Revlon Inc (REV) 2002 Q1 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to Revlon's first quarter 2002 results conference call. All participants will be in a listen-only mode until the question-and-answer portion of today's call. Today's call is being recorded, and if there are any objections you may disconnect at this time.

I'd now like to introduce your host leading today's meeting, Miss Laura Kiernan, Director of Investor Relations. Miss Kiernan, you may begin when ready.

Good morning, and thank you for participating in our conference call to discuss Revlon's first quarter 2002 earnings which were released earlier this morning.

I'm Laura Kiernan, Director of Investor Relations, and with me here today are Jack Stahl, Revlon's President and CEO, and Doug Greef, Executive Vice President and CFO. After our prepared remarks we will take your questions. This conference call is being conducted on a real-time basis on our web site so that the information conveyed in this call is simultaneously available to the public.

I'd like to preface our call this morning by noting certain conditions. The following discussion and question-and-answer session may include certain forward-looking statements which are generally stated in terms of the company's plans, designs, intent, and expectations. It should be understood that actual results could differ materially from those expressed in forward-looking statements due to a number of factors, including those described under the caption `forward-looking statements' in the company's annual report on Form 10-K, quarterly report on Form 10-Q, and press releases including the release issued today and webcast.

This discussion as well as the question-and-answer session are to assist you in making your own analysis of Revlon, and are not to be copied, disseminated, recorded, or used for any other purpose. If you do not agree to these conditions you should drop-off the call now.

Please also note that in order to assist you with your analysis, certain financial information for ongoing operations, including a tabular reconciliation to our as-reported results can be found by going to the Corporate Investor Relations portion of our web site at www.revloninc.com.

Now I will hand it over to Doug Greef to talk about the quarterly results.

Thank you, Laura.

Here is an overview of what we intend to cover today. First, I will cover our financial and market share consumption results from the first quarter 2002. Then I will hand it over to Jack, who will make some comments, and then we will take your questions. As we indicated in our earnings release we will have an analyst conference, tentatively scheduled on Friday, August 2nd, at which time Jack and the leadership team will present our view of Revlon's future growth plan.

Specifically, let's start with our financial results. As Laura stated, in order to assist you with your analysis certain financial information for ongoing operations can be found by going to the Corporate Investor Relations web site at www.revloninc.com.

Please note the following with regard to the financial information I'm about to discuss. For the 2002 and 2001 periods, it is provided to allow a comparison of results from what we've referred to as our ongoing operations. Ongoing operations are presented in order to provide results of operations for the periods by eliminating one-time items such as restructuring and plant consolidation costs, executive severance, gains and losses, and results of businesses sold. 2001 results have been reclassified to reflect the new accounting rules for sales incentives. 2001 regional results have been reclassified in that Puerto Rico was previously part of international, and is now included with North America operations.

Now moving to our first quarter results. Total company gross sales were 341.1 million in the first quarter 2002, versus 369.2 million in the first quarter 2001. Returns, allowances, discounts, and other were 65.7 million in the first quarter 2002, versus 65.4 million in the first quarter 2001. Net sales were 275.4 million in the first quarter of 2002, versus 303.8 million in the same period last year. On a comparable currency net sales during the 2002 first quarter were down 6.3 percent, versus the prior year. Now, moving to North America. In North America which includes the U.S., Puerto Rico, and Canada, net sales were 196.4 million for the first quarter of 2002, compared with 212.5 million in the first quarter of 2001, a decrease of 7.6 percent. This decrease was driven primarily by lower shipments to our retail customers as a result of the decision by two major U.S. retailers to ship the timing planogram resets for certain 2002 new products. This resulted in shipments of approximately $14 million of 2002 new products in the fourth quarter of 2001.

Moving to international. International net sales were 79 million for the first quarter of 2002, compared with 91.3 million in the first quarter of 2001. On a constant U.S. dollar basis, this represents a 3.6 percent decrease, and is primarily due to lower sales in the European region, and lower sales in Argentina and Venezuela, primarily due to the political and economic condition in these two countries. Please refer to our web site for a break-out of our regional results.

Now, let's move to our operational data. Excluding grant support expenses that are included in cost of sales, cost of sales as a percentage of gross sales, or factory cost of goods sold in the 2002 first quarter was 30.2 percent compared to 31.6 percent in the first quarter of 2001. This compares to a factory cost of goods sold of 31.1 for the full-year basis in 2001. Most of the efficiencies gained from our factory consolidations that affect cost of goods sold in the fourth quarter were capitalized into inventory. The P&L savings in the first quarter 2002 reflects the sale of lower cost inventory. We believe these efficiencies should result in higher gross margin in full-year 2002 versus 2001.

Moving to SG&A. Total SG&A including departmental G&A, and certain of the components of brand support was 160.1 million in the first quarter of 2002 versus 171.7 million in the first quarter of 2001.

