Paul Finkelstein - Chairman, President and CEO Randy Pearce - Senior EVP and Chief Financial andAdministrative Officer

Jeff Stein - Keybanc Capital Markets R.J. Hottovy - Next Generation Equity Research Mike Hamilton - RBC Dain Rauscher Jon Christensen - Kayne Anderson Rudnick Investment Justin Hott-Bear - Stearns Justin Boisseau - Gates Capital Management Daniel Hofkin - William Blair

Good morning ladies and gentlemen. My name is Mary, and Iwill be your conference facilitator for today. At this time I would likewelcome everyone to the Regis Corporation First Quarter 2008 Conference Call.All lines have been placed on mute to prevent any background noise. If anyone has not received a copy of this morning's pressrelease, please call Regis Corporation at 952-806-1798, and a copy will befaxed to you immediately. If you wish to access the replay for this call, youmay do so by dialing 1-800-405-2236, and enter the access code of 11097199followed by the pound sign. I would like to remind you that to the extent the Company'sstatements or comments this morning represent forward-looking statements, Irefer you to the risk factors and other cautionary factors in today's newsrelease, as well as the Company's SEC filings. Reconciliation to non-GAAPfinancial measures mentioned in the following presentation can be found ontheir website at www.regiscorp.com. With us today are Paul Finkelstein, Chairman, President, andChief Executive Officer, and Randy Pearce, Senior Executive Vice President andChief Financial and Administrative Officer. After management has completed itsreview of the quarter, we will open the call for questions. (OperatorInstructions) I would now like to turn the call over to Paul Finkelsteinfor his comments. Paul, you may begin.

