Good morning, ladies and gentlemen, and welcome to the Sally Beauty Holdings Conference Call to discuss the company’s Fiscal 2021 Fourth Quarter and Full Year Results. All participants have been placed in a listen-only mode. After managements prepared remarks there will be a question-and-answer session. Additional instructions will be given at that time. I would now like to turn the call over to Mr. Jeff Harkins, Vice President of Investor Relations and Treasurer for Sally Beauty Holdings. Please go ahead.

Thank you. Good morning everyone, and thank you for joining us. With me on the call today are Denise Paulonis, our new 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 Denise to begin the formal remarks.

Thank you, Jeff, and good morning everyone. I'm thrilled to be here with a little over a month under my belt, and I'm looking forward to meeting and talking to our analysts and shareholders in the coming months. Having served in the Sally Beauty Board since 2018, I'm fortunate to be bringing firsthand perspective and a deep working knowledge of the business on day one. I see a significant opportunity to utilize my leadership skills and retail and finance background to drive the business into a new era of profitable growth. Capitalizing on all the new capabilities enabled by the transformation of the business over the past four years. Virtually every aspect of the company's infrastructure has been retooled across technology, marketing, merchandising, supply chain, HR, finance, and talent, creating a robust platform from which we will grow. I'm incredibly proud of our exceptional teams who took on this challenge and helped us evolve into a modern, dynamic omni-channel beauty retailer that is now set up for long-term success. Before talking a bit more about our future, let me share a few highlights from last year. In fiscal 2021, full year net sales grew 10%, gross margins exceeded 50% and adjusted EPS was up over 97%. Additionally, we generated strong cash flow from operations of $382 million. We delivered consistent performance throughout the year and concluded fiscal 2021 with fourth quarter results ahead of expectations, reflecting strong operational execution. We're particularly pleased to see ongoing momentum and consistency across the business despite the various impacts of the pandemic. As we embark on our new fiscal year, our mission to recruit and retain color customers remains a core component of our roadmap and continue tailwinds around steps of self-expression through hair, products sustainability and innovation and the growing number of independent…

Thank you, Denise. And good morning, everyone. We're pleased to conclude the year with strong fourth quarter performance, which exceeded the expectations we provided on our last earnings call and reflects strong consumer demand coming out of the pandemic. Top line growth, solid gross margins, and careful cost controls drove strong earnings and cash flow. Net sales increased 3.4% and same store sales rose 2.1% reflecting strong consumer demand, with only some minor impact from pandemic related restrictions in Europe. Fourth quarter traffic and conversion trends remain consistent with what we've experienced throughout the pandemic. Traffic was down, but units per transaction, average unit retail and average ticket all increased versus prior years. Basically, customers are still shopping less frequently, but are buying more when they transact with us. Global e-commerce sales were $71 million, representing 7.1% of total net sales as compared to $63 million in the prior year. The year-over-year increase reflects ongoing strength as we continue to scale our digital capabilities and implement our strategic initiatives around fulfilment and customer engagement. Looking at gross profit, we achieved fourth quarter gross margin of 50.6%, reflecting our ability to maintain solid performance above our 50% target level. On a year-over-year basis, gross margin deleveraged by 50 basis points, reflecting a higher mix of BSG sales, which carried a lower margin profile in the quarter. Moving to operating expense, fourth quarter SG&A totaled $387 million, up 5% versus a year ago, primarily reflecting higher labor cost and planned increases in marketing spend. Looking at the new fiscal year we anticipate that SG&A dollars will increase and rate will be up slightly on a year-over-year basis. Our expectation takes into account increased labor and freight cost, increased expense planned in our international markets related to a full reopening in 2022 as…

Thank you. [Operator Instructions] And our first question will come from the line of Oliver Chen. And your line is open.

Hi, there. This is Katy on for Oliver Chen. I would just love to know sort of the trends in the color cycle and what you guys are seeing particularly in terms of – we see the world reopening and more people going into the office. So would just love to know what you guys are seeing in color.

