Revlon Inc (REV) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's Second Quarter 2008 Conference Call. At the request of Revlon, today's conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the call over to Ms. Abbe Goldstein, Revlon's Senior Vice President Investor Relations and Corporate Communications. You may begin, Ms. Goldstein.

Thank you and good morning everyone and thank you for joining our call.

Earlier this morning we released our results for the second quarter 2008. If you have not already received a copy of the earnings release, you can obtain one at our website at www.revloninc.com.

Here with me today are David Kennedy, President and Chief Executive Officer, and Alan Ennis, Executive Vice President and Chief Financial Officer. On today's call, David will briefly highlight the second quarter results and provide a strategic update on the business. Alan will then review our financial results for the quarter in detail.

Before we get started, I would like to remind everyone that our discussion this morning might include forward-looking statements that are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Information on factors that could affect the Company's results from time to time and cause them to differ materially from such forward-looking statements set forth in the Company's filings with the SEC including our 2007 Form 10K and our second quarter 2008 10Q, which we expect to file today.

Our remarks today will include a discussion of adjusted EBITDA which is a non-GAAP measure that is defined in the footnotes to the release issued this morning and is reconciled to net income, the most directly comparable GAAP measure in the accompanying financial tables. In relation to US share results, unless otherwise noted, our discussion this morning of mass retail share and consumption data is that of U.S. mass retail dollar volume according to ACNielsen which excludes Wal-Mart as well as regional mass volume retailers, prestige, department stores, Internet, door-to-door, television shopping, perfumeries and specialty stores, all of which are outlets for cosmetic sales. The ACNielsen data is an aggregate of the drug channel, Target, Kmart, and food and combo stores, and represents approximately two-thirds of the Company's U.S. mass retail dollar volume.

And finally, as a reminder, our discussion this morning should not be copied or recorded. With that, I would now like to hand it over to David.

Thank you, Abbe, and good morning everyone.

First, I would like to briefly review our financial results for the second quarter 2008 compared to last year. Net sales increased 7.8% to $376.4 million, compared to $349.2 million in the prior period. Operating income increased to $59.4 million from $16.9 million. Net income improved to $19.9 million or $0.04 per fully diluted share compared to a net loss of $11.3 million or $0.02 per share. And, adjusted EBITDA was $81.7 million compared to $42.0 million last year.

Later in the call, Alan will review the financial results for the second quarter in detail.

Let me now make a few comments on the implementation of our strategy. As we have stated, our foremost priority is building and leveraging our strong brands, particularly the Revlon brand.

We continue to be intensely focused on what we believe to be the key drivers to further build our brands. These are -

Innovative high-quality consumer preferred new products,

Effective integrated brand communication,

Competitive levels of advertising and promotion, and

Superb execution with our retail partners.

During the first half of 2008, we began seeing positive results from accelerated new product development. Our Revlon and Almay brand product launches are being well received by consumers. In fact, in June we saw improved mass retail share results for the Revlon brand in the U.S.

As we have said, we have a more extensive lineup of new color cosmetic products in the second half of 2008 compared to the second half of 2007. Specifically, under the Revlon brand we will be introducing about twice the number of color cosmetics SKUs in the second half of 2008 as we did in the second half of last year. It is important to note that, as we have done with our new product launches to date this year, we intend to support this extensive lineup with competitive levels of brand support throughout the second half of this year.

Further, we continue to make excellent progress on our three-year, rolling new product portfolio plans for all of our brands. We are in various stages of development for new products to be launched over the next few years, with the 2009 lineup complete and substantial progress made on expected new product introductions for 2010 and 2011.

We continue to make solid improvement in developing effective integrated brand communication, including more effective advertising. We believe our ads are highly relevant and consistent, and the use of our brand ambassadors helps achieve breakthrough messaging and imagery.

We have continued to strengthen our brand ambassador lineup with the recent signing of Jennifer Connelly to represent the Revlon Brand and Leslie Bibb to represent the Almay brand. Jennifer joins Halle Berry, Elle Macpherson, Jessica Alba and Beau Garrett representing the Revlon brand globally, and Leslie joins Elaine Irwin-Mellencamp and Marina Theiss representing the Almay brand globally.

