Revlon Inc (REV) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Revlon's fourth-quarter 2004 earnings conference call. At the request of Revlon, today's conference call is being recorded. If you have any objections you may disconnect at any time. I would now like to introduce your host leading today's meeting, Ms. Maria Sceppaguerico, Senior Vice President Investor Relations. Ma'am, you may begin.

Good morning, everyone. Early this morning we released our results for the fourth-quarter and the full-year 2004. If you haven't received a copy you can get one on our website at www.Revloninc.com. We also announced today our intention to refinance our 8 1/8% senior notes and our 9% senior notes, both of which you will recall are due in 2006. Security laws limit what we can say regarding this transaction to what is included in the press release issued this morning.

Turning to marketplace performance, unless otherwise noted, our discussion this morning of market share and retail consumption is of the U.S. mass-market according to ACNielsen, which excludes Wal-Mart and regional mass volume retail. This data is the aggregate of the drug channel, Target, Kmart, and food and combo stores, and represents approximately 70% of the Company's U.S. mass-market dollar volume.

For U.S. color cosmetics, which as you may recall represents about 70% of our U.S. portfolio or just under half of our worldwide business, the category according to ACNielsen was down about 2.5% in 2004, and off 4.3% in the fourth quarter. For the year the Revlon brand registered a share of 15.8%, which was down 60 basis points versus 2003. For the fourth quarter Revlon brand share was 15.4% versus 15.8% in the fourth quarter of 2003.

As we discussed earlier in the year, this performance continued to reflect less share contribution from new products this year versus last year as we transitioned to our new cross-functional new product development process and related go-to-market strategy during the year. Importantly, market share for existing Revlon products advanced solidly in 2004. For Almay, share for 2004 was 5.6% versus 5.8% in 2003. For the quarter, Almay share was up 10 basis points versus year ago to 5.5%.

Before I turn the call over to Jack Stahl, Revlon President and CEO, and Tom McGuire, Revlon Executive Vice President and CFO, I would like to remind you that our discussion this morning may include forward-looking statements, which are subject to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Information on potential factors that could affect the Company's results from time to time and cause them to differ materially from such forward-looking statements is set forth in the Company's filings with the SEC. The filings include our current annual report on Form 10-K for the year ended 2003, our annual report on Form 10-K for the year ended 2004, which we will be filing shortly with the SEC, 2004 quarterly reports on Form 10-Q, our current reports on form 8-K filed with the SEC during 2004 and 2005, and the press releases issued this morning.

Finally we may discuss certain non-GAAP financial measures on today's call including gross sales, adjusted EBITDA with and without growth plan charges and restructuring related expenses, and operating income without growth plan and restructuring related expenses. We define adjusted EBITDA as net earnings before interest, taxes, depreciation, amortization, gains or losses on foreign currency transactions, gains or losses on the sale of assets, gains or losses on the early extinguishment of debt, and miscellaneous expenses.

Attached to our press release is a reconciliation of adjusted EBITDA to the Company's most directly comparable GAAP measures, which are net earnings and cash flow from operating activities. Also provided in a table the accompanied the press release is a reconciliation of reported net sales to net sales excluding growth plan charges, as well as a reconciliation of both adjusted EBITDA adjusted EBITDA excluding restructuring and growth plan charges to net income and cash flow, and a reconciliation of operating income to operating income excluding restructuring and growth plan charges.

As a reminder our discussion this morning should not be copied or recorded. And with that I will hand it over to Jack.

Thank you, Maria, and good morning, everyone, and thanks for your participation, as always. With Tom and I is Stephanie Peponis, our Chief Marketing Officer. 2004 was a very important year for Revlon. We did achieve strong earnings performance. We dramatically strengthened our balance sheet with excellent investor support, and we paved the way for what we believe will be an exciting 2005 and longer-term future for Revlon, for our Company. So while we have a lot of work to do, let's take a look at what we've accomplished.

First we did consummate our debt for equity exchange offers and subsequent refinancings that dramatically strengthened our balance sheet during the course of 2004. We achieved an operating profit margin of 7.4% of net sales for the year, and we delivered adjusted EBITDA of $199 million, excluding $6 million of restructuring expenses, or $193 million after taking the effect of the restructuring expenses.

