Ladies and gentlemen, thank you for standing by and welcome to the Sally Beauty Holdings Third Quarter Earnings Call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer section. Instructions will be given to you at that time. [Operator Instructions] 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. Good morning, everyone, and thank you for joining us. With me on the call today are Chris Brickman, President and Chief Executive Officer; and Marlo Cormier, Chief Financial Officer. Before we begin, I want to remind everyone that we have made a presentation available for today's call that can be viewed from the link provided on our investor site at sallybeautyholdings.com/investor-relations. I would also like to remind you that management's remarks on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Annual Report on Form 10-K and other filings with the SEC. Any forward-looking statements made on this call are views only as of today and we undertake no obligations to update them. The company has provided a detailed explanation in reconciliations of its adjusting items and non-GAAP financial measures in its earnings press release and on its website. Now, I'd like to turn the call over to Chris to begin the formal remarks.

Thank you, Jeff, and good morning everyone. We are pleased to report a strong third quarter, which eclipsed the $1 billion mark on the top line. We delivered a net sales increase of 45%, gross margins above 50%, and strong bottom line performance in operating cash flow of $86 million. The quarter was highlighted by solid execution by our teams and increasing consumer demand as the pandemic recedes in many of our operating markets. We believe our ability to drive this level of performance, while continue to navigate sporadic closures and restrictions, speaks to the core capabilities and operational enhancements we've put in place. For perspective, during the quarter, we experienced capacity restrictions and store closures across parts of Canada and Latin America, Europe continues to be unpredictable with a spate of openings and closings throughout the quarter. Today, Europe is mostly open except a small number of stores operating under restricted capacity. Looking at other macro factors, stimulus largely ran its course early in the quarter, supply chain disruptions have persisted, and pandemic variance are becoming a new reality. While at the same time, consumers are demonstrating an increasing desire to return to pre-pandemic behaviors. Despite these fluid market conditions, our business remains strong, particularly in our core categories of color and care. For example, we are seeing a notable resurgence in demand for color and a great deal of experimentation with the Gen Z customer who is focused on self-expression. In fact, our new marketing campaign, YOU by Sally celebrates and brings to life the transformative power of hair color. In our view, the pandemic brought out a heightened desire for self-expression among our consumers. Wearing vivid bright colors has become a tool for creativity, driving what was previously a niche category to mainstream status. The reaction to…

Thank you, Chris and good morning everyone. We're pleased to report strong results across the board, including net sales exceeding $1 billion, reflecting a year-over-year increase of 45%, and same-store sales came in at 44.7%. The quarter was also highlighted by solid gross margins and expense leverage, driving strong earnings and cash flow. Traffic and conversion trends were similar to recent quarters. On a year-over-year basis, traffic increased along with other key measures, including units per transaction, average unit retail, and average ticket. Global e-commerce sales were $71 million, representing 7% of total net sales, reflecting ongoing strength as we continue to scale our digital capabilities and implement our strategic initiatives around fulfillment and customer engagement. Looking at gross profit, we delivered third quarter gross margin of 50.3%, that's up 470 basis points to last year and reflects our ability to maintain solid performance above our 50% target level. The year-over-year increase, primarily reflects a higher gross margin at Sally Beauty, partially offset by lower gross margin at BSG. Moving to operating expense, we drove significant expense leverage in the quarter, with SG&A as a percentage of sales coming in at 37.8%, an improvement of 680 basis points compared to a year ago. Third quarter SG&A totaled $386 million, that's up 23% from last year and is in line with our expectation for higher SG&A spend in the second half. As a reminder, the year-over-year increase reflects challenging comparisons to last year, when we have the benefit of furloughs and rent abatements in addition to wage inflations, incremental marketing, and IT spend in the current year. Looking at Q4, we expect SG&A dollars to increase on both a sequential and year-over-year basis, primarily driven by additional operating expense in international territories that have reopened, as well as investments for growth,…

Thank you. [Operator Instructions] And our first question will come from the line of Rupesh Parikh from Oppenheimer. Your line is open.

Good morning, and thanks for taking our question, and congrats on the nice quarter. So, I guess just following up on Marlo, some of your comments just around Q4. Is there any more color you can provide in terms of what you guys have built in, just given some of the COVID risk out there, some of the supply chain disruptions? And I think it would also be helpful to get more color on exactly what the supply chain disruptions are?

