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...and welcome to the Sally Beauty Holdings Third Quarter Fiscal 2018 Results Conference 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 Mr. Jeff Harkins. Please go ahead.

Thank you, Cynthia. Before we begin, I would like to remind you that certain comments including matters such as forecast – forecasted financial information, contracts or business and trend information made during this call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21 of the Securities Act – Exchange Act of 1934, as amended. Many of these forward-looking statements can be identified by the use of words such as anticipate, believe, estimate, expect, intend, plan, project, target, can, could, may, should, will, hold 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 Aaron Alt, our new Senior Vice President, Chief Financial Officer and Chief Administrative Officer. Now, I'd like to turn the call over to Chris.

Thank you, Jeff, and good morning, everyone. I will provide a brief overview of our Q3 performance, followed by a detailed update on the progress we've made on our transformation plan. Then, Aaron will discuss third quarter financial results in more detail. I'm extremely pleased to have Aaron with me here today for his first earnings call as our CFO. He has hit the ground running and is making an immediate impact. The third quarter was challenging and the overall results did not meet our expectations. We experienced a slight decrease in consolidated net sales, a modest decline in gross margin and higher selling, general and administrative expenses due primarily to foreign exchange and additional operating expenses from our recent acquisition. All of this resulting in a decline in adjusted operating earnings. However, the benefits of U.S. tax reform, lower interest expense and a lower share count helped drive double-digit growth in adjusted diluted earnings per share. While we experienced sustained growth in our global e-commerce business, this was masked by ongoing core traffic challenges in Sally Beauty Supply and was exacerbated by material supply issues from two of Beauty Systems Group's top manufacturers. We also dealt with the impact of our implementation of significant, but necessary internal changes in how we operate, as I'll discuss in detail shortly. During the quarter, we continued to make progress on the core elements of our transformation plan, which I believe will put the Sally Beauty Holdings back on the right track long-term. As we mentioned in April, we are realigning our global operations to return our core business to growth. Realistically, this transformation effort will take multiple quarters. We are making progress and beginning to see results, but significant work remains to be done. We are working to upgrade and refocus our…

Thank you, Chris and good morning, everyone. I am delighted to be part of the Sally Beauty team and look forward to speaking with the folks on the call going forward. I am going to start with a review of the financial details for the quarter and then offer some additional perspective on the remainder of the year. Third quarter consolidated revenue was $996.3 million, a decrease of 0.2% versus the prior year, with favorable foreign exchange and a modest revenue contribution from our first quarter acquisition in Quebec, Canada, offset by a 2% decline in consolidated same store sales. The supply chain issues from our top manufacturers had a material impact on the Beauty Systems Group segment during the quarter, and this is reflected in both the same store sales comp, which excludes our full-service business, and in our overall revenue line. Foreign currency translation had a favorable impact of approximately $9.1 million or 90 basis points on reported revenue growth. The BSG team has estimated that there was an $11 million unfavorable impact of sales attributable to our supply chain issues or the equivalent of approximately 300 basis points the same store sales for BSG for the quarter. Sally Beauty has historically benefited from strong gross margins, with the Sally business having a gross margin in the 55% range and BSG hovering around 41%. Our consolidated gross margin for the quarter was 49.5%, a decrease of 90 basis points compared to the prior year. In the Sally segment, margin declines were driven primarily by increased investments and coupon reductions and a geographic revenue mix shift toward the segment's lower margin international business. In the Beauty Systems Group segment margin decreases were driven primarily by lapping opportunistic inventory purchases on favorable terms in the prior year as well as…

Thank you. And our first 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 wanted to start out and ask – just – asking about the comp. With respect to the revision, just can you clarify some of the moving pieces there? It sounds like some of the supplier issues and maybe some of the internal changes are driving more pressure than you anticipated a few months ago. Is that accurate, and has there been any change to how you're thinking about the opportunity related to some of the new brands at both Sally and BSG as well as the refined marketing efforts? And then specifically on the supply chain disruptions, it sounds like we should be expecting continued 300 basis points of pressure at BSG in Q4. I guess any reason why you wouldn't anticipate that pressure to alleviate as we move forward in the next couple of months here? Thanks.