This improvement in profitability was accomplished through the successful implementation of our profit margin initiatives, which we refer to inside of our Company as our destination model initiatives, as well as various other productivity programs across the Company.

Importantly, we achieved this improvement in profitability while maintaining competitive levels of media support for 2004. We began to adjust our traditional approach to advertising to tap into the emotional connection our consumers have with this category. We also readied our 2005 new product lineup, where we created the first wave of new products that came out of our new cross-functional new product development process. Those products are now hitting the marketplace as we speak.

As part of this process we addressed the critical need to reposition several of our key franchises, which had been under-managed and under-supported for a decade or more; namely, Revlon Super Lustrous lipstick, Revlon Nail Enamel, and Revlon Age Defying. As well, we successfully sold in our extensive lineup of products for 2005 to our retailers; and we improved our internal process to enable us to launch our national advertising in the first quarter of 2005, much earlier than we have in years.

Our improvement in internal processes and capabilities also enabled us to meet the long lead-time requirements of our retail customers and achieve in 2005 what we call 360-degree marketing, where all of our marketing drivers are linked, from our product, our packaging, to our advertising, to our in-store presence.

We partnered with our retail customers to begin to address the need to change the game in mass-market color cosmetics. You will hear more about these actions as we continue to execute them in the marketplace, and we will give a couple of examples today. Internationally we made dramatic progress in both our profitability and in building our capabilities for the future. Finally we continued to improve our organizational effectiveness and furthered our initiatives to make Revlon a great place to work.

By way of a reminder, a couple of years ago we set out on a course intended to maximize long-term shareholder value by capitalizing on the strength of our brands. We were focused on doing this through, first, improved effectiveness of our marketing; second, increased investment spending where we believed it made long-term sense for our brands; and third, strengthened customer relationships across the world. We also made strengthening the capability of the Revlon organization a top priority, given its critical importance in our achieving sustainable success.

I'm happy to say we've made meaningful and measurable progress in each of these areas, while simultaneously dramatically improving our operating performance and level of EBITDA. We are pleased with our financial performance in 2004, and we will continue to aggressively work to improve our margin structure as we move ahead. Our destination model initiatives were an important driver of our financial results in 2004, and we expect them to be important in creating the resources necessary to step up our investment spending behind the business in 2005.

The timing of our actions will influence our financial results on a quarterly basis, which you'll need to consider as you think about our performance for this year. I understand it would be a lot easier for you if we were to provide quarterly guidance, but we must maintain the flexibility to take the right actions at the right time irrespective of the quarterly impact.

We did that in the first quarter of 2005 as we increased our branded support spending behind our new products, which we have tremendous confidence in, and began advertising earlier than at any time in our recent history. You will also remember that, as we previously discussed, 2004 did include benefits like licensing prepayments and international benefit plan adjustments, for example, which will also impact the quarterly performance comparisons. Finally as you think about 2005, you will also remember that the flow of our business is always impacted by the timing of our new product shipments; but we again expect the fourth quarter will continue to be a disproportionately large quarter for us again in 2005.

As we think about what we've accomplished, we recognize that we still have a tremendous amount of work to do. We believed in the resiliency of our brands and the power and untapped potential and value that can really be unleashed as these brands continue to be properly managed and supported. We are committed to taking the actions necessary to drive the business toward our objective of long-term profitable growth and value creation.

One of the examples of this is that in 2005 we made a strategic priority not only of new products but of balancing that with the repositioning of several of our large but under-supported established franchises, such as Age Defying face makeup. Restoring the health of our large franchises is very important to our long-term profitability and success.

In terms of the color cosmetics category in the mass-market channel, we are taking specific actions along with our customers to address the recent slowdown at mass. Our new products, our new advertising campaign, our efforts with our customers to improve the in-store shopping experience are exactly designed to attract shoppers to the category of mass. Specific examples where we're having significant success are our carded eye initiative, which proved to be very successful in the market, and what we are now doing in the eye category with Almay, which I believe we described to you late last year.

Specifically, our new Almay Intense i Color, which thus far in 2005 has been extremely well received in the market, takes the guesswork out of choosing the right eye products in the mass channel. In department stores a cosmetician works with a consumer to choose the right shades based on eye color. What we've done with Almay Intense i Color, and this is one example of actions we're taking to strengthen our business and the category, is created with specific collections consisting of an eyeliner, a mascara, and an eye shadow that work with particular eye shades. And we call this out at the point of purchase.

