Good afternoon. My name is Ian, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation First Quarter 2013 Conference Call. [Operator Instructions] If anyone has not received a copy of today's press release, please call Regis Corporation at (952) 806-2154, and a copy will be faxed to you immediately. If you wish to access the replay for this call, you may do so by dialing (800) 406-7325, using the access code of 4570477. The replay will be available 60 minutes after the conclusion of today's call. I would like to remind you that to the extent the company's statements or comments this afternoon represent forward-looking statements, I refer you to the risk factors and other cautionary factors in today's news release, as well as the company's SEC filings. Reconciliation to non-GAAP financial measures mentioned in the following presentation, as well as others, can be found on their website at www.regiscorp.com. With us today are Dan Hanrahan, Chief Executive Officer; Eric Bakken, Executive Vice President; and Mark Fosland, Senior Vice President of Finance. After management has completed its review of the quarter, we will open the call for questions. [Operator Instructions] I would now like a turn the conference over to Dan Hanrahan. Please go ahead.

Thank you, Ian. Good afternoon, everyone, and thanks for joining us. After I make my remarks today, I'll turn the call over to Eric Bakken, our Executive Vice President, for his operational update, and then to Mark Fosland, our Senior Vice President of Finance, who will provide additional details behind our first quarter financial results. Also with us today is Brent Moen, our Chief Financial Officer. Let's start with the obvious. Regis remains a work in progress. We are blocking and tackling to improve the operations of the business. Improved results take a little time, but we are excited about the immense opportunity. Eric and Mark will walk you through the details of the quarter. I would like to focus on what I've been doing since the last call. When I joined Regis 2.5 months ago, I had some initial perceptions on the salon business and how Regis operates. I shared some of my views with you on the August call. I spent a good part of my time at Regis so far in the salons. I focus my time on salons where we are performing well. It's very encouraging to see how well we run those of salons. Unfortunately, these are the minority of our salons. Our opportunity is to roll out this better execution over a broader base of our salons. My time in those salons has helped me get a better understanding of what we need to do to get Regis running well. We need to improve operations throughout the business. We need strategic alignment, from the stylist to me, on what we need in order to drive acceptable levels of profitability, which in turn, will drive shareholder returns. I'm not ready to provide you with our overall strategic plan and the financials yet, however, I would like to outline the areas of the business where I am focusing as we develop the vision and strategy for Regis. First, the overall business model is too complex. We need to remove the complexity, simplify the business and focus on execution. There is a significant opportunity to improve financial performance, if we remove complexity and focus on what drives profitability. To be clear, this is a fantastic, simple and wonderful 4-wall business model. We have too much complexity in managing the overall business. We have some areas that perform really well, and we're working to make sure we simply grow the number of well performing areas. Second, as I talked about on the last call, we must provide a great guest experience every time. We have already done a significant amount of training on delivering an excellent guest experience. You'll hear more about this from Eric. The response from our field organization, the salons and our franchise partners has been very good. If our guests enjoy the experience more, then more will come back. Third, we have to become the employer of choice in the stylist community. I have met many outstanding stylists who do an excellent job for our guests. Our stylists -- our salons need to be optimally staffed with people like those I have met during my salon visits. Well-trained and guest-focused stylists, who ensure a good experience for our guests and ensure they return back to our salons for their next service. Retaining and keeping more of our best stylists and attracting great stylists within a reasonable cost structure will drive increased guest satisfaction and higher repeat business. Fourth, we will advance our technical capabilities to improve the guest experience, market to our guests with a powerful CRM tool and enhance our decision-making capabilities. I do have good news on the technology front. When I joined Regis, we had just hired a new CIO, Doug Reynolds. As you all know, we have faced significant challenges with growing out our new point-of-sale system. Prior to Doug joining, a new third party system had been selected and the deployment to the field was sketchy at best. While working salons with some of our outstanding field people, we came to the conclusion there was a better alternative for Regis called SuperSalon. This conclusion was positively confirmed as I work with our franchisees. The majority of our franchisees already successfully used SuperSalon and the software has all the functionality we need. There is no need to reinvent the wheel. This is the rollout of a standard product. Doug has an aggressive plan, which will enable us to install SuperSalon in all of our salons by the end of the fiscal year. I look forward to updating you on our progress, and I'm confident under Doug's leadership, technology will help drive a great guest experience, better marketing and better decision-making. Next our efforts to drive traffic needs to be much more disciplined in regards to pricing and promotion. We need to better understand price elasticity in our business and use price as a profit building tool. To help improve our execution, we have hired a VP of Pricing to oversee all our pricing and promotions. Finally, when digging into the business, it became very clear to me, Regis has reduced stylists hours to offset the sales impact from declining customer counts. This has resulted in a self-fulfilling spiral. Reduced customers result in declining hours, declining hours lead to further declines in customer counts. We need to get out of that spiral. We cannot increase sales while continuing to cut hours. We need to staff to the flow of our guests. In addition, we have an organization-wide effort to improve our scheduling and staffing levels. We call the scheduling portion of this initiative optimization. As part of this initiative, we have rolled out a new scheduling tool, which provides our salon managers with an hourly schedule, which is based on guest flow. Eric and his team are focused on staffing and scheduling. In fact, they've already made some progress, especially in our SmartStyle Salons, where customer counts have been improving. I'm closely watching our initial efforts on the scheduling of staffing -- staffing and scheduling front. We need to change the way Regis has done business in the past, and it's going to take us some time to get the balance between staffing and guest traffic right. Part of our first quarter challenges relate to the work we still face to optimize this balance. On our last conference call, I mentioned I would need time to evaluate the business model, cost structure and the strategy. I trust my outline of where I'm focusing my time and effort is helpful. I remain extremely confident about being able to improve Regis' performance, I'm feeling even more confident about where we need to go with the strategy execution. We have a lot of experimenting and learning to do to fully figure out what we need to do. We'll make some mistakes along the way, but we'll learn quickly and continue to improve our execution. Eric?