We continue to maintain positive relationships and open dialogue with all of our customers and, with them, are focused on implementing plans that will grow the categories in which we participate.

In addition, along with our retail customers, we are focused on providing a positive in-store experience for our consumers with competitive promotions and clear, consistent and effective messages.

Our international business is sound and continues to grow profitably, as we leverage our worldwide capabilities and implement our global brand strategies and plans. Our international operating profits and operating margins in each region continued to improve in the second quarter compared to the same period last year.

Finally, we remain focused on controlling our costs and driving efficiencies throughout our organization, and these actions continue to positively impact our margins and cash flows.

We demonstrated continued progress in the first half of the year and are realizing the benefits of executing our strategy. We believe that our focus on implementing this strategy is generating and, we believe will continue to generate, sustainable, profitable sales growth and positive free cash flow.

So, with that, let me hand it over to Alan who will take you through the financial results for the second quarter in detail.

Thank you, David, and thank you, Abbe, and good morning everyone.

As we normally do, I would like to build upon David's introductory financial comments and take you through a more detailed review of the financial results.

So, starting with the P&L for the second quarter of 2008. Net sales of $376.4 million increased 7.8% compared to $349.2 million in the second quarter of last year. Excluding the favorable impact of foreign currency fluctuations, net sales increased by 5.5% versus year-ago.

In the United States, net sales increased by 6.0% to $216.4 million compared to $204.2 million in the second quarter of 2007. Importantly, the primary driver of the second quarter net sales growth was higher shipments of Revlon color cosmetics, largely due to 2008 new product launches, including initial shipments from our more extensive second half 2008 new product lineup.

In our international operations, net sales increased by 10.3% to $160.0 million compared to $145.0 million in the year-ago quarter. Excluding the favorable impact of foreign currency fluctuations, international net sales increased by 4.8% compared to the same period last year reflecting, again, primarily higher shipments of Revlon color cosmetics products launched in 2008. Each of the Company's international regions, namely, Asia Pacific, Europe, and Latin America, experienced net sales growth and margin expansion in the second quarter of 2008 compared to the year-ago quarter.

In our Asia Pacific region, which is comprised of Asia Pacific and Africa, net sales increased 8.8% to $66.6 million compared to $61.2 million in the second quarter last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Asia Pacific grew 5.2% primarily due to higher shipments of Revlon color cosmetics in China and Australia, and in our duty free businesses, as well as higher shipments of beauty care products in South Africa.

In our Europe region, which is comprised of Europe, Canada and the Middle East, net sales increased 12.4% to $57.2 million, compared to $50.9 million in the second quarter last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Europe grew 4.7% primarily due to higher shipments of Revlon color cosmetics in Canada.

In our Latin America Region, which is comprised of Mexico, Central America, and South America, net sales grew by 10.0% to $36.2 million compared to $32.9 million in the second quarter last year. Excluding the favorable impact of foreign currency fluctuations, net sales in Latin America grew 4.0%, primarily driven by higher shipments of both Revlon color cosmetics and beauty care products in Argentina and Venezuela, partially offset by lower shipments in certain distributor markets compared with the same period last year.

Moving down the rest of the P&L for Revlon, Inc. In terms of gross margin, in the second quarter 2008 our gross margin improved by 210 basis points to 65.5% from 63.4% in the second quarter last year primarily driven by favorable changes in sales mix and lower returns and allowances.

SG&A expenses of $192.4 million improved by $10.0 million or 4.9% from $202.4 million last year. The second quarter of 2007 included significant brand support expenses related to the launch of Revlon Colorist hair color, which was the primary driver of the improvement in SG&A, year-over-year.

Operating income for the second quarter 2008 was $59.4 million, representing an OI margin of 15.8%, compared to $16.9 million and an OI margin of 4.8% in the same quarter last year.

Operating income, adjusted EBITDA and net income in the second quarter 2008 include a net gain of $5.9 million, $6.0 million and $4.9 million, respectively, related to the sale of a facility in Mexico. The expected full year impact of the sale of the facility in Mexico on operating income, adjusted EBITDA and net income will be a net gain of $4.3 million, $4.9 million, and $3.5 million, respectively, after recording restructuring and other related charges in the second half of this year.