Yeah. Give you a little bit more there. I think just to make sure the comparisons are a little bit difficult as we go quarter-to-quarter. So, just as a backdrop, just to remember in Q4, we had a really strong quarter last year. Given the circumstances, you remember that was the first time that we came out of closures and heavy restrictions and that was the time that we've benefited from some pent-up demand, especially for Sally. Back Q4 last year, Sally was up over 3% in Q4 of last year when we compared to that prior quarter of 2019. So, overall, we were flat compared to 2019 last year's Q4. So, when we look at this year, we did guide sales to be flat to up 2% versus Q4 of last year, that is reflective of our long-term model, we're expecting to grow in the low single digits over time. But as we look into Q4, to answer your question, there's a great deal of uncertainty, especially as it relates to supply chain disruptions and the pandemic. To go little deeper on the supply chain disruptions, and we've been dealing with the disruptions throughout the pandemic, not only within our production supply team, but also significant delays, bottlenecks within the transportation lines from vendors. So, we do expect that that situation could even more aggravate as we look into the next four to eight weeks, especially as many retailers are [loading] for holiday, putting even more stress on already backed up supply chain network. So, we'll continue to operate with meaningful disruptions, especially for certain of our vendors, but our focus has been on our core categories and that's helped to mitigate to some degree. We feel pretty good about inventory levels right now. We do have improving service levels in our most important product offerings, those focused in color and care. But the bottom line is that we are factoring supply chain uncertainty into our planning. And then, as for the pandemic in consumer sentiment, there is growing uncertainty in our minds related to the pandemic, the headlines are backing that up, and we're seeing increasing case counts from variant. There's obviously potential for restrictions and closures that could impact us across our global markets. We're already seeing mask restrictions coming back into play in certain areas. And so while last quarter, we did enjoy some higher levels of optimism in the U.S. We do now see some downward pressure on consumer sentiment, including further inflation concerns. So, we were pleased with our top line performance in Q3, but we are expecting the month-to-month choppiness to continue and we are ready to continue really to navigate that we have an uncertain and fluid environment as we finish the year. The good news is that we do have a resilient, we operate resilient categories and we do have a proven track record of being agile and executing during these difficult and very unpredictable times.

Okay, great, that's really helpful color. And then, I guess, I'm not sure if you can comment on the [indiscernible] quarter a day, are you seeing any noticeable impact related to the Delta variant in your markets?

We don't comment in a quarter, but I would say, we think it's more of an impact in August and September than in July.

Okay. And then, maybe one just last question. Just in terms of Q4, is there any more granularity you can give in terms of how you think about gross margins and expenses?

Yeah. Gross margins, all along we've talked about our target of staying at 50% plus. We've proven we have a good track record on that. So, that will hold and we expect that to continue. As we look at the SG&A line, as expected, we expected to spend more in the back half you saw Q3, we did have an increase on a sequential basis as we are facing some wage inflation at this point, but also investing back as we open up markets back into incremental marketing spend to meet demand, and then we also have some IT spend that we back half loaded. So, as we look at Q4, again we're expecting to continue that pattern, we will have a bit of an increase from Q3 and year-over-year, and again that's related to the items I just mentioned. We will invest back into more store payroll and marketing and we also have some additional operating expenses as our international markets begin to reopen or going to fully reopen mode for the quarter. I mean and again, the wage inflation and it's operating in a difficult labor environment will continue to put pressure. And again, incremental IT spend that's focused on our strategic priorities, mainly we're in the process of scaling and optimizing the JDA tool, bringing North Texas, that DC facility up and fully online and then also continuing to build out our digital platforms as we continue to improve the customer experience.

Thank you and best of luck for the balance of the year.

Thanks for the questions, Rupesh.

Thank you. We will go to the line of Oliver Chen with Cowen. And your line is open.

Hi, Chris and Marlo. It's good to talk to you guys. On the color [indiscernible] ...

Good morning.

