Ladies and gentlemen, thank you for standing by and welcome to the Fiscal 2017 Fourth Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session; instructions will be given to you at that time. And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Jeff Harkins, Vice President of Investor Relations for Sally Beauty. Please go ahead.

Thank you, Cynthia. 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 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 or phrases. These statements are subject to a number of factors that could cause actual results to differ materially from expectations. Those factors are described in Sally Beauty Holdings' filings with the Securities and Exchange Commission including its most recent Annual Report on Form 10-K. The company does not undertake any obligation to publicly update or revise its forward looking statements. The company has provided a detailed explanation and reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. With me on the call today are Chris Brickman, President and Chief Executive Officer; and Don Grimes, Senior Vice President, Chief Financial Officer, and Chief Operations Officer. Now, I would like to turn the call over to Chris.

Thank you, Jeff, and good morning, everyone. Thank you for joining us for our 2017 fourth quarter earnings call. First, I will provide a brief overview of our performance for the quarter and review the progress we have made on our strategic initiatives. Don will then discuss our fourth quarter and full year results in more detail. Even after considering the impact of the natural disasters in the quarter, which impacted August and September, our fourth quarter sales fell short of our expectations. We experienced a slight decrease in revenue and essentially flat gross margin. However, we benefited from the savings from our previously announced restructuring plan, the recent debt refinancing, and share repurchase activity to still deliver meaningful growth in adjusted earnings per share. We will continue to execute our balanced approach to managing our business in a challenging retail environment, which combines long-term strategic investments with an intense focus on operating discipline and organizational efficiencies. As you know, earlier this year, we recognized the need to right-size our cost structure in light of the current retail environment and launched a restructuring and cost reduction initiative with the goal of lowering our full year 2017 operating expenses. We have continued to execute against these initiatives, resulting in almost flat adjusted operating expenses for the quarter and full year despite growth in our total store base and the continuing impact of wage inflation in our stores and distribution centers. In addition, we announced this morning the commencement of an international restructuring plan focused on significantly improving the profitability of our international businesses, with particular focus on our European operations. In support of this initiative, we expect to incur restructuring charges in the range of $12 million to $14 million with approximately $10 million to be recorded in fiscal 2018, and…

Thank you, Chris, and good morning, everyone. As Chris noted, even after considering the impact of natural disasters, the fourth quarter's revenue result did not meet our expectations. However, we believe the steps we are taking to run the business more efficiently, including the international restructuring plan announced today, will enable us to fund many of the important strategic initiatives that Chris just discussed. And we believe the successful execution of these initiatives will position us well going forward into fiscal 2018 and beyond. Turning to some of the details of the quarter. Consolidated revenue was $974.2 million in the quarter, a very slight 0.2% decrease versus the prior year, and same-store sales decreased 1.4% in the quarter. Hurricanes Harvey, Irma, and Maria resulted in a number of store closures from late August through the end of our fiscal year. The negative impact of the hurricanes on both sales growth and same-store sales growth was approximately 80 basis points. Additionally, foreign currency translation had a favorable impact of approximately 60 basis points on reported revenue growth. Gross margin in the quarter was 49.5%, essentially flat to the prior year. The margin in the quarter benefited from both tactical and strategic pricing initiatives in both segments, and a favorable shift in customer mix in the Sally segment, but those benefit essentially offset by unfavorable shift in segment mix. Adjusted selling, general, and administrative expenses excluding depreciation and amortization expense were $333.9 million in the quarter, almost flat versus the prior year, as benefits from the restructuring plan we announced earlier in the fiscal year focused primarily in North American operation were offset by a higher labor and occupancy costs associated with the net increase in the store count and negative foreign exchange translation. Adjusted operating earnings and adjusted operating margin, which…

Thank you. Our first question will come from the line of Rupesh Parikh with Oppenheimer. Your line is open. Rupesh Parikh - Oppenheimer & Co., Inc.: Good morning and thanks for taking my question. So, I wanted to touch on the BSG segment. Trends again slowed this quarter even with a much easier comparison. Just want to get a sense, from your vantage point, what you guys are seeing out there in terms of what could be driving that slowing, and if there's any changes on the competitive front? Thank you.