Interest expense for the quarter was $30.8 million, an improvement from $33.6 million last year due primarily to lower average borrowing rates on comparable average debt levels.

Net income was $19.9 million or $0.04 per fully diluted share, compared to a net loss of $11.3 million or a loss of $0.02 per share in the second quarter of last year.

Adjusted EBITDA was $81.7 million compared to adjusted EBITDA of $42.0 million in the same period last year.

Moving on to mass retail share. In the U.S., according to ACNeilsen, the color cosmetics category grew 4.4% in the second quarter 2008 compared to the same period last year.

The Revlon brand continued to maintain an approximate 13% dollar share in the second quarter 2008 in line with its quarterly performance since the fourth quarter of 2006.

Importantly, Revlon brand mass retail share for the month of June 2008 was 14.0%, up half a point compared to June 2007 and up 1.5 points compared to May 2008 reflecting new product performance, effective brand communication and competitive levels of brand support.

As of June 2008, products launched in the first half of 2008 are substantially in full distribution. Two products from this launch, Revlon Custom Creations foundation and Revlon ColorStay Mineral foundation, continue to be ranked in the ACNeilsen top ten new products, by retail dollar sales, through June 2008.

In the second quarter 2008, Almay continued to maintain an approximate 6% dollar share, in line with its quarterly performance since the fourth quarter of 2006. Almay's positive performance in the face category was driven primarily by Almay TLC foundation and Almay Smart Shade blush and bronzer, which were launched in the first half of 2008 and the second half of 2007, respectively.

The women's hair color category declined by 0.4 of a point in the second quarter of 2008 compared to the same period last year. Revlon ColorSilk reported a 7.9% dollar share in the second quarter, up 0.2 of a point compared to the year ago period with dollar volume up 2.8% versus a year ago.

In antiperspirants and deodorants, the category increased by 2.5% in the second quarter 2008 compared to the same period last year. In the quarter, Mitchum continued to maintain an approximate 5% dollar share, in line with its quarterly performance since the third quarter of 2007.

The beauty tools category expanded over 36% in the second quarter 2008, which is significantly higher than the historical growth rate for the category. This unusual category growth was driven by a single pedicure product introduction from a non-traditional beauty tools category participant. Dollar volume of Revlon beauty tools, as measured by ACNielsen, grew approximately 2% in the second quarter of 2008 and was the only branded beauty tools participant to grow consumption during the quarter. Excluding this non-traditional single pedicure product, Revlon dollar share in the second quarter would have increased by 0.8 points to 24.7%.

In the second quarter, we continued to support our brands worldwide with comparable dollar spending versus the same quarter of last year, excluding the brand support in the second quarter of 2007 related to the launch of Revlon Colorist hair color.

Moving on to cash flows. Cash flow provided by operating activities in the first six months of 2008 was $22.9 million, compared to cash used by operating activities of $33 million in the same period last year, resulting in an improvement of $55.9 million.

As I indicated on our call with you in May, while we are not providing specific guidance for adjusted EBITDA for 2008, we did give you information to assist you in understanding the factors that will impact our expected full year 2008 cash flows. I would like to reiterate that information, which is unchanged from the information provided to you during our May call, excluding the impact of the net proceeds from the Brazil transaction, which I will discuss in a moment.

Capital expenditures are expected to be approximately $25 million for the full year. Permanent display expenditures are expected to be approximately $50 million. With respect to interest; in 2007 interest paid was $137.6 million. Our total debt remains at approximately $1.4 billion, approximately 60% of which is currently at fixed interest rates and approximately 40% of which is at floating interest rates, mostly at LIBOR plus 400 basis points. Taxes are expected to be approximately $20 million and, finally, all other cash flows, including changes in working capital, are anticipated to result in cash usage of approximately $15 million.

Therefore, you can reach your own conclusion about the expected full year 2008 cash flow based on these factors, collectively, in conjunction with your own expectations for adjusted EBITDA.