… which has been, color has been very impressive in terms of what's been happening there, how do you see the evolution proceeding and how will you respond to that in terms of planning and innovation and anniversarying and question we receive is, is this just a fad or not and how permanent it may be with those customers? Would also love your thoughts on fourth quarter as it applies to traffic in key comp metrics just more generally at BSG versus Sally and things that you're thinking about in the guidance planning? Thank you.

Why don't I take the first one on color and just innovation there and what's happening. So, obviously, we're seeing growth across our color business, not just in visits, but also very much so in lightening and blonding. And there's a lot of innovation coming there as well. So, we've got a new vivid line coming early Q1 of next year. There is some terrific innovation on the bonding side that's coming to market and some great innovation in blonding that continues to drive growth. So, I think the category is going to continue to grow, although it's 29% of our color business, it's actually a pretty modest part of the total color business in the United States, probably less than 10% in total. So, when I look at that, I'd say there is plenty of headroom for vivid color to grow and Sally has just become the destination for it, and it's great because it's nice to see that we're over indexing now with Gen Z consumers who are coming in for that category, but I think the overall color category is seeing a lot of innovation come to market and we feel confident that's going to continue to drive growth. On some of the metrics, the traffic [indiscernible] turn over to Marlo, and let her take that.

Yeah, the traffic, you know, we had some positive that we saw this quarter. Consumers seem to be more willing and showing some desire to get back to activities that they're enjoying before the pandemic. Unfortunately, we see that as maybe tempering a bit given the uncertainty with variants and the potential for restrictions. But we are continuing to see increases in our key spending metrics, consumers are continuing to reduce their trips, but are spending more when they go out. So, we expect that to continue, but we do expect the consumer to come back once they feel comfortable, but like I said in the near-term, we can [indiscernible] going to be pressure on that.

Okay. And Marlo inventory versus sales for fourth quarter, what are your thoughts there? And as we think about the supply chain disruptions will it impact Sally or BSG more or comparably?

Why don't I take the second question? I think it's going to impact supply chain, Oliver, will probably impact BSG more in Q4, but it will have some impact across both businesses. And let me turn it over to Marlo for the other question.

Yeah, in terms of inventories, you've heard us talk – throughout this year we've been working really hard to build back. We [left] last year at levels that were too low for the right reasons we were managing for cash. But we spent – the good part of this year investing back into inventory. It's gone reasonably well, other than some of the supplier disruption. So, like I said, we're in a pretty good place. We have improved our service levels and stock positions, and for those areas where we have had some outages. We've been pretty successful in moving customers over to alternative products, but we are still working through the disruptions. As we look at the end of the year, we continue to expect inventory will be in the, kind of the low to mid-900s, which is obviously up quite a bit from last year, but we expect we'll be in a much better position to meet the improving sales demand as we go forward.

Thank you. Lastly, thanks for the commentary on sales transfer and thinking and acting proactively on analyzing that. What are your thoughts about what you look for and what might that imply in terms of acceleration or deceleration of thinking about closures over the broader fleet? And what are the parameters you're managing for just to manage risk and maximize transfer as well?

Great question, Oliver and appreciate it. We've got a very integrated program now where we're contacting customers 90, 60, 30 days before the store is closed. We're putting up signage in store. We're running communications in store. And obviously then after the store closes, we're continuing to follow up with customers. We track how many either shift to another store and do we see them purchase at another store nearby or did they shift to becoming an online customer. If they don't shift to another store we also contact them and try and encourage them to either shift to another store or online. And so it's a very integrated program. The real driver, the most important driver is sales transfer. And we feel confident that it's going to work as we planned or better. That being said, we want to do the work and capture the data. And then you're exactly right as we get into November and beyond and we have a fully statistically significant sample that we can draw from then we'll set the size of the program in terms of optimization based on the data.

Thank you. Best regards.

You bet. Thanks Oliver.

Thank you. Next, we'll go to the line of Mark Altschwager with Baird. One moment and your line is open.

Great. Thanks for taking my question. So sales growth of about 5% versus the pre-pandemic levels, that is a bit ahead of your target growth algorithm of low single digits, despite some of the ongoing disruption it's ahead of the flat growth you're expecting in the fourth quarter. I guess is that primarily the stimulus spend that you saw during the quarter or any other factors you'd attribute that to? And I guess looking ahead given the momentum in color and some of the other initiatives underway, I mean do you see potential to exceed that longer-term model in fiscal 2022 presuming some of the supply chain disruptions normalize?