Thank you Mary and good morning everyone. Thank you forjoining us. We are all pleased with our first quarter results. Our earnings andour consolidated same-store sales came in right on plan at the midpoint of ourguidance range. First quarter earnings were $0.46 a share, and our consolidatedsame-store sales increased nine-tenths of 1%. North American first quarter service comps increased a veryhealthy 2.7% versus 0.5% or 1% last year. Our sales in the U.K. continues to be disappointingdue to a difficult environment. Our consolidated service comps increased 2.3%for the quarter. Hair Club continues to perform extremely well. Product comps for the quarter were a negative 2.5%, and I'lladdress product comps later on during my presentation. First quarter EBITDA was flat at almost $75 million. Weended the quarter with 12,108 company-owned in franchise locations, an increaseof 81 locations during the quarter. Total locations including businesses inwhich we hold an ownership interest, numbered 12,584. During the quarter, wecompleted nine transactions acquiring 133 salons, including 42 franchise salons.Our franchises built 57 locations and closed, relocated or sold 89 salons. Company-owned salons as of September 30, numbered 8,315.Franchise locations were 3,793. We also have investments in salon companieswhich have 476 locations. This is a very important number, as after the Provostis completed, this number will exceed 2,500 locations, and will have an impacton sales and EBITDA, although EPS should not be significantly affected, ifanything EPS should grow. Total debt at the end of the quarter was $719 million andour debt to cap ratio was 43.3%. As you can see from the strengthening of ourservice comps, our core business is starting to recover nicely. I’d like to share with you an additional perspective on thewhole issue of customer visitation patterns. I really don’t like to makehistorically references, because I am more concerned about the present and thefuture. But, I would like to share with you a perspective thathistory will provide. 40 years ago, our core customer was a weekly salon customer.She literally came to the beauty saloon 50 times a year. We allowed her twoweeks off a vacation. At about that point in time the down customer wasinstrumental, in changing our industry forever, when blunt cutting ‘n wash thatallowed customers to visit a salon every four to six weeks. At that point in time we thought this would be a disasterfor our industry, but the industry was able to adapt and did enjoy significantgrowth for the next more decades. During the last five years, visitation patternshave lengthened, in part due to long hair and in part due to a more casuallifestyle. In many instances people who went every six weeks are now goingevery eight weeks. While all this creates a challenge for us, it is no way nearthe magnitude of the challenge created 40 years ago. While this has been adifficult transition, it is not at all impossible one and now it is basicallyanniversary. And with the aging population, coupled with the anniversarying factorwe seem to be on our way towards recovery. We are adapting by implementingprice increases, new services such as hair expansions and hair color and supercuts. All of these events test the resiliency of our business. We have neverhad a negative comp here in our 85 year history. As you know, the big issue today is product sales. And inour last conference we shares with you our plan to significantly transformTrade Secret into a true beauty boutique, rather than just a seller, aprofessional hair care products. We know that other Trade Secrets typecompanies within our industry have bad body cosmetic and skin categories,representing as much as a 23% of their total sales. These categories representonly 2% of our sales. Please understand that we are not in any way giving up onour hair care business. We will be thinning out all those popular lines, butfrom a practical point of view the bath, body, face in cosmetic categories willrepresent incremental sales. We are on a process of a significant Trade Secretredesign, as well as identifying, which new vendors will partner with us inorder to implement this transformation. We expect to show improvement in TradeSecret during the last half of our fiscal year. While I've discussed our transformation strategy during ourlast conference call, our original plan was to test the strategy in five salon Minneapolis area. We havemodified the strategy and are now planning to test the strategy by using a newstore design, which will be rolled out in several locations which are alreadyscheduled for remodeling. Our first test location will be at the mall of American Minneapolisand we will have seven to eight additional locations operating with the newassortment and design by the end of the fiscal year. Based on the results ofthis test group we will develop a plan to retrofit our existing locations sothat we can obtain incremental sales in all of our Trade Secret stores. Afterwe have developed a right assortment, we will take certain elements of thebath, body cosmetic and skin lines and install them in our Regis lines as well.Part of the way we will add this new assortments, once they proved to besuccessful to the entire Trade Secret division prior to remodeling. Lastly, I would like to talk about the Provost transactionand share with you the history of the transaction and our thought processbehind it. As you know we recently issued a press release announcing that weare merging our European continental business into Provost. Our U.K.business is excluded from this transaction. Provost was the largest known longbrand in Europe, with the worldwide presence.[Invus] is a minority investor in Provost. [Invus] is a private equity housethat has been very active in recent years and it’s a Weight Watchers private,an equity house that has been very active in recent years. They took Weight Watchers private and then public. They area top notch high quality firm. They called me about six months ago and askedwhether they could purchase our business on the continent where the primarybrands being Jean-Louis David and St. Algue. We told them that we do not wantto exit Europe, but that we would considermerging our business into theirs and retaining an equity position. Our continental business is doing extremely well, withprofits proceeding plan, the business is highly profitable. However, we allrecognize today that bigger is better, bigger does create account an accountprevailing balance between us and our suppliers. Our suppliers continue toconsolidate and become even more powerful. Bigger also allows us to be a stronger company. When FranckProvost did call, we stated that they were four preconditions that had to bemet for us to consider our merger. First, our shareholders would have to beadvantaged; second, and the most importantly, our franchisees would have to beadvantaged; third, we must retain an equity interest as we do not want to exit Europe, and fourth, Provost would have to make acommitment to keep the Jean-Louis David brand very special and unique. Although our current performance has been more thansatisfactory, it is very difficult for our American management to compete on alevel playing field with the European management of Provost. Franchising in particular prevents significant challenges.We do not have the same exit strategy for our European franchisees that we havein the United States.Provost has such an exit strategy with 200 of its salons being company-ownedand 400 being franchised. We have almost 1,600 franchise salons in Europeand only 40 are company-owned. The Regis business on the continent has beenquite strong, with $60 million in revenues and EBITDA of $11 million. However,the new combined business of Provost including Regis will have 2,200 locationsof which 240 will be company owned, $900 million in system-wide sales, andEBITDA of $39 million with huge opportunities for continued growth. Thusmerging Jean-Louis David and St. Algue into Provost creates a very dominantcompany in Europe. We retain a 30% equity interest in the new company. We arevery excited about this transaction and it should close sometime in earlyJanuary. This also reflects a change in authenting over the last several years.Historically, we have never had partnerships for strategic alliances. But asRegis bigger and the world become smaller, we feel that strategic alliances andcertain areas are appropriate. Last year, we created a joint venture with HorstRechelbacher, the founder of Aveda. This joint venture will be producing anorganic line of products which will be introduced sometime this spring. It willbe groundbreaking line. There are all significant risks attached to thistransaction. But in no way should it perform, should these risks be material tous financially. Horst and Regis, each have 50% interest in IntelligentNutrients. We also announced this past spring, that we purchased 30% of GoldmanSachs' 49% interest in a Japanese entity controlling 175 salons. This gives usa platform with which to grow with Wal-Mart in Japan, if Wal-Mart so desires. We have a minority interest in Cool Cuts 4 Kids, which the70 stores chain, headquartered in Dallas,and a business that we feel is scalable, but a business which we wanted toinitially operate, with an entirely separate management team. We have a call on this business. Hopefully, this will bepart of Regis within the next several years. This past August, we closed in atransaction with Empire Education Group, in which we merged 51 of allcosmetology schools in the Empire, which now has 87 schools and the managementteam with the potential to create within three to five years, a $200 millionbusiness with very strong EBITDA margins. We retained a strong equity interestin Empire approximating 50%. These alliances are quite strategic and in most instances,we will be able to significantly expand our ownership percentage. I am morebullish about our company than I have been in a long time, as our servicebusiness, which is in fact our core business is improving, and we know exactlywhat has to be done in the product arena. The issue is not the what, but thehow. Once again, thank you for all of your patience. I will nowpass the baton onto Randy Pearce.

