Daniel J. Hanrahan - Chief Executive Officer, President and Director Steven M. Spiegel - Chief Financial Officer and Executive Vice President Eric A. Bakken - Interim Corporate Chief Operating Officer, Executive Vice President of Business Development, General Counsel and Secretary

Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Jeffrey S. Stein - Northcoast Research William R. Armstrong - CL King & Associates, Inc., Research Division Jacob Zitter - Robert W. Baird & Co. Incorporated, Research Division Daniel Hofkin - William Blair & Company L.L.C., Research Division Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division Alexander E. Yaggy - Cortina Asset Management, LLC

Good morning. My name is Ron, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Regis Corporation Second 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 4590684#. 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 morning 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 Steve Spiegel, Chief Financial Officer. After management has completed its review of the quarter, we will open the call for questions. [Operator Instructions] I'd now like to turn the call over to Dan Hanrahan for his comments. Dan, you may begin. Daniel J. Hanrahan: Thank you, Ron. Good morning, and thanks for joining us, everyone. After I make my remarks with respect to our second quarter, I will turn the call over to Steve Spiegel, our new EVP and CFO, who will provide additional detail behind our second quarter financial result. I'm pleased to report Steve added value from his first day on the job. Eric Bakken, our Executive Vice President will conclude the prepared remarks by providing his operational update. Also with us today is Mark Fosland, our Senior Vice President of Finance. As I said last quarter, and will continue to emphasize, Regis remains a work in progress. While our financial results in the quarter were challenged, we are beginning to see some signs of traction, especially in our value businesses. Before I talk more about the quarter, I have one comment. Today, you will hear from the team that Hurricane Sandy had a negative impact on our earnings in the quarter. However, as terrible event as that it was for the people who had to endure it, there were some small bright spots. I'm very proud of our stylists who helped people who are dealing with the aftermath of the storm. Regis also donated money and products to the relief effort and we provided our stylists with the disaster relief pay. Now I will move on to my discussion on the quarter. For those of you who read the press release, you will find my comments on salon hours to be a bit repetitive. This topic was significant to our quarter and it is significant to our overall strategy to fix the business. I want to ensure those who did not have an opportunity to read the release are on the same page. Second quarter results reflect conscious decisions we have made to invest in our business to drive traffic. We made the decision to increase salon hours, primarily in our SmartStyle Salons located in Walmart and our Supercuts salons. We knew this decision would impact gross margins but we believe increasing hours would help them continued declines in guest traffic. By adding hours, we are beginning to see improvements in guest traffic, especially in our Walmart and Supercuts businesses. Service traffic in Walmart was up over 4% for the quarter compared to the same period last year. And for the first time in 13 consecutive quarters, Walmart posted -- we posted same-store service sales in our Walmart salons. Overall same-store sales trends improved 120 basis points compared to the first quarter of this fiscal year. While this investment reduced gross margins, we are continuing to focus on scheduling optimization so that in the back half of this year, our margins will be less impacted by increased hours. Scheduling optimization is in its early stages, and we are working diligently to strike the proper balance between staffing and guest traffic. Preliminary January findings indicate this gap may be narrowing in a number of our Supercut salons, giving me confidence we can and will continue to improve during the remainder of our fiscal year. We are beginning to make progress across several test initiatives focused on staffing, pricing, marketing, stylist compensation and training. From a cost management perspective, we continue to drive expense out of the business. General and administrative expenses as adjusted were reduced by over $6 million compared to the same quarter last year. Consistent revenue and profit growth will take time. However, we are beginning to move in the right direction. Since Eric and Steve will walk you through the details of the quarter, I would like to focus on where the business is headed. Historically, our company's focus was on same-store sales, payroll management, centralized corporate decision-making and management of financial performance. Today, we view the business with a strategic focus on 3 key areas. First, throughout our system, we are focused on creating an ideal guest experience that drives loyalty and repeat business. Second, developing, retaining and tracking the best stylist is a top priority. Finally, optimizing our brand portfolio will improve the effectiveness of our marketing and merchandising efforts, as well as drive efficiencies. We remain focused on our financial performance but not to the detriment of creating the ideal guest experience. Instead, the foundation for improved financial performance will come from providing the guest experience that creates loyal guests, simplifying our business model and implementing technological solutions that drive performance and efficiency. We are building a winning organization with a performance-based culture that fosters ownership, effectiveness and efficiency. And shifting our focus, we are learning from our best people and our top-performing franchisees. In my 6 months at Regis, I have spent considerable amounts of time in the field, visiting our top-performing stores, consulting with our best people and franchisees. What we have learned is that managing a salon is more like managing an airplane than a retail store. An empty chair in a salon is lost revenue, just like an empty seat on an airplane. A store cannot recover lost time, and