Yeah, so Mark, there were a lot of puts and takes this quarter, right? So, there was some stimulus impact early in the quarter as you noted and we clearly saw that. There is also some disruption in places like Canada where salons were shut down for a significant period of time and the UK only opened up mid April. So, there were a lot of puts and takes in this quarter. What gives us caution going into next quarter is more along the lines of the fact that Delta is obviously getting a lot of headline right now and the supply chain disruptions do seem to be getting worse. We've been making a lot of progress there throughout this quarter and our worry is that it's going to be tougher to make progress and maintain service levels this quarter. And that will improve over time. But in the short term it may cause some loss, some headwinds off the top. The reality is, yeah, I mean, obviously, we're building capabilities to try and exceed that long term algorithm. But we want to set the P&L to work at that low single digits algorithm and that's our job one is make sure that we have all the right digital tools in place to serve our customers the right way. Make sure that we're mitigating the cost headwinds that are coming our way, especially in labor costs. And really setting the P&L up to work at a low single-digit same-store sales number and then obviously we will be working to exceed that. So, there may be some upside there, but the number one thing we're doing is setting the P&L up to work at that level. Marlo, I don't know if you have anything to add?

Yeah, no, I think you did.

Great. That's helpful. And on the margin front, Sally Beauty EBIT margins are exceeding pre-pandemic levels but BSG it's still tracking a couple of hundred basis points below. Can you talk us through some of the factors at play here with BSG? Is there anything structural that's changed given the digital shift or how should we be thinking about the path back to a mid-teens margin rate for BSG?

Yeah, I think [indiscernible] it up probably to the gross margin line is really where you seeing happening. I mean, looking at that relative to this time last year we were up 41 plus margin. That was definitely a pandemic comparison. There you see a mix of business into the highest margin channel with stores and e-com was driving that mix and not so much in the full service. Now you see that normalizing and full services coming back online. So that's putting that margin back to 40 – into that 40 range. 40 is the target for us, we were just sub that this quarter and on a going forward basis, we do expect to see those gross margins on a full-year basis. There will be some puts and takes along the way, but on a full year basis, we should see a 40 margin in the BSG business. And what gives us confidence in that is we do have improving capabilities in our merchandising team both from a team and capability standpoint, as well as tools. We've got JDA now operational. And we have now scaled or starting to scale that for BSG. BSG is now on the platform. So, as we optimize JDA and we'll bring more sophisticated pricing and promotion tools the not too distant future into the BSG world, that gives us confidence that we can get back to that 40, 40 plus gross margin range and that'll transfer right down to that operating margin.

Great. Thanks for all the detail, and best of luck.

Thanks Mark.

Thank you. Next we will go to the line of Steph Wissink with Jefferies. And your line is open. One moment, and Steph, your line is open. Please go ahead.

Hello, good morning everyone. I wanted to just follow up on Mark's prior question related to BSG margins. Can you just help us think through the integration of the [Regis] contract as a large kind of multi-unit contract? Does that burden the gross margins of BSG or is somewhat neutral?

It is a headwind and we'll provide more details on the size of that, but it is a mix headwind – operating profit upside, but a mix headwind in terms of margin. But then as Marlo pointed out, we expected better management of ins and outs of product, product lifecycle, promotional management that we can still get BSG back to that 40 range despite that additional volume at a slightly lower margin.

Okay, that's helpful. And then a question on e-commerce, I'm just curious how it played versus your internal plan? We've seen some retailers reporting e-commerce penetration still elevated, but yours kind of tracked back to, kind of a pre-pandemic levels. So just curious how it's faring relative to your internal plan and how should we think about e-commerce penetration in bridging that 7% to 15% I think is your call?