Thanks, Rupesh. What I would say is this, which is, we tripped over our shoelaces a bit in the BSG segment, and we've been pretty transparent about that. If you look at the core categories in BSG, color and care, we've seen strong growth throughout the year; a little hiccup around the election and the inauguration, but overall strong growth throughout the year. The reality is, the miss in BSG was really associated with the promotional category where almost a year ago, the team cut back dramatically on funded bundled promotions from vendors in order to reduce obsolete inventory. The problem was they cut back too far; we let the pendulum swing too far. We've made changes to our team in merchandising in BSG. We've been working for the last six months on trying to get that back on track. And, in fact, in November it's turned positive for the first time in the year. So, I feel quite confident in the environment. BSG is in a great strategic position. I think it's ill-conceived to think that it's somehow eroding like the rest of retail; it's a very differentiated business with great scale in its segment. And the reality is, we just need to fix some of the things and the mistakes we made. Rupesh Parikh - Oppenheimer & Co., Inc.: And I guess related to BSG too, there's been some chatter out there like Amazon has been getting some of the products that may have been exclusive before. Just any thoughts in terms of, I guess, what you guys are seeing for your exclusive products and if any changes versus the past?

No. I mean, it's really – on the retail side, so these professional brands obviously do sell at retail both in salons, at Ulta, and now at Amazon, and you're seeing channel shift in the retail side. We're just not seeing it on the wholesale side. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay. Great. And then my last question, just on e-commerce, if you look at the growth in e-commerce going forward, do you have a vision in terms of how big e-commerce could become for the Sally Beauty segment? And I just want to also get a sense of how you're thinking about profitability for that business.

I don't want to set unrealistic targets, but we think it needs to be much bigger, multiples of where it's at today. The reality is our conversion levels are well below comparables, and they're multiples below. We think the investment we're making right now to get to 90% of the country covered by two-day delivery by the second quarter should really help us improve those conversion levels. And so, we're expecting big growth going forward. That being said, historically, the profitability at e-com has been a little lower, it's been more focused on equipment and segment business. We need to shift that to more of our core categories, and we think profitability will improve with that. It is profitable, but it needs to be more profitable. And we also think it will help, as we shift distribution to multiple shipping points instead of shipping it all out of Dallas as we've been doing as we end up with four shipping points by the second quarter that should dramatically reduce our cost as well.

Rupesh, this is Don; both delivery cost itself as well as the picking cost. The picking cost in the one facility where we have gone live is about half of what it was in our Denton, Texas facility. So, that in and of itself will improve the profitability of the e-com business. And then to the first part of your question, our most heavily penetrated region for e-com is in the UK where we're in a high single-digit penetration rate, and we would expect the U.S. business to trend towards that in the short to medium term rather than the long term. Rupesh Parikh - Oppenheimer & Co., Inc.: Thank you and best of luck with your efforts.

Thanks.

Thank you. Our next question will come from the line of Mark Altschwager with Baird. Your line is open. Mark R. Altschwager - Robert W. Baird & Co. Inc.: Great. Good morning. Thanks for taking the question. Just on the sales line, I mean, excluding the hurricane impact, comps came in below your expectation. As you look at some of the strategic priorities on the top line – the social media-based marketing, product intros, refined promotions – where do you think you're seeing benefit at this point, where do you think you're seeing less traction? I think you said a down 1.5% comp is what you're expecting for the first quarter which doesn't presume much change from Q4 despite some of the hurricane headwinds abating, so just trying to have a better understanding of how you're thinking about the puts and takes driving the comp into next year.

So, let me start that and then I'll let Don chip in. There is a fairly significant amount of impact on Puerto Rico on the Sally business in Q1. And then, hopefully, that will begin to dissipate as we go throughout the year. As you may know, Mark, Puerto Rico is a fairly large portion of our Sally business, larger than most retailers. So, that does create a bit of a headwind in Q1. Our feeling is obviously we've gone through significant leadership change and change in strategy in Sally over the course of the year. I think we're just now beginning to see some of these initiatives come to fruition, both our e-commerce initiatives, our focus on pricing and trying to get more competitive on the overlapping SKUs which we're going to make a pretty big deal out of in the coming days and weeks, as well as some of the new brands that are launching in our core categories like color and tools. So, I think we're going to make a lot of progress this year in improving Sally. The reality is, there's clearly some missteps both on the marketing front and other front and some disruption that occurred associated with the leadership change. That being said, I'm really excited about the team that's there right now. So, yeah, given that, I think we're starting to get some real traction and that should build throughout the year. And Don, I'll let you talk about Q1.