capacity utilization is the key to profitability. Simply put, it's all about having the right stylist deliver the right experience at the right time. Accordingly, our focus is shifting to understanding and capitalizing upon the revenue potential of each salon, which entails transitioning from centralized corporate oversights to localized day-to-day salon management. During the quarter, we made great progress towards finalizing our overall strategic blueprint. While I am not quite ready to provide you with the specifics of that strategy, let me provide you with an update in where we are today and where we are headed. As mentioned earlier, we are becoming a guest-focused organization. We continue to learn and understand what guests expect from us, and we are modifying and enhancing our salon and stylist field training programs to incorporate those learnings. We are changing the culture at Regis. The guest experience is our #1 focus. Loyalty is earned one guest at a time. On a marketing front, we are strengthening our guest traffic generation capabilities. Heather Passe, our Chief Marketing Officer, and her team have just implemented a new guest relationship management database. And in February, we will have a new email platform to help us drive guest traffic by delivering personalized marketing to our guests. Additionally, Heather and her team are re-purposing our marketing efforts in investments to drive incremental traffic and to become more guest facing by shifting our emphasis from marketing within the 4 walls of our salon to marketing to guests outside of the salon. To prove the guest experience, pricing must also be aligned with our guest's expectations. Our new pricing team is hard at work understanding the role of price and promotion. We have several price tests underway and are developing a better understanding of price elasticity that will help use price and promotion levels to improve guest experience and drive profit. Last earning call, we mentioned the need to invest in technology to enhance the guests and stylists experience. Doug Reynolds, our Chief Information Officer, and his team continue to move forward with the implementation of SuperSalon, our new point-of-sale system, throughout North America. We began -- we begin the initial rollout this February with all of our salons up and running by the end of this fiscal year. We have spent a good deal of time discussing the importance of the guest experience and all the changes underway to enhance the delivery of that experience. Perhaps the most essential element of that experience starts with a connection between our stylists and our guests. Accordingly, stylists must view Regis as a great place to work. To that end, we have several test initiatives underway, including incentives to reward our more productive performers, and training programs to ensure they are successful. As part of this process, it is critical we optimize our scheduling and staffing. As discussed last quarter, Regis historically reduced stylist hours to offset the impact from declining same-store sale. This resulted in a self-fulfillment spiral. Reduced guests result in declining hours, declining hours lead to further declining guest counts. We are at the very beginning of working our way out of that spiral. However, we have work to do, to optimize the balance between staffing and guest traffic. We rolled out our scheduling optimization tool at the beginning of November and are working hard to get that balance correct. I am confident Eric and his team will make progress in the third quarter. Our overall business model is too complex. We must simplify and focus. And our financial performance will improve when we remove complexity and focus on drivers of profitability. To summarize, we are committed to creating an ideal guest experience that drives loyalty and repeat business, developing, retaining and tracking the best stylists and optimizing our brand portfolio. We are focused on simplifying the business and are on our way towards building a winning organization with a performance-based culture that fosters ownership, effectiveness and efficiency. This approach is the foundation for improved and sustainable financial performance. Changing the strategic direction of any established business requires investment, execution and time. I remain extremely confident about being able to improve Regis' performance, and the entire organization share is my sense of urgency. I feel even more confident about where we need to go strategically. We continue to do a lot of testing, we continue to learn and we continue to improve our execution. I will now hand the call over to Steve. Steven M. Spiegel: Thank you, Dan, and good morning. 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 want to get everyone familiar with the new terminology we will be using moving forward. As mentioned in our press release today, we will be referring to nonoperational items as discrete items, and we will be referring to operational earnings as adjusted earnings. For the second quarter, Regis reported a diluted net loss per share of $0.22. This loss included net discrete after-tax expense of $14 million or $0.25 per share, primarily related to the impairment of our investment in Empire Education, partly offset by earnings from our discontinued Hair Club operations. Excluding discrete items, our second quarter net -- our second quarter diluted net earnings per share as adjusted were $0.03, down from $0.27 last year in the second quarter. Diluted net earnings per share as adjusted for the current quarter were negatively impacted by approximately $0.02 relating to the effects of Hurricane Sandy on our business. Last year's diluted net earnings per share as adjusted, up $0.27, included $0.10 related to 2 items. First, we sold our equity investment in Provalliance and we are no longer recognizing equity in earnings from this investment, which amounted to $0.05 per share in the prior year. Second, last year's effective tax rate benefited significantly from employment credits that were no longer available to the company in the current year and the release of tax reserves related to resolution of a state audit. The impact of these tax items was $0.05 per share in the prior year. Tax legislation enacted earlier this month reinstated employment