Ladies and gentlemen, thank you for standing by and welcome to the Sally Beauty Holdings Q1 Fiscal 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. As a reminder, today's conference is being recorded. I would now like to turn the conference over to Mr. Jeff Harkins, Vice President of Investor Relations for Sally Beauty Holdings. 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 for 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'd like to turn the call over to Chris.

Thank you, Jeff, and good morning, everyone. 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 first quarter results in more detail. Consistent with our expectations, this was a challenging quarter in terms of revenue growth. The first quarter was impacted by a continuation of disappointing traffic trends in our U.S. Sally Beauty stores, an additional day of store closures versus the prior year for our Beauty Systems Group stores due to the holiday calendar and the residual impact of Hurricane Maria in Puerto Rico. I'll address how we're combating the traffic challenges in just a moment. Despite the disappointing revenue delivery, we were pleased that our operating expense discipline enabled us to surpass our expectations for both reported and adjusted diluted earnings per share, even after excluding the net benefits from U.S. Tax Reform. Modest declines in consolidated net sales and gross margin were offset by benefits from our 2017 Restructuring Plan, tight control of discretionary expenses and lower interest expense. We also continue to strategically return cash to shareholders via stock repurchases totalling approximately $65 million in the quarter. Our focus remains on initiatives and opportunities to drive profitable revenue growth. Related to that, we expanded the Canadian footprint of our Beauty Systems Group segment in the quarter by acquiring a profitable distributor in the province of Québec. The December acquisition included 21 stores, 40 distributor sales consultants, one warehouse and the distribution rights for certain professional brands in Québec. Additionally, this transaction provides BSG with its first presence in the Québec province as well as a national footprint in Canada. Moreover this acquisition establishes an infrastructure for the potential addition of Sally Beauty stores in the province…

Thank you, Chris, and good morning, everyone. As Chris noted, although the quarter was challenging from a revenue growth standpoint, we were still able to exceed our expectations for both adjusted operating earnings and adjusted diluted earnings per share even after excluding the benefits of U.S. Tax Reform. Additionally, we believe the steps we're taking to fully leverage our scale and clout with third-parties and find meaningful efficiencies in every corner of our operations will enable us to fund the important strategic initiatives that Chris just discussed. And we believe that successful execution of these initiatives is crucial to positioning the company for profitable growth in future years. Turning to some of the details of the quarter, consolidated revenue was $995 million in the quarter, down 0.5% versus the prior year with favorable foreign exchange and a modest revenue contribution from our newly acquired business in Québec, Canada, offset by a 2.2% decline in consolidated same-store sales and one less selling day in our CosmoProf stores due to the holiday calendar. Foreign currency translation had a favorable impact of approximately $11.8 million or 120 basis points on reported revenue growth. The hurricanes, particularly Hurricane Maria, that disrupted operations in the fourth quarter of fiscal 2017, continued to have a lingering effect on business in Puerto Rico, especially in the first half of the fiscal quarter. The negative impact of the hurricanes on both revenue growth and same-store sales growth was approximately 40 basis points. Gross margin in the quarter was 48.9%, a decrease of 30 basis points compared to the prior year. Benefits in the quarter from prior year pricing initiatives in both segments were offset by a geographic revenue mix shift in the Sally Beauty segment towards the lower margin international businesses, a segment revenue mix shift towards the…

Thank you. And we'll go to the line of Oliver Chen with Cowen & Company. Please go ahead. Oliver Chen - Cowen & Co. LLC: Thanks. Good morning, Chris and Don. There is a lot of exciting initiatives ahead. Well, how will you balance the sequencing and managing risk? And also, as we think about the inventory, the pricing, the marketing, the POS and loyalty, any thoughts on timing of these different aspects and what we should focus on, on earlier versus later impact and just making sure you manage the sequencing to a minimal disruption and positive upside impact? And the second question I had is just a briefing on direct mail. Direct mail has been a tool that you've used in different ways. I'm just curious about now versus in the past and context around why this is the right decision at this point in time? The marketing changes going on in the environment are so rapid. Thank you.