Thanks, Dan, and good afternoon, everyone. Today, I'll give you an update on the operational progress we made in the first quarter. And as Dan mentioned, we're disappointed with our first quarter financial results. Today, I'll give you an update on our progress to improve the guest experience and our financial results. Let's start off by reviewing our North American same-store service sales results in a little more detail. Our service visitation trends improved 170 basis points versus the fourth quarter. And comp trends improved 100 basis points versus the fourth quarter. Overall, service customer visits declined 210 basis points versus the fourth quarter. In other words our same-store service comps are better this quarter than last quarter, even though versus last year, they're still down. So we do see some improvement, but the overall results are still unacceptable. A large portion of the improvement in trend versus fourth quarter is related to our 2,400 salons located in Wal-Mart. For the first time in several years, customer traffic was positive in SmartStyle. This was due to a couple of reasons. First, we ran a back-to-school coupon event, which was successful in driving traffic, with redemption rates far greater than planned. With the significant increase in redemptions, our service margins were impacted more than we had expected, as we paid full commissions to our stylists on discounted transactions. The execution of this event could have been better, and we're fixing that. More importantly, we noted in June that we had a significant staffing opportunity with this business. Starting in July, we made a focused effort to increase our staffing. To date, we have added over 1,900 stylists in SmartStyle, and I believe the investments we've made in our stylists are necessary and will provide long-term benefit. Traffic is up, but what I'm really excited about is that the traffic trend continues to improve. Service guests in SmartStyle were down 2% in July, then they were up 2.4% in August, and in September, they increased 2.7%. I'm optimistic that positive guest trends will continue. With the increase in traffic, we have seen increases in labor costs, both in terms of commissions paid on the coupon event, as well as in increasing the hours worked. The challenge for us is to increase our staffing and traffic in a more profitable way. As Dan discussed, we're focused on improving our approach to scheduling and staffing. We're not all the way there yet, but it is a top priority of the entire organization. As we're driving traffic, we need to improve the guest experience to ensure that our guests return to us more frequently. We are just beginning our journey. We've rolled out some simplifications and enhancements to our guest service program for all of our stylists across all of our brands. The program, which is called the Moments of Truth, focuses on the critical points in the service, which include the welcome, consultation and check out. This program is about more than the technical haircut. We want to ensure that we understand our guests' expectations and we communicate clearly with the guest what services are being performed and make sure that every guest is happy with the services performed before they leave our salons. To be clear, this is a big opportunity. Historically, Regis trained stylist in how to cut hair. We did not train our stylists in great customer service. A great customer experience includes a good technical haircut and a terrific customer service. I'm excited to have consistent standards for the guest experience for all of our stylists. We kicked off the new Moments of Truth program with our field leaders on October 4. That was cascaded down to the salon level throughout the month of October. The response from the field has been overwhelmingly positive. They love the language, the focus on the guest, the flow of the new Moments of Truth and the supporting coaching tool. A guest experience review form was also introduced, so that salon managers and field leaders can observe stylists in action and provide coaching afterwards. In November, we will begin delivering 1 hour training sessions with our stylists. We'll also start training the home office on the guest experience, and work with them so they know how they play a vital role in delivering the best guest experience to every guest, every time. We'll also continue to bring field and home office personnel together to foster collaboration and teamwork in support of the guest experience. We're also reviewing our technical training programs and have several tests under way. Both technical and soft skills training are imperative to securing the delivery of an exceptional guest experience. James O'Reagan [ph] , our new leader of technical training, is working with field operations to develop a more hands-on approach to technical training. It's too early to measure results, but the training test pilots have been positively received and I look forward to providing you an update on our progress on the next call. I'm really excited about the progress we have made in reigniting our business. Change is underway in many areas, including the guest experience, staffing and scheduling, technical training and pricing and promotion. As Dan mentioned, we are testing and learning as we improve the business. All of the testing will be a good learning experience for us. We did not see the financial benefits in this quarter's results, but we will drive improved results and shareholder value in the future. Now here's Mark.