Yeah, so we've seen some really, really strong trends in the last several quarters in color, certainly on the self-expression side, the vivid’s. Still continuing to see that remain strong. Again, trending to plus five compared to last year, and that was a really strong quarter last year as well. So really excited to see those trends continued. What we have seen now is the styling categories are starting to take hold and gain traction as well. We're starting to see a little bit more comfort I think and people going out the back to school sessions all started to contribute to that. So not only in the styling elements of our care category, but also styling elements within our equipment categories as well.

Okay, great. And then just a follow up really quickly, I would love to know more about sort of the margin profile of your e-commerce channel versus the store channel, and especially as you ramp up the e-commerce penetration, how you expect to get to your margin expectations for that channel. Thank you.

Yeah. So e-com, you've heard us talk about this over several quarters. We've been in a kind of pivot in the model, if you will. As we ramped up e-com through the pandemic, our first order of business was really to make sure that we could get the product to the customer, especially during shutdown periods. So we ramped that up very quickly. I’m really excited about what the team could do on a very short order to be able to turn on a lot of capabilities. We're now at a point where we have a full suite of capabilities. We are in a position now where through this year, we've turned on, start with ship from store and curbside. We now have BOPIS and now we have rapid delivery into our delivery on both the Sally and BSG sites. The other exciting part just happen most recently in Q4, BSG launched their app and we've seen really tremendous traction there, were up to about 25% of our e-commerce sales, right out of the gate are transacting through that platform. If you look at e-com for BSG in the fourth quarter, e-com was up 10% or 30% actually, really strong growth there. BSG overall was up 6% in the quarter, half that was being driven by the e-com strength. The other half is being driven by full service. So really excited about the traction we're making there. From a profitability standpoint, we are more profitable on the pro side that is approaching more of what you would expect from store margins. On the Sally side, we have work to do. We've talked about that over the quarters. We did pull back intentionally this last quarter our Sally site and have repositioned that just really focused on customer satisfaction. We've seen those results start to take hold and we're starting to see our customer satisfaction scores go up. We're seeing our splits go down or cancel rates go down. And we're also seeing with Denise come in and her prepared remarks, we're starting to see more of a shift and a take hold on the BOPIS and the rapid delivery. BOPIS as you know has the same store margins and actually has increased profitability profiles and that we end up with basket ads most often there on the rapid delivery that is mostly paid for by the customer. So with the shift toward those fulfilment options, we're also seeing an improvement in the profitability of value starting to gravitate that more towards what we would expect to see from a store margin. And then the other thing like I said, with the splits coming down, the cancel rates coming down that also helps with the profitability.

Thank you.

Thank you. Our next question will come from the line of Rupesh Parikh with Oppenheimer. And your line is open.

Good morning. Thanks for taking my question. And congrats on the nice quarter. So I guess the first area just wanted to start with is with your sales guidance. So you guys did guide to 3% to 4% increase for the year. Is there any more color you can provide in terms of the cadence either I don't know, maybe by on the quarter farm, maybe by the half in terms of how you guys would think about that growth just given how volatile the business was even with a lot of these comparisons?

Yeah. No, good question. The way that sales pacing is we're not that seasonal. But historically, our sales are slightly higher in the back half of the year versus the first half. And we would expect the same as we look into fiscal 2022 from an absolute dollar perspective. But when you're looking at it in terms of growth rates, the growth rate percentage will be slightly higher in the first half, compared to the back half. And that's because we're comparing against the prior year COVID disruptions that you just alluded to. We had some significant disruption from, really the November to February surge and that included significant international shutdowns. And then we came out of that with some heavy restrictions. But then as the year progressed, things didn't get better on the on the COVID front. So back half of the year is expected to have more normalized comparisons. We’ll also continue ramping digital and e-com capabilities to grow sales as we progress through the year and we'll also see benefits from what we think is supply chain disruptions that will be tapering and then also, as we have growing benefits from leveraging and supercharging our supply chain issues that you heard on the call, as we have better assortments and are in stocks will improve as well as we go through the year. So inventory will continue to build. It'll get healthier in the coming months. When you think that gross margin that's expected to expand between 40 and 60 basis points. It will ramp over the course of the year with the majority of the expansion will be coming in the back half. And then as you think about SG&A, those dollars will vary slightly with sales, but the dollars will be a little bit more low level loaded when you think about that across the quarters.