There's a lot there, Oliver, but let me try and tackle it. So on disruption, the number one thing we're trying to do here is: a, put the right talent to get this and in key places, also bring in outside talent for outside support so that we can make sure we can execute without disrupting the core business. It's a priority, the leadership team, and we're meeting on it literally every other week, and we're adding talent and adding people in key places in order to make sure that we can execute these projects without disrupting our daily sales and our performance. What I would say in terms of what I think will hit first, the things that are going to have the greatest impact on comp in the short-term, for Sally, it's some of the new products and brands that came in late in the quarter and are scheduled for next year. I'll talk about direct mail but it's a more focused marketing spend allocation. I think easier comps will help as well. And then, finally, we really expect e-commerce to be ramping up here on the Sally side in the coming months and quarters, now that we've completed the build-out of the infrastructure. On the BSG side, I think what you're going to see, the greatest short-term positive impact is the improvement in category Y, which we've been working on for months to fix and seems now to be trending positive and is – should be a contributor in future quarters. Progress in shoring up the electrical appliance category, specifically by hitting more aggressive key price points and then some new products and brand acquisitions in the back half of the quarter. I think most of our initiatives, longer-term initiatives, will have an impact more on 2019 and 2020, other than the e-commerce investments, which we've completed much of that investment now and should have a more immediate impact. Finally, on direct mail, what we have found is that some of our older demographics really respond better to direct mail than our younger demographics and so it's really about more tightly segmenting how you spend your money and making sure you give direct mail to the customers who still want that, while then shifting to more modern channels for the customers who have moved on from that. And we're just getting better at optimizing across that, and that, therefore, we expect we'll get a better return on our investment overall as a result of reallocating. Oliver Chen - Cowen & Co. LLC: Thank you. Best regards.

You bet. Thanks, Oliver.

Next, we'll go to the line of Olivia Tong with Bank of America. Please go ahead.

Thanks. Good morning. First question, just I want to better understand the outlook. It looks like your operating profit, potentially is essentially unchanged, sales about the same, gross margin a touch worse, SG&A a little bit better. So first, is that fair to assume that, excluding any change, the tax change, your fiscal year EPS outlook is plus or minus unchanged?

Excluding the benefit of tax reform, yes, it's essentially unchanged.

Got it, perfect. Okay. So then I guess on the expense line, there's quite a number of initiatives in place to improve traffic and growth. They sound really innovative. But I'm questioning, is that already assumed in your expenses for this year or more of that's going to be sort of in 2019 or 2020, as Chris has mentioned?

No, as I mentioned earlier, we knew there's a lot of investment that we're going to have to make and we knew that well before tax reform passed. As a result of that, last quarter, we launched a new initiative to really do a thorough review of our entire cost base, not just overhead, but really how we procure our indirect categories, how we procure our private label categories and even how we manage and negotiate with our branded vendors. And having done a thorough review of that, we are now launching into an implementation phase that we believe can free up significant resources for reinvestment and allow us to continue deliver on our earnings objectives while still investing in these new initiatives.

Perfect. Thanks. And then in terms of these initiatives that you are putting in place, clearly, they sound very innovative but I'm curious how you measure the ROI on them and how your expectations of these initiatives compare to things that you've done in the past in terms of, just specifically on the ROI?

Well, honestly, return on investment on specific marketing investments can be a little slippery. We can hire lots of consultants to help us analyse that, based on a number of assumptions that can change over time. In many cases, it's just a matter of test, trial and then adjust and modify as appropriate. On some of the capital investments in the DCs, in particular, obviously, much easier to measure an ROI in terms of revenue lift and expense reduction, so it's a balancing act. Some things are more readily identifiable and some things are less readily identifiable and we apply our own judgment along with a quantitative analysis.

That being said, all of those projects have clear KPIs against them that were used to justify their approval in the first place, and we're tracking all of those KPIs in our performance against them.

Perfect. Thanks so much. Appreciate it.

Thank you.

And next, we'll go to line of Mark Altschwager with Baird. Please go ahead. Mark R. Altschwager - Robert W. Baird & Co. Inc.: Great. Good morning. Thanks for taking the question.