Thanks, Eric, and good afternoon, everyone. Today, I will begin by discussing our consolidated financial and operating performance, followed by a review of the major items impacting each of our business segments. Before I get started, I just want to make sure everyone is aware that we are now accounting for our Hair Club business as discontinued operations. Hair Club's revenues and expenses have been cleansed from both the current and prior year P&L, and are now accounted for on one line item in the P&L labeled discontinued operations. As a result, this year's first quarter operational results were lowered by approximately $0.07 per share, and last year's first quarter operational results are also lowered by about $0.04 per share. On our website, we have provided historical pro forma results that have recast Hair Club as discontinued operations. For the first quarter, Regis recorded earnings of $0.45 per share. This included a net after-tax nonoperational benefit of $24 million or $0.30 per share, primarily related to the realization of a favorable foreign currency translation gain from the sale of our Provalliance business. Excluding nonoperational items, our first quarter operational earnings were $0.08 per share, down from the $0.22 we reported last year. With first quarter same-store sales declining 3.1%, we would have expected our operational earnings to be about $0.15 per share. Our operational earnings per share of $0.08 are about $0.07 per share lower than our sales would indicate. Increased salon labor costs, offset by cost reductions and lower levels of marketing spend accounted for the remainder of the decline. I will talk in more detail on these items in a moment. We have included in today's press release, as well as on our corporate website, a concise reconciliation that bridges our reported results to our operational earnings for both the current year and prior year first quarters. Moving to our first quarter operating results in our business segments, my comments this afternoon will focus on our operational performance. Let's begin with our largest segment, our North American salons. Our total North American salon revenue, which represented 94% of our consolidated first quarter revenue, decreased 4.8% during the quarter to $474 million, reflecting the total same-store sales decline of 300 basis points and lower store counts. Our store counts decreased by 199 locations over last year. During the quarter, we built 51 company-owned salons and closed or relocated 84 others. Our franchisees built 31 salons, offset by the close of 27 locations. Service comps were 3% lower in the quarter. Our first quarter North American service guest visits declined 210 basis points. As Eric mentioned, our back-to-school promotion -- back-to-school coupon event in July and August drove far more redemptions than we had anticipated, and traffic trends did improve 150 basis points from the fourth quarter. The coupon event also impacted average ticket, which was down 90 basis points. Retail product comps declined by 270 basis points. Last year's sales benefited from a vendor-funded clearance program, which we did not anniversary this year. First quarter royalties and fees from our North American franchised salons were up 1%, coming in at $9.7 million. Our franchisees posted positive same-store sales during the quarter, and we've added 40 net locations over the last 12 months. We continue to see a great deal of new franchisees joining the system. Now let's take a look at gross margins. Our combined gross margin rate for our North American salons came in at 42%, which was a 240 basis-point decline from the rate we reported in the first quarter of fiscal 2012. Our first quarter service margin rate of 40.4% was 250 basis points lower than last year. Increased salon labor costs account for essentially all of the increase. The increases is related to 3 areas. First, increases in hours in Supercuts. Stylist hours increased at a rate greater than our 1.4% same-store sales increase. As we mentioned last quarter, we've been increasing hours in Supercuts to drive sales. As part of the scheduling optimization effort, we are in the process of better aligning traffic flows with increases in hours. Second, increased commissions from the back-to-school coupon event also impacted service margins. As