Departmental, general, and administrative expenses excluding executive severance cost of 6.5 million were 71.1 million for the first quarter of 2002, compared with 77.7 million in the first quarter of 2001, a decrease of 8.5 percent or 6.6 million.. This decrease reflects savings from the cost reduction initiatives completed last year.

Now, let's move-on to brand support. Brand support includes all expenses incurred except permit [phonetic] and display amortization, to support our brands to increase consumption at our retail customers. As you know, new accounting rules require that certain brand support expenses must be presented in SG&A expense, while other brand support expenses must be presented as a reduction of net sales or cost of sales. Total brand support as a percentage of growth sales was 24.8 percent, or 84.4 million in the first quarter of 2002, compared with 22.0 percent or 81.2 million in the first quarter of 2001, reflecting an increase versus the prior year. Please refer to our web site for a total grand support amount for each of the quarters in 2001, and the first quarter of 2002. Moving to operating income. First quarter 2002 operating income was $7 million, compared with 12.5 million in 2001. The decrease in operating income versus the prior year is primarily due to lower sales and higher brand support expenses, partially offset by reduced factory cost of sales, distribution expenses, and G&A reductions from cost savings initiatives.

Also, in the first quarter of 2001 goodwill of 1.9 million was amortized. As you all know, goodwill is no longer amortized. Moving to EBITDA. First quarter 2002 EBITDA was 30.2 million, compared with 35.4 million in 2001. In terms of our bank covenants, we met our four-quarter rolling EBITDA, as defined in our credit agreement, covenant requirement which was $180 million. The four-quarter rolling EBITDA covenant is 185 million for each of the second and third quarters 2002, and moves to 210 million for the full-year 2002. Moving on to EPS. The first quarter 2002 net loss was 33.8 million, or 65 cents per diluted share, compared with a net loss of 24.7 million or 47 cents per diluted share in the first quarter of 2001.

FirstCall consensus estimate for the first quarter 2002 was a net loss of 69 cents per diluted share. Moving on to cash flow and liquidity. First quarter 2002 capital expenditures were 1.9 million versus 4.9 million in 2001. First quarter 2002 permanent display spending was 14.9 million versus 12.4 million in 2001. First quarter 2002 cash restructuring spending was 8.7 million which includes additional consolidation costs and severance payments.

Our liquidity at March 31st and April 30th, 2002 from all available liquidity sources was approximately 201 million and 170 million, respectively. At March 31st availability under our revolver was 97.5 million, and we had unrestricted cash and marketable securities of $63 million. The make-up of our bank credit agreement borrowings at March 31st, 2002 was as follows: a term loan facility at 117.9 outstanding, the multi-currency revolver at 7.2 million outstanding, and we had letters of credit, of credit issued but undrawn of 27.4 million.

Let's now move into a discussion on our U.S. customer retail inventory. Estimated inventories in the U.S. of all of our products as provided by our top seven accounts, including the top three NVRs and the top four drug customers, and also represents approximately 72 percent of our U.S. volume, were as follows: 312 million at the end of the first quarter 2002, compared with 345 million at the end of the fourth quarter 2001, and 356 million at the end of the first quarter 2001.

These inventories decreased by $33 million in the first quarter on top of a $24 million decrease in the fourth quarter 2001. We believe that certain of our retail customers reduced inventories as a result of the implementation of improved supply chain management systems, as well as having made a conscious effort to reduce inventories during the recent economic downturn.

Now, I would like to move to market share. I would like to talk about U.S. dollar market share and dollar consumption data from ACNielsen. But before I start I would like to discuss some of the background of the data. To be specific, market share is our consumption dollars of our products sold at retail divided into the total market consumption dollars sold at retail for a specific category.

So, therefore, we will focus on two sets of data. One is market share, and then separately we will talk about consumption dollars. These are different measures that can move in different directions. As you would expect, for example, you could have consumption growth in dollars, but a decline in market share if the growth in consumption dollars is less than the category growth. Again, as you would expect, to simplify, if consumption shows growth but market share is down that means that the company is growing at a slower rate than the category or marketplace overall.

Also, for the first time we are going to give data in categories that we have not discussed before. In addition to color cosmetics we will give data on skincare, women's hair color, anti-perspirant and deodorant, and beauty tools.

Now, moving to the specific data. All market share data is U.S. mass market for various categories according to ACNielsen, but excluding Wal-Mart which you know no longer provides sales data to ACNielsen. This data is an aggregate of the drug channel, K-Mart, Target, and food and combo stores, and represents approximately 60 to 65 percent of the company's U.S. mass market volume. Wal-Mart made up approximately 30 percent of our U.S. sales in 2001.

In summary, for all the categories discussed in terms of dollar market share in the first quarter 2002 we experienced declines versus the first quarter 2001, and increases versus the fourth quarter in 2001 in Revlon and the Almay brand color cosmetics. In the first quarter 2002 we experienced increases in dollar market share versus the first quarter 2001 in skincare, women's hair coloring, and anti-perspirant deodorant. We experienced a decline in beauty tools.

