviously, is in the transition with our hair care category. Again, that is not a giant SG&A investment, but it has the potential to disrupt the aisle as our customer -- as our employees moved 2,500 SKUs in every store and have to reset the shelves because remember, even though it's just the hair care category we're talking about, we're having to move three categories. Because we're moving hair off wall to the gondola facing the category. We're moving rods, rollers and pins in accessories back to the back wall. And then, we're moving hair care all along the wall past the register. It's an enormous amount of product that is shifting at one time. All we're calling up here is that has the potential to disrupt customer traffic for a few days while we get it done in every store. It's not the end of the world, but we're just making sure people recognize that this is happening and it's the right thing to do for the business. That is why we're doing it. And finally, we want to make sure people remember that I don't need to remind people of when winter is, but the reality is, this is the quarter where we do see the most volatility in weather. I don't want to overemphasize this. There's not a giant SG&A spike of any way that we're calling out. We're just making sure that people think that after a great first quarter, we think we're going to have a great year. But the reality is that the second quarter, we're making some investment changes that we have to get past in order to make sure that we get the benefit for the full year.

Switching topics to marketing. When you have done TV advertising in the past, how quickly do you tend to see a benefit to your comps?

Interesting enough, what we have seen is, the TV is a little less benefit to comps on an immediate basis but then when you follow it up with radio which is a quicker activation, as well as other media channels like CRM and SMS, that's when you get the fully integrated spike in activity. What you'll see us do is run a pretty good heavy up TV in March and follow it up two months later with a pretty strong radio program. And another two months radio later with another radio program because we see faster activation with radio than we do TV. We're probably going to run that for the next five or six months and perhaps do it again then. We're experimenting around with how to make this happen in the most efficient way. That's what we're planning on right now.

Our next question comes from the line of Jason Gere with KeyBanc Capital. Your line is open.

Couple of questions. First, a housekeeping. Can you tell what at the Sally stores, what was the breakdown of comp between U.S. and international?

We don't release that data, Jason. I'm sorry. International does tend to comp a little faster. Suffice it to say, both made sequential progression.

Okay. So I'm going to still stay on this topic of Sally Beauty, of the Sally stores. When you guys were putting in the nail in the lash studios, was there any impact to traffic? I know that's more to the side of the store, not the center and it's not as big. But out of curiosity, when you guys did that, did you see any impact from on a traffic side?

The reality is, we do see the category as outperforming where they were before and outperforming what we would say is the general category. That I don't think nails or lashes are going to bring new traffic to our stores. We focus first on redoing the entire front of the store which is mostly done now. And now, we're really beginning to get to the core of who we're which is hair care and then obviously, hair color. So I don't think we can give you a specific data about how that affected traffic. But overall, we're performing well in those categories. Those tend to be impulse categories especially the lashes. But the reality is, I think what we're seeing is we're touching the core of who we're. The categories that affect traffic for us are hair care and hair color. Those are some of our better performing categories. We're just now beginning to have the plans to reset them. Cut care will be first. Color will be second. That's where we really expect to gain leverage.

Okay. No, that's good. Look, I know that you are a little adverse to commenting on the comp for the rest of the year, but I guess two things if I could ask and hopefully you can answer. One, would you expect the two-year stack rate to improve as the year goes on and maybe potentially hitting a three by the end of the year? I think that's something that was kind of talked about in the past. I was wondering how we should frame that up in terms of the sequential improvement? Obviously, you are making these big investments and we're hoping that we will see sequential improvement, but is that the right way to think about it?

Listen, the bottom line is our guidance is going to stay the same and it should, right? We're looking for sequential improvement. That is what we're working for. You never know in any one quarter whether if you do hair care this quarter and color later in the next quarter, are you going to see the benefit right away or is it going to take a few months for customers to find out? Because remember, our list customers only visit us twice a year. In many cases, if we don't reach them with our advertising and we're only run advertising in our fresh markets, it may take 6 to 12 months for a list customer to actually come in and see that the care category has changed and been reset and the color category is changed and been reset. I can't tell you exactly where all this will materialize. We just continue to work towards good steady sequential improvement as best we can.

Okay and I guess the other question, just with the -- again, it's not internal but externally, you outperformed the street. So I was just wondering on an EPS perspective, when you saw how things were trending and I know you don't think of it that way, did you decide to step up investments a little bit more than what you did based on what you're seeing coming through maybe November and into early December that let's step up the investment a little bit more because we've got this quarter? We had a solid first quarter. How are you thinking about that?

No, that really wasn't the driver. The driver was A, we tested radio and TV in the first quarter and learned something from it. So we wanted to base it upon those learnings, obviously that made us want to invest more. And the second is, it came down to when would we finish the hair care reset and would have something meaningful to talk about in that advertising? Those two ended up coming together as yes, we're learning and we think we know how to do the TV and radio at least a little better than we did before. And B, we think we're going to have the hair care set pretty much all redone in the next four to six weeks and so we have a great new news to talk about in that campaign.

So really playing on momentum.

Exactly.