Thanks Paul and good morning everyone. We are very pleasedtoday to report first quarter earnings of $0.46 a share. Perhaps over mostencouraged buy is the marked improvement in our service sales which represents70% of our overall business. Service comps increased 2.3% in the first quarter,up 100 basis points from the preceding fourth quarter. As we said many times before, our earnings guidancecorrelates to our same-store sales guidance. For example, guidance for ourfirst fiscal quarter was for earnings to be in the range of $0.43 to $0.49 pershare based on a forecasted same store sales range of flat to 2%. Our actualcomps for the quarter came in near the midpoint at positive 90 basis points,and therefore our earnings of $0.46 also met the mid point of the range. Our reported earnings of $0.46 would have been a pennystronger, had it not been for a higher than expected effective income tax ratein the quarter. The higher tax rate was simply a timing issue related to ourfirst quarter adoption of the new FIN48 accounting pronouncement, which I willdiscuss further during my segment's discussions. Other than that, our first quarter operating results weregenerally pretty straightforward. Please also note, that effective August 1, wedeconsolidated our Title IV school business due to our joint venturepartnership with Empire Education Group. As we've discussed with you before, deconsolidation has noimpact on our bottom line earnings. However, it does cause a reduction in ourconsolidated revenues and expenses. As a result, deconsolidation of our schoolbusiness reduced our overall first quarter revenue increase from 6.6% to 4.4%.That was a reduction of 220 basis points in our revenue because of thedeconsolidation. I'll now transition my comments and give you a bit moredetail behind first quarter operating results for each of our business segmentsand a breakout of our segment performance as found in today's press release.And I'll begin as always with our largest segment which is our North America salons. North American salon revenue, which represented 86% of ourconsolidated first quarter revenue, increased 7% during the quarter to $572million. This revenue growth was due to a 6% quarter-over-quarter increase inthe number of company owned salons that we operated, as well as a 90 basispoints increase in same-store sales. In addition, our North American growth wasfavorably impacted by 100 points, as a result of including one month of revenuerelated to our school group that was merged into Empire Education on August 1of 2007. Last year this revenue was separately included in our beauty schoolssegment. This year again, we’ve included the one month of results in NorthAmerican salons. Service revenue in our North American salons grew nearly 10%during the quarter to $407 million. This increase included a very nice 270basis points increased in service same-store sales and a 130 basis pointsbenefit related to the inclusion of one month of school activity. Product revenue only grew 1% in the quarter to a $155million largely due to a decline in product same-store sales of 3.7%. Royaltiesand fees from our North American franchise salons increased 4% during thequarter, to $10 million. This increase was primarily due to our first quarteracquisition, which added 42 franchise locations in the quarter. Absent theseacquisitions, new franchise units that were added to the system over the past12 months are being slightly more than offset by franchise buybacks andfranchise unit closures. Our combined gross margin rate for North American salonscame in at 43.9% in the first quarter. Although this rate was 50 basis pointsless than the same period last year, the 43.9% rate did meet our plan. Before Igo into details of our first quarter service and product margins, I would liketo point out one reclassification change that we made this past quarter. Due torecent refinements made to our inventory tracking systems, we are now able tobetter track and account for retail products that our salon stylish transferfrom retail shelves to the back bar for use and servicing their customers. Thecost of these products had historically been included as a component of ourretail product gross margin, whereas they are now more appropriately includedin our service margin. These retail-to-shop transfers, only amount to just over a$1 million each quarter, although this classification has absolutely no impacton a combined North American salon gross margin rate. The result of thisreclassification will serve to reduce service margins by approximately 30 basispoints and will increase product margins by 70 basis points, again this is areclassification only, it has no bottom line impact. Our first quarter service margin rate for North Americansalons came in at 42.3%. Although, this rate was slightly better than plan, dueto our stronger service comps, this rate was 50 basis points lower than thesame period a year ago. The majority of this change was a result of thereclassification that I just discussed. In addition, our amalgamation of the FiestaSalon acquisition, which has a slightly higher salon payroll cost, caused aslight decrease to our overall service margin rate. Our retail product margins for the quarter came in at 47.9%,which was 30 basis points lower than the same period a year ago. As I justmentioned, a moment ago, we had expected a 70 basis point improvement inproduct margins, due to the reclassification of retail to shop items.Therefore, on an apples-to-apples basis, our product margins are 100 basispoints below last years first quarter rate. And there were two primary reasonsfor this. First of all, we experienced negative payroll leverage in our TradeSecret salons in the first quarter, due to negative products comps of 8%. The second factor that reduced our product margin rate thisquarter, related to a sales mix, whereby we sold a higher proportion, of lowermargin promotional items during the quarter. That's not to say, we havepromoted more heavily during the quarter, because we did not. This is simply amix play in our sales. Next, I will address our North American salon G&Aexpense, which came in essentially on plan in the first quarter of 5.8% ofrevenue, up 40 basis points over the same period last year. The majority ofthis increase was related to a planned increase in photo shoots and salon levelcollateral expenditure such as posters, shelf talkers and other signage. Marketingexpenditures in the prior year first quarter were a bit lower than normal, aswe pointed out to you last year. Our North American salon, experienced a slight 10 basispoint increase in rent expense, which also came in essentially on plan, in thefirst quarter at 14.5% of sales. We continue to experience some slight negativeleverage in this fixed cost category as salon rents are increasing at aslightly faster rate than our overall same-store sales growth. Site operatingexpense, which includes cost directly incurred by our salon such, asadvertising, insurance, utilities and janitorial cost, improved 40 basis pointsin the first quarter, coming in on plan at 8.6% of sales. Most of thisimprovement reflects a planned reduction in our workers compensation cost. Aswe saw last year, we have seen significant improvements in this cost categorydue to improved salon safety programs and return-to-work programs. The net effect of all the items I just discussed causedoperating income for our North American salons to come in at 12.1% of firstquarter revenue. Next, let's review our first quarter performance of ourinternational salon segment. This segment includes our company-owned salonslocated primarily in the United Kingdomas well as our franchised salons located on the continent of Europe. Beginning this year in fiscal 2008, our international salonsegment also includes our four Vidal Sassoon Academies in the United Kingdom, as we no longerreport a separate school segment. Our overall international salon revenue represented 10% ofour consolidated first quarter revenue and increased just over 13% over thesame period a year ago, coming in at just over $63 million. Over one half of the overall revenue increase was due to aquarter-over-quarter improvement in the Euro and the British Pound exchangerates over the U.S. Dollar. Absence of currency impact, the balance of our fourthquarter revenue growth was due to the inclusion of the four Vidal SassoonAcademies and the addition of new and acquired beauty salons partially offsetby a 3.8% decrease in over all comps. The service revenue component which included a 5.3% declinein service comps grew 14% overall in the quarter to $38.4 million. Once again,most of this increase was