Yes. So, I do want to correct you on one thing, it didn't track back to a pre-pandemic level. We're still well above pre-pandemic levels. We just didn't grow sequentially. So, I totally get that. The reality is, is that as you know, when we launched a lot of the new digital service models during the pandemic, we launched a minimum viable products to rush them in the market and we've been really focused on both improving the customer experience and improving the margin delivery and profitability of e-com. We feel like we've made a lot of headwinds on that and more work to go obviously. So we do think we'll get back to growth. And that's why we believe that over the next three years, we can kind of double the penetration of e-com. But over the last few quarters, we've spent a lot of time really improving the customer experience and getting profitability right and that's part of the reason why we're not seeing the sequential growth right now.

Okay, thank you.

You bet. Thanks, Steph.

Thank you. Next, we will go to the line of Olivia Tong with Raymond James. And your line is open.

Thank you. Good morning. I wanted to ask you a little bit more about the vivid trend and see if you've done anything in terms of studies or surveys or what have you? And just talk a little bit about the positives and risk upward of your hair color now and sort of a fashion category and that you are over-indexed here relative to pure retailers. It's not that the innovation cycle going forward is actually quite strong, but share us your thoughts in terms of the longevity of the demand and whether given that it's more fashion and Gen-Z focused, is there a risk that they pivot from – I don't know from hair to their face or something else eventually? So, just, if you could give a little bit more color in terms of the sustainability of that and what you're doing to drive that that would be helpful? Thank you.

Yeah, Olivia, I think it's a really good point. And the reality is, is I think what we believe is that especially among Gen-Z customers, although it is broader than that, it's interesting to see that the bell curve of who's buying vivid, although it's centered in Gen-Z, stretches well into all consumers. In fact, we have surgeon customers even in their 70s and 80 who are using it. So, I just think there is a desire for self-expression that's driving this and a feeling like hey, I should be free to do what I want, where I work, where I go to school whatever. And by the way, I think you're seeing a lot of companies and schools and educational facilities and institutions becoming much more accepting of people presenting themselves however they want to present themselves. And I think that's a long-term societal trend that people are going to feel much more emboldened to express themselves, the way they want to and not be confined by rules that are set by one employer or another. So, I do think there's legs to the trend. That being said, the other side about it is it's really nice to see a younger consumer in the store and experiencing both digitally and physically in store. They're not just buying vivid colors, they're buying lightening and bonding products, they're buying products to treat their hair. And to see us in recent – a lot of recent survey they actually over-indexed versus other retail with consumers in that Gen-Z category is exciting, because I think it's teaching a whole new generation of consumers that Sally is the place for DIY Pro color at home. So overall, I think it's a great positive trend and then you back it up with the innovation you just mentioned. And there is a terrific new bonding added vegan color line – vivid color line coming to the stores in early Q1. There is some terrific innovation in bonding coming, terrific innovation in lightening as well. And just have all of that be coming into the stores at the same time and create more energy around the category, I think gives Sally some terrific opportunities. And by the way we're seeing tremendous growth in these categories in the pro side as well, especially bonding and lightening. So overall, I feel like it's a category that we have a strategic advantage in. We have a much broader assortment than any other retailer. We have much more expertise in store to coach consumers through the process, as well as digital expertise online. And so I think it's a great opportunity for us to continue to capture share and equally as importantly continue to bring a younger customer who's never experienced Sally to the store and let them learn about the full array of options we can provide for them.

Thank you. That's very helpful. Marlo for you, one point of clarification, I think you said that Q4 SG&A was going to be up sequentially. Do you mean the margin will be up sequentially or the dollars will be up sequentially for Q4?

Dollar.

Dollars, okay. Okay. Got it. Okay, that's it from me. Thank you.

Thank you, Olivia.

Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. And your line is open.

Hi, good morning. This is actually [indiscernible] for Simeon this morning. Hope you're all well. First question, I guess on SBS margins – close to 60%, do you think that's sort of their appropriate run rate going forward or should we, sort of be thinking about other puts and takes there?

Yeah, I think we're – Sally has throughout the last several quarters, really been strong on the margin front. The biggest driver of that was really our shift in promotional strategy and that started – we're about to lap it really, it's been about a year now, where we started in earnest Q3 of last year. And so, it's been pretty much a sustained margin going forward. So, I think we feel pretty good, but they will continue to contribute to the strength of the margin. On an overall basis, I mean as the BSG businesses and the international businesses come back online it's going to mix that down. But Sally, we expect to stay strong.

Okay.