So if the consumer has blue eyes, for example, she would buy the collection for blue eyes, making it really easy for her to shop, and enabling us to sell all three complementary products. Clearly this initiative, we believe, is a smart tactical step in the right direction for Almay, where we are very focused on taking significant actions to accelerate growth. Both the Revlon carded eye initiative and the Almay Intense i Color launch are good examples of the many initiatives we have in place to begin to improve the shopping experience at mass for our consumers.

We also have great franchises in the United States outside of color cosmetics, which have been under-supported for many years. We have increased our focus and our resources against these other businesses, which include beauty tools, where as you may recall we have about a 25 share of a $270 million category; antiperspirants and deodorants, where we have a 6% share of an over $1 billion category; and hair color, where we have a 7 share of an over $1 billion category. Finally fragrance, which as a reminder, all of these collectively represent about 25% of our U.S. revenues. In 2004 we began to put energy around beauty tools, and this business has already increased share versus a year ago by almost 200 basis points during the course of 2004.

Our international business, which I mentioned is already benefiting from stronger leadership, improved organizational capabilities, and solid U.S. developed marketing programs, had another year of very solid performance. I believe that this business continues to offer us significant growth potential as we move forward, and it had a great 2004.

So we have taken and will continue to take what we believe are the right actions to drive revenue and earnings growth. Let me give you some quick highlights for the quarter before I turn it over to Tom.

Net sales were up 5% when we adjust for the growth plan provisions that benefited net sales in the fourth quarter of 2003. This growth was fueled by strong sell in of 2005 new products in the U.S. and to a lesser extent favorable foreign currency translation. Operating income was up 89% to $79 million when adjusted for restructuring related expenses in both 2004 and 2003. This performance drove operating margin as a percentage of net sales to 7.4% for the year versus 4.6% in 2003, which also excludes growth plan charges. Adjusted EBITDA on the same basis was $105 million in the quarter, versus $68 million in the fourth quarter of 2003.

Let me just say, to me, that the importance of our strong fourth-quarter performance is that it's just one indicator of what is possible and how this business can evolve over time. As Maria pointed out, our share was below year ago due to less contributions from new products in 2004, as we refined our go-to-market strategy last year. Importantly, share of existing products was strong; and this is an important element of improving our underlying profit model for the future. We are confident that as we reap the benefits, as our new cross-functional product development process kicks in, our overall share results will benefit. And I must tell you that early indications are that our first wave of new products introduced early this year is off to a good start. So, with that, I'll turn it over to Tom.

Thanks, Jack. Starting with gross sales for the quarter, gross sales advanced 9% versus year-ago to $463 million, with North America driving that growth. Net sales of $376 million were up 3% on a reported basis and up 5% excluding the impact of growth plan provisions that benefited net sales in the fourth quarter last year. The 5% growth was driven by North America, largely reflecting the strong sell-in in the U.S. of new products for 2005, as well as favorable foreign currency translation, which contributed about 2 points of growth in the quarter. Partially offsetting the strong shipment performance were higher ramp support sales incentives.

In North America, which includes the U.S. and Canada, net sales of $251 million advanced 1% on a reported basis and were up approximately 5% excluding growth plan provision that benefited net sales in the year-ago period. This growth reflected broad-based strength across the portfolio, driven by a double-digit increase in gross shipments, partially offset by lower licensing revenue and higher return allowances and discounts including higher brand support sales incentives.

In international net sales for the quarter advanced 6% to $127 million versus 120 million last year. This performance largely reflected favorable foreign currency translation and lower returns and allowances, including the impact of modest growth plan provisions in the year-ago period. Excluding the impact of favorable foreign currency translation and growth plan provisions in the year-ago period, international net sales in the quarter were up 1% versus year-ago.

Let me spend a few minutes on returns, which has been an area of focus for us. For the quarter as expected our returns provision was significantly lower than in the third quarter of this year, reflecting the timing of how we provide for returns associated with new products. As you will recall, we established a returns provision or accrual based on our estimate of the level of returns we expect to ultimately receive due to discontinued SKUs, or less than 100% sellthrough when we launch new products or ship promotional displays.