Thanks, Mark. Yeah, a lot of moving pieces there and I'll ask Aaron to chime in if I miss something. So, on the supply issues – supplier issues with BSG, I think what we're saying is we're working on them and we've seen some progress in July and we're certainly hoping for more in August. But the reality is, is that we don't fully control that and we do expect some lingering issues to persist in the quarter and we don't want to be banking on something that we don't fully control. Hopefully, this will get resolved pretty quickly and we can move back to normal comping at BSG. We are excited about some of the brand pickups there as well as more to come and I'm quite excited about some of the launches at Sally as well. On box color, although the full launch happens in October, it will hit our end caps in September. It's a little bit later than we anticipated, but not much. And we've got some great new promotional work going on at Sally in August here. So, it really comes down to there's a lot of moving pieces. We don't want to be banking on things we don't fully control, but we are seeing some progress and if those things materialize, then hopefully we'll over perform. Aaron, you want to add anything?

No. I think you hit it.

Okay. Mark R. Altschwager - Robert W. Baird & Co., Inc.: Great. Thank you. And then just on the store plans. I know historically you said you don't have many stores that are unprofitable on a four-wall basis and perhaps that's changed a bit. But curious what metrics you use to determine which stores you're going to close? Why 1% to 2% is the right number today? And just any thoughts on the longer term store targets in the contracts of your e-commerce ambitions? Thanks.

Sure, couple – this is Aaron. Good morning. A couple thoughts for you. The first is we are looking at our overall store portfolio based on four-wall profit and digging further into the opportunity set we have by individual trade areas. And so we will look at each metro area globally across our business and identify how we feel about the existing location, are there better locations we could be in and we will assess from there. We view the store portfolio as a critical part of the business going forward and so I don't want you to view the 1% or 2% that we called on the release as being a signal of us moving away from the opportunity to be so close in distance to our guests. We view it as an enabler for our overall e-commerce business as well which we're also going to be investing in. To clarify the 1% to 2% does include stores in our international business as well as in both the BSG and the Sally business in the United States. Mark R. Altschwager - Robert W. Baird & Co., Inc.: Great. Thanks for all the color. I'll jump back in the queue. Thanks.

Thanks.

Thank you. Our next question comes from the line of Oliver Chen with Cowen and Company. Your line is open. Oliver Chen - Cowen & Co. LLC: Hi. Thanks. Thanks, Chris; and Aaron, nice to meet you. Regarding Sally Beauty and the traffic opportunity, what would you say is the bigger opportunity in terms of marketing innovation versus product innovation or how would you contextualize those? And box color, as we think about that and the opportunity ahead, what percentage of mix is the box color opportunity? And also as you implement box color, what will you do to the store? What will be subtracted and where will it go in terms of how you're thinking about how to best execute that? Thank you.

So let me hit those in reverse order. So we will be shrinking the appliance section in most stores in order to make room for the box color launch. We have not – we're not sizing the potential impact in year one of box color, but it is a multi-billion-dollar category that we do not participate in. And more importantly, what's come out of the research is that a lot of our customers do participate in it. We also think we just have a terrific product solution. So as we've tested the product on customers and gotten feedback, we think we have a significantly better performing product than our competition. So we're very excited about it. Again, it will come out of the appliance section, which is a declining section where we think we can take some inventory out and get better efficiencies. And I think it's going to be a terrific success in the stores, but we've got to get it on shelf and prove that out. As for marketing innovation versus product, honestly, I think they're both very important. Obviously, we know Sally's historic marketing practices had not kept up with the change in the consumer needs, whether that be around social or digital media, and we're obviously evolving those marketing practices to become much more in sync with a younger and broader consumer group. But on top of that, let's be clear, beauty – innovation and products are core to the beauty business and when you put hot products in your stores, you drive traffic, and I'll use that opportunity to just make a note that, as an example, we've got a great product – line of products from Rick Ross hitting our stores this month. The Rich line of men's grooming products that I think will drive great excitement, and I think box color can drive excitement and some of the additional brands coming from our Sally Beauty Cultivate program will drive excitement. So it's got to be both. We're clearly working on both. I think the team has got a nice schedule of things coming in the coming quarters and we'll expect that to help us with the returning to growth. Oliver Chen - Cowen & Co. LLC: Okay. And Chris, what do you think about the store of the future? Just regarding what we're seeing in the beauty sector at large, is this really a high degree of a service component, very different visual marketing, customer engagement that's pre- and post-purchase and really reinvigorating kind of the visual interaction customers have with stores and mixing physical plus digital. So as you engage in transformation and as you look to appeal to a broad and younger customer base as well, what's on your mind on a multi-year basis?