Okay, that's really helpful color. And then, as you guys look at the top line, I mean, pretty positive commenters on the innovation front and your business had a lot of pandemic headwinds in this past fiscal year. Can you just help us frame like how you guys are thinking – within that 3% to 4%, like is that a conservative guide, just some of the drivers you see there? And then internationally I know is – at least I think has not fully recovered. So is there a way to quantify I don't know where international is today versus ’19.

Hi, Rupesh. I think the color we give you on sales is we feel good about the plan that we built. The plan is mostly based upon the four key items that I talked about earlier today around digital personalization, loyalty and innovation, and then the health of our supply chain continuing to improve with in stocks improving behind that. When we think about the role that innovation and product will have, it's certainly one of the pillars, but it doesn't really stand alone. It ultimately has to get through the customer, through the channels, with the communication around it. So we feel great about our exclusive brand Strawberry Leopard, and what's going to be coming through Sally with that and the ability to grow it. And as we talk – thinking about that as an incubator brand that might be able to go outside the walls of Sally over time, but really building it as a digitally native brand in terms of how we're going to cover within the e-commerce channel. And then on the BSG front, we continue to see good innovation there. And we expect to continue to see good innovation come through as well. So innovation is one of the four pillars that is out there. As Marlo mentioned, we did still see some headwinds in Europe last year with the pandemic that was there. So part of our plan is hinged upon recovery in Europe, and to a lesser extent in Mexico. But I would say all the businesses are well poised for growth. And when we think about the numbers that we're putting out there, we think that they're realistic about what we can go and do. And the plan is really built to deliver on it.

Okay, great. And I’ll sneak in one quick last one. Just on the supply chain, I know last quarter, you guys called out supply chain headwinds. There wasn't much mentioned of that. So is that a significant headwind going forward? Or do you guys generally feel like you've been able to manage it – in a good position manage it this year?

Rupesh, I think both. It is a headwind, so there's no doubt that we can't overlook the fact that whether it's ocean freight, domestic freight, and labor to fulfil and work in both the DCs and drive the trucks, but it's a real concern for all of us out there. We feel like we have built a good plan to mitigate all the parts that are within our control to mitigate. So I think as you know, we're not as exposed to some other specialty retailers in terms of overseas markets, only about 10% of our business really comes in from overseas. So a little less exposure there. We've been working really hard with our vendor partners, and they've been great partners, and helping us understand what lead times need to be and when we need to get orders placed to be able to keep things on the shelf. So we're working hard around that as well. We're also working to consolidate our POs, so that when trucks and boats arrive, we're able to move them as quickly as possible, as full as possible across the country and manage that as well. So all in all, working the levers that we can best control. And I think we still have a bit of a tailwind from our implementation of a pooling delivery system that we did here in the US where we've just taken a little bit less over the road trucking going forward and a little bit more localized shipping that seems to be a bit more reliable today. So by no means are we overlooking at the headwind, but I think that we have a really well thought out plan how to manage as much as we possibly can.

Thank you. Best of luck.

Thank you. Our next question will come from the line of Mark Altschwager with Baird. And your line is open.

Good morning. Thanks for taking my questions and congrats on a solid quarter here. So the first question is for Denise. As you come in here with fresh eyes. We'd love to just get your initial views on what's left to be done to really position the company for success. And what you see is maybe the top incremental opportunities medium to longer term.