Good morning, Mark. Mark R. Altschwager - Robert W. Baird & Co. Inc.: First, I wanted to follow-up on the tax side, so 22% to 24% for the year implies, I think, a rate in high 20s for the balance of the year. Is that a good estimate for your go-forward effective tax rate? Any color there would be helpful. And then you mentioned you're expecting tax reform benefit to mostly fall on the bottom line because you're still evaluating potential investments. Just in that context, has there been any change to your thinking on the competitive pricing environment resulting from tax savings and the labor inflation given that that looks to have picked up in recent months? Or are these factors already embedded in the updated guidance that you provided?

Yeah. Your math on the tax rate and the balance of the year is correct. We're in the range of 22% to 24% for the full year, taking into account the 3% plus tax rate in the first quarter. Obviously, fiscal 2018 is a blend of one quarter at the old statutory rate, three quarters of the new statutory rate, along with the one-time adjustments we recorded in the first quarter. So your math is directionally correct.

And on the investments, Mark, again, part of the reason we launched this review of our cost basis, we recognize that there is going to be significant labor cost inflation and that we want to, actually, invest in better frontline pay in order to attract the best talent. And we also recognize that there were significant investments we're going to be making in the business. As a result well before tax reform was approved, we launched into this review and we now expect that there is going to be significant savings coming across our P&L that we'll be able to deliver both this year and next year. And that we expect to use that savings to fund most of those investments, which is why we expect most of the tax reform to flow through to shareholders. Mark R. Altschwager - Robert W. Baird & Co. Inc.: That's helpful. Thank you. And I also wanted to ask the bigger picture question on capital allocation. How are you and the board thinking about the balance between balance sheet flexibility and the buyback program? Just given the current pressures on EBITDA and some of the uncertainty that's out there on the comp, I think there is some concern that there isn't a lot of room for error before the 3.25 ex leverage covenants come into play, which could disrupt the earnings growth algorithm. But on the other hand, valuation on the stock is near historic lows, so clearly, a value in being opportunistic with buybacks. So sorry for the long question, but just it would be great to hear how you're thinking about the puts and takes here versus what we've heard over the last few years. Thanks.

Mark, that's a great question. And you kind of took the words right out of my mouth. I mean we're very comfortable in the range of 2.5 to 3.0 leverage ratio, maybe a little wider range than we talked about in the past. We're motivated to deploy our free cash flow in a way that's most beneficial to the shareholders, recognizing that too much leverage is not good, as we push closer to 3.25 – if we ever were to push closer to the 3.25 leverage ratio. So with stocks at the level they're at now, it will be hard to convince ourselves that some level of stock buybacks wouldn't continue to be appropriate. We finished the quarter with $99 million drawn on our ABL. If you look on the balance sheet and see our current maturities of long-term debt, that include the current portion of the new term loan that we took out in the fourth quarter of last fiscal year. So I think you're going to see a balance. You're going to see that as stock prices remain at their depressed levels I think we will continue to invest some of our free cash flow in buying back shares, not just to drive EPS growth because we think that's the best use of our free cash flow. But I think you also may see some of the incremental cash flow afforded by tax reform towards paying the ABL down closer to zero, which has been a level we've kind of had historically. We dipped into the ABL in a more meaningful way in Q3 and Q4 last fiscal year to buy back more shares. But it's kind of a balancing act. I think you'll see a continuation of that. Mark R. Altschwager - Robert W. Baird & Co. Inc.: Truly helpful. Thanks a lot and best of luck.

Thank you.

And next we'll go to the line of Rupesh Parikh with Oppenheimer. Please go ahead. Rupesh Parikh - Oppenheimer & Co., Inc.: Good morning, and thanks for taking my question. I also had just one more follow-up on the tax rate. How should we think about the tax rate beyond this year?

Well, beyond this year, at a federal statutory rate of 21% plus our state and local income taxes, you're probably looking at a rate in that 24%, 25% range. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay. Great. And then getting, I guess, to my main question, so you reiterate guidance for flat comp for the full year. And the results just Q1 maybe was actually weaker than your prior expectations. So I just wanted to get a sense at a high-level. What gives you confidence in your ability to get back to a flat comp for the full year?