I will just add a little color on the expectation for Q1 comps. We're actually expecting more of an impact in Q1 from the hurricanes, the lingering impact of the hurricanes particularly in Puerto Rico than we experienced from all three hurricanes in Q4. So, it's about – we're estimating about double the negative revenue impact from the hurricanes in the first quarter which is contributing to that outlook for a minus 1.5% comp. But we won't have the inventory write-off and asset impairment charge that we had in Q4 in Q1; just, it's more of a revenue and gross profit impact. Mark R. Altschwager - Robert W. Baird & Co. Inc.: That's helpful color. Thank you. And then, Don, just any update on your plans for inventory. Are you targeting reductions this year, and what would be the impact there on vendor allowances?

Yeah. We're driving the teams hard to improve inventory turnover. We have some antiquated systems, the investment that Chris talked about in his remarks on the new inventory planning and allocation system. One of the biggest financial benefits from that is a kind of a permanent reduction in inventory as you have better inventory visibility and forecasting capabilities. We won't start to see the benefits of that until late in fiscal 2018, early fiscal 2019. Having said that, Chris also mentioned new leadership on the BSG merchandising team, and we are clearly working hard to bring in less of the wrong inventory and more of the right inventory to improve fill rates. And there's an impact, and there's – if you purchase less, there could be a negative impact on vendor allowances, so we are working hard with our vendors to reallocate dollars and increase in vendor allowances is one component to our outlook for gross margin in fiscal 2018, and that applies not just to BSG but to the Sally business globally. Mark R. Altschwager - Robert W. Baird & Co. Inc.: That's great. Thank you. Best of luck.

Thanks, Mark

Thank you. Our next question comes from the line of Oliver Chen with Cowen & Company. Your line is open. Oliver Chen - Cowen & Co. LLC: Hi. Thank you. Our first question was regarding the Amazon Prime Now relationship. So, which factors are you monitoring as this unfolds, and what are your thoughts on different scenarios? Also curious if there's any interesting findings with respect to the category dynamics and the types of demographics. It sounds like there's attractively less overlap. And our next question is just about the loyalty program. If you could speak to what she's looking for in this program and early learnings here as we look forward to more developments here? Thank you.

So, let me hit both of those, Oliver. The Prime Now relationship, our number one thing we were looking at was overlap with our customer base to make sure that the sales were incremental given the cost of same-day delivery, obviously. And what we've found thus far is that there's virtually no or very little overlap with our current customer base. So, given that, we are excited about it. It's done well in the stores we've implemented. We would be pursuing expanding that and, obviously, there's other priorities for Amazon, and so we'll work with them as well as their capacity allows them to expand that. The other side I would say in terms of categories, you mentioned there, it does tend to be a little more heavily focused to cosmetics than our overall business, which is fine with us. We've been expanding that category. But other than that, it's not radically different than what we see in terms of other orders. It just tends to skew a little bit more towards cosmetics than our average sale. On loyalty, I think, the reality is again, as we mentioned earlier, number one is, let's make sure we're not aggravating customers with the change. We're not seeing that. We are seeing significant increase in sign-ups into the program which allows us to obviously digitally communicate to a much larger group of customers. So, we've seen a big increase in the percentage of customers who sign up the program obviously because it's free. So that's the positive side. What we're not seeing yet is a sufficient incremental traffic such that it obviously pays back the loss of the card revenue. And I think some of that is communication, some of that is the way the rewards are delivered and communicated, some of that was the lack of a professional tier because they were excluded from the program, and we're addressing those issues now. A lot of that work's going in now and December. Our hope is that we're going to continue to close the gap in terms of overall payback on the program, but we've got to continue to refine it before we'll be ready to do that. Oliver Chen - Cowen & Co. LLC: Okay. And a final question is a relevant question we're getting from investors in relation to just your overall view of real estate and store count, and what's happening with rent expense, and as you think about different flexible options and how different dynamics are playing out with digital versus physical, would love your thoughts on what we should focus on for your strategies.