credits, and we expect to record a benefit from this legislation during the balance of this fiscal year. With second quarter same-store-sales declines of 1.9% and all other things being equal, one would expect diluted earnings per share as adjusted to approximate $0.13 per share. Actual earnings per share as adjusted, up $0.03, are $0.10 per share lower than this expectation. Increases in salon labor costs, the impact of Hurricane Sandy and reduced equity in earnings from Empire Education were partly offset by lower general and administrative spending associated with cost-saving initiatives and explain the gap from these expectation. I will discuss these items in more detail shortly. We have included in today's press release, as well as in our corporate website, a reconciliation that bridges reported results to earnings as adjusted for the impact of discrete items for the second quarter of the current and prior years. Moving on to second quarter operating results, my comments this morning will focus on as adjusted results. Revenues for the quarter declined $20 million or 3.8% compared to the prior year quarter. Salon revenues during the quarter were $496.5 million, a decrease of $20.4 million or 3.9% from the prior year quarter, mainly driven by declines in North American salons. North American service revenues for the quarter were $364.5 million, a decrease of $15.2 million or 4% compared to the same period last year. Compared to the prior year quarter, North American same-store service sales declined 1.5%, comprised of a 2.2% decrease in guest counts and a 0.7% increase in average ticket price. While we are not increasing prices, we are managing our promotional spending in a more efficient manner. We estimate that lost business from Hurricane Sandy negatively impacted same-store service sales by approximately 30 basis points. Net changes in store counts drove the remaining 2.5% decrease compared to the prior year quarter. Store counts decreased by 226 locations during the trailing 12 months end of December 31, 2012. During the quarter, we built 59 company-owned salons, closed or relocated 124 others. And franchisees built 36 salons, offset by the closure or relocation of 23 franchise locations. Product revenues for the quarter were $108.2 million, a decrease of $4.7 million or 4.1% versus the same period last year. Product same-store sales declined 3.6%. Royalties and fees for the quarter of $9.6 million increased $400,000 or 4.7% versus the prior year quarter. Our franchisees posted positive same-store sales during the quarter and added 32 net locations over the last 12 months. We continue to see a great deal of new franchisees joining the system. Now we look at gross margin. Gross margin as a percent of service and product revenues for the second quarter decreased 250 basis points to 41.7% compared to the prior year quarter. Service margin as a percent of service revenues for the quarter was 39.7%, a decline of 300 basis points compared to the prior year quarter, primarily related to increased salon labor costs in North American salons. As Dan noted, we made the decision to invest in stylist hours in order to stop the downward spiral in same-store sales. During the current quarter, hours increased by approximately 3.5%, mainly in SmartStyle and Supercuts salons. We saw improvement in sales at these salons with SmartStyle and Supercuts posting positive comps of 80 basis points and 50 basis points, respectively. We expect that as we optimize staffing levels, focus on marketing investment toward driving guest traffic and enhance our guest experience, increased staffing will lead to increased profitability. Clearly, we are in the early stages of scheduling optimization, having rolled out our scheduling optimization program at the beginning of November. This tool will be helpful in balancing the need for additional staff hours with our goal of driving profitable sales. Our entire team is committed to scheduling optimization that enables better management of our workforce by having the right staff at the right locations at the right times. Hurricane Sandy also impacted labor rates as we made the decision to pay stylists disaster pay while salons were closed. In the second quarter, we paid over $500,000 to our stylists. Product margin as a percent of product revenues for the quarter was 49.1%, a decline of 40 basis points compared to the prior year quarter, in part driven by product donations for Hurricane Sandy relief efforts. We also had an increase in inventory write-offs, primarily the result of store closures during the quarter. Site operating expenses for the quarter decreased $500,000 or 0.9% compared to the same quarter last year. This decrease was mainly driven by the fact that we were lapping $1.3 million of marketing expenses associated with the holiday promotion in the prior year that was not repeated this year, partly offset by increased communications and favorable insurance adjustments in the prior year. General and administrative expenses for the quarter decreased $6.1 million or 9.9% compared to the same quarter last year, representing an 80 basis point decline as a percent of revenues. This improvement was driven by cost savings initiatives the company put in place to simplify and become efficient in supporting salon operations. These initiatives reduced compensation expense, professional fees and other costs. While we expect our general and administrative run rate to continue in the second half, we continue to focus on areas of the business that can drive further cost efficiencies. Before moving on to a discussion about our liquidity, I want to address one housekeeping item. We previously disclosed to you that our Hair Club business would be sold before the conclusion of our second quarter. The transaction is still under review by the U.S. Federal Trade Commission and we will continue to update you as more information becomes available. Focusing for a few moments on liquidity. Our December 31, 2012, balance sheet is strong. We have over $220 million of working capital including cash of $218 million and our business generated almost $60 million of operating cash flow for the 6 months ended December 31, 2012. Assuming the Hair Club sale is approved, we further expect to receive approximately $156 million of proceeds net of