Yeah. Rupesh, I think, it's exactly the right question. As we said, we did expect the first quarter would be the toughest quarter of the year for a variety of reasons. And there's a lot of reasons why the back half of the year should be better. Obviously, take BSG first, then I'll take Sally. On the BSG side, obviously, we had a negative calendar impact in the first quarter. But beyond that, as we look forward, one of the biggest drags on BSG comps has been category Y, our promotional category, that started to get fixed late in the quarter and it's trending positive now. So that gives us confidence. The core color and care categories by the way in BSG are growing well. We're making progress in shoring up the electrical category, which has been a drag on comps in the past quarters. We've found that by targeting key price points and then getting vendors to fund against those key price points that's helping us improve the trajectory there. And then in addition, obviously, we have some new product and brand acquisitions we expect in the back half of the year. And finally, the comps got much easier, obviously. On the Sally side, there are some of the fixes to the BCC program went in late in the quarter, the COL-LABs and Arctic Fox late in, very late in the quarter and seem to be performing well. We've obviously got some additional new product launches coming in, in the second half of the year. I also think the more focused marketing spend allocation will benefit the back half of the year as we reallocate our spend to better target customer demand. And then finally, I think we're going to see the benefits of all the investments in e-commerce, much stronger in the back of the year, as we begin marketing that program because the growth we saw in the first quarter was purely organic. We weren't able to market the capability really yet as we're building it in and we'll start marketing that as we go into the rest of the year. Finally, then there's some – as we complete the integration of our European businesses, we think we'll see acceleration there and we believe we'll see accelerating trends in Europe and Mexico in general. So lots of reasons for us to be confident in the back half of the year and that we should see improving comps. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay. Great. Thank you for all the color.

And next we'll go to the line of Jason Gere with KeyBanc. Please go ahead.

Okay. Thanks. Good morning, guys.

Hey, Jason.

I guess the first housekeeping is the change in the calendar on BSG. What was the magnitude of that impact? I apologize if you said that.

No, we didn't. On the BSG comp itself, if you do the math on last year in the first quarter, the CosmoProf stores were closed on Sunday, December the 25. And this year, because the way the holiday calendar fell, we were closed on Sunday, December 24, and Monday, December the 25. And that extra day being closed with a Monday, which is, as you know, it's BSG's, by far, its strongest day of the week, when stylists are stocking up on their product. So just doing the math on being closed two days this year, the Monday versus one day last year, it was 160 basis points on the BSG comp itself.

Okay, so then BSG would have been positive if you normalized this and then obviously the impact of the hurricanes?

Correct.

Okay, great. The bigger question I guess I have is, if you can – I guess look at the Sally side and then break out between the negative 2.5 between traffic and ticket, and I definitely want to focus a little bit more on the traffic and what – you have a lot of good initiative that are coming and I guess I'm trying to just parcel out between these initiatives. These initiatives that will drive traffic into the store or these initiatives that are going to improve the productivity inside the store when you get there, so – and really more helping the ticket. So I'm just – I guess, just more of a bigger picture question about traffic in general, what you saw on Sally during the holiday period, why you think maybe that'll get better and then the initiatives really helping more driving people in the store or really improving the productivity within the store, helping the ticket?

Yeah. It's really good and it's the core of what we focus on. Traffic is the core issue for Sally and that's what we talk about every day, Jason, so you've got it, you hit exactly on the head. What I would say is, things like better allocation of our marketing spend towards direct mail for an older consumer who doesn't really use digital mediums as well and then more social and digital for the consumer who's the younger consumer, that's all about traffic. New products and brands, especially exclusive products and brands like COL-LABs, Arctic Fox and the new Cody line I mentioned, that's all about traffic, it is all about creating some product stories that brings new people to our stores. And then finally, I think, we have to accept that there is a huge transition in e-commerce going on, which is why we started the investment nine months ago or so in our e-commerce fulfillment capabilities. And so really marketing the idea that we can deliver well over 90% of the country in two days and then getting a value for that so that we can supply their more immediate needs in beauty is all about traffic to our website and growing our e-commerce business. So all of the things we're going to try, whether it be on the other hand a great example is launching box color in Sally store is more about not losing a customer who obviously, today, maybe intimated by professional color at home and wants a box color option. Today, that customer would walk out of our store and go by that solution at mass. So that's one more about retaining a customer that's probably already in our store but we are not getting all of her needs because she is looking for a simpler solution there. So it is a mix of those, but I'll tell you what, traffic's number one and it's where we spend our time talking about above all else.