Versus last year's fourth quarter, our returns provision was higher due to our comparatively lower provision level in 2003, as we revised the large provisions we established at the end of 2002 based on our actual experience. As you may recall, our plan for 2004 did call for our returns provision for the year to be higher than in the 2003 season for that reason.

Given our stronger than planned new products program for 2005, coupled with less sellthrough on promotions in 2004, given the softer than expected category, as we indicated last quarter our returns provision for the year were in fact higher than planned. We continue to believe that our returns provision as a percentage of sales will improve over time as we continue to take the actions necessary to restore the health of our existing franchises and introduce fewer, bigger, better new products.

On the operations side we made very good progress during the quarter, with total cost of sales, including the brand support component, as a percentage of net sales decreasing over 200 basis points. This improvement was driven by lower factory cost of sales stemming from improved operations management and favorable product mix.

Turning to gross profit as a percentage of sales, gross profit improved approximately 240 basis points to 65.1% of sales due to the improved operations performance and despite lower licensing revenues. Total SG&A was down 11% versus year ago to $168 million in the quarter. This decline primarily reflected careful management of administrative expenses and discretionary spending, including the brand support component that impacted SG&A, as well as the absence in the fourth quarter of 2004 of approximately $5 million of growth plan charges that impacted the year-ago period.

Turning to profitability, the fourth quarter was a particularly strong one for us. Operating income, excluding restructuring related expenses in 2003 and 2004, and growth plan charges that we took last year, was $79 million, up approximately 89% versus 42 million in the first fourth quarter of 2003. Similarly, adjusted EBITDA on the same basis in the quarter was $105 million versus adjusted EBITDA of 68 million in the fourth quarter last year. This improvement reflected strong top-line growth and manufacturing efficiencies, partially offset by lower licensing revenues and higher returns allowances and discounts, including higher brand support sales incentives.

For the quarter -- and this is important to note -- total brand support was essentially even with a year ago. Clearly a strong quarter for us. For the first time in six years we generated positive earnings with net income in the fourth-quarter 2004 of $46 million or $0.12 per diluted share, compared with a net loss of 13 million, or a loss of $0.18 per diluted share in the fourth quarter of 2003. As you will recall we consummated debt for equity exchange offers in March 2004, which dramatically increased our share count, impacting the per-share comparisons versus year ago.

Before I move to discuss cash flow and liquidity, let me quickly recap the key numbers for the full year. Gross sales were $1.629 billion, up 3% versus 2003. Net sales of $1.297 billion were essentially even with the year-ago. Operating income excluding restructuring related expenses and growth plan charges in 2003 were $96 million, up 61% versus $59 million in 2003. Operating margin as a percentage of net sales was 7.4%, versus 4.6% in 2003. Again, both of those numbers exclude restructuring and growth plan charges. Our adjusted EBITDA on the same basis was 199 million, up 27% versus 157 million in 2003. Our adjusted EBITDA margin as a percentage of net sales advanced to 15.3% in 2004 versus 12% in 2003.

This strong close to 2004 benefited from slightly lower brand support for the year as we properly managed our discretionary spending in light of top-line and category trends throughout 2004. For perspective, brand support in 2004 was down only about 3% versus 2003, but up about 6% versus 2002. Importantly, we believe, as Jack indicated earlier, we maintained competitive media spending levels for the year.

Turning to cash flow, we generated cash from operating activities of $41 million in the quarter versus $18 million in the fourth quarter of 2003. For the full year cash flow used for operating activities was 88 million, versus cash flow used for operating activities of 166 million in 2003.

During the year we dispersed approximately $19 million associated with growth plan charges taken in 2002 and 2003. Capital expenditures in the quarter were 6.4 million versus 8.9 million in the fourth quarter last year. For the year, capital expenditures totaled $18.9 million versus 28.6 million in 2003. Permanent display spending in the quarter was $15.7 million, versus $16.1 million in the fourth quarter of 2003. For the year, permanent display spending was $56 million versus $72.9 million in 2003.

Cash restructuring spending, including executive severance, was $3.6 million in the quarter and $14.2 million for the full year. Cash interest in the quarter was $23 million. For the year, cash interest was $134 million versus $161 million in cash interest paid in 2003, largely reflecting the partial year benefit of the refinancing actions that we took in 2004.