due to currency gains, as well as to the inclusion ofthe Vidal Sassoon Academies. Product revenue also grew, increasing 14% during thequarter, primarily due to currency gains and once again, the inclusion of the VidalSassoon Academies. The strong product comps in the U.K. that we have enjoyed in recentquarters, have started to soften, coming in at negative 30 basis points in thefirst quarter. Lastly, royalties and fees from our internationalfranchisees grew just over 9% during the period. I’m going to switch gears now, and discuss our gross marginrate. Our international salons combined gross margin rate improved 110 basispoints in the first quarter to exactly 46% of revenue. Our service margin rateimproved 30 basis points in the quarter to 46.9%, despite the previouslymentioned 5.3% decline in service same-store sales. The margin improvement wasdue to the inclusion of the Vidal Sassoon Academies in the U.K., partially offset by negativepayroll leverage. We also experienced an improvement in our retail productmargin rate, which came in essentially on plan at 43.7%, an improvement of 320basis points over the same period last year. As we had expected, our international product margin rate isimproving as we continue to migrate towards a similar product distributionmodel that we have here in the States. As we’ve discussed in the past, we arenow shipping some product from our distribution center in Chattanooga,Tennessee, to our U.K. operations, in order to take advantage of our global purchasingpower, which that certainly has helped our U.K. product margins. I'll now address the other expense line items for ourinternational segment, and let me just say that every line item essentially metour plan for the first quarter, there were really were no surprises. Our site operating expense category came in at 5.1% of firstquarter revenue. Although this rate met plan for the quarter, it was 90 basispoints higher than the same period a year ago. This planned increase wasprimarily due to the current year inclusion of the Vidal Sassoon Academies. During the first quarter, Sassoon held its annual studentrecruitment event in Japan,which caused the slight operating expense rate to increase as we expected. Our international G&A expense rate also met plan duringthe quarter, coming in at 18.7% of sales which was an increase of 50 basispoints over the year ago period. This planned increase was due to the timing ofadvertising cost in our franchise business located on the continent of Europe. Next, our international rent expense met plan during thefirst quarter, coming in at exactly 20% of revenue, up 30 basis points over thesame period last year. Just like here in the States, rent renewal increasesover the past year in the U.K.have outpaced our overall same-store sales. Our depreciation and amortization expense for internationalsalons came in at 3.9% of revenue which was in line with our expectations, butwas 50 basis points higher than the prior year first quarter rate. This plannedincrease was due increased depreciation, following the completion of recentsalon remodeling projects, as well as certain salon asset disposals. In total, the net effect of all the factors we justdiscussed caused our operating income for international salons segment to comein at $4.1 million or a rate of 6.5% of sales. Next, we'll talk about Hair Club for men and women. DarryllPorter and his management team at Hair Club continue to run a very consistentbusiness, and one that is performing above plan. Let me very briefly highlight just a couple of items. Firstquarter revenue from our hair restoration centers increased more than 10% to$32 million, which was a $1 million above plan. Hair Club revenues representednearly 5% of our consolidated first quarter revenue. Our first quarter operating margin rate for Hair Club camein at 21.7% or 130 basis points stronger than the comparable period a year ago.In addition, first quarter EBITDA margin came in a very strong at nearly 30%.Once again, we remain very pleased with the performance of this segment of ourbusiness. Next, I will make a couple of brief comments regarding ourbeauty schools. As we previously announced and discussed with you, effectiveAugust 1st our Title IV Funded beauty schools, were merged with and are nowmanaged by Frank Schoeneman at his Empire Education Group. As a result, ourfirst quarter consolidated results includes only one month, of the Title IVschool results, which we grouped in our North American salon segment. We havethen deconsolidated our business, effective August 1st and then included theremaining two months of after tax school performance, under a new line item onthe P&L called equity and affiliated companies. This line item will notonly include the after tax results of schools, but also our equity interest inother joint venture partnerships, including Intelligent Nutrients. We no longerwill report school performance, under a separate business segment. I am now going to make a quick comment regarding our firstquarter G&A rate that appears in the corporate segment of our P&L.Although our G&A cost came in on plan, at 5.2% of sales, this rate was 50basis points higher than the same period a year ago. The primary reason for theplanned increased related to consulting fees paid to Deloitte, in connectionwith our expense control initiative. With that, that concludes my comments concerning theindividual business segments. But I would like to make a comment, on oureffective income tax rate. We still expect our tax rate for the full fiscalyear to be in the range of 34%. However, our first quarter rate came in higherthan plan at 35.8%, due to implementation of a new accounting pronouncement. Asrequired, we adopted FIN 48 on July 1st of 2007, which was the beginning of ourfiscal year. And FIN 48 is titled accounting for uncertainty in income taxes. The higher than expected tax rate impacted our first quarterearnings by a little more than penny a share. The impact of adopting FIN 48will cause the tax rate for Regis, as well as most other companies, tofluctuate quarter-over-quarter, rather than being able to expense a constantannual rate. Again, we continue to expect our tax rate for the full fiscal yearto be around 34%. Let me speak to our interest expense in our debt levels. Aswe had expected, our first quarter interest expense came in at $10.6 million,up from $9.8 million of expense we recorded in the same quarter last year. Ourtotal debt on September 30th stood at $719 million, up $10 million over thispast three months. Our debt to capitalization ratio with September 30thremained solidly investment grade at 43.3%. Assuming we repurchase a 100million of stock this fiscal year, we expect to end the year with total debt inthe neighborhood of $780 million. As you also know, the cash flow characteristics of ourcompany are very strong and highly predictable, we are pleased to report thatdespite deconsolidation of our school business, our first quarter EBITDA grewslightly to a nearly $75 million. I have one final item to addressed, today's press releaseinclude information regarding our earnings outlook, for both the full 2008fiscal year, as well as our second quarter. We reaffirm our previously issuedguidance for fiscal 2008 earnings to be in the range of $2.01 to $2.27 a share.As we have discussed with you last quarter, our initial annual comp guidance of1% to 3% may have been a bit aggressive given the near term challenge we havefaced relating to retail product comps. Based on first quarter results, we now believe total compsfor the full year should be in the range of 50 basis points to 250 basispoints. Nevertheless, we still feel comfortable with our initial earningstarget, due to accretion from recent acquisitions, as well as our expensecontrol initiatives. For our second fiscal quarter of 2008, we believe earningshould be in the range of $0.51 to $0.57 a shares, based on a comp expectationof 50 basis points to 250 basis points. The adoption of FIN 48 is going to cause our quarterlyeffective tax rate to jump around this year, as we just discussed. We saw ithappened in our first quarter and as a result our second quarter tax rate isexpected to be above 36%, which again is higher than the estimated annual rateof 34%. This higher rate will impact second quarter earnings growth by about$0.02 a share, but this is simply a timing issue, as we will get most of thisback with the lower tax rate in the second half of this current fiscal year. That's it, that completes my prepared remarks. Paul and I'dbe happy to answer any question you have. So Marry, can you step in and providesome instructions we'd appreciate it.