In terms of borrowing capacity, our unutilized borrowing capacity and cash as of June 30, 2008 was $161.3 million, comprising $138.8 million available under the revolving multi-currency facility, and $22.5 million of cash and cash equivalents.

As previously announced, we intend to effect the 1-for-10 reverse stock split of our Class A and Class B common stock sometime in the third quarter of 2008. In accordance with the NYSE standards, we have six months from April 11, 2008 to bring the share price of our Class A common stock and its 30-day trading average closing price to at least $1.00.

Earlier this week, we completed the sale of our non-core Bozzano brand, a leading men's hair care and shaving line of products, and certain other non-core brands which are sold only in the Brazilian market. The transaction was effected through the sale of our Brazilian subsidiary to Hypermarcas, a Brazilian diversified consumer products corporation. The purchase price was approximately $104 million in cash, plus about $3 million cash on the Brazilian subsidiary's balance sheet. We expect net proceeds after the payment of taxes and transaction costs to be approximately $94 million. We are currently evaluating the most appropriate use of the net proceeds from this transaction.

In the results for the third quarter of 2008, we expect to record a one-time gain from this transaction of approximately $50 million. We expect that the Brazilian subsidiary's net sales, operating income and adjusted EBITDA would not be material to the ongoing financial results of Revlon, Inc.

Importantly, Revlon brand color cosmetics will continue to be marketed in Brazil through our current third party distributor.

As we said in our press release about this transaction, our business strategy is to build and leverage our strong brands worldwide, particularly the Revlon brand, and we remain committed to continuing to grow our business internationally. This transaction presented Revlon with an opportunity to monetize a non-core, non-strategic brand at a very attractive multiple while enabling us to remain focused on building our core brands around the world.

With that, we would now like to open up the call for your questions. Operator, you may begin.

(Operator Instructions) We'll pause for just a moment to compile the Q&A roster. Our first question comes from Bill Chappell of SunTrust.

Good morning.

Hey, good morning, Bill.

I guess, maybe, just looking at the back half of the year, can you give us a little more detail of how that kind of compares in terms of product launches versus the first half? I mean is it kind of a 60/40, a 50/50? And then, more just in terms of looking to 2009, is there expected to be another kind of big -- I mean in terms of product return accruals to get ready for a fourth quarter sell-in or will that kind of carry over and will you see the new products sell-in for '09 carrying over between fourth quarter and first quarter of next year?

Well, we'll start out by talking about the back half, Bill, because for the back half of '08 we have actually indicated we're going to have a more extensive product lineup, product launches, introductions than we had in the back end of '07. And, as is usually the case, we'll have a more extensive introduction in the first half of the year, in the U.S., it certainly differs around the world in terms of timing of the introductions of the launches, than we would have in the back half of the year.

As far as the out years are concerned, what we would say about that is we will continue to focus on having competitive introductions or levels of introductions of new products. As I indicated in my remarks, we're very focused on having a rolling three-year product, new product plan, and being out in front at all times in terms of trends, fashion, et cetera. So we feel good about where we are in terms of that three-year product plan at the present time.

Yeah. I guess my question was more -- do you see any difference in terms of accruals in the third, fourth quarter versus last year?

Well we're not going to call out any accruals. We can just say that we follow GAAP, we accrue for returns, based on our estimates. And a driver of those estimates are the products that we plan to replace or discontinue.

Got it.

I think two points, Bill, if I could add. As David mentioned, the second half of this year, we do have a much more extensive new product introduction compared to the second half of last year and we intend to support that extensive new product lineup with competitive levels of brand support throughout the balance of this year.

The second point in relation to returns, over the last number of years, we've gotten a lot better managing returns. We've implemented a number of processes internally to improve our stop-ship date so that the returns expense and accruals going forward should continue to improve.

Got it. And then just looking again, longer-term. I mean I know a lot of the focus the past 12 - 18 months has been on the core Revlon brand, just to stabilize that. But have you looked to Almay and also to Beauty Tools? I understand that there's a competitive product out there in the market affecting Beauty Tools. But do you see share growth as we move into 2009 and beyond or is it -- the focus is still on the Revlon brand and hold on the status quo for Almay?