Dollar share for the company's cosmetics portfolio comprised of Revlon, Almay, Ultima, and street ware in the U.S. mass market color cosmetics category was 22.4 percent for the first quarter of 2002, compared with 21.9 percent for the fourth quarter of 2001, and 24.1 percent in the first quarter of 2001.

Moving to specific brands. The Revlon brand cosmetics dollar market share in the first quarter of 2002 was 16.1 percent, versus 15.9 percent in the fourth quarter of 2001, and 16.7 percent in the first quarter of 2001. The Almay brand color cosmetics dollar market share in the first quarter 2002 was 5.7 percent, versus 5.6 percent in the fourth quarter 2001, and 6.5 percent in the first quarter of 2001.

Our market share results in the month of April 2002 for the Revlon and Almay brand color cosmetics in the U.S., respectively, were 15.7 percent and 5.4 percent.

Now, I'll move to hair color. Revlon brand hair color dollar market share in the first quarter 2002 was 6.6 percent, versus 6.8 percent in the fourth quarter 2001, and 6.2 percent in the first quarter of 2001.

Moving to deodorant. The Mitchum brand anti-perspirant deodorant dollar market share in the first quarter 2002 was six percent versus six percent in the first, in the fourth quarter of 2001, and 5.8 percent in the first quarter of 2001.

Moving to skincare. Total Revlon skincare dollar market share in the first quarter 2002 was 3.8 percent, versus 4.2 percent in the fourth quarter 2001, and 2.5 percent in the first quarter 2001.

Moving to beauty tools. Revlon brand beauty tools dollar market share in the first quarter of 2002 was 28.8 percent versus 26.1 percent in the fourth quarter 2001, and 30.9 percent in the first quarter 2001.

Now, let's move to U.S. mass market dollar consumption. As I said before, all U.S. mass market dollar consumption amounts come from ACNielsen. For the Revlon brand, U.S. mass market color cosmetics dollar consumption increased versus the prior year quarter by 2.6 percent and by 7.6 percent versus the fourth quarter 2001. When you include our estimate of Wal-Mart sales, U.S. mass market consumption of our Revlon brand color cosmetics was up approximately 4.7 percent in the quarter versus the prior year.

The combined dollar consumption of our color cosmetics, skincare, women's hair coloring, anti-perspirant deodorant, and beauty tools, in the U.S. mass market grew by two percent versus the prior year quarter, and by 5.7 percent versus the fourth quarter 2001.

Now, I'd like to talk about our 2002 outlook. Let's start with the roll-out of our new Her Wall [phonetic] which began in April. The New York Office employees at Revlon and the Revlon U.S. merchandisers have literally installed the new Revlon brand store displays at the Wayne Reed [phonetic] Stores in Manhattan. We expect to have over 4,000 doors installed by the end of July, and approximately 6,500 to 9,000 doors by year-end. Total permanent display expenditures are expected to be approximately $60 to $65 million for the year globally. This includes not only the new wall roll-out, but also replacement parts, new product trays, and walls for new doors. Now let's move-on to a brief discussion of our new products in 2002. As you know, in December, we shipped the first of our 2002 new products, which included Revlon's Skin Light's line extensions and Almay Kinetin makeup.

We began shipping Revlon lip glide color gloss in late March, which is an innovative, high-shine lip gloss with full color coverage in an exclusive new package. Initial consumer response to lip glide has been excellent, especially given the fact that advertising for the product does not begin until mid-May. In April lip glide achieved a 1.4 market share in the U.S. mass market lip category with limited distribution.

We just began shipping Almay Kinetin skincare line extensions, including firming and pore re-firming serum, firming and brightening eye cream, and lip vitality smoothing lip color with Kinetin is scheduled to ship in June. We also just had the preps launched for two innovative and highly consumer rated ColorStay products including a major new eye launch set to ship in July, and to be on counter in September. The new eye launch is a ColorStay, over time last tint, which is a patent gel based mascara that lasts up to three days with no clumping, or flaking, and gently fades away. It lasts through showers and sleep, and it is the first of its kind in this category. The response has been enthusiastic to this break-through product. The second ColorStay product is Revlon ColorStay, over time lip color, a product positioned directly against Max Factor's lip finity, and Cover Girl's out last. This product is a shinier, softer feel than existing products, lasts eight hours or more, lasts through a meal, and is available in a one-piece liquid-liquid form.

We are also gaining additional distribution for high dimension hair color during the July reset period, and we also plan to advertise Mitchum for the first time in well over 10 years during 2002. The new Mitchum is a soft-solid format, which has been particularly popular with consumers.