Yeah, happy to talk about that. I was absolutely thrilled with the opportunity to come and join the organization and I start a little bit with what I'm most excited about, because I think its things that we've actually already done are real tailwinds that are going to help drive the business. I think the combination of a strong team and a strong foundation has set us up so that initiatives we undertake have a real chance of success. And by that we have a team that successfully navigated through the pandemic and delivered a transformation, changing our ability to execute against CRM, loyalty, e-commerce, merchandising, technology, as at the short end of a list. But when you think about the initiatives that we're talking about today, continuing to propel our digital and e-commerce business, having and building a personalization program in the way that we can speak to our customers, knowing 74% of our sales and where they're coming from, from customers and the ability to reach that, I think it is one of the biggest untapped opportunities that we have to really leverage our ability to know our customers. I can't say it enough for 74% across Sally, and 100% of our customers across BSG, we can have a direct conversation with which is, I think just a fantastic statistic and something I'm very excited about and a big opportunity. I also think that we're playing in the right space, right. The hair category has a ton of resiliency, good economy, bad economy, everybody still wants to take care of their hair. And there's great tailwind. So tailwinds around self-expression. So some of that is vivid. But some of it's also just about people feeling great about themselves and wanting to think about their hair as being part of that. Product innovation is probably ramping at some of the fastest rates that I think we've seen in the industry. And then with independent stylist, it’s a very different go to business model. And we're really set up well to serve them. So another real good point for us to be able to build on and drive growth go forward. So when I think about the pillars that we have out there, knowing our customers is the top of the list, getting after that customer with personalization with our digital capabilities, clearly at the top of our list, and then I think some of our most untapped potential remains in leveraging our supply chain, the foundation that we've set up is absolutely phenomenal. We need to finish a little bit of work in JDA, particularly in the fulfilment to our stores using the JDA platform. And as we get that going, and we get all of our stores in stock as supply chain pressures ease. Now I think we have a nice opportunity to continue to build customer satisfaction and loyalty, which we hope will build lifetime value of a customer.

That's really helpful. Thank you for all that detail. A follow up for Marlo. Just wanted to ask about the labor backdrop. And if you could provide a little bit more color on the level of incremental investment in wages you're anticipating in the coming year, if you're able to quantify that and maybe the levers that you see to offset that inflationary pressure.

Yeah, so we've been talking about this for several quarters as well. And even in the last back half of 2021, we certainly felt some wage increases. As we look into 2022. We know that will be even more intense. So we've certainly planned that in. We've also planned in increases in freight and other distribution supply chain costs. So we are seeing inflationary pressures. We have planned that in. We've also planned in to return marketing back to kind of more pre-COVID levels as a percent of sales. So you'll see incremental marketing spend in there as well. And then if you compare the year-over-year, I just don't want to forget that we will have international markets that will be back to fully open. And so we'll have to see that there too. But most importantly, we've created capacity to be able to invest in our growth initiatives. We still have more technology investments that we want to make, some that will be about scaling and optimizing and supercharging, our supply chain with supply chain tools. We'll be implementing more pricing and promo tools. And then we'll continue to enhance and evolve our digital platform. So excited that we're continuing to focus on our priorities, continuing to invest in our most strategic initiatives that are going to drive the top line. As you think about the offsets, we're very focused on offsetting and mitigating the cost pressures. Store optimization will be a key element to that. We'll start to see benefits now that will continue to gain traction more towards the back half of this year, and then further into 2023 and beyond. I’ve talked about e-com profitability. That also helps. But a big lever for us is pricing. We will pull pricing levers, we started to do that over last year. The good news is we haven't seen a whole lot of change in volume or spending behaviors or consumer behaviors there. So with a differentiated core product and being very strategic about the pricing that we take, we believe that we've already had success and have confidence that we'll have that going forward. So with our business returning to a strong top line, we think we're positioned really well to continue invest in growth. We’ll drive leverage in the model. We’ll expand margins over time, but in the near term, we’ll offset the cost headwinds, and we'll deliver the operating margins near last year and pre-pandemic 2019 levels. But it will be strong sales and we’ll grow profit dollars and we’ll generate a significant amount of cash. So really looking forward to this year. And I think we're positioned really well to deliver some really strong results.

Thank you. Best of luck. And Denise, welcome.

Thank you.

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

So the fiscal year ‘22 guidance calls for operating margins to be flat, but guides 40 to 60 basis points of gross margin expansion. So just wondering what's offsetting the SG&A drag? And then I have one more follow up afterwards.

Yeah, so you mentioned gross margin. You cut off a bit in the beginning, but I think your gross margins, were guiding to 40 to 60 basis points expansion. Again, we're going to be offsetting costs both in that line item with supply chain and freight costs that will overcome with some pricing levers that will help drive that expansion. In terms of SG&A, I just mentioned some really strong headwinds there, when it comes to inflation, both from wage and other costs, like freight, and then also making sure that we continue to invest in our growth initiatives. So that's where you get the offset. So again, pretty excited about the model. We believe we're set up well to continue to generate really strong cash flows and position ourselves well for long-term profitable growth. And then overtime we'll be able to leverage and continue to expand operating margins over time.