So on real estate, let's start the rent inflation part, that's obviously diminishing quickly. It's still positive but slightly positive at this point. Our hope would be to continue to drive rent inflation down. Our expectation is that that's possible. In terms of our store footprint, what you're seeing is we're net negative in the Sally segment that we are still opening a few stores but our strategic closures have exceeded our net new openings; whereas BSG continues to be positive as it gains share and gains new brands and then internationally we're still opening some stores; and the net of all of that is roughly flat. I think that's where we see we're likely to be. If e-commerce suddenly changed the game, if we've got tremendous growth in e-commerce here in the coming years as we improve our service levels, obviously that could change the game in some extent or that might allow us to just steal share from competitors. We'll figure that out as we go. We're certainly going to continue to watch our store base. We don't have a lot of stores. In fact, we have virtually no stores that lose money. So, at this point, if we're closing stores in our bottom decile, we're closing stores that are either breakeven or marginally profitable, which means we have to create a significant amount of sales in order for us to make more money as an organization. So, we have to be careful about this in terms of what we do. We don't have obvious losers we can just cut the tail off. Oliver Chen - Cowen & Co. LLC: Okay. Thanks for that. Best regards for holiday.

Thanks, Oliver.

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

Okay. Thank you. Maybe the first question and one of the benefits obviously for your business is the health of the category, especially on the beauty side, but when you look at – and I think you've been talking a little bit about being behind the curve on e-commerce and even with the new loyalty card, the points. When you start to look at other retailers out there, do you try and figure out what's the deficit that you're seeing in your business now versus where you could be once you get that ramped up to the optimal level? So I guess another way of saying is that once you get these kind of factors to the level that you want to be, do you still see this business as kind of being able to grow low single-digits or just with the changing environment out there with the disrupters out there, just wondering how you think about the long-term algorithm?

Yeah. I think that's a good question, Jason. The reality is, is that we do have a very differentiated business model – and I assume you're really focused in on Sally here. We do have a very differentiated business model because what we do is we go direct to salon manufacturers in many case or to contract packers with salon formulas, and we develop salon-quality products and offer them at a significantly better value. And the vast majority or a big majority of what we sell is obviously exclusive or owned brands. So, we don't have an overlapping portfolio of brands we're selling in many cases. The problem we've had is accessibility in terms of, a, our e-commerce platform was not competitive and as a result of that, we weren't creating access in the digital world, nor were we really present for them in social media, so that we couldn't recruit customers and we couldn't talk to the next generation of customers until we built that presence in social media; and the other problem, of course, is that there's lower traffic in the stores. I don't think it's a big issue of how exciting is the customer experience in those stores, but a big problem was, and I do believe our loyalty program was a barrier in the sense that we're forced to charge which is more difficult to sign people up. Therefore, if you can't sign people up and get their email address, you can't communicate with them digitally. And as a result, there's not a low-cost way of bringing them back to the store to get the products they're excited about buying. So, I do think we have some big barriers that we're obviously working to overcome. We're making a lot of progress on the e-commerce side not just in the – in our delivery model but also in our – improvement of our website. We're going to continue to invest in that. And then I think what you'll see us do is we'll continue to invest in the social media side and digital marketing side so that we're talking to the next generation of consumers on the platform they want to be talked to on as opposed to on older media channels that they no longer utilize. And then finally, we're working hard to get this loyalty program right so that we can sign more people up and communicate with them in a low-cost, digital format that allows us to bring people back to our stores or back to our websites wherever they want to purchase in a low-cost way. So, I think we're working on all the right pieces of that and then the issue is, I do think there's a differentiated platform if we can get those things right that should allow for growth in the business over time because we offer a very different set of products and a very different value proposition.

Okay. And Don, I don't know if you mentioned in your remarks and kind of adding on to this, what was the loyalty – with the existing program, what was the loyalty card membership year-over-year change? And then, Sally, the traffic versus ticket? And I do have one other more strategic question.

I'll answer the loyalty part which is it was down year-over-year. I believe it was around mid- to high single-digits, and that some of the dropping of the ball as we change leadership teams in terms of maintaining the focus on our current BCC program while we tested the new loyalty program. And some of it was just, by the way, we shifted customers in the two states we're testing over to the new program. The net result of that is the team's working hard to make sure that we maintain the pressure on BCC, our current BCC now, so that we can shift over more easily when we're ready.