Now, I'd like to talk about a special promotion. We are very pleased that we have been awarded the exclusive global cosmetic promotional partnership to support the 20th James Bond film `Die Another Day,' starring our very own Revlon spokesperson, an Academy Award winner, Halle Berry. The movie opens on November 22nd, 2002, and we have a series of multi-faceted, creative promotional activities planned to capitalize on the movie.

Now, I'd like to move-on to the Revlon Run/Walk. We are proud that over 45,000 people participated in the fifth annual New York city Run/Walk for Women last Saturday, May 4th. Next Saturday, May 11th, the ninth annual Los Angeles Revlon Run/Walk for Women will take place. These events have raised over $23 million toward the cause of women cancers. We are very proud of what Revlon has accomplished in this field. Our support for women's health shows that Revlon not only cares about women's looks, we care about women's lives.

Now, I'd like to move-on to guidance. We are providing minimal guidance until our Analysts Conference that is tentatively scheduled for the morning of Friday, August 2nd. But to briefly talk about share and EBITDA, in terms of 2002 U.S. color cosmetics market share outlook, in the second quarter 2002 assuming a two to three percent U.S. mass color cosmetics category growth rate we expect both the Revlon and Almay brand dollar market shares to be flat to slightly down versus the prior year, and on a full-year basis we expect the shares to be flat versus the prior year. Moving-on to EBITDA guidance. EBITDA excluding restructuring costs in the second quarter 2002 is expected to be approximately $5 to $8 million below the 2001 second quarter due to higher brand support and slightly lower to flat sales. We are reconfirming our 2002 full-year EBITDA guidance that we gave on our February 25th conference call which is we expect to have minimum EBITDA excluding restructuring of 210 to 220 million including executive severance of $6 to $7 million for the year. As previously stated, we expect to see additional P&L savings as inventory turns through the system, which we expect should result in reduced factory cost of goods sold for the full-year 2002 versus 2001, primarily as a result of the factory consolidations. Now, to help you with your models, we have the following guidance for full-year 2002 in terms of cash flow items. Capex spending of approximately 15 to 25 million. I noted before, display spending, 60 to 65 million. Cash restructuring spending would be approximately 25 to 30 million. We expect net interest expense to be approximately 155 to 160 million, including the amortization of debt issuance cost of about seven million. Tax expense will be approximately five million. Depreciation amortization will be approximately 95 to 100 million which includes about 12 to 18 million for accelerated depreciation that will result from the rolling-out of the new wall.

Now, I would like to turn it over to Jack for his remarks.

Doug, thank you. Good morning, everyone. And thanks for participating today. As always, we appreciate it very much.

As we usually do, I've got members of my leadership team here today with me. The only person I'm going to mention specifically, just because she is the newest member of our leadership team, is Deborah Leitman Yale [phonetic], and you will get to know her better as we move through the Spring, and certainly as we move towards our August meeting.

But by way of introduction, Deborah comes to us after a close to a 20-year career with Clairol. And most recently she ran Clairol's international business, and had a full scope responsibility for marketing, sales, and operations. And really did a terrific job driving profitable growth there. So we're delighted that she's part of the team. And again, you'll get to meet her as we go-forward.

I thought what I would do today is really give you an update on what I've seen since I've been in in February, and where my focus has been. And certainly, I think there's been really nothing that's been sort of outside of the corridor of surprise in what I spoke to you about at that time. My focus at that point in time was to quickly get in, get an understanding of our brands, get an understanding of our customers and retail partners, and begin to develop a strategy for growth that would carry this company forward to the next level.

Now as we talked about then, Revlon I think had done a good job of creating a lower cost platform over the last 12 to 18 months. But the obvious challenge was to take advantage of that lower cost platform and create a strategy for growth. You know, that becomes obvious and apparent as you look at our continuing share declines in the early part of the year.

So I think we've got a realistic view of the business, but I think probably just as importantly is that we have as we do our consumer research in developing our new strategy we also have a very realistic view that the Revlon brand with consumers across this country and across the world has very strong recognition, and there are elements of the brand that we very much know and understand that we can tap into as we create a growth strategy going forward. And it is the development of that growth strategy that we are working to finalize, and will expose to you and our retail partners as we move into the August timeframe. And I'm very excited about what we're seeing, recognizing we have a tremendous amount of work to do to execute that strategy.

A couple of things, as we think about my focus in the near-term. Back in February we talked a lot about day-to-day execution, and making sure that our marketing, sales, and production logistics activities were all increasingly connected as an organization. And my finding on that as we work to have our management routines in place, every Monday connecting sales, operations, logistics, our customer management people, every time we get-together as a team each week we find more effective ways to connect all the functions together leading to better execution in the marketplace. And I strongly believe that there's a layer of growth for Revlon, not only in the U.S. but internationally just resulting from better execution, better communication, and faster implementation with our retail partners. And we're seeing some examples of that, small, baby examples, but they will build over time as we go-forward.