(Operator Instructions). Our first question comes from JeffStein with Keybanc Capital Markets. Please go ahead. Jeff Stein - KeybancCapital Markets: Good morning Paul. Just a couple of questions; first withregard to visitation you stated the fact that you are beginning to anniversarywith your numbers and just kind of wondering, in the quarter did you see ayear-over-year increase in visitation, in your domestic salon?

We were still slightly down but--

On a comp basis.

On a comp basis, but 2.7% service comps is very, verystrong. Jeff Stein - KeybancCapital Markets: Sure.

And we probably got an average ticket increase of slightlyin excess of 3%. So, we are marginally down in terms of foot traffic, butthat’s a considerable improvement from being 3% or 4% down in customer count acouple years ago. Jeff Stein - KeybancCapital Markets: And the 3% increase that you saw in average ticket is thatprimarily price or is it more related to mix, offering things such as hairextensions?

It's everything. It’s a hair color and Supercuts, its price,maybe 2000 of our salons have price increases. It's hair extensions which nowis a couple million dollar business, $3 million business, probably it will be$6 or $7 million business within the next year. It's just a whole bunch oflittle things, Jeff? Jeff Stein - KeybancCapital Markets: Okay. And can you talk a little bit about what you're tryingto do over the near term to improve your product sales, because it seems likeyou have got some secular headwinds in this business with diversion The factthat from that channel, was taking shareof market, and yet, it seems that the initiatives call that you have underwayare really very long-term initiatives, things like this, the retrofit that youhave planned and the test that you have planned for Trade Secret, it doesn'tseem like this is a fiscal 2008 initiative. So, is there anything thatinvestors can look at over the next 12 months that will kind of hold out hopethat we might see a pick up on the product side?

Jeff, I really don’t think these new initiatives are alllong-term at all. We'll be testing within the next 60 days, new lines -- newassortments. And we'll be putting those new skills and many of our Trade Secretstores long before they are remodeled. We also -- believe it or not, our TradeSecret business is getting marginally better, not worse. So, I think ourinvestors are going to see -- I don't look at it total negatively at all. Theyhave the professional pack or category for all the reasons you mentioned, asthose additions over the last year. And we perhaps should have a little bit ofself-flagellation and that we haven't come up with our new plans early enough. But we will identify now, we have identified vendors, and Ithink, certainly the last quarter, I think you are going to see much improved results,Jeff. And that's not long-term, that's intermediate term. Jeff Stein - Keybanc Capital Markets: Okay. So, I just want to make sure I understand, Paul. Whenyou were talking about bringing in new vendors, are we talking about the beautycare products specifically or are you talking about other professional linessuch as Intelligent Nutrients?

No, I am talking about beauty care products. I'm talkingabout -- Jeff Stein - Keybanc Capital Markets: Okay. So beauty care products, they are going to startshowing up, in the Trade Secret salon in the back half of the year?

Correct. Jeff Stein - Keybanc Capital Markets: Okay. And just out of curiosity, I mean, it would seem to methat unless -- let's use Bath & Bodyworks as kind of comparable, because Iwould assume that that -- you it's a mall-based competitor, and they are veryextensively involved in beauty care. I guess, how would you intend to competeagainst a company like that, when your store size would seem to be a limitationin terms of the assortments that you could offer to be competitive, you knowacross, let's say a broad spectrum of beauty products, whether its skincare,shampoos, just the whole range of products that they offer?

Jeff, I think we have to go back to the topics I talkedabout in our conference call. All these sales will be incremental sales. So, itdoesn't take that much to really have a significant impact on Trade Secretcomps. And we will be standing out our hair care lines. Bath & Bodybasically is a private label concept. We will be selling branded merchandise.So I think we are comparing apples and orangutans. We have the locations. Thelocations are excellent. Over 600 and 30 odd line in most of the major malls inthe country. So, I think our locations in our foot traffic will create a hugeopportunity for us to push the needle slightly to the right. That's all weneed. Jeff Stein - Keybanc Capital Markets: Okay. Thanks.

Welcome.