Well our focus is on all of our key strong brands including Almay, including our participation in our business in Beauty Tools, Bill. So we are focused on all those brands. Bozzano, we were focused on the Bozzano brand because we thought it was a strong local brand and it was. And we were able, in effect, to monetize the value of that brand and that business. So, I think we're pretty clear about the categories that we're participating in and the brands that we're focused on.

I guess the question is, do you see any stepped up marketing support behind Almay going into next year?

Well, I wouldn't want to call that. We said that we're going to have a competitive lineup of new products and we're going to support all of our brands with appropriate levels of competitive brand support.

One additional point, Bill, if I can. David referred to the portfolio plan, the three-year rolling portfolio plans. They relate to all of our key brands. We're putting together extensive portfolio plans across our entire brand portfolio, not just the Revlon brand.

Got it. Okay. Great. Thanks.

Sure.

Our next question comes from the line of Carla Casella from J.P. Morgan.

Hi. I'm wondering if you can talk to the share gains in June. Do you think you're seeing that continue in July?

Well we haven't seen the month of July yet. We haven't seen those numbers. I think what's important about the June share gains, in the U.S., in the Nielsen channels, is that our new product launches in the first half of 2008, really gained 100% of distribution in the U.S. So we've really started to see the results from those new products as well as our very effective brand support, including our advertising.

And then, the second half launches, the timing, will we see that sell-in -- all in the third quarter or does some of that trail into the fourth quarter?

In terms of the sell-in, Carla, we started to ship second half '08 in May. And you'll see shipments in May, June, July and probably trickle into August, again depending on the retailers. So, as is the case, the shipments start earlier, obviously, before the consumption. So, for example, first half '09 shipments will start to ship in the November-December time frame.

Okay. Great. And there's just one last question, also in relation to your products. How would you say the brand support for these compares to, like, the Colorist campaign from last year? Is this much larger because it's a lot more products or can you be more efficient with the advertising dollars?

We believe that we've got a competitive level of brand support behind all these new product lines.

Okay. But you're not going to say how it compares to the other -- to last year's launch?

No, you really can't compare it because they're in a different categories and it really depends on the position of the brand, the categories they are in and the nature of the product. So they're really not comparable in any event.

Okay. Great. And then the one question just on the debt. Are you permitted to repay any of the MAFCO term loan or the bonds with proceeds from the asset sale?

Well, I guess a couple of things. As I mentioned in my remarks, we're currently evaluating the most appropriate use of proceeds. The ability to pay down debt, as you know, is driven by the covenants in our credit facility in on our senior notes and our debt instruments which are in the public domain, and obviously, include all that information which we would be happy to point you to the relevant sections in a separate call offline. Having said that, the sale of the Bozzano brand was not a net proceeds event and therefore, we're not required to pay down debt.

Okay. And that's - yeah, that's how I read it. Okay. Great. Thank you.

Sure.

Our next question comes from the line of Lance Vitanza from Knighthead Capital.

Hi guys, thanks. Great job. Nice job on the quarter.

Thanks, Lance.

The sales improvement was such a welcome surprise given the environment. I mean I'm just trying to get a sense for -- it sounds like new products drove it, so the new products started shipping May-June. And you did say that you expect those to continue to ship in July-August. Is it fair to assume that it's going to be fewer new shipments then in July and August than occurred in May and June and, therefore, all else equal, we shouldn't expect to see the same type of year-over-year sales gain in Q3 that we saw in Q2?

I think the shipment patterns really occur in the U.S. and again, I call out -- it can be different around the world which I think is an important point. But in the U.S. the shipping patterns are generally pipeline shipments for new products a few months in advance of when they actually show up in the marketplace. So, as Alan indicated, shipments for the first half -- most of the shipments, pipeline shipments as we refer to them, occur in November-December but there can also be some in the first quarter of a year.

So the same thing generally, in terms of the pattern, will follow for the back half. So you'll see shipments for pipeline in the second quarter and then some shipments after that, depending upon exactly when the retailers reset their shelves. And, beyond that, I really wouldn't want to comment.