I've also spent a lot of time with our retail customers. I've probably met with virtually all of our top 25 customers in North America. I had an opportunity to attend a trade show two weeks ago in Florida, and we had what I would call a very productive conversations with each of our customers, including mass merchandisers, including members of the drugstore chain category. And as you'd expect, not every meeting was perfect, but the reality of it is we came away from each one with a clear understanding of what we needed to do to deliver more effectively with our customers across North America.

And I can tell you, that without exception each of our customers wants very much for Revlon to succeed as we go-forward. They know that a healthy Revlon will lead to healthier category growth for the cosmetics industry, and they want us to play our role in that process. So there's lots of opportunities to strengthen our execution, but I believe we have tremendous support from our retailers as we work to improve how we execute with them going-forward. So that's a very positive thing, because as we move to develop our marketing strategy, obviously, great execution with the trade has to be a priority at that point in time.

We've also spent a tremendous amount of time kind of inside the building with Revlon employees, and Revlon associates. And yesterday, for example, with Elias Hebeca [phonetic] who runs the operations side of our business, including R&D, I spent some time in Edison, New Jersey, where we have what I think is a world-class group of researchers and new product development people focused on developing great technology and new product activities. Interestingly, as I went through the products that are in the pipeline it just reinforced to me if we can take that expertise and excitement that we have among our technical people who are developing innovative products and technologies, and if and when we do a better job of connecting that to the marketing organization, and get out ahead with the retail trade I think you'll see a lot more visibility for our innovation as we go-forward. I have a lot of confidence in that. And it was actually a very exciting day seeing some of the products that are being developed as we speak. In terms of our strategy itself which we will unveil in August, the work itself will come out of work that we're doing with consumers cross North America. And I, and Deborah, and others on the Revlon brand team have been doing a tremendous amount of research with consumers over the last 45 days. We've been doing in-home interviews, and we've all personally been involved in this process. What we find from talking to women, and this won't surprise certainly the heavy cosmetics users among the investment community that are listening, that the cosmetics category is probably the most involved, consumer involved category that I've seen since I've been in the business of helping to grow consumer products brand. There's tremendous engagement. There's tremendous interest in the category. There's enthusiasm, and there's fun around it. And I think we're going to have a lot to tap into as Revlon reestablishes its core brand positioning and really begins to reclaim its heritage as a power brand not only in North America, but I think around the world. So we've got a lot of - just like with our retail customers, with consumers I think we have a lot of rich territory that we can tap into to grow the brand.

All of that is going to be dependent on great execution in the marketplace, and that's an obvious focus of mine as we go-forward. So a lot of conversation with our employees. A lot of conversation with customers. A lot of conversation with consumers leading to the development of a strategy which is underway. We will work to expose that to you as we go-forward, and I think it's going to provide some very strong avenues for growth. Doug mentioned the Revlon Run/Walk, and you know, that might typically not be the kind of thing that a group of investors might be interested in hearing about on a first quarter earnings call. Particularly unusual probably coming from a Chief Financial Officer, I guess. But the reason that I think it was important to talk about that, because I was out there on the walk on Saturday in Manhattan, is that it was another great example for me of really the power of Revlon people, working together to pull-off an event like that.

And as I said, I think our customers want us to be successful, but we also have a group of employees who believe in these brands, and believe that as we get a marketing focus around Revlon, connect that to the trade, and as I've said earlier, block and tackle in terms of our execution, that we can and will create levels of profitable growth as we go-forward. Obvious from the numbers, we've got a lot of work to do, but at the same time I think we're beginning to paint a good picture in terms of our future as we go-forward.

So Laura and Doug, why don't we stop there. Maybe I'll host the Q&A, and we'll look forward to your questions.

Thank you. And at this time, we're ready for the question-and-answer portion of the call. CALLER INSTRUCTIONS.)

Our first question comes from Wendy Nicholson of Salomon Smith Barney.

Hi. My first question relates to your outlook for market share growth. I think you said for the full year it may be flat, but for the second quarter flat to down slightly. And I guess that surprises me that you're not more optimistic about looking for any market share increases given kind of the advertising campaign that had sort of been ramped-up over the past couple of months. A fair amount of new product activity, and all of the restocking and reshelving that's going on. Why don't you think that market shares will respond, you know, in a more positive way, sooner rather than later?

Okay, thanks. I've got it, Wendy. I'll take that one. I think there's a couple of things happening. I think implied in Doug's numbers, as he talks about market share being for the full year even with 2001, is the fact that that would call for increases in market share over the second half of the year. And as you look at the monthly numbers for 2001, and as we look forward to our marketing pressure in the second half of the year we do expect market share gains beginning really in the third quarter.