Yeah. I think you've got it – you've hit most of the key points there, Oliver and it's even more important around hair color, because it's such a highly engaged category in terms of the risk that consumer is taking as they put a new hair color or execute a hair color on their head. And the danger of making a mistake or the risk of making a mistake is fairly high. So for us, I think, you're right, A, it's got to be visually easy and engaging; it's got to have information attached to it; there has to be a service model, whether that be an online digital model or an in-store model where knowledgeable people can share ideas and help the consumer overcome their fears of complexity; and then it's got – obviously it's got to be able to inspire the consumer to try new things. So as we work on our concept stores, we're trying to tackle that. But I think it's even more important in our core category, given the risk and fear that consumer has as well as the desire to create a really unique outcome for themselves.

Oliver. It's Aaron. One thing I would add... Oliver Chen - Cowen & Co. LLC: Okay, thank you.

...one thing I would add to the answer is, as you – reading through our materials, you will have noted an overt reference to our focus on the retail fundamentals and to ladder on what Chris just said in order, in today's day and age with the retail environment operating the way it is and evolving, we have to be relentless on the assortment, on the presentation; on the customer experience whether it's in aisle, at the register or online; the linkage between online and the register; the loyalty programs; the pricing making sure we have the in-stocks and in service of the – the answer to the question that you were asking, what I would say is, there are a multitude of pieces underway internally as we evolve those retail fundamentals. Oliver Chen - Cowen & Co. LLC: Thank you, very helpful. Best regard. Thanks for the detail.

Thanks, Oliver.

Thank you. Our next question comes from the line of Rupesh Parikh with Oppenheimer. Your line is open. Rupesh Parikh - Oppenheimer & Co., Inc.: Good morning and thanks for taking my questions. I also wanted to dig deeper into the BSG supplier issues. I was curious, so what's driving the supply issues with your manufacturers and what categories are these in, and with these supply issues are your customers then buying other products in your stores – or sorry, in BSG?

Yeah. So let me separate those out. So I think Henkel and Coty and some of the other suppliers have been fairly vocal about their situation. They've acquired over time a number of brands. And they are integrating those brands into a common warehouse and supply chain platform, as well as in one case they're actually also doing an ERP installation at the same time. So the combination of that has created the supply chain disruption. Again, we've seen some improvement from one of the manufacturers and that seems to be continuing, and another the manufacturer still seems to be struggling a bit. Our hopes is that this will be behind us after this quarter obviously. And what I would say is this, which is I've had a lot of chances to talk to customers in stores about what they do. Some put purchases off to later if they can, if they have inventory. Some customers actually, if they can find the product in other locations or online, sometimes will do a short-term supply from another source and in some cases they switch to other products. And we took that into account as we estimated the impact of the supply chain shortfalls. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay, great. And then on the gross margin line, so in other quarter – we saw an accelerating decrease in your gross margin rate this quarter. So as you guys look forward and I know you're not giving guidance next year, but how should we think about the positive and negatives on that gross margin line from here?

I think we should take away is we are well aware of the challenge and much of the work we're doing is designed to address the trend line in gross margin and SG&A. And we are very focused on the sourcing opportunities, as well as the other elements that drop into gross margin. Our strong desire is to reverse those trends and we believe we have a pretty robust action plan in connection with FTI to address that.

And in relation to the more immediate impacts, we don't expect the BSG issue around lapping the previous purchases to continue, so that should sort itself out. And as we mentioned previously, Sally had some changes to its systems in store that caused an increase in redemption rates. It took a few months for the Sally team to kind of rethink its promotional strategy to incorporate that assumption around higher redemption rates into their plan. That has rolled out in August and we'll see how that helps in terms of gross margin going forward. Rupesh Parikh - Oppenheimer & Co., Inc.: Great. And then my last question is on the store closings, is that 1% to 2% number, a net number or is that a gross number?

It's a gross number. Rupesh Parikh - Oppenheimer & Co., Inc.: Okay, great. Thank you for all the color.

Thank you.

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

Thanks. Good morning, guys. So Chris, the endless aisle test sounds interesting. How common have out of stocks been for you guys and have you – has that been any meaningful number of lost sales? And then if you – can you talk about the productivity of the stores that you've been closing? I guess if I just look at the numbers you gave us, so for Sally, the total sales were down 1%, the comps were down 1.6% and then FX and the stores kind of offset each other at 1.3%. So, it does look like there's a delta there, sales grew faster. Just any color on how the productivity of those closed stores are looking and how to think about those going forward? Thank you.