The composition of our bank facility outstanding at December 31, 2004, was a term loan facility of $100 million and letters of credit issued but undrawn of $18 million. We had no borrowings under the $160 million multicurrency revolver or the $152 million commitment from McAndrews & Forbes. At the end of the quarter our unutilized borrowing capacity and unrestricted cash totaled approximately $379 million including approximately $85 million of unrestricted cash. With that I will hand it back to Jack.

Thanks, Tom. Before we throw it open to Q&A, I'd like to just make a few closing comments. We do believe that we are taking the right actions to drive growth and create long-term profitability and value, and that we are making significant progress. We also believe that reinvesting behind the business this year is the right decision for us at this stage of our turnaround process. And we have confidence that as we move forward we will unleash untapped value across our portfolio of great brands and our business. So, with that we would be happy to take your questions.

(OPERATOR INSTRUCTIONS) Bill Chappell of SunTrust.

A couple of questions. I guess first, if you could maybe give further commentary on kind of year-to-date January, February, what you're seeing both for the category and kind of any other commentary you can give around the impact of your new products. On the category have you seen any changes in the trends at mass? We have seen a little better same-store sales at Wal-Mart and other places. Are you seeing any pickup there?

Bill, I'll take that one. This is Jack. As we went into '05 we had a tremendous amount of confidence in our new product program, just as we did on the restaging activity of franchises like Age Defying. The early indicators are very positive. We have -- shelves began to be reset in mid-January at one of our largest retailers; we also have our new products on counter. Without being specific, because we normally don't provide interim volume reports, I can tell you with absolute certainty that these products as well as the restaged products, both, are doing very well in the marketplace across both the Revlon brand and the Almay brand.

What we said is -- and this is exactly what is happening -- that as the shelves were reset, and that process really continues out into the April, May time frame, really the May time frame, we would expect our results to benefit retailer by retailer. That is exactly what we are seeing. We think this will have a positive impact not only on our business but the category.

Second, just trying to understand I guess in terms of marketing and advertising; you said this would be stepped up in the first half of the year. Is it really a step up in this first quarter? I am just trying to understand how it blends, if you are looking at your spend throughout the year, how front-end loaded it will be.

Well, I think maybe the best way to read that is you saw us, if you were a TV watcher, you would have seen our advertising begin to air beginning the week of January 17. That is the earliest we've been on air by a factor of probably 45 to 45 days or so. So we did bring the advertising forward into the first quarter. That will not only help our consumption in the first quarter, but obviously does shift our spending pattern somewhat.

Now we think that makes sense, because as certain of our retailers move their resets up earlier it gives us the ability to drive sales off of greater physical availability in the store.

Finally, on the balance sheet, you might have mentioned this. Inventories and accounts receivable up a little bit faster than I expected. Is that just the new product sell-in? Also do you have a number what your NOLs are attributable to the Company going forward?

Tom, you want to pick that up?

I think you are right. The inventories are up a little bit, and that is relative to the new products that we're producing and shipping in. I think relative to the top line that we expect are in line.

With respect to the NOLs we will be issuing our 10-K in the next couple of days that will disclose that and update the number of NOLs that we've got for the Company. Again as in the past, because we broke consolidation with M&F in the first quarter of 2004, it would be our best estimate; and we will have to revise that once that entity files their tax returns later in 2005 when we can hone in on an actual number.

Great. Thanks, and great quarter.

Daryl Anow (ph), Prudential Equity Group.

On the media spending, we were looking at the CMR data and it suggested that in '04 total cosmetics media spending was up 7%; and you were down about 7%. I'm just trying to understand. I know you were confident in the '05 new products. Did you hold some money back, or is it you were just spending to the category?

Daryl, on our spending levels, the way we measure it is we did maintain our share of voice as compared to share of market in 2004. Overall we said that in 2003, if you took a look at the combination of the Revlon and Almay brands, that our share of voice compared to our share of market was about 0.9. That's up significantly from where we were in 2001. That number did not shift dramatically or meaningfully at all. In fact it maintained itself at about 0.9 between 2003 and 2004. So I haven't had the chance to validate that against the CMR numbers, but that is the analysis that we've done.

Looking into '05, I know in Q4 '04 you showed a strong 15% increase. As we look into '05 would we expect that 0.9 to shift higher?