transaction costs. In addition, total debt was $269 million and we have no outstanding borrowings under our $400 million revolving credit facility. Based on current conditions, we believe our liquidity is sufficient to enable the company to invest in all of the areas early noted -- earlier noted to service our debt, to consider share repurchases as appropriate and to manage the upcoming maturation of our convertible debt in July of 2014. This concludes the financial portion of the call. I will now hand the call over to Eric. Eric A. Bakken: Thanks, Steve, and good morning, everyone. Today, I will give you an update on the operational progress we made in the second quarter. As Dan mentioned, the necessary reengineering of our business is beginning. I will give you an update on our financial results and our progress to improve the guest experience. Let's start off by reviewing our same-store service sales in a little more detail. In our North American salons, our same-store service sales declined 1.5% in the second quarter. This was a 150 basis point improvement versus our first quarter results. Hurricane Sandy hurt our comps by about 30 basis points. Service visitation trends were flat for the first quarter but did improve by 60 basis points compared to our fiscal 2012 results. In the quarter, we were less promotional than in the previous several quarters and as a result, average ticket increased 70 basis points compared to the prior year second quarter. Getting the pricing right both on the everyday pricing menu, as well as from a promotional perspective, is critical. As Dan mentioned, we now have a new pricing team dedicated to this area. This is a big opportunity for us. Overall, we are seeing improvement and we are encouraged with the improvement but we still have significant work to do. The majority of our improvement is in our value business especially SmartStyle and Supercuts. Our business in the malls continues to be challenging. We are making progress in our 2,400-plus SmartStyle Salons located in Walmart. As Dan just mentioned, for the first time in 13 quarters, SmartStyle posted positive service same-store sales. Additionally, service guest visits were up over 4% compared to the second quarter of last year. We have some exciting promotional activity in SmartStyle. For the first time ever we ran a Walmart register tape coupon. SmartStyle was the first business ever to have a coupon printed on Walmart register tapes. This is a good example of getting the marketing out of the 4 walls of salon and directly to the consumer to drive traffic. As I discussed with you last quarter, we have a significant staffing opportunity with this business and we have made a focused effort to increase our staffing. Extended wait times and understaffed salons certainly detract from the guest experience. In all of our salons, we are continuing to work on the balance of hours and staffing. As you can see by our labor cross in the quarter, we do not yet have the proper balance. We are extremely focused on this area and we are in the process of making the necessary adjustments. We just rolled out our scheduling optimization tool for the field at the beginning of November. Emphasis continues in this area and we are learning and adjusting as we move forward. I believe the investments we are making in our stylists are necessary and will provide long-term benefit. I'm excited that traffic trends in our value concepts have continued improve over the last 6 months, and I'm optimistic that improved guest trends will continue. The challenge for us is to increase our staffing and traffic in a more profitable way. We are focused on improving our approach to scheduling and staffing and on driving traffic. We are not all the way there yet but it is a top priority of the entire organization. We need to improve the guest experience to ensure our guest return to us more frequently. This is a big opportunity for us. As I discussed with you last quarter, we rolled out a program which is called the Moments of Truth. The Moments of Truth program focuses on the critical points in the service, which include the welcome, consultation and check out. This quarter was all about implementing and executing this program at the salon and stylist level. The Moments of Truth review forms were introduced during the October salon manager meetings and were subsequently rolled out in all of our salons. Organizationally, we now have the foundation built which will allow us to focus on the behaviors that lead to an improved guest experience. We are building on the foundation and starting next week, we will be implementing a series of biweekly trainings on the various components of the Moments of Truth. I'm confident that we are building a culture that is focused on creating a great guest experience. As we have discussed with you, our stylists really appreciate and want more technical and guest training. In several markets, we conducted special training events which were linked to our ongoing test initiatives. In all cases where we have done these types of events, we have seen an immediate positive impact with our stylists and their performance. It's clear to me that when we invest in our stylists, it creates confidence, energy and excitement which translates into increased sales. Our objective is to create a process to enhance our training programs in a cost-effective manner. In the last half of the quarter, we started a test that involved technical and guest training. We are moving away from video training to a more hands-on, localized approach with multiple trainers in our markets. Training and educating our stylists are critical to improving the guest experience and winning the hearts and minds of our stylists. As Dan mentioned, we are testing and we are learning. I'm really excited about the progress we've made in reengineering our business. Change is underway in many areas. Financial results in the quarter were challenging, but I'm confident that the changes we are implementing will drive improved results and shareholder value in the future. All right, so that does it for my operational update. We would now like to answer any questions you may have. So, operator, if you could please step in and provide the instructions for the Q&A portion of the call, we would appreciate it. Thanks a lot.