Average ticket was up driven by the pricing initiatives. UPC (43:42) was about flat, and obviously those were offset by a modest decline in traffic.

Okay.

Thank you. Our next question comes from the line of Linda Bolton Weiser with D.A. Davidson. Your line is open. Linda Bolton Weiser - D.A. Davidson & Co.: Yes. Hi. I was wondering, on the restructuring benefits, could you please quantify – there's some carryover of the FY 2017 benefits into FY 2018 and then the new FY 2018 benefits. So, is there any way to quantify what we should see in terms of benefits in the first half of 2018 versus the second half of 2018?

For the domestic, the 2017 Restructuring Plan, there's an incremental $10 million of benefits in fiscal 2018 related to that. You would see that predominantly in the first half of this fiscal year. For the new international restructuring plan that we're just announcing today, given that most of the benefits are coming from organizational changes, you will see those benefits really kind of starting late in Q1 kind of pro rata over to Q2 through Q4. Linda Bolton Weiser - D.A. Davidson & Co.: And then on the e-commerce front, I was wondering if you could comment on the ordering online for regular retail customers versus salon professionals. Is there a big difference in that? And the objectives here with regard to your two-day delivery and same-day delivery, is that oriented to regular consumers or salon professionals?

Okay. So, let me try and hit those. On the BSG side, when a salon professional orders on one of the CosmoProf websites, we've already made the investment over the last 18 months to put what we call batch to put (45:31) capability which is e-commerce capability in the BSG warehouses. So, they should be seeing a two-day delivery model for ordering online for almost all of our salon professionals now. For Sally, we were way behind on that. We just got our first large facility up and running in Columbus in addition to our previous Denton facility in October. And so, that gives us two-day delivery to roughly 50% to 60% of the country now, and we should be taking that over 90% in January. And then, Linda, I forgot the last part of your question. I apologize. Linda Bolton Weiser - D.A. Davidson & Co.: Well, I'm trying to get at how much do salon professionals order online versus regular retail consumers? In other words, where is your penetration highest, among the salon professionals or...

It's currently on with the salon professionals and we think part of that is the fact that we've gotten to a higher level of service sooner in that segment of the business. But it is definitely multiples higher with salon professionals today. We think that will change as we improve the service model to our consumer customers. Linda Bolton Weiser - D.A. Davidson & Co.: Okay. And then, when you talk about the new product lines you're introducing, you did mention several cosmetics type lines and I'm just wondering about that, (46:55) some strategic focus to do more with cosmetics and can you mention how that affects the margin structure of the business; is it higher or lower margin? And then, do you think that private label or exclusive brands work well in cosmetics like they would in hair and nail?

And so, we mentioned one key line in cosmetics which is COL-LAB, which is a line we developed jointly with social media influencers, and they will be the marketing engine behind it, leveraging their followership base. I think it's a great line; it's designed to mimic really high-end premium cosmetics but at a much better value, and yet it still offers great margins for us, margins that are actually higher than average for our Sally store. I don't think it's a massive game-changer for us, but I think what it does is it brings incremental customers to our stores who are going to hear about this through social media and through Instagram influencers who they follow, as an example. And that gives us a chance to expand the cosmetics category but more importantly bring new people to the Sally store or the Sally website. Linda Bolton Weiser - D.A. Davidson & Co.: Okay. And then, finally, I wonder if Don has an estimate – a rough estimate for interest expense for the year for FY 2018.

The rough estimate is that it depends on where LIBOR goes because we do have some floating rate debt now as opposed to the prior capital structure which was essentially all fixed rate debt in terms of the long-term debt. But a reduction in the $10 million to $12 million range would be a fair estimate. Linda Bolton Weiser - D.A. Davidson & Co.: Okay. Thanks very much.

Thank you.

Thank you. Our next question comes from the line of William Reuter with Bank of America. Your line is open.

Good morning, guys. I have two questions. The first is that you noted to an earlier question that the vast majority of your products are exclusive or are owned brands. But then also in your prepared comments, you talked about reducing prices in those SKUs that overlap with mass. So, I guess if you could talk a little bit about what percent of your products are exclusive at this point and kind of how much overlap there is with mass. And then secondarily, a financial question; how you guys are viewing your ratings and your target leverage in light of the tough environment? Thanks.