I just mentioned, the coupon event had a far greater redemption rate than we had expected. When we planned the back-to-school event, we decided to pay stylists commissions on the gross value of the ticket rather than the discounted amount and we expected a very small impact to labor costs. With redemptions coming in significantly more than planned, the impact on salon payrolls was far greater than we anticipated. There will be a small impact in October, but going forward, we have a solution to this issue and do not expect any material increases to labor rates as a result of promotions. The third area that impacted service margins was overall hours. As Dan discussed in his transcript, we cannot continue to reduce staff hours and expect sales to improve. During the quarter, in all of our concepts other than Supercuts, hours staffed were essentially flat to last year. We expect that as we optimize staffing levels and the guest experience improves, we will be able to more effectively drive increased traffic. Our scheduling optimization efforts will also enable us to better manage our work force by having the right staff at the right time. Our retail product margin rate for the first quarter of fiscal 2013 came in at 48.1%, and was 250 basis points lower than last year. As we discussed with you last quarter, we implemented a sales incentive program designed to motivate stylists to sell more product to their service customers. The success of the program was limited and was discontinued at the end of September. Also impacting our product margins in the first quarter was a shift in mix to promotional items, which are slightly lower margin. First quarter expense levels in our North American site operating and G&A categories were both down over last year. Combined, we saw year-over-year expense reduction of $3.2 million. The majority of this decline relates to reduced marketing expenses in the quarter. You may recall that marketing expenses were up last year when we spent over $2 million to test our back-to-school haircut sale. One other note on the North American G&A expense, we are now including our distribution center expenses for both the current and prior year in the North American G&A category. Due to the reasons I just mentioned, as well as negative leverage in rent expense from a 3% same-store sales decline, North American operational operating margin came in at 7.2% of sales, down from the 10.3% we reported 1 year ago. Let's now move on to our international salon segment, which includes our company-owned salons located primarily in the United Kingdom. The retail environment in the U.K. remains challenging. Our same-store sales in the first quarter declined 5.1%. This decrease in sales contributed to a 70 basis-point decline in service gross margins, as stylists productivity was lower during the quarter. Overall, site operating, G&A and rent expense categories declined year-over-year in terms of dollars. However, due to the decline in same-store sales, our operational operating margin declined 80 basis points in the quarter, coming in at 1.3% of sales. Let's now take a look at some corporate line items on our balance sheet. Let's start with our corporate G&A. As I just mentioned, we have reclassified both current year and prior year distribution centers to our North American G&A segment. First quarter operational G&A came in at $22 million, or 4.4% of consolidated revenue. This is a $5.8 million reduction and was an 80 basis point improvement year-over-year. The majority of the improvement is the result of reduced compensation expense, lower professional fees and other cost reductions. Our balance sheet remains strong. We have no borrowings under our $400 million revolving credit facility and no liquidity issues. At September 30, total cash was $223 million and total debt was $280 million. On September 27, we closed on the sale of our Provalliance investment and received cash proceeds of $80 million or about $103 million -- EUR 80 million or $103 million. Inventory levels at the end of our first quarter stood at $156 million, down $12 million from the same time last year. All right, so that does it for the financial portion of the call. We would now like to answer any questions you may have. Ian, can you please provide the instructions for the Q&A portion of the call?