That's where our pressure in terms of marketing is greatest. You heard some of the new product activity that's coming out. The marketing, in terms of advertising spending, the pressure really begins more actively in the April, May timeframe, and will continue over the remainder of the year. We also have the benefit of the Her Wall remerchandising activity which is moving into the marketplace. And you know, we're doing call it a thousand doors a month in terms of remerchandising Her Wall.

So as you add it all up we are expecting gains over the second half of the year. But I think realistically some of those items, some of those actions points really begin to kick-in in the second half moving forward. And I think we have to reflect the reality of what we're seeing in the first half of the year, which would bring us back to even for the full year.

Got it. That's fair enough. And then just my second quick question, is it too early to get any read, I guess, from the Duane Reed execution with the new shelving? Are we still too early, or have you gotten any kind of weekly feedback in terms of how sales are looking there?

I don't think we have any data quite yet. When we did, you do know, or I think we've talked about the fact that as we did our testing going into the Her Wall implementation we overall there were some that were significantly higher, some that were less, and we were looking for five points of incremental growth from the introduction of Her Wall. We don't have any data from Duane Reed at this point in time, although I must tell you I remerchandised the store on Madison Avenue, and I go in every day to see how we're doing. And if it looks like we're getting a lot of activity off the wall.

Good, sounds good. Thank you very much.

That would be the anecdotal point of all anecdotal points, you know that?

Fair enough.

Next question.

Thank you. Our next question comes from George Chalhoub of Merrill Lynch.

Good morning. I'm going to focus on two questions. First, the returns are much higher than usual, or at least the trend that you set for the last three quarters in 2001. Second, the G&A expense, again, is higher than what was a 65 million flat rate, or a flat number in every quarter in the last three quarters in 2001. You know, after basically that came down due to the cost savings, but suddenly they came back up to the $71 million mark. And second, on the liquidity, Doug did I hear you right, that the liquidity at the end of April was 170 million?

Yeah.

Yes.

That's a decline of 60 million bucks in four months. Can you explain what's going on, please?

On liquidity, you know, as I said during the Bond Road Show, we have normal seasonal working capital swings of anywhere from 50 to 75, 80 million a year. So what you're seeing is a build of inventory and changes in working capital which start to reverse sometime in July. Okay, so we're basically right on plan in terms of liquidity and working capital needs, and stuff like that.

Let me now flip to returns. Which physical returns, you know, when we talk about returns allowances, et cetera, includes more than just physical returns. But to answer specifically, our physical returns in the first quarter of this year were slightly lower in the U.S. than the prior year. I'd say a million to two million a year. We are seeing an acceleration of returns in the first quarter of 2002 versus 2001 because the planogram resets were much earlier in 2002 than they were in 2001.

So to be - to simplify, a lot of these numbers reflect the actual physical returns, and so we had more physical returns in the first quarter because many of our retailers did their planogram resets earlier. When they do them earlier they take the discontinued items off the wall, and they send them in for return. We expect to see returns go down significantly versus the prior year in the third and fourth quarter.

But let's understand a little bit about SF. It sounds to me the returns were still lower in Q4, and if you had a timing shift from Q1 and to Q4, how come you're getting the benefits of the sales in Q4, but the bad higher returns coming in in Q1?

Okay, because just take an example of any retailer. If they want to reset their wall say in January with new products, they asked us to ship those new products in December of last year, the fourth quarter. So we shipped the new products in December, we reset the wall in January with goods that they received in December. And then they take the discontinued items off the wall in January. They basically put them in a truck and send them back to us, and we record them as physical returns. In the prior year we didn't ship as many goods in the fourth quarter, and those January resets were really in March, okay. So we didn't receive the returns until like say the second quarter.

Okay, so this kind of an MS match between the sales timing shift and the returns timing shift?

Right.

Okay. Now, this is a third question, but the last one. I don't want to take too long. The market share that you're guiding for for Q2 sounds to me a little bit too optimistic given that in April you have a significant decline of 1.8 percent year-over-year. This is already the third of the quarter behind us. You're down 1.8 percent year-over-year yet you're guiding to be, you know, flat to slightly down in Q2. Are you expecting some inflection point to happen in the last two months of the quarter?

One element - George, this is Jack. One element of that is just the timing of our marketing pressure, both our media weight, and the one product that Doug mentioned that's already in the marketplace which is lip glide which we'll be putting pressure behind beginning in May. And I would tell you that the product is doing very well. You know, it's obviously too early to call, but so far we're very, very pleased with what we're seeing with lip glide. Obviously, in a category where we've been losing meaningful share, but it's a question of our marketing weight and our marketing pressure building from May on. In fact, we're going to be advertising lip glide beginning the second week in May.

Right. I mean the only reason I'm asking, Jack, is the other folks are doing the same. And it might be, I think, maybe a little too optimistic to assume that you might pick-up a little bit at their expense. Because it sounds to me like they have beefed-up their brand support, as well. And I'm not exactly sure that you're going to be able to completely counter that, and be able to offset the market share decline in April with the market share increase in the last two months of the quarter. But I don't want to belabor the point. Thank you.