[Operator Instructions] Your first question comes from the line of Lorraine Hutchinson from Bank of America. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: I was just hoping you could maybe provide a little bit more clarity on how you expect the cost of service to trend in the coming quarters as you optimize some of the scheduling systems. Should we expect it to still be higher but perhaps not as high -- not as much of an increase as we saw in the second quarter or do you think it will actually become a benefit over the next 3 to 4 quarters? Steven M. Spiegel: I think for the rest of this year, we would project that it is going to improve relative to where it was this quarter. And I wouldn't expect it to be a benefit in the back half of this year. Daniel J. Hanrahan: Lorraine, this is Dan. I may add just a little bit to that as well as that over time, not only have we cut hours back that would try to protect EBITDA but what we have done is we have effectively trained the consumer, the one -- or what we call our guest that when the salon is open and how many stylists we have in the salon. What we need to do is we need to retrain the consumer and the only way we are going to be able to do that is by investing in the hours and that the consumer need to learn over time that when they come in they can actually get a service from us and they don't have to wait a long time. Or they walk up and they look in the door and they see there's only one stylist on duty and they walk away as a result of that. So I think this is going to be a methodical fix. It's not something that is going to -- we are going to be able to fix right away. But I do want to assure you that we are 100% focused on how we get the right balance between hours and driving revenue with it. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: And then I know the Hair Club deal has not closed yet but can you just talk through some of your priorities for the incoming cash flow once that does close? Steven M. Spiegel: Sure. I will take that. In the past, we told you that we would maximize shareholder value as we explore all the alternate uses for cash. And we continue to reiterate that, that message hasn't changed. While improving and investing in the business is really our #1, #2 and #3 priority, we also need to address a few other issues before use of cash becomes clear. First, we are awaiting the outcome of the Hair Club transaction, which we are anticipating net proceeds of approximately $156 million. And second, we have just begun to turn our focus toward capital structure. And while we draw significant liquidity from our balance sheet, our operating cash flow and credit facility, we certainly have opportunities to optimize that capital structure. So my sense is that when these activities take shape, we are going to be in a better position to answer that question and tell you specifically where we would turn our cash. Daniel J. Hanrahan: Lorraine, I can tell you that Steve and I are headed -- we have got bank meetings coming up with the bank -- with a series of bankers to help us think about the best way to optimize our balance sheet, but with the primary focus being get the business fixed and figure out how we increase shareholder value.

Your next question comes from Jeff Stein from Northcoast Research. Jeffrey S. Stein - Northcoast Research: Dan, a couple of questions for you. First of all, would like you to perhaps address the issues where you do have challenges in the business away from the value salons namely the U.K., Empire and the mall-based groups, namely MasterCuts and Regis. What are the -- what solutions do you have that are going to get those businesses stabilized and turned around? Daniel J. Hanrahan: The mall-based -- let me take them in order. The mall-based is -- also has opportunities around optimization in hours. So hours weren't only cut out of the value-based salons. What we have been able to get is we have been able to get more traction on the value-based salons than we have been able to get on the mall-based. Our mall-based salons are appointment and so I think it's going to take us longer to train the consumer that we have -- are putting people back in the salons, than it is in the value-based where it's more walk up and it's convenience space. So I think that the approach is fairly similar. I think you heard Eric talk about in terms of training and development of our people and making it a great place for stylist to work is similar. But I think that's going to be a longer, longer turnaround. We do quite honestly have challenges with malls -- with just mall traffic in general, so we have to deal with that. But we are -- the real challenge we have is retraining that consumer. On Empire, in the time I have been here, I haven't spent a lot of time in Empire but I do believe that there is opportunity for a stronger relationship between Regis and Empire than we have today. There are people that go into their schools not knowing where they are going to be employed when they come out. We have over 7,200 of our wholly-owned salons. We should be a great place for the students that go into the schools to come out and have a job. So I'm working with Empire on how we strengthen our relationship there and how we figure out how we can create more job opportunities for people coming out of Empire than we are doing today. It's an obvious one but it's something that we haven't done in the past. And then in the U.K., our challenges are similar in the U.K. that they are here in the U.S. market. What we have been doing with the U.K. is we have been sharing all the tools we have been developing. Quite honestly, our focus has been on the North American business, so as we develop the tool, we are getting them over to the U.K. So the development of the optimization tool, that's now over to the U.K. And I think it's important to remember that we didn't get the optimization tool finalized and out into the salons until early in November. So the U.K. was behind that. So they should benefit from that. The guest experience training that we are doing, we really got that up and running late in the first quarter. So the U.K. didn't get that until into our second quarter, so they are just a little bit behind us on all that. But the challenges are very similar. So we are focused on the U.K. but it has come a little bit behind what we are doing with the North American business, Jeff.

Your next question comes from Bill Armstrong from CL King and Associates. William R. Armstrong - CL King & Associates, Inc., Research Division: I was wondering if you could give us an update on your POS roll out? Daniel J. Hanrahan: Sure, I would be happy to, Bill. The POS roll out is going extremely well. We have a great relationship with the SuperSalon people. We are doing all the work necessary to create the attachment to our back end. That is going very well. To be quite honestly, that was one of the things I was quite worried about, was would we be able to easily attach to the back end. And while I wouldn't call it an easy attachment, it's on schedule and everything is going just as we planned. We have a series of events that need to take place with the SuperSalon roll out. All of those are on schedule. And we begin the actual implementation in early February of the first set of salons. We have a very detailed plan that will put a number of stores in place. We will take a week off. We will see what happens with those. We anticipated that, that will go extremely well based on some preliminary testing that we have done. Then we will ramp up over time so that we will have SuperSalons in all of our North American salons by the end of our fiscal year. And we still see that very much on schedule. William R. Armstrong - CL King & Associates, Inc., Research Division: Okay, that's great. And then, just a housekeeping -- can you give us your salon count at the end of December? The owned salons in North America and the U.K. and then the number of franchise salons? Eric A. Bakken: Sure. Yes. Bill, what we are going to do is we are going to post all that in the press release [indiscernible] on the salon counts today. We are going to post also on our website here in just a minute -- a moment or two after the call is over. But in terms of salon counts at the end of the second quarter, we had company-owned, we had 7,672. And then from a franchise perspective, we had 2,068. And out of the company-owned piece, there was 381 that were international. We will have the schedules up here in a moment.