Okay, thank you. And then could you just talk about the fleet rationalization. So what are you seeing in terms of transfer rates, pick up in e-com and your ability to retain those customers when a store closes. Thank you.

Sure. We're really excited about the program and where it is headed. And we're still in the very early stages. So we have 90 stores that we've put through a closure test, we're continuing to evaluate that, it's still a little early for a full read. But early indication is promising that the sales transfer rate is there. Interestingly, the sales are not transferring necessarily all the e-com. We're seeing a good mix of transfers to stores, as well as e-com. We're also seeing transfers and BSG business over to full service, and with the growth of the app in our BSG business as well, yet another vehicle for folks to continue to access the brand. So it's not one size fits all and good to see that customers are finding us in different ways. And I'd also say we've gone through a pretty concerted marketing effort to be certain that our customers know where to find us when we have chosen to close the store. So I think a really good execution there in doing that. The key to us is now watching this a little bit longer over time, right, to understand if the transfer rate we're seeing is temporary, or if it remains consistent at these high levels. We do have plan to continue to close some stores in fiscal ’22. Net store count will be down around 50 stores or so which is 1%, or a little over 1%. That's really a mix of closing about 100 stores across Sally and BSG. But being offset by some opportunistic, new store openings. This is the real opportunity for us to position where our customer is and where we think that growth potential is. And so we will continue to open new stores very selectively where it would make sense to do so. And then as we watch through this year, we'll hope to be able to talk to all of you guys a little later this year about the longer term program around where we are on a longer term optimization plan. Like I said, we're just a little early to call the final results. But we have a good batch of stores that we're monitoring now. And it's more to come in ’22 to be able to make that call. And if we can make all of that work, which I think we're feeling pretty good about as Marlo mentioned. It's one of the key offsets we have in terms of driving some efficiencies into the P&L while continuing to grow the business.

Great, thank you so much.

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

Good morning, everyone. Hey, Denise, how are you? And Marlo?

Hey, Simeon.

So I wanted to ask around the fourth quarter and then within the guidance, if you could – I know you mentioned the transactions and the ticket trends were consistent with the prior run rate. Can you give us a little more color on that? Can you talk about comp transactions versus ticketed SBS and then in particular for the US? And then within the guidance for next year, the total sales guidance of up 3 to 4, how much is price versus volume?

Let me start with the last one, I'll come back to the detail questions. When we look at the 3 to 4, I think Denise hit on the main growth pillars there. And so we're coming into the year pretty excited. We have a great foundation that we're going to be able to leverage. We've got a great roadmap, going through the four growth pillars. We’ve really favorable industry dynamics as well. We've got a resilient category or categories that are in demand, we have trends that are in our favor. So all that’s pointing to some nice tailwinds, I think that it gives us confidence into the top line. Pricing is an important lever that I've talked about both through margin enhancement as well as driving top line. But it is not the majority, the majority of our growth is coming from the growth initiatives, whether it be the digital initiatives, the innovation initiatives and then also the supply chain and really improving our in stock and our offerings to the customer. In terms of what we're seeing and spending, it's really a lot of the same that we've been seeing. The traffic patterns are getting better, especially as you compare to last year when you're looking at the pandemic periods. But when you compare to the pre-pandemic periods, we're still in the high teens, kind of low 20s, it gets a little choppy here and there. You get some spikes whether it be stimulus or maybe mid-month credit check hits. So we see a little bit of choppiness, but for the most part, I'd say the traffic patterns are fairly consistent. They're getting a little bit more consistent month, a month. And I would say that they're probably more on the pivot to improving than the other way. So in terms of spending metrics, again we're seeing reduced trips, but we are seeing more spend throughout. So we aim, we do see our average ticket and average and a retailer is going up.

Got it. Maybe to follow on to that. If you look across the Sally Beauty business, can you talk about the range of inflation across the store? I don't know if you can talk about product categories, but which categories are seeing the greatest versus which categories are seeing the least. And then if you could talk about how well you understand the elasticity there, because I think we will be in an inflationary environment, the lower income consumer may be under some pressure, at least in the first half of the calendar ’22. Curious how that could be managed? How you’ve thought about that into your plant?