Thank you. Next question comes from R.J. Hottovy with NextGeneration Equity Research. Please go ahead. R.J. Hottovy - NextGeneration Equity Research: Good morning everyone. Paul, a quick question for you justin terms of the diversion data. I don’t know if it was referred to at the firstpart of the call, but the beauty industry fund website doesn't seem to haveanything past June of '07. I just wanted to get a sense of where the thingswere tracking in the third quarter there. I guess your first quarter, in termsof that diversion number if we are seeing any improvement on that front?

You have the most -- whatever is on the website is the mostcurrent number. And we continue to have L'Oreal affect us negatively, and yetcompanies like Joy Co. and Mitchell are doing extremely well fightingdiversion. So, I think it's pretty much same all same all in terms of -- Idon’t think there's anything that’s really new in our diversion front, otherthan it gets marginally worse. R.J. Hottovy - NextGeneration Equity Research: Okay. I guess my next question I guess, just has to do with,you talked a lot about the different JVs and taking a different stance overlast couple of years in terms of being more open to these strategic alliances.Is there anything else out there that you might be looking at or anything else-- its probably too early to talk about, but what other types of things you maybe looking at on that front?

I think most of that which we even feel we should jointventure with or have a strategic alliances have already been implemented. Weare not working on anything new right now. R.J. Hottovy - NextGeneration Equity Research: Okay. I guess that's it. Good luck in the next quarter.

Thank you.

Thank you. Your question comes from Mike Hamilton with RBCDain Rauscher. Please go ahead. Mike Hamilton - RBCDain Rauscher: Good morning everyone.

Hi Mike. Mike Hamilton - RBCDain Rauscher: I was wondering given what's going on in establishing theJV's expense with IN, can you take a stab at what we were running in one timecost here in and in the big picture where it’s showing up in line items?

Yeah, let me take a stab at that. In terms of where it’sshowing up on line items, on the page of the P&L, I referred to the newline item it’s called equity and income or loss of affiliated companies. And wehad $334,000 loss, now that's an -- on an after tax basis. So that's showing up,that includes IN, which was the major contributed for the loss this quarter, aswell as offsetting, a slightly offsetting it was some profit coming out of theEmpire School business for the quarter. In terms of overall financial impact, INcontinues to sell product to other third party retail outlets, as well as to Regisand we in turn are selling products to our consumer. So in terms of sales, we ended up -- we are probably selling$0.25 million to $0.50 million of product in our salons each quarter. Mike and,once again, we ended up with a net after tax loss around $200,000, $300,000 forthe quarter. I don't see it, once again, we've talked about the implementationof the rollout of the professional line, which I think Paul had indicated willcome later in the fiscal year. So I don't see until that launch takes place,but there will be much change in terms of revenue or operating impact. Mike Hamilton - RBCDain Rauscher: Yeah, fair enough. Is there any thing worth noting in termsof one time expense related to either schools or the continental Europeanchanges that have shown up during the quarter?

No. Mike Hamilton - RBCDain Rauscher: Thanks. That's it from me.

Alright, Mike.

Thank you. Next question comes from Jon Christensen with KayneAnderson Rudnick Investment. Please go ahead. Jon Christensen -Kayne Anderson Rudnick Investment: You mentioned 3% increase of price and mix. Could you tellus what same-store sales growth you need to offset inflation and gain positiveoperating margins?

2%. Jon Christensen -Kayne Anderson Rudnick Investment: Alright. And if I look at your operating margin at above 9%in 2004, 7% last year, 6% currently, we understand that same-store salespressure is a big part of it, but could you give us the other contributors tothat decline in order of magnitude?

It's modestly comps, but our franchise business haveactually shrunk and has a much higher margin, 40 somewhat percent margincontrast to a company owned business. And our company owned stores have grownfaster than our franchise division, in part, because we bought so manyfranchisees back. Jon Christensen -Kayne Anderson Rudnick Investment: Are there other reasons for the shrink in the franchisebusiness besides your purchase as the business been less franchisees?

No, our franchisee are very well. We've cutback on highergrowth, company owned growth. I think our franchisee have as well, because theyare in a last three or four, five years. We have reduced visitations and rampups have taken longer. And we have more resources, more financial resourcesthan they. But if you take a look at the total franchise stores, coupled withthe buybacks, we've had about a 4.5% increase in total units from thatfranchise division compounds that over the last four years. Jon Christensen -Kayne Anderson Rudnick Investment: And when I looked at total systemized salons in your pressrelease, I see the numbers for salons constructed going from 420 in June of '07to 85 September, I see a similar decline in acquired? What do I read from that?

Help me with it, when you say 422 salons acquired that's forthe full fiscal year. And you are comparing it to the 85 that we built in thefirst quarter this year I believe? Jon Christensen -Kayne Anderson Rudnick Investment: Okay. That is, that goes a long way to…

Yeah.

Right. Because overall, we continue to expect that our newstore construction, as well as the acquisition should be comparable in thecurrent fiscal year with that of last year. Jon Christensen -Kayne Anderson Rudnick Investment: Thank you

You are welcome

Thank you. Your next question comes from Justin Hott with Bear Stearns. Please go ahead. Justin Hott-Bear Stearns: Hi. Just have another question on diversion. You havementioned before, Paul, that it was sort of business as usual on diversion. Canyou update sort of the strategy you have for when companies divert too much? Ifany of them are seeing any decrease shelf space so far?

Yeah, they are, we have moved Matrix from a prime spot toless prime spot, and we just have -- we've published on our website, thoselines that are getting are more footage, and those are lines are getting lessfootage. Justin Hott - Bear Stearns: You also made a decision about hair color as well, lotlarger because of diversion, where we switch from L'Oreal color to --?