Yeah. Okay.

As we noted, Jason, in the prepared remarks in our Sally stores in the U.S. in the quarter, our conversion, which is already quite high compared to other retailers, was up year-over-year. Our average transaction value was up year-over-year. Our conversion on our e-com site sallybeauty.com was up year-over-year. So a number of good metrics that indicate once the customers in the store, the selling model is working well, but it's a matter of getting the consumer into the store. Traffic is our number one challenge and initially they were focused on our design to improve our traffic trend.

Okay. And then just one other question I was going to ask. If you look – and I appreciate the continued emphasis on the cost containment, the SG&A. I guess I want to go back to gross margin and how you're thinking about total gross margin. You guys have, obviously, are kind of, I would say, if you look historically speaking, you're probably towards the bottom of the range versus the peaks that you've seen in years prior. So there's been a lot of emphasis on the SG&A. Just maybe if you can talk about where you think gross margins can go companywide over the next couple of years as you kind of transition the business a little bit more e-commerce, obviously, focus on some of these higher margin areas as well, what's your outlook and your confidence level there?

Well, as it relates to the balance of the year, obviously, we guided to flat gross margin for the full year in contrast to this modest gross margin erosion in the first quarter, so obviously we have expectations for better gross margin performance over the last three quarters of the fiscal year. What's driving that? The investments we made in our Sally distribution centers to enable the two-day e-com fulfillment is result and lower pick cost and lower freight cost because the point of origin for the e-com shipment is closer to the customer. It's also driving some additional efficiencies in the DCs themselves overall. We had a higher obsolescence expense in the first quarter related partly to some inventory write-downs related to the Sally U.S. strategic pricing adjustments that cause us to have to take some write-downs on some existing inventory that won't reappear in Q2 through Q4. We eliminated some low margin full-service customers in our BSG business that in order to improve the profitability of that business, that action was taken in the first quarter of the fiscal year, which will benefit our overall gross margin in the back half of the year. We expect a softening of the negative mix shifts in our international business. We noted that we had a shift towards the professional customer in our international business. We think that will moderate a bit in the back half of the year. And finally, we just hired a new Vice President of Loss Prevention and who is hyper focused on our shrink in our U.S. business of 4,000 stores we have in the U.S. and Canada. And so we're going to expect some improving shrink results in the back half of the year, in particular. So that relate specifically to the fiscal 2018 gross margin outlook. Your question was a little broader than that. We obviously are interested in improving gross margin. I would say and Chris can kind of chime in on this, that our biggest challenge is traffic and that translates into revenue growth. And so we can be more aggressive on price increases to improve gross margin but that has the corresponding impact of making us less price competitive with other retailers. I'm not sure we want to push gross margin as well as hard as we can and we have a number of initiatives inside the company that are designed to improve our profitability, but our number one challenge as a company is our top-line revenue growth, and we're working hard on that.

Okay. Great. Thanks a lot, guys. Talk to you soon.

Thanks, Jason.

And next we'll go to the line of Beth (sic) [Steph] Wissink with Jefferies. Please go ahead.

Hi. Good morning, everyone.

Hi, Steph.

Most of our questions have been asked but wanted to focus in on some of the merchandising changes you're making on the SBS side. And you talked about adding cosmetics potentially a Cody brand maybe that's in the hair color, the box color? If you could maybe just talk about what's coming out to make way for some of the new initiatives? How we should think about maybe the category mix rebalancing within SBS?