Your next question comes from Jacob Zitter from Robert W. Baird. Jacob Zitter - Robert W. Baird & Co. Incorporated, Research Division: I'm in for Erika Maschmeyer. Last quarter, you spoke to targeting hours flattish by the end of the fiscal year. Actually it sounds like you are more committed to the investment of increasing hours throughout the year. Is that correct and lost process tying in [ph]? Eric A. Bakken: Yes. Jacob, we are committed to getting the hours right. It varies by segment. In our value businesses where we are seeing more traffic and more growth, that's going to call for more hours. And likewise in our businesses that Dan just discussed where traffic is down, yes, there was an opportunity to pare that back a little bit. But our objective is really to get the right mix between hours called for and scheduled in staffing, and we are making good progress in doing that. And I think you will see, as Steve mentioned earlier, improvement as we move through the back half of our year. Jacob Zitter - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. And then could you just elaborate on what the staffing optimization tool is and maybe how it helped Supercuts in January? Eric A. Bakken: Yes, I mean it's really looking at what happened last year at a similar time and looking at what the most current trend is in traffic and in sales. And it comes out with a formulation to let us know what we should be scheduling going forward. I mean, really -- part of it is science and part of it is art. So we have to manage it. Sometimes there are changes in staffing at a salon. If you have a real high producer who leaves, the schedule that comes out might not take that into account so we really have to apply some art there as well. But in general, it's looking at traffic, what we experienced in prior periods and coming up with a proposed schedule that we use to balance with a little bit of art in the field. Jacob Zitter - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just lastly on SmartStyle, I know you ran a back-to-school coupon last quarter and now the Walmart promotion this quarter. Is there any way to break out the benefits between that, those promotions, and the increased hours? And then maybe just going forward, these promotions, is that going to be part of your ongoing strategy of that concept? Daniel J. Hanrahan: Yes, good question. That's part of the reason why we have brought on a pricing team. And we are doing, especially in our Walmart salons. We are very focused on pricing analysis that looks at everything go Walmart salon and the impact that, that promotions have on it, the impact of the everyday low price has on revenue. We are early in that and so we are not sophisticated enough today to give you a good answer to that question and say that we know that the revenue that was driven by the coupon event was x and the revenue that was driven by the hours is y. We are going to get there. I mean, we have got the very smart pricing people that we brought on to the team. And we have engaged an outside firm that is, I think, a real strong partner for us. So we are working through that because that's exactly where we want to be able to get so that we understand what kind of revenue is driven by the decisions that we are making. And that will just make us a smarter company. I think you heard Steve talk about the investment in technology that will help us improve. That's -- it's not a big investment but we think it will pay strong dividends for us over time.

Your next question comes from Daniel Hofkin from William Blair & Company. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Nice to see the sequential improvement in the off-mall traffic. I just had, I guess, a question in terms of how you are thinking about what the ramp or what the sources of the increased profitability in the future are likely to be? Is it going to come more from just gradual retaining of the consumer and word of mouth and the like in the off-mall concepts? Or do you feel like you have overshot in terms of staffing and that there's opportunities to kind of optimize the staffing based on customer traffic patterns? Which of those is going to be more important in terms of your long-range profit ramp? That's my first question. Daniel J. Hanrahan: Okay. I think that it's hard to parse out which is going to be more important. One of the things that we know we need to do is drive traffic into our salons. So we are working with our marketing department and operating folks. We are working very hard to figure out which are the marketing triggers that we can pull that will drive traffic. Then on top of that, we have got to figure out what is the right balance between the amount of hours that we put into the salon and the revenue that it generates. And I would tell you that in a fair number of our salons, we did it. I mean, we put the right amount of hours in and we saw an improvement in revenue that contributed to our profitability. But we had enough that we didn't do that. And I think that's where it's going to take us some time with the consumer to retrain them to understand that the salons are now being staffed to the point where you can come in and get the service want in a reasonable amount of time, remembering that in our business, we are a value-based business. Consumer is looking for convenience. They are looking for quality and they want to get in and out. And then but having said that, there are also salons that we have seen where, to your point, Daniel, that we have overinvested in hours. And we just put too many in and what we need to do is we need to back that off a little bit and build the consumer up -- build the consumer's confidence in their ability to get a service from us based on what kind of traffic we are seeing in that salon. And that's why I should repeat what I said earlier, this is -- there's going to be a methodical approach to fixing this. And it's a little bit hard for me to parse them out because they are also important to fixing this business. Daniel Hofkin - William Blair & Company L.L.C., Research Division: I appreciate that color. I guess, next question would be as you think about the mall-based concepts and hearing what you said earlier about some traffic challenges, and a lot of that is kind of out of your control