Yeah, we felt in Regis, the Regis division would be betterof having one brand. We had split Regis between Matrix and Wella, and weobviously picked the brand that we felt was more committed to reduce diversion.It doesn’t mean that Matrix hair color won't grow with us in other divisions,but I mean, we warn our friends. Justin Hott - Bear Stearns: What has the response been from some of the supplier so far,as you decrease or give them les prime spots? How are they responding?

Some of them are not euphoric. Justin Hott - Bear Stearns: Are they changing their behavior yet?

No. They are say they are, but the numbers all dictate. Justin Hott - Bear Stearns: And, can you give us maybe just a little bit more on theIntelligent Nutrients roll out on the brands, some of the discoveries and learningyou've had? How you are working with Mr. Rechelbacher so far? Hope you couldtell us?

Yeah. He is an amazing man, and we have groundbreakingproducts. We are like him in terms of all the fix that they had done. And weare in the final stages hopefully of coming up with a shampoo and conditioner.And his objective is to have 100% of it food-grade organic, and we believe that90 somewhat percent of the SKU's will be 100% food-grade organic, and nobodyhas that in the world. There may be some SKU's where we'll be organic, but nottotally food-grade organic. We are going to have something very special, veryunique. Justin Hott - Bear Stearns: And Paul, just one more question. Just for people out there,I guess the Phantom salon come to things like Ulta, the large 10,000 squarefoot store play, something people are paying close attention to right now. Canyou talk about how you think, we are not talking thousands of stores, but canyou talk about, how you think that could affect your business over thelong-term, next five years?

It's not only Ulta, its Victoria's Secret, I mean it's become a morecompetitive category; shampoo is not -- its like Starbucks and Coffee. Coffeewas nothing years ago and really, the shampoo business was a commodity business15 years ago, and now it's become a hot category, so there is more competition. Ulta has a big box, 10,000 feet, that's we're going to have$4 million. That's an awful lot, Justin. We like power lower risk footprint, wethink it’s a lot easier for us to continue to grow, and have a model that workslong-term, but I’m not here to throw stones at Ulta, yes, they have done a goodjob. Well, good, fine. Anybody who sell shampoo competes with us, whether it'sUlta or whether it's Banana Republic. Justin Hott - Bear Stearns: But I’m thinking more about the large floor play where thereis couple of salons chairs in there as well too.

Yeah, but I’m not terribly concerned about that. Justin Hott - Bear Stearns: Can you just flush out a little bit more of why, outsidethat you have 12,000 stores.

Well, once again, if we continue to add 500 to 1000 stores ayear, and the locations are good, we'll get off that share, especially now,when we are morphing into beauty. And this is not something which we are tryingto invent, we are not inventing the wheel here. Some of our competitors havedone it, and done it extremely well. And we'll do it even better. We know whathas to be done, it’s a question of cherry-picking the line, and just findscomments or right on the mark, we have a smaller footprint. So, we are justgoing to have to grow a lot smarter, but we will be. Justin Hott - Bear Stearns: Paul, one more question I guess on long hair, when, you know-- can you talk a little bit --

I hate long hair, Justin. Justin Hott - Bear Stearns: It's in your press release, I understand.

Yeah, I know. Justin Hott - Bear Stearns: You put it out there, I am going to ask. And just with acomment, I am seeing some of the things you are saying now on the trend. Butsome of the things I see worry me them just being part of change in season, andpeople wanting a change in hairstyle. Can you point to something in your datathat would give us more comfort that this trend is in?

Yeah, 2.7%. Justin Hott - BearStearns: More than that, more than what we saw to that.

Well, it's only then and in our business, the numbers meaneverything. And if you had 2.7% North American service comps, contrasted to0.5% or 1% the year before, then more people are coming in more often to gettheir hair cut. It's simple as that. The numbers tell everything in ourbusiness, when you have 12,000 stores, the only thing you can look at is thenumbers. Justin Hott - Bear Stearns: Any signs in October that’s sustainable, that's not just onequarter so far that its never going to go?

Our service comps continue to be just fine. Justin Hott - Bear Stearns: Alright, thank you very much.

Thanks Justin.

Thank you. (Operator Instructions) One moment please. Ournext question comes from Justin Boisseau with Gates Capital Management. Pleasego ahead. Justin Boisseau - GatesCapital Management: Hi, thanks. Did you repurchase any stock in the quarter, andwhat are your plans to repurchase? The rest of the years are going to be sortof evenly distributed through the quarters or do you have particular timeperiod where you can get the most of it?

Yeah, we did not repurchase any stock in the quarter,because we are precluded from trading in the stock because of the [Provo] joint venture thatwe were sitting on here. So absent that we still are planning on repurchasing a$100 million worth a stock and I would just assume that it would come ratablythroughout the remaining three quarters. Having said that, if we find that, theopportunity present itself for us to get a little more active based on stockprice we may do it sooner. If we find acquisition opportunities, that come ourway above the $75 million that we budgeted for the year, we may do less of it.But at this point, we are still looking to repurchase a $100 million over thenext three quarters. Justin Boisseau - GatesCapital Management: And then your for 780 of debt at the year end. It lookedlike an update on the numbers I have, I thought I have something closer to 660,has something changed there?

We end at the year at 709, just three months ago. So I don'tknow where the 660 was. Justin Boisseau - GatesCapital Management: Okay, that may have been my fault. And then, one more thingon traffic. I just want to make sure I was clear you out, talked about theimprovement in the service comp, but traffic was down, right for periodyear-over-year?