Yeah, so you're exactly right. So let me hit them as you talked about them. So for the cosmetics line, which was COL-LAB, which was launched last quarter, it's an exclusive line. We reduced our skincare assortment in order to free-up the space for that. As we bring in boxed color, our guess is we're going to be reducing our electrical appliance category assortment in order to free-up space for that as you enter the color category. As we bring in Arctic Fox is not that many SKUs so I don't think we're going to have to – we'll take a few color SKUs out to make room for it. The Cody line, I won't name it yet, because I don't think that's public, but it also is a vibrant color line that's very easy to apply. We would be taking out some of the slower moving items in our color category to make room for that. So in each case, I think we'll actually improve inventory productivity. There's also opportunities, we think, to take some space out of hair extensions and some other categories like that. So, lots of innovation coming in Sally. Teams are working hard to do that, but we will be pulling back on space and inventory allocation in some lower performing categories.

That's great. And then this is a follow-up, as you think about overall the BSG business, and it's been a bit more variable, I think, even what the adjusted results from the calendar shift, a bit more variability there than we would have expected. Can you maybe talk a little bit about what you're seeing in that business? Is there a competitor dynamic we need to be considering regarding that end market? Maybe talk a little bit about what you would expect the kind of the long-term variability level to be in that business?

Yeah. Listen, I think, the core and I think what you'll hear from us is the core of BSG has been doing fine throughout all this. So, color and care have been growing nicely throughout all of this, that's the first, and that's 60% to 70% of BSG, so that's the core. Now we did, last year, experience significant drag in our category Y, which is our promotional category, our bundled promotional category that we work on with vendors. We've been working for quite a few months to fix that, starting to see that have a real impact in the very late part of last quarter and we're starting to see it now have exactly the impact we want as we head into Q2. In addition, we have seen some weakness in electrical appliance category in both businesses. Our feeling is that, that as a category, it's more subject to e-commerce competition and we've been working to think about what is the right strategy there, part of it will be to reduce the inventory we have allocated to it, but part of it will be to get much more aggressive at some key price points that we need to be at, in order to stem the decline there. I think the last thing in BSG that we expect to see is some new product launches or some new brand acquisitions with our vendors. This should help us drive performance as well in the back half. And then finally, we've got easier comps coming up. So, I think what you see in top line stability is, actually, the core categories have been very stable. It's really been in these ancillary categories. In some cases, we think we have the fix already done such as in our promotional category and we're still working on it in the electrical category.

Thank you.

And next we'll go to the line of Simeon Siegel with Nomura/Instinet. Please go ahead. Simeon Avram Siegel - Nomura/Instinet: Thanks. Good morning, guys. Chris, recognizing your point, that's going to take time to see the change in customer action, any early updates or learnings you can give us on the results of those price reductions? I mean, any tweak to the amount of SKUs or depth of production from your initial plan? And then, congrats...

No, I don't think – sorry, go ahead, finish. Simeon Avram Siegel - Nomura/Instinet: No, it's all right. I can follow up after.

I don't think there's any tweak to the original plan. I think it was the right plan. We did see some competitive response to it. That being said, I think, like anything else, you got to think about the frequency of our customer visits, which is – our more frequent customers come four or five times a year and many customers come once or twice a year. So for many of those customers, they haven't even seen those price increases yet. So I think that's the more important thing to take away is that, that's going to take time to have an impact for people to see it in the check – in the price they pay for those products, and then hopefully drive on the message that, hey, we're competing and managing value on those key categories that they compare across channels. Simeon Avram Siegel - Nomura/Instinet: Got it. Okay. It makes sense. And then, congrats on the improved e-com fulfillment. How large you think your own e-com business should reach and any thoughts on your own ability for the two-day delivery versus your Amazon relationship? Thanks.

Actually, I think, we recently saw an outside report that said that our service levels are actually better and some of the best in the beauty category, and I believe that first from Stella, was the outside organization that did that. We're excited about this. I think this is a big breakthrough for the category for us. It's a chance for us to take those people who really do want product delivered to their home in a quick way, which we were not delivering on previously for most of the country and suddenly be able to offer a unique value proposition around e-com delivery. So we're going to start marking that, I think as we go into March, we're going to start telling consumers about it. And a great example is in our UK business, our e-com is already 7% to 8% of our total sales. I think we've got to think big, we've got to be thinking 10% in that kind of range, for e-com over time. But the first step is – was to make these investments then start marketing it and then really drive the category. Simeon Avram Siegel - Nomura/Instinet: Great. Thanks a lot. Best of luck for the year.