So, I got one and Don will take two. If you look at the SKUs we're reducing price on now, it's roughly 20% of our SKUs, probably a slightly smaller percentage of our sales. And the idea is we want those comparable products to be attractively priced so that when the consumers in our stores, if they're matching in their head price-to-price they don't get the perception that Sally is higher priced. Because obviously we communicate value in our salon-quality brands that are owned brands. So a great example is ion, which is a huge brand; it's almost a $250 million brand. That brand is really not comparable in most of the products or virtually all of the products it sells. But if someone were to come into our store and see a product that's highly comparable with Wal-Mart or Target or CVS, we would want them to see that price be very comparable to the mass prices so that they don't get the perception that somehow ion is overpriced, even though they can't compare the price on that product. So, the reason to do this is to just reinforce Sally's value proposition. It's not an enormous hit to margin; obviously, our guidance is for margins to improve for the year and this is built-in to that margin guidance, but we think it's important to reinforcing our value proposition in the marketplace. Question two?

And, Bill, just on question one, you said that we said the vast majority of our revenue is from exclusive and owned brands. Just to clarify, within that Sally U.S. business, just under half of Sally's U.S. and Canadian revenue is from owned and exclusive brands. So just wanted to clarify that point. To your second question regarding our ratings and our target leverage ratio, we finished fiscal 2017 with the leverage ratio just under 2.9x on a trailing 12-month basis and that is driven part by the fact that we had $90 million drawn on the ABL at year-end to fund more aggressive stock buybacks in Q3 and Q4 in particular. We're comfortable with where our ratings are now. We meet with and talked regularly to the rating agencies. We're comfortable with that level of leverage given our strong free cash flow, which was up about 25% for the full fiscal year, our operating free cash flow. I think the rating agencies were comfortable with that as well.

Would you want leverage to go up?

Not necessarily. I think we're comfortable in the range of 2.7x to 3.0x. As you know, our notes indentures have a – there's a trigger at 3.25 times that kind of restricts our ability – or limits our ability to make restricted payments including stock buybacks. And so, we would likely stay below 3.25x and likely at/or below 3x.

Very helpful. Thank you.

Thank you.

Thank you. Our next question comes from the line of Carla Casella with JPMorgan. Your line is open.

Hi. Apologize if I missed this, but could you give us your CapEx was for the year?

$89 million and change; so just under $90 million.

Okay. Great. And if you could give the outlook for – I'm sorry. No.

Yeah. We're guiding approximately $110 million, Carla.

Yeah. Sorry. I have that. So, my other question was on same-store sales, the decline – the ex-hurricane decline, do you think your – I mean, I'm looking at Ulta and the strong same-store sales growth there. How much of your customers do you think crossed shop Ulta; or if not, where are your customers mostly cross-shopping your stores?

Well, I think...

(52:47) Sally side, obviously.

I think – the truth is it's both. It's both the mass customers. They cross-shop mass channels such as Target, Wal-Mart, CVS, and Walgreens, as well as they cross shop Ulta. And one of the things we're specifying here is our weakness in digital marketing and digital media in the past, as well as social media, as well as the lack of a strong e-commerce business to some extent hurts us there. And that's what we're really working to address right now.

Okay, great. Thank you.

Thank you.

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

Thanks. Hey, guys. Good morning. Chris, can you elaborate on the customer mix between retail and professional at Sally, the mix shift you referenced. Is that driven by greater retail sales, fewer professional, or some blend; I mean, is it tied to loyalty and what do you expect to persist there? And then, Don, just, can you talk to your comfort around the gross margin guide? Maybe talk about the drivers there that are under your control and what levers you could pull if sales remain pressured? Thanks.

Hey, Simeon. Good question. I think the reality is, is that our pro customer at Sally, so I'm not talking about the pro customer at BSG but the pro customer at Sally, has been declining. It's been more rapid than overall same-store sales at Sally. So, it's been a drag. Some of that is that we took our eye off the ball there. I think some of it will be addressed with some of the pricing initiatives we do, their inclusion and loyalty, as well as just better service of that customer; and some of it is they may be better served over time through alternative channels. But our overall view is, we have dropped the ball a bit with this customer where we're working to think about how do we get better at selling to them and recoup some of those customers. But they've been a drag right now which, of course, has a positive overall margin benefit, but it's a sales drag right now. It still represents about 20% of Sally's business, and we think we can do better with this customer base.