[Operator Instructions] Our first question is from the line of Lorraine Hutchinson with Bank of America Merrill Lynch.

It's Paul Alexander for Lorraine. Dan, a couple of questions on your areas of focus. First one on the last one you spoke about the staffing. So this effort to staff better, to drive traffic, is this -- should we expect this to last throughout the year? And maybe Mark, you could maybe chime in on, should we see the same kind of impact on the margins throughout the course of the year? And then just on how you're thinking about the staffing, you've been doing a lot of market research of trying to get closer to your customer and understand the problem. Have you been hearing from the customers that they're unsatisfied with wait times? I guess, what I'm trying to get at is, how do you know that adding stylists will drive traffic. And then I have a follow-up after.

Okay, I'll start, Paul. Thanks for that. The answer to "Will it last the year?" is that I don't think it will last though the whole year. We aren't going to see what we saw in the first quarter. We will get better at optimizing schedules than we were in the quarter that we just finished. But we have, historically, cut hours as we saw declines in the business. That's not a good recipe for success. I think what gives me confidence is we've seen some real pockets where we've added people back in, where we've added stylists back in, where it's really worked. And we've seen nice increases by putting stylists on the floor. Now it's a bit of a chicken and the egg. Just because we put a stylist in doesn't mean that people are going to walk right into the salon. But we have found situations where we're just understaffed, wait times get long and people leave. They haven't left because they're dissatisfied with the service. I'm not hearing that. What we're hearing when I've been out in the salons is that they're leaving because we just don't have enough stylists on staff, and what ends up happening is they get used to that. So they don't come back. But there's been some testing that we've done that's been very encouraging. And the salons that are doing well, where I focused all my time is on salons that are performing well, they're fully staffed. They haven't cut in to the hours, they have good stylists, well trained and we see a lot of repeat business.

And then on the first point that you said you're focusing on is the complexity and needing to remove complexity. Could you talk about that a little bit? And is that -- can you give us examples of things that are too complex and it hurts sales? Because we can understand to think how complexity could add to costs, but how does complexity hurt sales?

Well, we've got -- with all the brands we have, we've got websites built for all those brands. We've got processes built for all those brands, and what it does is it affects our marketing. One of the things it does is it has an impact in our marketing effectiveness. So when you think that we're trying to manage 30 plus websites to support the brands, you have a marketing department that's distracted on just trying to maintain websites, which I don't think today that we do as well as we can because we've given them such a big task. When you look at the promotional materials that we need to put in the salons, there's 40, 50 versions of that. So it's just not as effective as it could be. I think our marketing -- one of the things that will improve is our marketing will be a lot more effective. But you're right, one of the areas also that we'll get benefit is that it will help us reduce costs as we drive complexity out of the business.

And just one last follow-up. Could you talk about the competitive environment and just anything you saw from JCPenney this quarter? It seems like maybe you didn't see too much of an impact, but it would stand to reason that there's got to be something out there.

Yes. Good point, Paul. There is -- I don't think that we have good enough information to tease that out. We saw some shortfalls in our Kids business, but I don't know that I can complete it to the free haircuts at JCPenney's. I think as we get SuperSalon into our stores, we'll have much better data. We'll be able to see that we've got a very strong repeat business with a certain guest, and then if somebody runs a big promotional effort and we lose that guest for a cycle, and then we get them back, that will be a pretty good indication that we might have lost them to a promotional effort. But today, we don't have that level of sophistication in our information for me to give you a really good answer on that.

Our next question is from the line of Jeff Stein with Northcoast Research.

I'm kind of curious on getting back to the labor situation again. Are you increasing labor hours across all of your salons or just, at this point, a select number of salons? Is there a control group?