Thank you very much.

Next we'll go to the line of Kelly Crago with Buckingham. Please go ahead.

Hi. Good morning. Thanks for taking my question. My first question is just around the cadence of your guidance, particularly on comps. So you pointed to back half acceleration in comps, particularly in 4Q, given the comparison, but you also had a pretty easy comparison in the second quarter. I think you were impacted last year by the tax refund delays in February. So if you could just provide any color there. And then also on gross margin, I think you saw the most benefit from the pricing actions you took last year in 2Q. So just any color around the cadence of your gross margin guidance as well.

Yeah. And you know, Kelly, we don't give quarterly guidance, so we're going to stick to our full year guidance of approximately flat same-store sales and flat gross margin. We do expect the performance in the back half of the year, particularly Q4, given the hurricanes last year, to be better both up from a same-store sales perspective. But in terms of gross margin cadence we're not going to break it out by quarter.

Okay. And then secondly you've talked a lot on this call about your focus on driving traffic at Sally Beauty. You are benefiting quite a bit from the tax reform. Why not invest more behind marketing to drive traffic there, just any thoughts around that?

So we are going to invest. We're going to invest more in a lot of different pieces here. And actually we've been working hard on a reinvestment plan in CapEx as well as in OpEx with the Sally Beauty team along a whole range of initiatives. I think my point though was, well before tax reform became real we knew we had to invest and we started working on a very comprehensive review of our cost base much broader than just overheads, made a lot of progress on that. And at this point in time we believe that the size and scale of that should fund the investments required. So I don't want you to hear that we aren't investing. We are going to invest in a significant way, but the reality was we had already knew that that was a challenge we had and already begun the work to make sure we could fund that out of our P&L. And there's no reason not to do that. We're going to execute and implement those. And then as a result of that, we think most of the tax reform will flow through to shareholders.

All right. Thank you very much.

Thank you.

Next we'll go to the line of Linda Bolton Weiser with D.A. Davidson. Please go ahead. Linda Bolton Weiser - D. A. Davidson & Co.: Hi. I wanted to go back to your comment about gross margin and pricing and how you didn't want to push price too much. I guess, I was always thinking that one of the key competitive advantages of Sally Beauty stores is that 80% of the SKUs are in no other retailers. But I don't know. Maybe that's not true anymore because you've been adding bigger brands. So could you update us about the percentage of sales in Sally Beauty that is exclusive of private label? And do you still intend to continue to increase your percentage by about a percentage point a year that used to be your goal? And then if that's the case, again, if you're only competing on a minority of SKUs with other retailers, why can't you push price? Thanks.

Yeah. Linda, I think it's a good point. We continue to launch private label products and that's obviously, part of the lifeblood of Sally and what differentiates it. And as an example in the box color I think we'll probably have a private label option as well as a known brand option. And so it continues to be just below about 50% of our sales.

Sally Beauty U.S.

Correct. In Sally Beauty U.S. I expect it will continue to grow. It has been growing slightly faster than our total sales. So, yes, I think it will grow share. I don't know if it'll be exactly at 1% a year, but it will probably grow as a percentage. In general, what you saw when we took prices down, we did not take prices down on the private label products. We took it on the products that were directly comparable. And I do think there are some opportunities to take price on private label brands that are not as comparable. I just think Don's point is well taken which is we're putting a close eye on it because we recognize that our job one right now is traffic. And we're going to be cautious about that. And if we can take the money out of our P&L through cost reduction or through better negotiations with our vendors, whether that they be indirect or direct, we'll do that first before we take price increases.

And let's say, Linda, on top of the gross margin improvement opportunity from introducing more owned brands and growing the sale of the own brands at a faster rate than the non-owned brands remains a priority. As Chris has talked about a couple times on the call this morning, doing a better job of negotiating on the private label, co-packing the manufacturing along with branded negotiation an important part of growing gross margin and those initiatives are designed to free-up the resource to invest what we need to invest below the gross profit line. Linda Bolton Weiser - D. A. Davidson & Co.: Okay. Thank you.