Well, I appreciate that. That's helpful. And then, Alan, probably for you. The gain from the sale of the Mexican facility, the $6 million gain. Does that -- is that in that restructuring line that you have or is that some sort of offset to cost of sales?

Well it's two points. First of all the transaction for the Bozzano brand closed on the 20th of July and so is a third quarter event.

Oh, no. I'm not talking about the brand. I'm talking about the sale of the Mexican facility.

I beg your pardon. Yes. Mexico -- the gain on the sale in Mexico is reported on that line, the "restructuring and other", obviously it's in the other. But the line is "restructuring and other", yes.

Okay. So there is no -- it didn't impact your gross margin in any way then, it sounds like.

Correct.

Okay. And then last and not least, could you just tell me how much you have outstanding in the revolver? I missed that from earlier.

Yes. Our borrowing capacity at the end of June, we had $161.3 million in total of which, $138.8 million was available under the revolving multi-currency facility.

And how much was drawn though under the revolving multi-currency facility?

Well we have about $15 million of LCs, so withdrawn is about between that and our borrowing face.

Okay. $15 million of LCs and I can do the calc. Okay. Great. Thanks, guys.

Our next question comes from the line of Patrick Trucchio from BMO Capital Markets.

Hi, good morning.

Good morning.

Hi.

I'm just wondering what is your biggest market in Latin America?

The biggest market in Latin America?

Yeah. We thought it was Brazil but we're just wondering, after the sale of the Bozzano brand, what the biggest market is now after Brazil?

Brazil was certainly one of our bigger markets. We do have significant presence, through our subsidiaries, in Mexico and Venezuela. We do have a significant presence in Argentina with our subsidiary there and then the balance of our Latin American business is typically done through third party distributors. So our products are sold throughout Latin America. We do have subsidiaries based in Brazil, Argentina, Mexico and Venezuela or at least we did have a subsidiary in Brazil.

So Brazil was certainly one of the bigger markets down there.

And again, as I mentioned, we will continue to sell Revlon color cosmetics in Brazil through our existing third party relationship there.

Okay. I'm just wondering with the -- with the asset sale. What is the priority? Is it debt pay down or is there a possibility for an acquisition?

We're, as I said, we're currently evaluating the use of proceeds at this time.

I guess -- because it looks like you're going to generate some free cash flow this year and what is, I guess, what is your priority? Is it debt pay down or I guess are there other strategic alternatives that you would look at?

We're still evaluating it, Patrick.

Okay. And then how many other assets are there similar to the Bozzano brand that can be sold without having, I guess, a financial impact on adjusted EBITDA or net income?

We wouldn't have any comment on that.

Okay. And then just -- on the gross margin line, it looked like your gross margin expanded 210 basis points and I'm just wondering how much of that is working capital related because it looks like year-over-year, your working capital has been improving for the last three quarters.

I don't think that working capital changes would have any impact on our gross margins as a cost number.

The main driver, as I called out, Pat, in the gross margin really was a change in sales mix. We sold -- you'll see in the 10Q which we're going to file later today, we had a higher percentage of our sales were in the cosmetic side compared to beauty care, which resulted in a favorable sales mix. So, then as we continue to improve our sales returns process, we saw some favorability there in the form of lower returns.

Okay. You said -- this is the last question. The fundamentals appear to be improving but we haven't seen management buy shares and I'm just wondering why that is?

Well I think that I've got a substantial amount of shares. I bought shares some time ago. But I can't speak for others. I don't really have anything else to say on that.

Okay. Thanks so much.

Our next question comes from the line of Joe Galzerano from Babson Capital. Proceed.

Hi, it's Joe Galzerano with Babson.

Hi, Joe.

Good morning. I just wanted to follow up a little on Patrick's question. I'm trying to figure out -- you sold the Mexican facility. You sold Bozzano now. So I'm trying to figure out what the strategy is there. You just -- I mean you just sold the largest -- one of the largest businesses in that part of the world and then you're still going to have product there so that seems like you're -- that seems good. But so why hold onto Argentina, why continue to own things --

What we sold in Brazil was a brand. We sold a brand which was the primary brand in the business and it was non-core. As we said, our strategy is very clear, we're focused on our key strong brands around the world. That brand happened to be one of our key strong brands. However, we considered it non-core and we had the opportunity to achieve a very favorable value for that brand. So it really didn't affect our strategy. But we did have the option to begin to realize the value from a strong local brand, a Brazilian brand.