Yeah, George, we - just to be clear for everyone listening, we did say that we would be behind for the second quarter as a whole. In terms of market share.

Sure.

Our next question comes from William Jeffries [phonetic] of Credit Suisse.

Thank you. I was just wondering, you sort of recapped liquidity at 331 and 430. And I sort of missed, you said at March 31st, I believe you said you had 201 million in liquidity, and then you said comprised of 97.5 revolver availability, and 63 million in cash. And what's the other, you know, 40 million coming from there?

Doug, do you want to pick that up?

We have lines from affiliates of $40 million which we add into that.

Okay. And then - and you're saying, so, and then so 30 million in liquidity was burned in April, and you, in response to George's question was that all just change in inventory? Is that what's that's coming from?

Well, it's not just inventory, but it's normal seasonal changes in working capital. So as an example, just to give you a fact that might make it clear is as the returns come in, as I was talking to George's questions, they basically deduct those returns from our receivables. So we have this call it `very large deduction' in receivables in the February, March, April, May timeframe when the returns come in. Okay. And then that flips, and then the returns go significantly down May, June, for the rest of the year. So you have this kind of big seasonal swing just in receivables due to returns, as an example. Okay. Inventory is also building. So as a general matter we're building inventory, which has been the case with this company as long as I've been with it, and that reverses in the third and fourth quarter.

Okay, so that basically, the working capital peaks right around July?

Right.

And then starts decreasing after that?

Yup.

Okay. And also, just sort of looking in reference to the 210 to 220 EBITDA guidance, I understand you're going to be working off lower cost inventory now. But it looks like, you know, there's a $5 million unfavorable comparison in the first quarter. You've guided to a five to eight more in the second quarter, and then given how in 2001 it was 200 million of EBITDA, that's another 10 to 20 million. So it looks like you're expecting a 20 to 30 million favorable EBITDA comparison in the second half? And I'm wondering is that, I mean are you still really working off that much higher cost inventory? And when, sort of, you know, when is the benefit going to -- are we not seeing any gross margin benefit from the manufacturing consolidation now? Is there - if you could just help me understand the timing of that?

Well, just quickly. First, just to talk about the cost of sales. In the first quarter we saw improvement of 140 basis points. And you can see that, you know, that's partially due to product mix, but it's mainly due to the consolidation of the factories and the savings from that. Okay. But that's just a component of the increase, okay.

We expect, as Jack has said, much more marketing pressure is the word to use in the third and fourth quarter. The introduction of some new products that we didn't have last year in the second half, and we also had, which we discussed in the prior call, significant issues in Latin America and in international in the third and fourth quarter last year which we do not anticipate reoccurring in the third and fourth quarter of this year, and the largest of which was Argentina.

Okay.

That accounts for a portion of that swing.

Okay. I understand. And then in terms of brand support, you guided us lower for EBITDA compared to last year in the second quarter. And then does that, does brand supporting continue to support the brands more than last year as a percent of sales in the second half? Or is that going to sort of come down?

No, we will continue to increase our support over the latter half of the year. Particularly given that we're very pleased with the advertising messaging that we've got out there today which I think is beginning to take us in a good direction relative to the Revlon brand. So we're going to maintain strong pressure over the second half of the year.

Okay. Okay, thank you.

You're welcome.

Operator, can you please just remind people how to ask a question?

CALLER INSTRUCTIONS.)

And our next question comes from Walter Branson of Regimen Capital.

Thank you. I just have a couple of things. Do you have any guidance for us of year-end liquidity?

Doug, you want to focus on that?

No, we don't normally give guidance on liquidity just because there's so many factors, obviously. But what I'll promise you is in the Analysts Conference we'll go through that in detail. But we, just maybe I can answer it this way. We don't anticipate any liquidity issues at year-end, or for next year as an example.

Or for next year either? Okay. And my next question is do you track the linear square footage that your major customers devote to Revlon products? And if so, have there been any changes in the square footage that you see from those customers recently?

Larry, do you want to? Larry Aronsen [phonetic] who is, runs our North America sales and customer marketing function is in the room. And I think Larry is best-positioned to address that.

Yeah, I think absolutely we track it. Footage in the marketplace is very important to us. This year specifically we had what I'd call put 10 calls [phonetic]. There were places that we lost some space, and there were other places that we gained space. But there were no fundamental shifts in space allocation this year that were meaningful.

Okay. And my last question is can you give us a break-down of brand support included within cost of sales and sales, returns and allowances? For this year versus last year?

We've never broken-out, obviously for competitive reasons, exactly what's in brand support. Because then you talk about promotions and bogos [phonetic] and stuff like that. So we've never given each line item. If you look on the internet we had broken-out advertising and things like that. But, and we started giving brand support in the last call for the first time because of the difficulty of figuring it out. But we've never given the specific line items that make it up.