Well, I take one and Aaron will take two. Yeah. I'm excited about the endless aisle test. Obviously, when you think about 6,500 or so SKUs in our stores, there are situations where customers come in, and we're out of stock, especially in some of those slow moving and more unique SKUs before they can get restocked and also in the other end of the spectrum, some of the fast-moving SKUs. The way it's going to work is we actually have an iPad with a transaction device attached to it in the store, where the associate can walk the aisle and swipe the card in the aisle and then that will delivered to the customer's house a couple of days later. So I think it's a nice opportunity. If it works at the test stores, we'll attempt to roll that out, but at this point, we're just in testing phase and I do think that's a nice pick up that could help us in future. As for the same store sales announcements, let me let Aaron pick up on that one.

Sure, and I'd like you to toss the question at me again please.

Yeah. I'm sorry. Let me just throw out some main numbers, but I guess the total sales to comp spread was larger than I would have thought and I'm just looking at the different components there. So I'm wondering how – what the productivity of the closed stores have to look like? And maybe said another way, if you think about the bottom quartile of your stores or pick a bottom segment, how are those versus the company average on sales or margin basis?

Yeah, I wouldn't have – I would not have attributed the delta to the closed stores or the bottom piece of the portfolio. So why don't we follow-up with you after the call on some of the details?

All right, sounds great. And maybe just for the sake of the modeling, within the comp guide that you gave, what the corresponding sales guide would be for the full year?

We'll follow-up with you.

Yeah.

Okay. Great.

We've got a tailwind that's obviously helping that. So let us follow-up and disaggregate it for you.

Perfect, thanks a lot guys. Best of luck for the rest of the year.

Thank you.

Thank you. Our next question comes from the line of Ike Boruchow with Wells Fargo. Your line is open.

Good morning, everyone. This is Lauren Frasch on for Ike. With your lowered expectations for operating profit this year, I believe this implies a mid-to-high teens decline in Q4? Should we be expecting similar level of decline next year as we wait for your initiatives to kick in? What should we be keeping in mind that might cause profitability to improve and how quickly can those initiatives make a difference? Thank you.

Yes. So we're not going provide guidance for 2019 on this call. What I would say is, obviously we've got a lot of cost reduction initiatives underway, which should help margins and profitability next year, as well as we've got a lot of great product initiatives that should help the top line, but we're not going to provide guidance on this call.

Great. Thank you so much.

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. Hey, Chris. Can we – I missed a little bit of the commentary from the prepared remarks, but I guess I want to maybe dial back a couple quarters and talk about BSG, because it's on a different trajectory than where it was maybe a year ago, both sales and margin. So can we just walk through the chronology, what's changed, when you're expecting an inflection? And you're describing a lot of these issues as temporary and they may seem reasonable, but just wanted to go through the lineage a little bit more and hash it out.

Yeah. So let's start with the short-term and then I'll extend it to more of a longer term look at BSG. So in the short-term, obviously, we've highlighted there are some major vendor supply chain issues as well as some internal disruption issues associated with our organization change that affected of the quarter. And we sized those externally. We haven't sized the internal piece of that. And they were significant and they played a major role in this quarter's performance and it'll probably continue at least to some extent during this – for the fourth quarter before it's eventually fully sorted out. Now long-term with BSG, BSG as we've spoken before, has periods of time where it will outgrow the marketplace significantly as it picks up new brands and other periods where it will grow more at kind of overall industry growth rates or perhaps even a little below that. And so it's going to have peaks and troughs in its growth. Now the good news is we've acquired some expanded distribution rights, which should create some tailwind and there's probably some more opportunity there in the coming months, which we'll announce when those are over the goal line. There is also one other headwind, which we've mentioned previously, which is the fact that there are some hair care brands not tied to color lines, it's very important that we think about it that way, which have been historically significant parts of our hair care sales in BSG, which are moving to more of a retail centric model, through open and Amazon. And so that – as that happens that's providing a little bit of a headwind as well. So there's a number of puts and takes, but we're expecting that as the supply chain issues get sorted out and as some of the new brands begin to – and expand the distribution rights, begin to create a tailwind, that we should see better results from BSG. Simeon Ari Gutman - Morgan Stanley & Co. LLC: And just a numbers question, the percentage of business in BSG that's done in store versus by consultant or sales person versus what's done online. Can you share that with us?

So it's about 70% in store, about 30% through full service, but – and then takeout of those to about 3% or so that's done online. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Right. And that's the – it's the professional stylist who's opting to purchase online or is there a different network that's purchasing from that online as well?