I guess the other question I was going to ask. With the zone pricing, can you in the quarter, how many stores were actually impacted by it? I know you said a few hundred more looking ahead. I am trying to size it up and obviously not pigeonhole you.

They were a little less than 500 in the first quarter. And so, we will be adding a few hundred to that in this quarter. And then there were -- we won't be doing too much on the category side this quarter, although there are a few BCC discounts we're looking at in this quarter as well.

Our next question comes from the line of Steph Wissink with Piper Jaffray. Your line is open.

Most of our questions have been asked. Chris, I'm wondering if you can talk a little bit more about the hair care solution reset? Is the initiative to drive basket value or should we be thinking about that as, to your earlier point, clarity of message and turning the non-customer into a customer?

Yes, I think again, really think about that list customer focus again and what she told us in research was that the category was overwhelming and hard for her to shop. The two reasons are; one is, that she didn't know the brands and two is, that we have an overwhelming selection of SKUs. And if you've ever seen our hair care category, we so have a very large selection. It's part of our point of differentiation. The reality is what we're doing here is simplifying the navigation of the category for the list customer or for the customer who doesn't have as deep of knowledge of our brands. It could be the new BCC customer as well. What it does is it organizes the shelf by solution. So volume, frizz, color, color protection, damage repair and takes that throughout. And it showcases key products and brands that can deliver those solutions throughout the shelf. And it also brings our overall hair care section together with our multicultural section so that it is all one large hair care section now. But the reality here is it's really about navigation and then look and feel in terms of a more compelling look and feel. And what's great, is it's timed with the fact that we now have the majority of our ion brand packaging product redone now so that we have much better looking packaging on shelf. And as you can imagine a store with as many SKUs as we do, the look and quality of your packaging actually plays a big role in terms of the look and feel of your stores. It's all coming together to simplify the navigation and just deliver a more compelling category shop for the customer. We hope it really drives a difference with the newer BCC customer or less educated or knowledgeable BCC, as well as the list customer.

Just one follow-up on the active numbers. I think Mark, you might have mentioned it was up 12% or so. If you could help us reconcile that to the comp store growth? How you think about productivity of that active membership base? Thank you.

I think what you'll see is we were up -- we had 9.1 million members grew up over -- almost 11.5%. What you see is, particularly in this quarter, is some of our newer members were a little slower on the uptake relative to sales. They were up modestly. Whereas, you saw much of the growth in terms of our comp uplift coming from our existing customers and our renewal customers. Our renewal rate continues to improve sequentially quarter-over quarter in terms of the efforts that we have made, particularly some of our digital efforts. I think they have been highly effective in terms of capturing the renewal rate. Last year, we were in the low 60%. We're pushing close to 70% now. A lot of the -- certainly, the cadence that is coming through and driving through is from our efforts around that.

Our next question comes from the line of Linda Bolton Weiser with B. Riley. Your line is open.

Can you just comment on the decision to embark on the hair care reset rather than -- because my understanding is that you are actually kind of temporarily stopping the refreshes of stores. Can you talk about did you determine that it would be more beneficial to overall same sales growth to do the hair care reset instead of the refreshes? Can you talk about that because you had mentioned some very good numbers in the refreshed stores? So I'm just wondering.

The refreshes will begin again April 1 and we have got a plan to do another 500 stores in the back half of the year. It's not really an issue that we don't like the refreshes. We do and we're continuing to see good results there. Nor is it that the hair care is necessarily going to be better or worse. It's just we didn't want to disrupt our stores when they have to reset almost one-third of every store in the country in the course of about six weeks. We didn't want to disrupt them and stack refreshes on top of that. It really just is a process of working through all the changes we want to make because we have got so many opportunities to improve our stores, the look, the feel, the shopability and we're just trying to make sure we stagger them in a way that doesn't disrupt the business or disrupt our store associates who not only have to do this but also have to sell product every day and deliver on our quarterly numbers.

And then just on the weather. You kind of cautioned just remember this is bad weather season. In terms of the storms that already happened in January, the storm in the Northeast and the tornadoes going on in the South, have you actually seen any impact on same store sales in January so far?

Listen, we will look at whether quarterly not monthly. Because what really matters is how does the overall quarter turn out in terms of versus last year and this year. And so, I don't want to look at it day by day or else we're going to end up reporting to you day by day. The reality is yes, sure, we had some store closures during the storm in January. But we had a whole lot in February last year and our expectation is hopefully we will do a little better than that in February. Our mind is, this is the one where it's the hardest to predict what will the total quarter look like. The other quarters don't tend to have as extensive of volatility.

Our next question comes from the line of Joe Altobello with Raymond James. Your line is open.

This is Christina on for Joe. At this point, most of my questions have been answered. Are you still thinking about $250 million of share repurchases this year?