I guess you would have to make a projection for our share of market in '05 to make a projection of that ratio. I guess I would say that we have committed to ourselves, and we have communicated to the investment community, that we are going to step up our investments in our brands in 2005. Because we have a very strong belief not only in our creative but also in our product flow for 2005, both the new products and the restaged products that we're bringing to the marketplace.

So if I said 50% increase, what would your reaction be to that?

That would be -- we are not going to provide a specific forecast there, obviously, for competitive reasons. That sounds like an awfully huge increase.

Just thought I'd ask. Just one other quick question. On the market share data, it seems like -- when would we expect the lipstick and nail market share trends to improve?

I think that would depend on a lot of factors, all of which include our advertising campaign, the product that we're bringing to the marketplace. You know, our Super Lustrous lipstick, for example, is one of the examples of a restaged product in 2005, where we have created beautiful, elegant packaging where you can actually see the shade without having to open the package, as an example. It's much more upscale and it's consistent with the look across our line now.

We are also bringing Almay's Truly Lasting lip color to the marketplace, which is already on shelf. That's a new product. And we're restaging our core nail product. All of those things will flow into the marketplace as the year progresses because a couple of these are restages. So without making a forecast of share, these will have an increasing benefit as the year would move on.

Finally, in eye and face make up there seems to be some stabilization in the shares. Is there anything in particular that is driving that?

Stephanie, you want to pick that up?

Let me just build on the core nail and Super Lustrous question. Core nail is a second half phase-in for us. So core nail enamel for Revlon will be fully in the marketplace starting in the summer and beyond, whereas Super Lustrous and over time Sheers in lip are coming in in the first half. So if you think about the business, that is the timing.

On eye and face, on face the key driver for us is the restage of the Age Defying franchise, with Botafirm as well as the addition of Lite makeup, which is performing very strongly in the marketplace and clearly meeting a specific consumer need. The eye franchise, carded eye continues to drive our numbers. In addition we launched Fabulash mascara as well as 12-hour ColorStay eye shadow in quads and singles. Both are performing strongly in the marketplace.

Thank you very much.

Tom wants to add something.

I am actually going to add to what we were talking to Bill Chappell about. Bill, I just grabbed some data for you. An update on the estimate that we expect to put in our 10-K on the NOLs is about $410 million. You will have all the details around that in the 10-K in the next couple of days.

Bob Labick, CJS Securities.

Congratulations on the quarter.

Thank you. We are very pleased with our progress.

Great. One question. I think Tom mentioned on the gross margin improvement, it was a result of better factory cost of goods and also mix. I was just wondering, will this be sustainable into next year? Or are there other factors we should consider for cost of goods next year?

Tom, do you want to pick that up?

Sure. With respect to cost of goods, an important factor in that is the progress that we have made in our margin initiative. As we originally talked about, we expect that over a number of years we should be able to improve our COGS on a substantial basis by perhaps as much as 3 margin points.

We have made progress in the initiatives around package rationalization, how we source materials, value analysis that we do. So we believe that the progress that we've made in those areas is certainly sustainable and will benefit COGS going forward.

With respect to mix that, obviously, will move with the market and as orders replace. But the improvements that we've made in COGS as a result of the initiatives are sustainable, as we think all the margin improvements that we make will be. So going forward that is a keeper.

Great. One other question. Jack, I know you mentioned the Almay Intense i Color example and the carded eye example. But are there other? We have talked about in the past some other growth initiatives, including Revlon Express (ph) and the retail beauty advisers; and then moving carded eye to an entire carded wall, or at least in that direction. Could you update us on those initiatives?

Stephanie, do you want to pick that up?

Sure. In terms of your last question on carding, given the success of carded eyes, we look to continue launching new products into the marketplace. We are evaluating on a regular basis what the right merchandising approach is, trade versus carded. You will continue to see us evaluate that. We do have an in-market test on that initiative, in looking at how far and what particular products best benefit from a carded merchandising approach. We continue to evaluate that as we introduce new products.

In terms of beauty advisers we are partnering very closely with our retailers' beauty adviser programs. We view that as a key asset in the marketplace and have teamed very affectively with some of our key retailers to drive that. You mentioned Intense i; that is one of those products that sells very well by itself as well as with the advice of a beauty adviser.

Great. Then Revlon Express?