There are two pieces to it. The largest is your first statement, which is that it's the professional stylist choosing to purchase online. There is also a piece where we run portals on behalf of large chain customers. And they then have their stylist purchased through our portal and we perform that distribution service on their behalf. So the largest part of it, however, is stylist choosing to purchase online. Simeon Ari Gutman - Morgan Stanley & Co. LLC: Okay. Thanks a lot, Chris.

You bet.

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

Hi, this is Ashley Helgans on for Steph Wissink this morning. Thanks for taking our question. We just had a couple of questions on box color. To start, have you started testing the box color in any of your stores before the October launch? And if so what kind of results are you seeing? And...

No, we've – sorry, go ahead.

Oh, and secondly. Are you partnering with existing vendors with the box color or is this all private label?

Yeah, so two questions – two answers. So first of all, we did test that product with customers, but we've not tested it in store. It will first hit our stores in September on our end aisle displays and then be in line in October. As for the product, as I mentioned in my initial remarks, that will be an own brand lineup of colors under the Ion brand, which is a terrific high quality product that I'm excited to get to market. In addition, one of our major vendors created a dedicated boxed professional line which we'll sell exclusively at Sally and that will be launching at the same time in the section we allocate to box color.

Okay. Great. Thank you. And is it a full store rollout in October?

Yes.

Okay.

It will take some time to accomplish that. So it won't all happen right away, but yes it will be a full store rollout.

Okay. Great. And I guess just on the vendors, is it either – the suppliers like Coty that are having the issues?

The two biggest suppliers that are having supply chain issues at the BSG are Henkel and Coty, but there are others as well.

Okay. Great. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Olivia Tong with Bank of America Merrill Lynch. Your line is open.

Great. Good morning. Just wanted to talk about the initiatives. The detail was very helpful and it sounds like you're obviously doing a lot in a number of important areas like marketing, merchandising, digital upgrades. Where do you think that puts you relative to your peers, because I feel like a lot of different retailers are doing a lot in terms of the digital upgrades, the marketing and the merchandising, so I'm just kind of – if you could do mano a mano relative to your competition? Thanks.

Yeah. I think I'd started by changing the premise there, which is yes, we need to upgrade, whether it be our digital capabilities, in-store POS capabilities, our in-store navigation and visual and support capabilities, but the key thing is it all has to be in sort of a different – in support of a differentiated strategy. And so for us the differentiated strategy is this focus on hair, specifically hair color and hair care. That's what sets us apart and the advice around that and our credibility in those categories is what sets us apart. So I think, although I agree with the premise that many of these capabilities have been invested in by other retailers, I just don't think any other retailer has the credibility in our core categories that we do. And what we've got to do is, do this in service of a core strategy, which is to be the market leader in color and care and offer advice, service and technology that enables that and to basically have that be the differentiating strategy.

Fair enough. That makes sense. And then on the store closures, the 1% to 2%, are you just letting leases expire or is there a more concerted effort in order to exit doors?

The answer is both. We will be incredibly tactical, where we have a store that's problematic. Where the lease is short-term, we will wait for that versus incurring breakage, but we do have some stores across the network where we'll be more proactive and active.

Got it. Thanks so much.

Thank you. Our next question will come from the line of William Reuter with Bank of America Merrill Lynch. Your line is open.

Good morning. I think on the Sally side, you've historically talked about not a large portion of the industry being online. However, you're investing in digital in terms of the new iPads and the shipping directly to the customer. Can you talk a little bit about what percentage of that – of the industry you think is online at this point and where you think that's going?

Well, listen, obviously the world is changing around us as we speak. And the reality is, is that we're seeing some of our competitors approach 10%. We're seeing as an example our own business in the UK get to 8%, that's a very digitally savvy business. And we're sitting down at just over 1.5%, so for Sally. So our feeling is that has to grow dramatically. My guess is the high single-digits to 10% is probably the initial target. I'm sure it will continue to grow after that, but that's probably the right target to be setting for ourselves. And the first steps luckily we've got behind us which is to create a supply chain that can be competitive with the best of our competitors and now we've got to make sure that our actual e-commerce experience and customer experience online is best-in-class as well, which we're going to be getting to in the next six to nine months here. And I think they'll both drive significant growth online as a result.

That's very helpful. And then just one follow-up. You talked about upgrading and refocusing your team on hair color as well as hair care. If we were to look on the Sally Beauty side at different product lines, are there dramatic differences in your, I guess rates of growth or decline by product?