Sure. Simeon, I'll start off with a little bit on elasticity, and then Marlo can cover off on a little bit of where we're seeing more or less inflation. I think the team has done a great job over the past year. We've had a good chance as we've sort of moved prices across various categories and stores and geographies, to be able to look pretty closely at where that elasticity is. And for the most part, first, I start by saying I think we have the tools to continue to watch it. And the team spends a lot of time talking about what unit movement is looking like, particularly looking where we've taken price and where we haven't. To date we have seen it be relatively inelastic, for the most part across the places that we have raised the price. I mean, at the end of the day, people are still turning choosing to buy. And we haven't necessarily seen a trade away from a specific product or brand. What I would say going forward is it's also the focus for us for this year, and being able to be very tuned to what people are choosing and not choosing. And the great news is with the basket data that we have, we can actually look at specific customer baskets and be able to diagnose for that customer. Are they trading down a brand? Are they trading away from something where we might have done price? So we're going to be really focused on it as we work our way through the year. And I'll turn it over to Marlo, just to talk a little bit about where more or less inflation might be coming right now.

Yeah. I think it's probably – we do see it coming, obviously, wages hitting everybody. But as we look to our vendors, and as they continue to pass pricing on to us, which is a normal course, it might be a little bit more intense as we hit these inflationary periods, but we have the ability to pass those costs on and we've done that. And we've actually now talked about with more informed tools, that Denise is just referring to being able to expand on top of that as well. So we feel like we're in a pretty good spot there. The other thing I would say is just in terms of the consumer behavior in terms of tough times whether it be recessionary, whether it be pandemic, whether it be tough economic times, I think that the priority is still – our consumer, we find they prioritize their beauty and they aren't going to let their hair go. So that's been a good thing to see and again to continue through the pandemic, that there's such resiliency in this category. That gives us confidence that we'll be able to continue to service the customer even when the times get tough.

And I'd add one final point. And that's specifically on the color business. When we think about the color business, whether it be for a retail customer or a pro, they're generally quite loyal to a brand. They figured out what works for them, they know how to use the product, they're comfortable with the outcome and results. So in all places, where you think about the stickiness of a customer to a particular brand, you probably see that more in color than you do in many consumer categories out there, just because they want that outcome that they want. So we also see that being a piece of traction in both businesses to be able to mitigate what a bit of price increase might do in terms of how consumers might think about their choices.

Okay, thanks, everyone.

Thank you. Our next question comes from the line of Olivia tongue with Raymond James, and your line is open.

Great, thanks. Good morning. First question is actually on share repurchase, which obviously, you've got the authorization program in place, but you haven't done much in terms of the program of late. Just as you're thinking about next year and sort of recovery in place and a little bit more of a return to normal, vivid’s still pretty strong. How are you thinking about share repurchase and other decisions on capital allocation? And then I’ve a follow up. Thank you.

Yeah. I think we're in the best position we've been. We have $400 million of cash on the balance sheet. We don't have anything outstanding on our ABL. You've seen us pay down over $400 million of debt this past year. And we're really pleased about our net debt leverage ratio it’s at 1.69 times and our liquidity is well above pre-COVID levels. So all that said, we are well positioned to deploy excess cash. It has not been our goal to keep cash on the balance sheet. We generally run somewhere under 100 million, if you go back to historical pre-pandemic levels. So we're pretty excited about our position here. We're going to continue to stay committed to investing in our growth priorities. But now we are in a great position to be able to start to add buybacks to our capital allocation priorities. We will restart our share repurchase program in 2022. As you mentioned, the Board did authorize $700 million, which is left on our authorization plan to be extended into September of 2025. And the other thing I'd mention is, we do have some good options coming up on our debt. So we'll take a look at further opportunities to optimize our capital structure and look for some interest savings along the way as well.

Great, thank you. And then Denise, welcome first. And then as you think more about what you might do differently. You mentioned more on technology, but perhaps can you give us a bit more color on a few other areas, for example, like stores just footprint, assortment and then also your thoughts on product mix and your ability to push price points from here. Thanks.