Hey, it's Simeon. Sorry to jump on and I guess, sorry for the tag team. I wanted to ask – I don't know, Chris, if we could talk about this, the SBS business in the U.S., any way to look at the customer mix to parse out new versus existing and anything surprising you about how they're shopping you.

Yeah, I mean, I think the biggest and most interesting changes – the increased penetration with very young customers, especially Gen-Z, so we just talked about that. But that is – it is a big shift. I do think the other side is, is that the diversity of our customer base remains highly diverse and so I think our continued need to have to drive store clustering, which is something, the team is working on and have stores that really reflect the local community in a much more meaningful way is a big priority for us and a big opportunity for us going forward. But that's one thing we clearly see and the customer data is incredible diversity and high penetration with these diverse segments. And as a result of that, a real need to tailor the store and the store – both the store expertise, as well as the store merchandising and assortment and even visual merchandising to the local customer.

And I guess if – I know, I saw – you expect to get back to low single digits in your fiscal 2022. If your existing customer, let's say is continuing to come back and it's a pretty steady category and business and now you're getting these new customers. Does that low-single-digit reflect that or I mean is it – could be a newer run rate post COVID? I know it's a little early to get there, but that's what I was sort of getting out with in terms of the patterns of existing versus new.

Yeah, I mean excuse me, Simeon, I think we have a lot of things coming at us next year. Obviously, we don't know whether this is going to be our last bout with COVID or not, we'll find out, hopefully it will be, but who knows. We don't know how long supply chain disruptions will last and we're clearly dealing with labor inflation. And so with all of that we're really trying to set the P&L up to operate at that low-single digits number and be successful there. And obviously, we'll be working to exceed that. So, we've put a lot of capability in place in the last year whether that's digital capability, merchandising capability and CRM and targeting capability. And we're going to be bringing all that to bear next year, which is the exciting part, to be finishing off years of investment and some disruptive implementations and actually be able to bring all that capability to bear on the business. That's exactly what we've been working for, for three years, four years maybe. And it's nice to see it all kind of come to fruition, and it will in 2022. That being said, I think we need to be cautious and set the P&L up to work at a relatively modest top line number so that we can deal with whatever comes our way in terms of additional disruption.

Okay, thanks very much. Take care.

Thank you. We do have a follow-up from the line of Rupesh Parikh from Oppenheimer. And your line is open.

Thanks for taking my follow-up question. So, on the vendor front, I'm just curious if you guys are starting to see vendor price increases? And what level you're seeing right now versus history? And I'm just curious if you guys expect to pass through higher prices going forward as well?

Yeah. We expect a number of vendor price increases on both sides of the business and we do expect to pass those through. Many of those will happen in the next few months. Some of already happened and others will happen as we get toward the end of the year. So, we are seeing that now and we fully expect to pass it through and obviously take pricing on our own products as well as we experienced cost inflation there as well.

Great. And then one more follow-up just on the promotional front, we have – sort of -- maybe a few more promotions year-over-year. So, I just wanted to get a sense, if you look at the promotional discipline that you guys have had in recent quarters, it seems like its continuing. But just any thoughts there just on the promotional backdrop in terms of what Sally is doing and then what you guys are seeing overall?

You know, Rupesh, I think we're so laser-focused on our core categories of color and care and then nails also in Sally and pro supplies. The reality is that we're so unique in many of those categories, whether it's because we're the only one in Sally that sells professional color for home use or whether it's because we have so many exclusive contracts at BSG or so many exclusive brands across the Sally business that we don't see any need to be increasing promotional activity. Right now the focus is on delivering great expertise, a great customer experience, being in stock and just executing on the customer expectations. We think that's more important than promotional activity right now.

Okay, great. Thank you.

Thank you. And we have a follow-up from the line of Oliver Chen with Cowen. And your line is open.

Hi again. Thank you. Regarding your cash flow and the pay down of debt it's been very attractive. What are your thoughts and priorities in terms of shareholder returns at large? And then on the innovation ahead with stores and planning and allocation as well, how will you just minimize store disruptions and what's ahead for what you're doing with the stores? And is there another chapter post JDA in terms of those systems and supply chain or are you in a good place relative to where you want to be? Thank you.