I think that what we have said is we certainly -- if you look at our free cash flow and what we've done historically, particularly in the comments that were made at the beginning of this fiscal year and you look at what our cadence has been, certainly that is not out of the realm. That is not a hard line. That's not to pigeonhole the number whatsoever. We have been very what I would consider very diligent and at times opportunistic in terms of our share repurchase cadence and we will continue to do so with the guidance of the Board. As we continue to make our investments in the business and the free cash flow that's available to us after we have made the investments to grow the business still dictates that we're on that kind of a trajectory, certainly it is very likely that we will continue to repurchase shares. So I don't know that $250 million is necessarily a magical number. It certainly is a very consistent number with respect to the available free cash flow that this business generates based on the guidance that is out there and what we've done historically.

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

I guess in that same vein in terms of usage of cash. Where are your thoughts on investment grade versus being high-yield given your performance?

It doesn't matter to me. We've done exceptionally well in the capital markets. I think we're a very established credit now in the capital markets over the last seven or eight years. We have executed very well. We have been a very good investment to and we have had great relationship with the bond investors. And we have been able to price certainly, adequately if not better than where our credit ratings are. So I don't know that it really does anything more for me and I am very comfortable with where we're at and the ability to access the market whenever it's been available to us.

And I think the refinancing activity that happened in the first quarter is indicative of the fact that we're in a good range.

And when we look at the category reset on the hair care side and the refreshes, it sounds like a lot is moving around and ultimately what's a fairly tight box. Has there been any thought in terms of a new prototype store as we go forward or is it more about tweaking the model in parts?

Listen, the first job for us is to focus on improving the stores we have. That's job number one. And obviously, we're working down the list of categories and upgrades we can make and we'll continue to do that. We did put some potential new concepts in research last year. Out of that came one new concept that seemed to be highly synergistic with our current box and current store that we thought was worth testing. We will be testing a new concept and I'd say it's a build off of a current Sally store, not a complete change. But we will be testing that this summer and we will be building five of those in the May June time period. But job number one is to improve the boxes we have and this will just be an additional build for the future off of that.

We will go to the line of William Reuter with Bank of America. Your line is open.

With regard to the new packaging of some of your owned label brands, can you remind me -- and I'm talking about ions on those, can you remind me of the timing of when those hit the shelves? And when you guys have changed packaging in the past, does it immediately drive sales or is there sometimes a period of disruption where the customer has trouble figuring out exactly what the product looks like?

To begin with, I would think you would have to go way back before my time before you could find when we changed packaging the last time. I can't really comment on that. I think that would be long history. And here's what I would say, we're not radically changing the nomenclature on the brands, we're just making sure that they're sitting in product and packaging that looks salon quality and looks the part. If you go to a Sally store today, I'd guess 60% to 70% of the brands have already been upgraded around ion, the product's packaging. We're going to begin working on some of the other brands, some were already there because they were fairly new anyways. But others will still need to be upgraded. My guess is throughout the course of this fiscal year, we will finish most of the additional work and it will become an ongoing continuous effort to where we always make sure that our products and brands look salon quality and look the part. But I don't think we can tell you exactly what the bump might be from one to the other. And it's been a nice and actually relatively smooth transition where we sell out the product, this is why it takes time, we sell out the old product before we replace it on the shelves so we don't have a lot of discontinued inventory. And that process is kind of going on nice and slowly but steadily and again, I'd expect it to finish most of it by the end of this fiscal year.

Okay. And then you guys have said it's probably prudent to be cautious with regard to the impacts that weather could have in the second fiscal quarter. Do you feel that some of warmer than normal temperatures positively impacted your first quarter comps?

I don't think so. It was a very late Christmas, mainly because of the weekend before. I don't think we're as weather sensitive in terms of heat and cold than perhaps other people are who are apparel retailers or other. I think it's really more disruptive weather that we're talking about here, ice storms, snowstorms, tornadoes, whatever else. Things that make people not want to get out. That's the kind of weather we're talking about here.

Okay and then just lastly for me. In the past, when you have been asked about acquisitions, you've talked about smaller tuck-in ones and Brazil is a region that you've mentioned. Is that still the way we should think about your acquisition strategy?

Yes, right now, what we're seeing is relatively small tuck-ins and other opportunities of that nature. Obviously, that can change and a bigger one could come up, but for now, that is what we're looking at and their mixture of brands and territories. I would say most of them are probably in the U.S., so North America right now. We aren't seeing anything internationally right now that is on my radar screen. If that changes, we will tell you. And I think I should close here. First of all, I would like to thank everybody for joining us today. I would like to close by simply saying that I think we're off to a great start and we remain confident that the momentum will continue. We have a lot of exciting initiatives in place that you'll see come to fruition over the coming months and I look forward to sharing the progress on those with you. And finally, I would like to take a moment to once again welcome Sharon Leite as the new leader of our Sally North American business and I would like to congratulate Bob McMaster on his election by Board Directors as our Non-executive Chairman of the Board. We're lucky to have these fantastic leaders as part of our Sally team. Thank you again and I hope to see you all in person in the near future.

Thank you and ladies and gentlemen, today's conference call will be available starting today at 12:00 PM until midnight February 18. You may access the AT&T teleconference replay system by dialing 1-800-475-6701 and entering the access code of 384524. International participants may dial 320-365-3844. Those numbers once again, 1-800-475-6701 and 320-365-3844 and enter the access code of 384524. 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.