Regarding gross margin, I mean, obviously, we feel comfortable with the guidance of gross margin expansion of 10 basis points or we wouldn't have gone public with it today. The drivers of that are the pricing initiatives that were taken in the Sally segment throughout fiscal 2017 which will have a carryover benefits to fiscal 2018. As we noted, BSG really kind of took its pricing initiatives late in Q3. There'll be a full year benefit from those pricing initiatives in fiscal 2018. Within the Sally U.S. business itself, we expect a continuing customer mix shift, as Chris just discussed, between retail and professional customers which is a positive for the Sally U.S. gross margin. And those are only partially offset by the pricing adjustments on some of the SKUs within the Sally U.S. business and then the negative segment mix as we expect the BSG segment to perform better than the Sally segment which has – it has a lower gross margin, so there's a negative segment mix related to that. So, when you put all these into the bucket, you get the guidance that we went forward with today and we believe that is achievable.

Thanks. And then can you just talk about how you're viewing the consultant business at BSG at this point? Should we still expect declines through Armstrong McCall, and then just any thoughts on the recapture rate you get from those sales?

Well, listen, I think the consultants are not just in Armstrong McCall. We obviously have consultants across the U.S. that are also within the CosmoProf business. It's really tied to what's happening in the marketplace. In general, salons are fragmenting over time, and you're seeing more stylists become independent stylists, booth renters and salon suite renters. As that happens, it's a very positive trend overall for CosmoProf because those customers become store customers and, to a great extent, they also become dependent on CosmoProf as a source of community and education and learning and we're seeing that in terms of the growth of our social media and our education presence. So, I think you'll see a continued slow trend towards store business, and that really mirrors the marketplace.

Great. Thanks a lot guys. Best of luck for holiday.

You bet. Thank you.

Thank you. Our next question comes from the line of Steph Wissink with Jefferies. Your line is open.

Thanks. Good morning, everyone. Just two questions for us on the financial model. The first, with respect to your leverage threshold; I know you've talked over the last couple of years of working to lower the cost leverage threshold. Could you just give us an update there on how the restructuring actions imply a comp level that you would need to leverage the business. And then secondly, you mentioned wage inflation; I'm wondering if you can just give us a look into 2018 and what kind of inflation you expect. I know you also called out incentive comp; maybe give us some insight into how the wage profile looks corporately over the next year. And then last question – and, Chris, this is one for you, but just with respect to the Amazon partnership; can you give us some insight into how the accounting for those revenues work? Does Amazon booking the revenue and then paying you a fee to complete the exercise – the shipping exercise, or is it somehow structured differently where you're seeing a flow-through your model as well on the revenue side? Thank you.

You're giving Chris the accounting question?

Go ahead.

On the latter, we record the revenue and we pay Amazon a portion of the top line revenue and then a small per-transaction fee. So, that's the way the accounting works on that. Going back to your first couple of questions. We guided to SG&A – and from this point going forward including depreciation and amortization expense, it will be cited as SG&A. We talked about 37.7% of sales deleveraged versus the prior year, and we cited the drivers of the deleverage in the prepared remarks including investments we're making in e-com, investments behind a couple of IT projects, a new inventory planning allocation system, and a new POS system for our BSG business. But also some headwinds including some of the wage inflation in stores and distributions centers and the normalized level of incentive comp. And those things are only partially offset by the carryover benefits from the 2017 Restructuring Plan and a newly-announced international restructuring plan. So, when you asked what the level of comp or same-store sales growth would you need in order to deliver leverage in fiscal 2018, obviously it's more than flat comps. Going forward, this is consistent with the conversations we had in the last couple of earnings calls. I would say, on a go-forward basis, it would be challenging to leverage SG&A on flat comps, which is why we are laser-focused on improving same-store sales performance particularly for the Sally U.S. business. Everything we do as a senior leadership team from prioritizing operating expense to prioritizing capital is laser-focused on improving same-store sales performance in our Sally U.S. business. And so, we're making the investments that we believe will drive better performance going forward. Obviously, we're talking about deleveraging on the SG&A line in fiscal 2018. But getting those comps turned around late in fiscal 2018 and into fiscal 2019 is the driver of being able to deliver leverage on the SG&A line going forward. Your more specific question regarding wage inflation; we have – it's kind of a market-by-market assessment. The businesses, they assess where local minimum wages have gone up, where we have to respond to pressures that have come in to the marketplace to lure our employees away. And we've kind of assessed the landscape and make appropriate adjustments beyond kind of an inflationary merit increase that our associates might otherwise expect. The goal there is to attract the best talent into the stores, to reduce turnover, and to improve the overall level of customer service by having a more stable employee base. And that applies in both the stores and the DCs. And so, I'm not going to cite a specific number in terms of SG&A, in terms of dollars or percentage increase, but that is a pressure on our SG&A in fiscal 2018.