Yes, well, we had -- there was a control group study that had been put in place before I got here. And so we were able to look at that and see that -- a couple of things. Number one was increasing the number of the stylists in that control group and training them well, we got good increases in comps. What we're doing is the focus on this effort is to optimize. And what that essentially means is that hours -- our plan is to keep hours flat year-on-year. Over the last few years, we've had a decline in hours each year. What we want to do is keep them flat to 2012. That means that in many salons, we're just going to put the stylists at a different time during the week. Some of the salons will increase the hour. We want to minimize the number of salons that we would end up decreasing hours, but if it was just so compelling to do so, we wouldn't say, "Well we're just going to keep people in it," and be stubborn about it. So it's more about optimization. But overall, the way you should think about that is that hours will be flat for the year. That's our goal.

And that would be across all your salons?

That would be across all our salons, yes.

Okay. is there any connection and have you been able to measure any connection between cutting hours and just losing a stylist because you're not giving them enough hours to earn a living?

Yes, yes. We see that. Our turnover is higher than we'd like. A key part of our success is the stylist. That's why I made the comment about that we need to have alignment on what drives profitability from the stylist all the way to me, Jeff. And if we cut a stylist's hours back too much, they're going to go work someplace else. That's not a good thing for us. We've got a lot of good stylists out there. I don't want to be losing those good stylists either to competition or to their own business.

Got it. Got it. And I got a question for Mark, and maybe this is a better offline question. But I'm going to ask it anyways. Mark, I know you've provided restated numbers on a pro forma basis last year to account for discontinued operations. But those numbers from what I've gathered, from what I'm looking at, don't adjust for non-recurring items. And I'm wondering if you could just give us an earnings per share number, fully diluted for fiscal 2012, excluding discontinued operations and excluding non-recurring items. So we have some base to model off of for the new fiscal year.

So Jeff, it might be a question better off-line, but let me just tell you that Hair Club in fiscal 2013, I've got the number in front of me, Hair Club contributed about $0.20 of earnings. But let me -- let's have it off-line, because I got it right here.

Okay, we'll do that off-line.

And because -- I'll give you the operational -- actually Hair Club contributed $0.17 of earnings operationally in fiscal 2012. And so our operational earnings were $1.30. So you'd remove $0.17 from that number.

And how about Provalliance?

And Provalliance, for fiscal 2012, contributed $0.15.

$0.15?

Yes.

Okay. One more question for Dan real quick. And that is JCPenney is going to continue its promotion beginning in November on Sundays, and I'm just kind of curious, when you look at your Kids business, kind of a daily basis, is it a Saturday, Sunday business? Is it an after-school business? How does it kind of flow and do you have any type of plan to kind of combat future promotional events that JCPenney is intending to run?

Good question. One of the benefits of getting SuperSalon in is I'll be able to answer questions like that a lot better than I can today. I can give you aggregates. We can look at aggregate numbers on Kids and what happens with Kids. But getting into that level of detail, we don't get great information on that today. SuperSalon will give us that, but the other part of that question or the other answer to that question is the Head of Pricing that we've hired. We need to have a much better understanding of price elasticity and what really drives consumers to make their purchase. We've also done a fair amount of marketing research around what really drives our guests into the salons and what it is that they value. At the end of the day, there's a couple of things that stick out. One is the quality of the stylist. So the quality of the stylist is going to win out over a free haircut. And we have to really think through, better than we do today, how we do our pricing and what it is that the consumer values. So that we aren't running pricing and promotions where we're just giving money away and not getting any value back for it.

Got it. Okay. One -- and I'll ask one more real quick. You're giving up a lot of earnings, it looks like over $0.30 a share, selling Hair Club and Provalliance. So at this point in time, are you willing to just hold the cash on the balance sheet and try to fix the core business and forgo, potentially, some financial engineering to try to boost earnings per share? Or how are you kind of thinking about the cash you're raising from the sale of these assets?

That's good question. It's early. It's early days. I mean, I could tell that our focus is around shareholder value. The board is thinking of it exactly the same way as I am, because we need to improve shareholder value. And that will be what drives all of our thinking.

Okay. So you haven't made a decision yet?

We haven't made a final decision. We did put a 10b5-1 out there. I think you probably -- if you've been following for us for a while, you know that we had about $73 million left on the April 2007 buyback. The 10b5-1 is lighter than that. It's a smaller number than that. But we have done that, but we're evaluating all our options.