On a comp basis slightly down. Justin Boisseau - GatesCapital Management: Alright, okay thanks

Thank you. Next question comes from Daniel Hofkin with William Blair. Please go ahead. Daniel Hofkin-William Blair: Good morning, guys. Just a quick question, first on the comptrend and the improving trend that you are seeing in service, is thatexclusively what you say in customer traffic has or has there been someincreased stability to move product or cost or mix up or is it primarilytraffic so far?

Its price of new services, it’s a combination of whole bunchof things. Daniel Hofkin-William Blair: I am just looking in terms of the sequential acceleration.Is it -- it's all of that, it's not just the traffic is getting closer to flat?

It’s all of that. Daniel Hofkin-William Blair: Okay. And then with regard to just the guidance in the backhalf and in the last three quarters on the comp sales. Is the slight change inthe comp guidance strictly on the retail product side, because if anything?

Not fully. Daniel Hofkin-William Blair: Okay. So then would that be correct then in inferring thatthe service business, if anything is a little bit ahead of what you would haveexpected three months ago?

You are correct. Daniel Hofkin-William Blair: Okay. Thank you.

Thank you. Next question is follow up from Jeff Stein.Please go ahead. Jeff Stein - KeybancCapital Markets: Randy, just a follow up question on G&A. You indicatedin your presentation that there were some consulting fees in the first quarternumbers and I am just kind of wondering have you kind of identified a chunk ofexpenses that you could perhaps quantify, that we could may be look forward toon an annualized basis upon seeing reduction at some point this year and whendid the consulting fees begin to disappear?

We – yeah, it’s a good question Jeff. Deloitte, we areasking Deloitte to really scale back and hand the reins to us at the end ofthis calendar year. So I think you are going to see a precipitous drop in theconsulting fees beginning January 1. We've got a lot of very good and I mean avery good momentum going on here at Regis on a number of fronts in terms ofcost savings, And what we are finding is that certain things have beenimplemented, certain cost saving ideas will be implemented this year and so weare not going to enjoy the full benefit of the annual run rate. Certain things,as well Jeff, we've seen on cost saving initiatives that over the next severalyears, they are going to be phased in and the savings will continue toaccelerate. In terms of this current fiscal year, we’ve got $4 millionto $8 million of gross savings, that we are estimating and I hope it maybe alarger than that, but I’m not going to create that expectation. $4 million to$8 million of savings, we will be paying Deloitte about $3 million of that. Sobut again, the Deloitte cost go away and savings will continue to accelerate inthe future. We are also, when you look at G&A one could assume that all ofthis savings will flow through G&A, the cost certainly does to Deloitte, butas a matter of fact much of the savings will appear in other line items of theP&L, maybe its in the form of interest expense when we reduce inventorycarrying cost, it might be in the site operating expense line item and even thedepreciation expense line item. Jeff Stein - KeybancCapital Markets: Got it. And could you care just take shot at the kind of theannualized run-rate that you hope to achieve by the end of this year?

Over $10 million. Jeff Stein - KeybancCapital Markets: Over $10 million, okay thank you.

You're welcome.

Thanks. Your final question is follow-up from JonChristensen. Please go ahead. Jon Christensen -Kayne Anderson Rudnick Investment: What is your average storage age and how does yoursame-store sales vary by store age?

You should have had that question out of the last. We shouldhave stopped --- we are just fine. I don't know. We'll come back to you withthat number. Now it’s a very difficult number to compute, because of so manyacquisitions. We have to go back to see when those acquired stores were buildand when they were remodeled. But obviously, comps with respect to store thatare fully matured aren’t strong as stores that are two or three years old, butwe'll get back to you.

We do see, I mean it's intuitive that 350 to 400 stores thatwe've built from scratch, on average, it takes five years for a store to reachmaturity. Some are faster, some are little bit longer, but on average fiveyears. And we do see in terms of total revenue that after the first year, it'sabout 60% of the way thereof mature revenue. And then it adds 10 points a yearfor each year thereafter. So Paul is right, we do see that as we open up newstores, you get a bigger boost to comps in the earlier years as they were inthe maturation cycle. Jon Christensen -Kayne Anderson Rudnick Investment: And once the store is open five years and you get consideredmature, do you still get increased customer visit per store?

Yes, but on a modest basis. Again, I don't want to state thelast couple of three years was indicative, because it's not, but we use to seefor example, our largest and most mature salon concept is our flagship conceptof Regis Hairstylist and we would see that the Regis Salon division was stillcomping positive, but modest, largely because of increased traffic, notnecessarily price increases. Jon Christensen -Kayne Anderson Rudnick Investment: And if I look at--

Fully matured stores.

Fully matured stores. Jon Christensen -Kayne Anderson Rudnick Investment: If I look at customer visits per store, its sort of acapacity utilization measure, has there been a consistent trend, what is therange and where are you today?

Would you talk, Paul if asked about capacity is really toughin this business because of--

Yeah, because Monday mornings, you consider can beintuitive. I don't think it's a significant issue for us, it's not a metricsthat we utilize. Jon Christensen -Kayne Anderson Rudnick Investment: Thank you very much.

Thank you.

Thank you. There are no further questions. I'll turn it backyou, Paul. Please go ahead.

Well, thank you Marian, and thank you all. Have a good day.

Thank you. Ladies and gentleman that will conclude today'steleconference. If you would wish to access a replay for this call, you may doso by dialing 1-800-405-2236, and enter the access code of 11097199 followed bythe pound. This concludes the call. Thank you all for participating, and have anice day. All parties may now disconnect.