You bet.

And next we'll go to the line of Simeon Gutman with Morgan Stanley. Please go ahead. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Hey, guys. I want to drill down on BSG a little further. Can we talk about any changes that you may be seeing, how the booth renter is purchasing product, the frequency of the visit to your professional stores and then their frequency of changing pattern of buying online?

Yeah. I don't think there's a radical change in the pattern. We continue to see the fragmentation of salons over time and an increase in suite rentals and booth rentals. We do see them becoming more and more store customers. If there was one category I would point to where they might be buying more online or we think where they're buying more online, it's in appliances and electricals, because it's more directly comparable and all those products are available online at competitive pricing. In your core category, such as your color and your care categories, really, we're the only place you can buy at a wholesale price online or in-store. So I don't think we see a radical change in buying behavior, except in that electrical category, which is why we're really rethinking how much inventory we want to deploy there as well as how to hit very aggressive key price points in that category. Simeon Ari Gutman - Morgan Stanley & Co. LLC: And on the electric point, you're selling at wholesale prices. Is it a price equation or is it that it's a discretionary purchase that the booth renter has owned now and is no longer buying that category, or you're losing share there?

In electricals, I think we have been losing share in both businesses over time, because it's just such a competitive category and it's so easy to compare prices online, and it's a larger purchase. So it's not surprising that people with a larger purchase would compare. So I think that's why we've got to take a hard look at the category. Again, it's not the core of what we do, it's not our highest margin category. But we need to take a hard look at it, and think about how we compete there and we're doing that. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Got it. Okay, and then I'm shifting to Sally Beauty Supply. Can you tell us, do you know the initial business or success you're having? Is that existing, does it skew towards existing customers or new ones? Are you seeing in the markets where it's doing well, I don't know if there's a diversity of how it's performing, but are you seeing any impact to your store traffic and then sort of putting it all together, is there a number if – for every basis point increase in your e-commerce penetration, is there some impact to your margin structure and is that contemplated into – within your guidance?

So you're talking about e-commerce, I assume, just to clarify? Simeon Ari Gutman - Morgan Stanley & Co. LLC: Correct, yes, e-commerce, and mostly around Sally Beauty Supply.

Well, listen, I think a lot of the traffic is coming to us is new traffic as well as we're improving conversion with our current customers. That being said, if the category is so small for us today, then I don't think you're having a significant impact in the stores at the current level. Now, that dialogue will change, Simeon, if you get to a point where e-commerce is 10% of your business, then if it's going dramatically higher than your stores, then you may be cannibalizing some store business. But at this point in time, I think it's too early to tell. I doubt it's having any sort of dramatic impact on our store business. That being said, we knew we needed to make an investment here and change our trajectory. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Got it. And then, I mean any – from a financial perspective as well, the mix shift, as you're either shipping more or doing free shipping, is there a noticeable margin impact at this point or it's too small to see one?

Not really. On the gross margin line, it's a little bit lower than the store gross margin, but at the current size and the current penetration that e-com represents, it's not going to have a meaningful impact on the SBS gross margin. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Got it, okay. Thanks and good luck.

Thanks Simeon.

Thank you. And that was our last question. I'll turn it back over to Mr. Harkins for closing remarks.

This is Chris Brickman. Again, thanks, everyone, for your questions today. To summarize, we fully recognize the need to reinvest in our business in order to drive future growth. And we have aggressive plans to upgrade or e-commerce platform, our store technology, our merchandising system, our loyalty and CRM capabilities, our in-store experience, our marketing and our associate compensation strategy. In order to fund those investments, we have been working on a comprehensive review of our cost base that we believe will generate additional margin improvement and cost reduction opportunities that should create significant capacity for reinvestment. We believe the successful implementation of these profit improvement initiatives will enable us to deliver significant earnings per share growth in the short- to medium-term while making the business more competitive in the long-term. Thank you for joining us today.

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