Our next question is from the line of Jill Caruthers with Johnson Rice & Company.

Could you talk about -- you talked about rolling out the SuperSalon system by year end, and it seems as though it will gather some good data to run the business more effectively. Could you talk about kind of the timing of gathering that data and actually being able to put that to use in the salons? Just to give us a better timeframe.

Sure. Our goal is to have it into all of our salons by the end of our fiscal year, which is end of June of next year. As soon as we start to get SuperSalon into our stores, we'll start to be able to gather data. It's a terrific system. And the beauty of it is that, this is not something that we need to rework, that we need to invent. This is truly the wheel. The wheel is there. It's a good system, our franchisees use it very successfully. So that as soon as we start to roll it out into those salons, obviously, we won't be able to get system-wide data, but we'll be able to use it effectively right off the bat in those salons that we get it in. I mean, we'll have real-time information for our field leadership, that could essentially look at a salon and what's happening in the salon, essentially real-time. The data comes to us 2 to 3 minutes after it happens. So we'll get, start to get some immediate feedback, but it will be on a smaller scale because it will take us a while to get this into all of our salons.

Understood. And just a couple of questions. Anymore update on consolidating some of your salon brand names? I know you've acquired quite a many brand nameplates throughout the years, and any update on that will be appreciated.

Yes, I'll let Eric take that one.

Jill, it's Eric. We are in the process of converting our SmartStyle locations in Houston to TGF. TGF is a strong brand that we have that operates in Houston and we're changing the name right now. I believe all of the signs have now been changed. We've gone through some other activities in those stores to staff them up and get people trained, and we're pretty excited about the way that's going so far. So that is just happening right now.

Okay. And then just last question. The thought process behind organic growth at this time, building out new salons. Just given you're making a lot of changes and trying to figure out the model to make it more efficient, your thoughts on that?

Yes. We have a plan in place that I think Mark outlined where we are so far with new salons. The focus is on the basics. We need to get the things right that I described and that Eric described in our comments. So I'm not thinking about a great deal of salon growth at this time. I'm thinking about how we can make the salons that we have today really work. And as I said in my comments, I have focused my time on where we do well. What I wanted to do is learn where we do well, so then we can spread that out through the rest of the organization and replicate it. We have salons and we have groups of salons that really perform outstandingly well. And so we need to get that replicated. So that's where the majority of the focus will be. We'll continue to open and close salons as it makes sense, but the focus is on the blocking and tackling and getting that right.

Our next question is from line of Erika Maschmeyer with R. W. Baird.

This is Jacob in for Erika. Dan, you mentioned on the last call you are looking at the franchises, trying to figure out how they're outperforming the company owned suites. Were there any take aways there? Was it the POS that was making the difference there? Any color would be appreciated.

Yes. I have worked in a number of franchise -- with a number of our franchises in a number of their salons. But I've also worked with a number of our field leaders that run real good operations. And really what I've talked about is what drives the business that I've talked about today, is we need to have the best stylists in place. We need to make sure that the business is not complex. We don't want to make it more complex for our salons. We don't want to give them a lot of initiatives. We need to be very, very focused on the guest. What I've heard consistently, when I ask the franchisees and when I ask our field leadership team why they're doing well, I get a couple of things back, is one, that I've got stylists in the salons at the right time. So I'm optimizing guest flow. And then the other is I'm providing a great service. This is not a complicated business. And we need to keep that in mind and keep it simple. The advantage that many of the franchisees have over us is they do have SuperSalon. And that system is a terrific system. They've got realtime data, they manage it very well, and that's not something that we have today, but we will. And then I think that the other thing I've seen from our franchisees, these are good business people. They do a really good job running their business. They're very focused, they've got good processes in place and it's very similar -- the way they run it is very similar to the way I see our field leadership teams that run it well. So I see it on both sides, which I'm actually quite encouraged by. When I talked last time, I hadn't spent as much time in the salons, so I hadn't been able to see, at that point, that we've got a lot of salon field leaders and salon managers that run excellent businesses.