I think it would be fair to say, how are you thinking about those concepts in general? Is there a possibility that you would envision the company being more weighted toward the Walmart and strip-mall concept, going forward? Daniel J. Hanrahan: Well, I think that will happen naturally as we invest in new salons, as we are growing our franchise business. And we have terrific support from our franchise partners. Our franchise sales team is doing a great job selling franchises. So we will grow naturally in the businesses in the value-based strip-center-type businesses that you just described. And our franchisees will grow there as well. But we need to figure out, regardless of what's happening with traffic and malls, it's still our responsibility to figure out how we drive traffic into those salons and those malls. And I'd -- while -- because I want to be careful that I don't blame the declining traffic in malls as the reason for our decline in business in the mall-based salons, it's still our responsibility to get those salons healthy. Daniel Hofkin - William Blair & Company L.L.C., Research Division: I mean, I supposed they are theoretically could be opportunities to relocate in some cases. But maybe you don't see that as a big opportunity? Daniel J. Hanrahan: We have done some of that. And we have done very, very little bit of that where we have moved salons out of the malls into the strip centers, but it's such a small sample size. It's pretty hard for me to say that I could give you any meaningful color on that as I just don't think that the -- my correlation analysis on that is a little weak at this point. Daniel Hofkin - William Blair & Company L.L.C., Research Division: Finally, just last quick house. How long would you say, if you had to guess at this point, we are from a point where you feel a little bit more comfortable? You have your arms more around the various parameters and the impact of your initiatives such that you are able to provide some just general financial-guidance-type framework? Daniel J. Hanrahan: That's going to still take us some time. I'm not sure that -- one thing we want to make sure we aren't doing is chasing quarters. We believe that this is a long-term fix. We believe strongly that this is a business that can generate a lot of cash. We look at what our franchisees do and our franchisees generate a lot of cash. They -- that you can go and look at the FTD and you can see the kind of revenues the franchisee gets, and that's what we want to be. We want to work towards those kind of revenues. It's going to take us a little bit of time on that. We have got so much stuff underway right now and I'm not comfortable at this time saying that there's a certain date where I'd be able to give the exact information on that. What we want to be is very transparent in what we are doing. We want to be as clear as we can on our results but we are reluctant to provide any guidance at this point.

Your next question comes from Jill Caruthers from Johnson Rice. Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division: I guess just a little bit more on to your strategy of [indiscernible] salon hours. Could you talk about is it more of the customer having to wait and kind of what's that average wait time? Or is it the viewer perception of kind of an empty salon as they walk by? Daniel J. Hanrahan: I think it's both, Jill. One of our board members who could give me a great analogy at the board meeting where he said when he was a -- he managed a restaurant as a young man and he closed the restaurant early one night because nobody was in it. And then his boss gave him a very hard time the next day because he said how many people walked by and now think that our restaurant closes an hour earlier than it closed. And so we have got -- we are up against that and then we are up against the fact that when you -- people that do come in and sit there so long, we -- in the past, have had to sit there so long so they just haven't come back. So it's both. One thing we have learned, we have done a fair amount of marketing research and we have learned that the consumer that comes to our salons, our value-based salons to get a service, is very focused on convenience. Consumers are so time strapped these days that they are very focused on convenience. So we need to provide high-quality, very convenient experience at the right price. And so I -- it's really hard for me to say which is the bigger driver of the turnaround. But I -- because I think that they all contribute a great deal to the opportunity for us to get this business going in the right direction. Jill R. Caruthers - Johnson Rice & Company, L.L.C., Research Division: Okay. And then looking at the Supercuts division, if I'm clear, you started to increase the hours there back at the first quarter. So the second quarter kind of the second time around. When you look at the results first quarter, second quarter, you see a deterioration on the comp side on both service and total comps at Supercuts. Could you talk about maybe that trend? Was there something odd, one-off or are you starting to see less productiveness from the increased hours? Daniel J. Hanrahan: There's a few things going on there. In the -- we've got the tool in place. So when we first started with Supercuts, we didn't have the tool in place. So now we've got the tool in place and clearly, we did some good things with that tool. We also made some mistakes with that tool. The other thing that we -- our Supercuts were disproportionately hit by Sandy. So we talked about what percentage it was of our total business but we are heavily -- we lean heavily towards Supercuts where Sandy impacted us. So we had that. We experienced that as well. So I actually feel fairly good about what I have seen from that salon optimization -- or the hours optimization from Supercuts. I'm not -- I want to be very clear that I'm not declaring victory by any stretch of the imagination there. But we have learned quite a bit in the Supercuts because what we did in the first quarter of this year is we said, "Look, we've got to stop cutting hours." So we added hours. But we didn't do it. It was all hours at that point. There wasn't any science. Now we are bringing in science into it and we're in early learning stages at this point.