I'll start on the priorities. As you know, throughout the pandemic, we remain laser-focused on liquidity and we think right now that it's still important to maintain a conservative strategy really until the pandemic is more fully behind us and some of the macro uncertainties have been removed. As you know, we made a great deal of progress on the balance sheet. We're in a great position right now. We have some good options coming up on debt pay down in the coming year and we'll continue to prioritize growth investments and debt pay down in the near term. So as we come out of the pandemic and the environment begins to stabilize, we'll again continue to evaluate and be evaluating optimal path to return value to shareholders, but right now we think it's best to remain conservative at this point.

And then on store disruptions Oliver, no, I don't think we're going to have significant disruption in our store activity as a result of continuing to optimize our systems. At this point, we do need to complete the rollout of JDA which is great, but fully leveraging that tool, fully leveraging in terms of store clustering, fully leveraging our new pricing tools and CRM tools, I don't think these are going to be disruptive to store activity. And in fact, I hope that we will be seeing further stabilization in terms of our overall system and supply chain and ability to meet our customer needs. So, we're very much into the mode now of fully scale, optimize, get full value out of the tools and capabilities we've invested in. And we think that will lead to more consistency over time.

Okay. And the e-commerce comments were helpful and also your focus on customer convenience as you know, you've been doing this on an ongoing basis. So, on the margin profile and e-commerce, what should we focus on or what are you focused on in terms of moving that as you continue to need to make sure to offer convenience digitally as well?

We've made a lot of progress here actually in just the last couple of quarters. And a lot of that is just being able to set up really convenient delivery options that work and work consistently the first time. So, [BOPUS] obviously is quite profitable. Rapid delivery from Sally, which is rolling out now and rapid delivery from BSG, those are effectively at store margins or very close to, and yet create a really high value service model with the customer. We've also centralized our supply from warehouses and ring-fenced a lot of inventory in warehouses so that we have much fewer splits, so that we get the full order delivered consistently the first time. A, that is better for the customer because they get it all in one shipment as much as possible. And B, it reduces your delivery cost because you're not splitting shipments. So, there's been a lot of progress made here and our e-com margins have been improving significantly in the last few quarters. We'll continue to optimize that, but I think right now the real focus is, we've done a lot of optimization on the full warehouse side. Now, what we want to do is really focus on – how do we bring some of these new delivery service models to market that are effectively at equivalent store margin, but create great value to the customer and we're getting those commercialized right now. I'm really excited about what that can do for our e-com business going forward.

Thank you. And lastly, your marketing has been very modernized. In the past, there was a focus on list and the customer base. But what are the next focus areas and how are you thinking about different decisions on return on ad spend and customer acquisition cost as well as making sure you're relevant in new channels like TikTok and others?

Yeah. Oliver, it's something we're putting a really close eye on right now, which is how do we spend to drive traffic and how do we spend to inspire the customer. The marketing team has so many great ideas they're working on right now, including affiliate programs that engage our associates, broader micro influencer programs that really target some of the new channels like TikTok that are so inspiring to our customers. And then also additional campaigns that really are organic, the way YOU Buy Sally was and having colored hair doesn't make you unprofessional was. So, I'm inspired by what's happening with our marketing right now. I think it's exciting to see us really penetrate these new channels in a much more organic way, be very authentic about it. It's actually in some cases, lower cost, it just takes more creativity to do it. So I think the customer acquisition cost shouldn't be going up, but I do think that there is a great opportunity to make it much more authentic and much more powerful. And I think you're going to see more things like YOU Buy Sally event that you joined us for in New York. And you'll see a lot more investment in TikTok in some of those areas, especially given the growth in Gen-Z that we're seeing in our stores.

Thank you. Best regards.

You bet. Thanks Oliver.

Thank you. And I'm showing no further questions at this time. Please continue.

To end, I'd like to thank everybody for joining us today. We're really excited about where we're at and the trajectory of the business. Business is really healthy. Obviously, we have some additional headwinds we might have to navigate in the short-term, but we've proven that we can navigate those and that our categories are quite resilient. So, we're optimistic about how the business is going and we're equally as excited about bringing all of the investments we've made over the last four years to bear to drive future growth in the business and we're ready and set to do that. Thank you very much.

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