Revlon Express, which you will remember was a merchandising unit that allowed us to sell-in in a cost-effective way into smaller footprints and into the food channel specifically, where we have had under-index share, that has been tremendously successful for us in gaining new points of distribution in 2004.

That is a great example of where we can leverage our existing business platform and distribution system to get to a channel where, as Stephanie said, we are under shared. We probably have 50% less share in the food channel than we do in the overall business for Revlon, as an example. It's a great opportunity for us.

Great, thank you very much.

George Chalhoub of Deutsche Bank.

On the marketing expense, Tom, you mentioned that there -- I'm sorry; brand support. You mentioned they were down 3%. Did you mention that is because you became more efficient? I.e., you got kind of the same bang for lower buck, in terms of brand support in 2004? Or was it down in 3% in dollars versus '03? I want to understand that distinction.

Good question, George. We did get some efficiencies both in terms of what we pay third parties and then our actual cost of buying some of our marketing properties, media and so on and so forth, advertising production. But in fact we did have what we think is a relatively minor decrease in our brand support on the year.

A couple percentage points we think was very reasonable. We did it in a way that was controlled, so that we would maintain, for example, relatively our same share of voice, share of market in the U.S.; while at the same time we could invest behind some customer supported brand programs. We feel very good about how we invested the money in 2004 given the market conditions.

The increase in 2005, you mentioned it seems to be you're planning on having it broad-based including some of the non-cosmetics area. When we're talking about the increase, is it almost the same increase across the board? I'm trying to get to the point to understand if the increase you are going to have in '05 is going to be more than you had anticipated, because now you're supporting more brands or more SKUs or more franchises than you had in '04.

Tom, you want to pick that up?

George, as we continue to broaden the portfolio that we're making money on, you will see our marketing investment spreading out a little bit broader over the portfolio. At the same time we're becoming more and more focused on what we support. So in fact our dollars spent behind particular brands is becoming more concentrated. So we're going to cover the breadth of our portfolio, while at the same time concentrating dollars where we've got strength.

Two more very quick questions. Can we get for fiscal '05 -- you have done this for us almost every year -- what do you think the cash outflows would be? Kind of the target for permanent display spending, cash interest, and any potential cash charges?

The second question is, you still have obviously the rights offering, the (indiscernible) of 110 which obviously expires in March of 06. Now that you've planned on refinancing the senior notes, which should be pricing in a few days, where do you see the sweet spot of applying this $100 million in capital structure to, for debt reduction purposes? If you have that kind of gauged already.

I will go ahead and start with the 110, which as you know we will do an equity offering of some sort before the end of March 2006. The proceeds of that offering will have to be, and they're committed to be by agreement, used to pay down debt. It's up to us as to exactly which debt tranche we pay down. So we've not made a decision on that yet. With respect to the timing on that offering, we will track market conditions and all of the right factors to make a determination as to when we execute that offering, between now and the end of March 2006.

As far as cash flows go, although we are not going to give specific guidance in the year, I can give you some way of thinking about that. With respect to interest, on a partial year impact of the refinancing and restructuring activities we executed in 2004, our tax interest went down $44 million. So we spent $44 million less. I would expect, and I think depending that that number is -- benefits us even greater in 2005.

You would have to make some assumptions about precisely what capital structure we will have in place at what time during the year, what your assumptions are on interest rate. But the fact that we only benefited from a partial year and interest decreased by $44 million will be the right direction to go.

We haven't changed our view on what it takes to run the business in terms of spending behind CapEx and displays. In 2004 we spent under $20 million on CapEx. That's a little bit less than I would have expected to pay, but -- to spend, but there were a few programs that we just had in progress and didn't get fully executed. So we saved a little bit there in terms of cash outflow. The numbers that we will put in our K are pretty consistent with what we've always talked about. It takes 20 to $25 million in capital spending to run the business.

Displays? Again, display spending was at 56 million for 2004, down from 72, as we completed the installation of the Her wall. That investment in the K will be consistent. We will talk about spending going forward being in the range of 50 to $60 million a year. We would expect that with our continued implementation of things like carded products that, overall, our cost of the wall comes down.

When we have things such as customers consolidating and we have to square up a certain kind of wall in a certain chain, that sort of thing, we will obviously have to spend a little bit more in that area. So I think the prudent range of 50 to $60 million is the right kind of number to work with.