Okay. Great. And then also, in July, I think you reorganized sort of the back end with the HR and corporate team increasing the span of control of the district managers. Any initial takeaways there, any adverse effects from increasing span of control? Are you getting benefits you had wanted?

This is Eric. So far, so good. We're still building out those functions. We found a lot of value in having the corporate ops folks helping as well as the HR folks. So we have expanded span of control. We've limited, to a certain degree, the responsibilities of our field leaders, allowing them to be more focused on improving the guest experience. So nothing -- no significant issues that we've encountered so far.

Okay, great. And then just lastly on the service margin declines, just trying to get a sense of sort of how much each of those three factors you had discussed Mark, played into that and sort of which of those will continue for the remainder of the year?

Yes, the largest was the fact that we didn't cut hours, that probably accounted for 35%, 40% of it, maybe a little bit more. And then the rest were fairly equal. The price increase of it -- we obviously don't -- a little bit in October, but we don't expect to continue. And Supercuts and the hours, those are things that the impact is dependent on sales. As we drive sales, there is a good [ph] impact, and we don't -- we're still, as Dan mentioned, we're still working on that formula where we see a lot of progress in salons, but we're still working on it. So it's hard to predict what the exact impact is going to be throughout the rest of the year. But we're trying not to reduce hours. We're trying to create an environment where we can drive sales. And when we get the sales benefit, that's when we'll see the real upside.

Jacob, I think it is -- this is Dan again. I think it is important to point out that we did learn over the course of the quarter on the optimizing of hours. We have seen that we're getting better at this. I would, as Mark said, I would suspect that we still have learning to do with 7,500 salons out there, that's a lot of salons to manage. But it's an area of focus for us. And matching up the hours against what happens with the guest load is something that we have to get right. I think you should think of it as you're modeling our goals to try to keep our hours flat with this year. We didn't -- we were not successful doing that in the first quarter. Our hours were actually, when you looked at it, overall our hours were up. So we've got work to do. Like I said at the end of my comments, we've got a lot of experimenting and learning to do, but we'll learn fast.

And our next question is from the line of Mike Hamilton with RBC.

I'm wondering if you could comment on the areas that you're primarily focused on in looking at the competition at this stage.

How I'm looking at the competition?

Yes, and what things you're paying the most attention to.

I've focused a lot of my time -- I've focused more of my time on our salons than I have on our competitors. More than anything else, as I look at our competitors, it's more about where they're located and where we're located, and are we positioned well within markets to take full advantage of the value consumer within those markets. So I've looked at it more from that aspect. I've been in the competitors, but I haven't focused a lot of my attention on how they operate in their salons. I've been thinking of it more in terms of where they are located, where we're located and how we compete in the markets.

As a subset of that question, what's responsiveness to promotions on the part of competitors? How are you thinking about that at this stage?

Our responsiveness to their promotions?

Correct.

That's the reason that we hired the VP of Pricing, and why we're doing the marketing research, Mike. I think that we need a better understanding of what price elasticity really is. And that is something that the Vice President of Pricing is going to help us quite a bit with. As we've looked at the marketing research, we're also trying to understand what is it that will drive the value consumer to -- from 1 salon to another, how strong is the loyalty. So I would say at this point that I'm not trying to dodge your question, but just I don't think I have enough good information to answer that question well. But I think you're asking the right question. It's something that we need to understand better. So through the combination of marketing research, starting to build some pricing algorithms and all the information we have today, and being smarter about how those 2 work together, is how we're going to be successful driving traffic. And then other piece is, is that when we get the SuperSalon in, we'll have -- we'll be able to do the customer relationship management that we just can't operate very well today. We've got e-mail addresses and we're sending e-mails out to people, but doing real CRM work, we've got a ways to go. But by the end of our fiscal year, we'll be there. We'll be doing that real CRM work, and I think the combination of all 3 of those will make us successful. So if I can -- I just can't answer your question well, but I think it's a fair question and then I would ask if you ask me that again in the future.

And there are no further questions at this time. I'll turn it back to Dan for any closing remarks.

Thank you, Ian. I'd like to thank everybody that joined us on the call today. I appreciate the questions and the opportunity to talk with all of you. Thanks, and have a good rest of the day.

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