Your next question comes from Alex Yaggy from Cortina Asset Management. Alexander E. Yaggy - Cortina Asset Management, LLC: I have 2 quick questions. And the first is on sales trends and the second is on real estate. So first on the sales trends, if I recall correctly, generally speaking, your sales across the chain, say Supercuts, would generally be in line. There wasn't a huge divergence from best-performing to worse-performing stores. And I'm wondering if in the areas where you are getting it right, as you said, on the scheduling, you are seeing a marked difference in say your top quartile of stores? And if so, what that is in terms of sales gains? Daniel J. Hanrahan: Well we aren't going to break out the detail to that level. I could tell you that we -- there's a lot of analysis going on in terms of how we view the optimization. And we have salons that are in different buckets. And what we are trying to do now is just go back and make sure we fully understand what drove the business in those buckets. So we see buckets that -- we have a bucket where the salons are doing really, really well. If you are our guy that's doing the hours optimization, you are taking full credit. If you are our marketing person, you are taking full credit. If you are operator, you are taking full credit. So we need to understand a little better exactly what's driving it. And then we -- and then the buckets kind of go down to that bottom bucket where we have seen that we have added hours and we have had sales not respond. So we need to understand. I think it's important to note that we've only been at the hours optimization since the beginning of November in any scientific way. So we have got 2 months worth of data that we are looking at. People are on it and so I can't give you any greater detail than that at this time, Alex. Alexander E. Yaggy - Cortina Asset Management, LLC: Okay. And then on the real estate side, you have a lot of stores and over the years, you have made a lot of acquisitions. Do you all have the tools and the information yet to look at your real estate portfolio and know, say the bottom 20%, you can relocate and improve like the restaurants and other retailers have, to measure where stores should be and really understand how good or how improved your real estate portfolio could be over the next 2 to 3 years? Eric A. Bakken: Alex, it's Eric. We are getting much better in that area. We're working with an outside provider, really the best in the business, and we are able to assess of the quality of our real estate and really look at in terms of its productivity and performance versus the assessment of the quality of the real estate. That continues to get better as we had additional attributes and variables that we are aware of. So we are much further along in that than we were even say, 6 months ago. So to answer your question, yes. We can identify those locations on -- to the extent that they are not profitable or there's a better opportunity in close proximity, we are moving out of those locations today. Alexander E. Yaggy - Cortina Asset Management, LLC: And I know you are not giving guidance at all but just generally speaking, should we expect any additions to the salon count? I assume you do add here and there but is it going to be markedly different from what it's been over the last 12 months? Daniel J. Hanrahan: No, you shouldn't expect a marketably different change than what we have been doing.

Next we have a follow-up question from Jeff Stein from Northcoast Research. Jeffrey S. Stein - Northcoast Research: Yes, Dan, just one quick follow-up question. In assessing the opportunity at Supercuts, what is the difference between the average unit sale of a franchisee versus a company-operated location? Daniel J. Hanrahan: Today, it's $40,000 to $50,000. Jeffrey S. Stein - Northcoast Research: $40,00 to $50,000. All right. That's pretty significant. Daniel J. Hanrahan: Yes, it is. Jeffrey S. Stein - Northcoast Research: So in terms of a flow-through, let's say you are able to narrow that gap by 50%, how much -- what percent of that could you flow-through the bottom line? Is it pretty much a pure flow-through from the standpoint that you would take -- apply the labor percentage and the rest drops to the bottom line? Or is there some variable costs that we should consider. Daniel J. Hanrahan: No, there shouldn't be increased variable costs. The margin should stay roughly where they are. If we get our hour optimization better, it would improve the hour -- the margins if we -- if our hour optimization got worse, it would hurt it. But you should assume that we shouldn't have to add significant costs to it to get that, unless we made a decision that we are going to add an awful lot of -- we had to add an awful lot of marketing money to get it, then obviously that would have an impact. Jeffrey S. Stein - Northcoast Research: Right. But it sounds at this point like you are operating under the assumption that at least in the Supercuts division, it's more of a payroll hour issue than a marketing issue. Daniel J. Hanrahan: I would say there's opportunities on both sides. If you think about what's happened over time, where we have trained the consumer not to come to get a haircut because we have cut hours. We are going to need to find a way to bring them back. So to say that, we don't need marketing to do that, I wouldn't go that far, Jeff, because I do think we need marketing to bring people back. And so we are developing what we call guest relationship management, which is the same thing as customer relationship management. We are developing tools around that. The SuperSalon POS will give us a lot better information that we can use in our GRM tools. But we also need to drive people in. We can't just work off of people that have been there and bring them back. We want to make sure we do that obviously, but we also need to drive people into the salons with marketing.

As we are all out of time, we will now finish the call. I will turn the conference back to Dan. Daniel J. Hanrahan: Thanks, Ron. I appreciate everybody tuning in this morning and thank you for the thoughtful question. And we will be back to you in another quarter.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1 (800) 406-7325 with an ID of 4590684#. This concludes our conference for today. Thank you, all, for participating and have a nice day. All parties may now disconnect their lines.