Okay, thank you.

I think there's one more question out there.

Thank you. And our next question comes from Shelly BenNathan of Bear Stearns.

Thank you, good morning. I have a few questions actually. First, following-up on the brand support, can you give us guidance about the percent of increase you're expecting in brand support this year versus last year? And how you expect to split it between new product, and existing products?

No, I don't think we'd be prepared to do that at this point in time, just really for competitive reasons. I think it's safe to say, though, that there has been kind of a rebalancing of support in 2002 where in the last couple of years, coming into this year, there was a very dramatic skewing of support to new. And products that were already on the wall got less support on a relative basis. We've really rebalanced that in a pretty significant way in 2002, in a way that I think makes more sense going forward.

Okay, good. And can you give us a little bit more information about the new product launches? Particularly the new over time lip color? When do you expect to have it on the shelf? How will the price points compare to out last and ColorStay? And will you need to reapply something? You said it's only in one piece, as opposed to two pieces like they have.

Okay.

Does it need to be applied during the day, or do you apply it once and it's good for eight hours? How does that work exactly?

Okay, Deborah, why don't you pick-up that one.

Hi, this is Deborah Leitman Yale. The over time, the ColorStay over time lip product is a particularly interesting product as we look at what's going on in the lip category. What makes this product unique to what's in the marketplace is that opposed to having two pieces, two individual tubes that you need to apply, it all comes in one tube. The color product itself is applied, and the sealer, if you will, if you think about it as having a lock to the lip color, the sealer which provides the shine and a lot of moisture is applied over the color. Color wears all day. The gloss can be reapplied to have maximum amounts of shine, but the color itself will last all day. Through meals, through virtually anything. And it is, you know, significantly better than other products of its kind because it gives much better moist feel, if you will, on the lips themselves. And it really is the next innovation from the product that frankly established the long-wearing lip category, you know, some five or six years ago.

Absolutely. So it'll be a double-wanded product with the same tube?

It's a double-ended wand, that's exactly right. Now, it's also the technology of a liquid-liquid technology that also allows for more specific application, and therefore, because these products, as you know, if you apply them incorrectly they're as difficult to remove as if you applied them correctly.

Right.

That liquid-to-liquid technology allows for more precise application on first application and on reapplying the gloss.

Okay, and how will the price points compare with the products out there right now?

It is comparable to the products are out in this particular category.

And when do you expect to have it on the shelf?

It is previewing in the fourth quarter of this year with HA [phonetic], and the full line of about 20 shades will be out early next year.

Okay, and so you expect that to help recapture a lot of the lost lip share category?

Absolutely, and it's part of an umbrella of the entire ColorStay franchise. The ColorStay over time and lash tints product that is also coming, those two products are the beginning of a reinvention of the ColorStay line, and really the next generation of this long wearing line of products that is an important franchise within the Revlon portfolio.

Great. And one final question, I guess, for Doug. It mentioned in the footnotes of the release that EBITDA as calculated in the press release, is different from the EBITDA calculated for the bank agreements. Is that just due to the severance payment? Or is there something else in there?

Well, it's a little bit of a complicated answer, but just to try and simplify it. The definition of EBITDA I think is two full pages, single-spaced in the bank agreement.

Okay.

But it includes and excludes a whole bunch of things, okay. As a general matter, probably 99 percent of the time, the bank credit agreement definition will have a higher EBITDA than what we're reporting today, because there are a lot of add-backs. Because the covenants, for instance, are on our CPC, and don't include the holding company Revlon, Inc. So, as an example, the expenses at Revlon, Inc. are added back to EBITDA, and there are various non-GAAP restructuring costs that are added back, as well as a general matter.

Okay, so in general you could say there's not a material difference, and the difference would be favorable? So you have more room under the covenants?

We have -- that's exactly right.

Okay, great. Thanks very much.

Okay. I think what I'll do is just wrap it up. I introduced Deborah, and -- but there is one more personnel matter that I would like to mention. You will be getting exposed to a new Investor Relations person here at Revlon, Maria Sceppguercio, who will come to us in the next week or 10 days. And Maria will pick-up where Laura left-off, and I know will do as Laura did a very good job representing Revlon, along with the rest of the leadership team. Maria will come to us after an 18-year career at Nabisco, and includes significant investor relations expertise. So I believe it'll be another positive addition to our leadership team, and I know you'll look forward to meeting her, and she, you.

So we've got a lot of work to do, we recognize that. The work is underway. I think we're working with a strong group of people here. Underlying that is a strong brand that is waiting to be restrengthened, and to create profitable growth, and do it in a great way through our retail partners.

So we'll look forward to talking with you more as we approach August, but certainly we'll outline very clearly the direction of this company at that point in time, and how I believe it will benefit those that are investing in our business.

So thank you for participating today. I appreciate it very much.