Are there any cash sources left, Tom, or is it gone by now?

Everything is gone in 2004. The only charge that we had -- and the only thing that you see us adding back to try to be comparative on EBITDA -- are the $6 million in restructuring. That is primarily severance. That money will obviously pay out during periods beyond 2004. But there are no other charges of any nature planned at this point.

Thank you.

(OPERATOR INSTRUCTIONS) Karen Miller of Bear Stearns.

Could you talk a little bit about pricing? You're introducing new products and you're upgrading existing products. Has that raised your average price point?

Stephanie, do you want to speak to that?

Sure. Hi, Karen. In terms of overall pricing strategy and implementation in the marketplace, we are fairly on par with where we were in 2004. As we introduce new products, we price them to the consumer benefit that they are delivering, and both of our brands are premium in the mass marketplace and consistent with that positioning. So overall, the mix of the business, some of the products may be shifting around, but the overall mix is consistent with where we've been historically.

Are there any plans to raise prices? I know when you had your restructuring, you raised some prices and you decreased some prices. Any major pricing strategies for '05?

Not at this time. Again, as we introduce new products, we price appropriate for the consumer benefit we deliver, which can be a fairly broad range of numbers.

Okay, thanks.

Bill Chappell of SunTrust.

Just a follow-up, and maybe this is for you, Stephanie. I guess this time last year, you were able to talk about potential market share gains and new product launches kind of for the following year. When will we start to see that for '06? When do you start showing it to the trade and have an idea of additional shelf space and what have you?

As Jack mentioned, the trade works against nine-month lead times, so to be in the marketplace in the first quarter of 2006, we begin to share new products with our key customers during the summertime period as they go into line reviews and make space decisions into Q3 of the year. So between Q2 and Q3, we begin to have the process of getting feedback on our new product introductions, as well as going through our product assortment line by line.

Also on the competitive landscape, was there anything different that you saw from your competitors in new product launches for this first quarter?

What we've seen from our competitors is a strong set of new product introductions, in a couple of instances building off of entries last year, particularly in the face area. To date, we haven't seen anything that is markedly different in strategy from where our key competitors have been in the past, but it looks like a fairly robust year in terms of new product introductions for the category.

Thank you.

Daryl Anow of Prudential Equity Group.

I think it was on Black Friday, you did a pretty big deep discount promotion with Super Lustrous at one of your major customers that had some pretty big volume increases. I was just trying to understand what that promotion was about. Was it just trying to clear the shelves of the old packaging, and did that have a big impact on sales in December?

Daryl, this is Jack. We did drive Super Lustrous with an aggressive promotion with a particular retailer, at the retailer's desire and request. It did work for us effectively. I don't think the impact of that would have skewed our results in any fashion at all. I think it is, though, a smart strategy in one sense, that one of the profit margin initiatives that we talked about for the future is managing our returns liability.

We're getting a lot smarter about, as we anticipate changing a product or restaging a product in the marketplace, we're very conscious of looking at retailer inventories to sell down product, so it doesn't create a returns liability for us as we go forward. We're looking out really 12 months ahead to do a better job with managing that exposure. But no, it did not have a significant effect on our results during the quarter.

Just one final question, in terms of reporting days, is this quarter just late because it is year end, or is this where you would expect going forward to report in your quarters?

Your question is were we late in our reporting or we can expect that going forward (multiple speakers) year end? Tom?

The quarter, obviously, we have been working on a lot of things. We have announced a refinancing. We've been working on our own stock's worth, which we have been very successful at, so far. So we have just had a lot of things going on. We are an accelerated filer at this point, so we will, as everyone else will be over the coming years, tightening down on our reporting deadlines. But just a lot of work going on at one concentrated period of time.

Thank you very much.

Maybe I can make just a couple of closing comments. First of all I appreciate your participation on the call. We are very pleased with our progress. I think 2004 is an important milestone for our Company. I will tell you that we are going to consistently continue to execute our strategy as we go forward. We are going to continue to do what's right for the business in terms of necessary investment. Why? Because these brands have tremendous value and we're starting to unlock the value of these brands not only in color cosmetics but across other categories where we have a stake already.

So we feel good about what we're doing, we are going to continue to execute, and as always we look forward to keeping you posted on our progress. Thank you again for your participation today.

Thank you for attending today's conference call and have a nice day.