Yeah. There are categories that are growing and categories that are shrinking. So, we've mentioned before that the electrical appliance category, which is very subject to online competition, has been shrinking for us. Same with hair extensions, especially the more commoditized end of hair extensions. And then there's categories like our core of color and care that have had a stronger growth trajectory over time. And obviously, interestingly enough we're starting to see growth in nails again, especially in accessories. And so there is always puts and takes, but there are some categories that are fundamentally more exposed to online competition and the changing competition and the two I'd call out immediately for you would be those, electrical appliances and hair extensions, and we're working hard to change our assortments and in some cases shrink our assortments there.

Very helpful. That's all for me. Thank you.

Thank you. We will go to the line of Grant Jordan with Wells Fargo. Your line is open.

Good morning. Thanks for getting me in. Appreciate all the color and the discussion of the capital allocation. I guess I just kind of had a follow-up. As you talked about investing in the business and then moving leverage back within the target range, but then you bought $50 million of shares in the quarter and over $200 million year-to-date. Can you just – can you give us some color in terms of how you're viewing that going forward?

Sure. So the way I would answer it is, we are still within our leverage guidance of 2.5 times to 3 times, but we're at the high end of that. And as we started the quarter, we were very focused on continuing the incremental share repurchases and early in the quarter, indeed in the first month, we acquired the shares that you heard me reference in the remarks. As we've moved through the quarter and as we rebased our plans, as we think forward, our views have evolved. And so, you are hearing a signal – a change in signal call if you will around the balance we're going to apply from a capital allocation strategy carrying forward, where we've a lot to get done. We're going to invest in our business. We think we have strong cash flow to do that. We are going to be very focused on leverage ratios. Retail is highly competitive and we know that we need to always make sure we have the right dry powder. I should be clear. Liquidity is not an issue at this company. We have plenty of liquidity, but we're focused on what those leverage ratios should be. And then, it will be the case that we will also be opportunistic as it relates to shareholder buybacks. But we're going to do it in descending order of investment in the business, manage the leverage ratios and then think about returning capital to shareholders.

Okay. Great. That's really appreciated in terms of clarification. Thank you.

And Cynthia, we have time for one more question.

Thank you. And that will come from the line of Rebecca Clements with Fidelity (00:57:29). Your line is open.

Hi, Guys. Thanks for keeping me in. Just a follow-up on the BSG issues. Is it fair to say that these are just lost sales from simply not having the product that you need and want to have available in-store and online?

In most cases, that is true and lost sales both from our DSC reps, who are full service reps, who call on salons, which doesn't show up in comp, but shows up in our sales line as well as lost sales in-store. In some cases, customers shift to other products, but in other cases, they do not and they either wait until the product is back in stock or they find another way to find it if they can at least a short-term supply of it.

Okay. And given that this is impacting multiple suppliers at the same time, is there something going on industry-wide that's contributing to that or is it just a confluence of, I guess kind of bad luck, bad timing that they're all getting hit at once?

No. I think it's the end result of a lot of acquisition activity that took place over the last three to four years, where now those suppliers are seeking to integrate all of those acquired brands into one supply chain, which obviously makes great sense long-term, but is creating a short-term disruption.

Okay. And then last question from me, just housekeeping. It looks like your guidance for the year for CapEx, I think I had you at $110 million for the year and now you're seeing more like $95 million to $100 million I think. Is that simply a timing shift or is that actually you don't have the same CapEx spend plans for the foreseeable future that you had say as of the beginning of the quarter?

Well, I think I would answer it two ways. One is, we're – constantly we're forecasting the business and where our investment levels are going to be and so we felt it right to update you with the latest and greatest information we have and what we expect the spend to be. Our plans have grown bigger as you can tell from the initiatives we've laid out. We are in the process of timing those plans and some of them will hit this year and some of them will hit next year and the third – and final element perhaps is given the amount of organizational change we went through at the start of Q3, that has impacted the timing of some of our plans as well and the net result is the new forecast that we called out on guidance.

Okay, all right. Thank you very much.

Thank you. Just to summarize, I'd like to thank everyone for their questions today. We fully recognize the need to invest in our business in order to drive future growth. And we have aggressive plans to upgrade our e-commerce platform, our store technology, our merchandising system, our loyalty and CRM capabilities, our merchandising and store concepts and our associate compensation strategy and these investments will be funded through a comprehensive cost reduction program. Despite retail sector headwinds, we are the established leader in hair color and hair care for the professional and to the consumer and these categories have sustained growth while other categories have faced increasing competition. We believe that these strategic investments will accelerate growth in our highly differentiated categories of color and care and keep us on the path to long-term earnings growth. Thank you for joining us today.

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