Okay. Thank you. Very helpful.

Thanks, Steph.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Your line is open. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Thanks. Good morning. I have two questions, Chris. First, on the industry, if you could diagnose what's happening. We've heard on the prestige side which you're not participating in as much but there's been some slowing but as well as on the mass side. What's going on there? Do you think it's a cycling some tough compares and does it make it harder to drive traffic since you participate on sort of the mass side? And as part of it, Chris, if you can remember at all, any new products or brands on the horizon that look promising?

Yes. I'll take the second one first. Obviously, we feel like we've got some great stuff coming, right. So, we're very excited about COL-LAB which is hitting the stores now, which offers a chance for our customers who are value-oriented customer to buy a prestige cosmetics at a much better value and so we're quite excited to see that. It's backed by a really terrific team of social media influencers. And I think some of the color lines that we're bringing, they're very easy to apply vibrant color lines. The first one, Arctic Fox, which we're launching soon online and then following in stores is backed by a really powerful social media influencer and has very limited distribution. And obviously, I don't think we're going to see it beyond more specific channels. It's not going to be in mass. So, we've got some great innovation coming which should help us drive top line. I'm not seeing a big downturn. Obviously, we don't participate significantly in cosmetics today. It's a relatively small category for us. We've seen our core categories of color and care do pretty well. We're seeing a flattening in nails. The one category I would call out where we continue to see declines is in electrical appliances. That category has been a tailwind for both businesses. My guess is that some of that is a lack of innovation and some of that is a shift to online as those categories are, a, it's a larger purchase and, b, it's easy to search online for comparable brands. And so as a result of that, I think we're seeing some diminishment in that business as a result of that. So, those are the overall trends. We're not seeing a big decline. We're certainly not seeing a decline in our pro business, our distribution business. Overall, the core categories there are very strong. And as I noted earlier, (01:03:03) in our promotional category which we're fixing now. But other than that the category looks very strong.

Thank you. Our next question comes from line of Ike Boruchow with Wells Fargo. Please go ahead.

Good morning. This is Lauren Frasch on for Ike. Thanks for taking my question. Sounds like there's a lot of upcoming SG&A in next year. How should we think about the cadence of these expenses throughout the year; are they more weighted earlier or is it more steady throughout the year? Thank you.

It depends on the components. I addressed the restructuring benefits in response to Linda's question earlier in the call, but in terms of the headwind, I mean, the wage inflation that we've called out would be kind of pro rata over the course of the year. Some of the investments related to new systems developments would be more back-end weighted. And the investment related to incremental business-related (01:04:03) e-com would be more pro rata. So, it's kind of a little bit across the board, but some of the components will be weighted towards Q3 and Q4, and some of it would be more pro rata. And we're not giving specific guidance by quarter on SG&A percentages but at a more qualitative level that's what you could expect.

Great. Thank you.

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

Well, again, I'd just like to say thank you for joining us today. Overall, we're excited about some of the investments we're making to strategically change the business. We will continue to stay focused on driving efficiencies in our business model, improving the effectiveness of our sales and marketing initiatives, and accelerating investments in growth such as e-commerce. These initiatives combined with our consistent practice of returning significant portions of our free cash flow to shareholders via stock repurchases should allow us to deliver significant earnings per share growth both in 2018 and beyond. Thank you again for joining us today.

Thank you. And, ladies and gentlemen, that does conclude our conference call for today. Thank you for your participation and for using AT&T Executive TeleConference Service. You may now disconnect.