Sure. Thank you for the welcome. A lot built into that question. And I will say there are many, many ideas that we have underway and under discussion and kind of four weeks in, lots of places where I think that we have room to grow and expand. The couple of things that are on my very near term priority list are around digital and e-commerce. We now have the capability to maximize how we utilize those tools in those areas of our business, taking that modernized approach and getting it into the hands of our customers, which is about transacting, but it's also about education, and influence and the ways that we can communicate and make things more simple for our DIY customers, but also reach our stylists with more messages about what's more new and different and training opportunities. I think that the tools that we have today are poised to be better utilized and poised to do more messaging for us. And as we can start things like personalized journeys, you can think about a customer who for the first time comes into Sally, they buy color because they want to try to do their own hair, we now have the opportunity to follow up with them and be able to tell them about how to down take care of their colored hair, what the right care products might be, how to think about when it's going to be time to come and repurchase and try again, give them videos to help them make that whole experience easier. We can actually connect to that with people and so on as I mentioned in my prepared remarks and one of the things that I'm most excited about and I think we have the most opportunity to push on.…

Great, best of luck. Thank you.

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

Hi, I just had two. The first is you've mentioned the wage pressure. I guess I was wondering if we could try and put that into a little better context. Would it be in the kind of 5% range that you're seeing? And I guess, are there stores where you're having trouble staffing, where you may be having to operate with reduced hours?

Yeah, let me start. I think overall, I think wage pressures is a universal problem and universal challenge right now, in terms of just the labor market. We're not immune to having some of those pressure points. And we do have different areas of the country where maybe there's a little bit more pressure than not in terms of staffing. I will say that the team does a great job in thinking about this at a very localized approach. So you're not going to hear us talk about a standardized increase in wages that you might hear from some of the largest retailers, but looking very locally in terms of what the appropriate wages are for the markets that we're in. I’m thinking hard about what our definition of flexibility means in terms of hours and shifts in our DCs as well as in our stores. And then we have what is a natural benefit to us in our stores in particular and that many people who work in our stores are tied to a larger beauty environment. They might work in our stores part time and also be a stylist. They might be in school and learning to become a stylist and they have a bit more of a natural affinity to the product that we sell. And that also creates a different sense of opportunity when we think about going to market. So seeing things that a lot of other folks are seeing, but I think managing it very much on a localized basis to be working to keep our stores kind of fully staffed, our team members developing. I'll turn it over to Marlo to talk a little bit more about overall wages and what we've built into our plans.

Yeah, I guess if you think about it from a P&L structure wages, obviously, one of our largest components of our cost structure. I think we've talked about a little bit in the past, trying to kind of give some sort of context to size. If you look at it from a segment point of view, it runs anywhere from 35% to 50%, of the total cost structure would be related to payroll. I’ve talked about we have taken some very strategic wage increases to invest in our best talent, as we went through this year, and saw that intensify a bit in the back half. As we look into next year it's another probably 6% to 9%, just depending on where you are in this localized grid, further wage pressure that we built into the plan.

That is very helpful. And then secondarily, with regard to – I think your net leverage target is two and a half times, you guys are at 1.7. Should we kind of assume that these shareholder friendly activities that you'll pursue this year will kind of get you back towards that target?

You know, I think we're coming on is we're in a very, very good place with our leverage ratio right now. And so with our cash generation and cash on the balance sheet, we have a tremendous runway to do it all, to invest in the business, to return shareholder value back through buybacks, potentially other means, as well as continuing to look at our capital structure, look at our debt stack to optimize that. So we think we're in a good place with our leverage ratio. And we just kind of leave it there.

Thank you.

Thank you. And at this time, I'm showing no further questions. Speakers, please continue with any closing remarks.

Well, thank you all for joining us today. And we are incredibly excited about how we ended our fiscal 2021 year. We feel like we're set up for a great fiscal 2022 as well. And we look forward to being able to talk and meet with as many of you as we can in the coming year. And a final thank you to all the teams for everything that they do every day to help us grow our business and serve our customers. So with that, thanks for sitting in the call today.

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