The Company`s debt, excludingcapital leases, totaled $1.7 billion as of March 31, 2009. Capital expenditures in the fiscal 2009 second quarter were $8.4 million. TheCompany expects fiscal year 2009 capital expenditure to be in the range of$35-$40 million. Inventories as of March 31, 2009 were $538.8 million, a decrease of $32.8million from December 31, 2008 and a decrease of $51.8 million from March 31,2008. Business Segment Results:Sally Beauty SupplyFiscal 2009 Second Quarter Results for Sally Beauty SupplyNet sales were $412.3 million, up 1.5% from $406.1 million in the fiscal 2008second quarter. The year-over-year increase in net sales was positively impactedby revenue growth from new store openings of 1.7% and from acquisitions of 2.8%.Same store sales were up 2.0% over the fiscal 2008 second quarter.

The negativeimpact of unfavorable foreign currency exchange on net sales was $19.3 million,or 4.7% of sales. Although same store sales grew year-over-year for the SallyBeauty segment, this growth was negatively impacted by softer sales in the U.K.Gross margin at Sally Beauty Supply for the fiscal 2009 second quarter was52.1%, up 100 basis points from 51.1% in the fiscal 2008 second quarter. Thismargin expansion is primarily the result of a shift in product and customer mix,recent marketing efforts, and low-cost sourcing initiatives. Segment operating earnings for the fiscal 2009 second quarter were $70.4million, or 17.1% of net sales, compared to $67.9 million, or 16.7% of net salesin the fiscal 2008 second quarter. Sally segment operating earnings increased by3.6% over fiscal 2008 second quarter primarily due to growth in same store salesand gross margin improvement. Sally Beauty Supply ended its fiscal 2009 second quarter with 2,873 Sally BeautySupply stores, an increase of 4.9 %, or 134, stores over the fiscal 2008 secondquarter.

Beauty Systems GroupFiscal 2009 Second Quarter Results for Beauty Systems GroupNet sales for BSG were $229.2 million, a decrease of 3.4% from the fiscal 2008second quarter total of $237.3 million. Net sales were positively impacted bysame store sales growth of 2.3% and growth from new stores and acquisitions of0.8% and 0.4%, respectively. Net sales were negatively impacted by unfavorableforeign currency exchange of $6.9 million or 2.9% of sales and underperformancein the BSG franchise business of 1.4%. BSG gross margins were 38.1% of net sales in the fiscal 2009 second quarter,slightly down by 30 basis points from 38.4% of net sales in the fiscal 2008second quarter. Gross margin declined due to foreign currency transactions aswell as unfavorable sales mix in the BSG franchise business. Segment operating earnings were $20.4 million in the fiscal 2009 second quarter,up 13.5% from $17.9 million in the fiscal 2008 second quarter. This increase wasprimarily due to lower selling and administrative costs.