Yeah, it important, Joe, to add to that I think that our strategy is not the sale of brand or sale of facilities. It's what David just said, the Bozzano brand was really an opportunistic response to sell a non-core brand. The facility in Mexico was part of our plan to optimize the manufacturing footprint around the world. And so, again, that was part of our strategy in that area. So it's not a strategy of monetizing assets at all.

Okay. Thank you.

Our next question comes from the line of Mark Kausman from MLK Investment Management.

Good morning, gentlemen.

Good morning, Mark.

First, I'd like to say that one of the other participants on the call, just to make mention to him, he should note that in March the Chairman of the Board bought personally over 3 million shares of Revlon stock, obviously, having some confidence in the results going forward. But aside from that little plug for the Company, I have a question.

I know shopping patterns in the U.S. changed over the past year, specifically people going more to Wal-Mart and, given the way the ACNielsen's constructed, it appears to me, it makes it a little less relevant. So my question to you is have you seen any improvement in your business at Wal-Mart? Is that something you can comment on? And, ultimately have you -- I saw another comment from L'Oreal that gave me the impression that their business in North America did not improve as much as yours. And so, ultimately wondering if the shift in shopping habits actually benefitted your firm?

As you know, as we called out, the growth in the category measured by ACNielsen, in the U.S., I'd say is significantly greater this year, year-to-date than it was last year where it was about flat. I can't really comment on our results at Wal-Mart. I would say that we have a very good relationship with Wal-Mart, obviously, they're very important to us. And we really value that relationship and we like doing business with them. And we believe that we've got a good partnership with them but I really couldn't comment on our results there.

Fair enough. If I could ask one other question. About the reverse split. When it was first announced, you -- the intention was to get it done in the second quarter and now the intention is to get it done in the third quarter. But obviously, you've made a change in the past. I guess my question is, is it possible that you let it slide entirely now that the stock's over $1.00 again?

Mark, we're still committed to doing the reverse stock split. As you know, we have six months from the April 11, 2008 date to bring the share price and the 30-day trading average above $1.00. But we're still committed to doing the reverse split.

Thanks very much.

Sure. Thank you.

Our next question comes from the line of Carla Casella from J.P. Morgan.

Hi. My follow-up was related to the Brazil sale. Will that be put in discontinued operations then next quarter or no?

We're still going through the accounting treatment for that and expect that it probably will be discontinued operations but we're going through that with our auditors right now.

Okay.

We also expect to file an 8K on the transaction by the 12th of August which will include pro forma information.

Okay. Great. Thanks a lot.

Sure.

(Operator Instructions). Our next question comes from the line of Jeff Gates from Gates Capital Management.

Yeah. You say the sales and EBITDA are not material from the asset you sold but can you just tell us what they are?

No.

You'll be filing an 8K on that, correct?

Yes. We will be filing the 8K on the 12th of August and that would include pro forma information which should help you understand that business a bit better.

And you do say one of your stated objectives is to strengthen the balance sheet, correct?

Yes, improve our capital structure is one of our strategy statements. Correct.

Right. Improve your capital structure and how would you define that statement?

Well as we've done in the past, we've taken certain steps if you recall. At the end of 2006 we refinanced our term loan and our revolver so we considered the new debt structure to be an improvement. We got a much better deal in terms of interest rates and the total covenants as well. That would be a step that we have taken to improve our capital structure.

I mean really capital structure is, if you look at it, it's a function of your performance of the business and so, you'd look at your EBITDA to debt ratio so you could grow into a capital structure where you could reduce debt. There's a number of things that you can do to improve you capital structure.

Okay. Thank you.

This ends the question and answer session of today's call. We'll now turn the call over to Mr. Kennedy for some closing remarks.

All right. It's been a very good call. Thank you very much for your interest in our company and for all of your questions.

Just a couple of comments. We have demonstrated a continuous progress in the first half of the year and are realizing the benefits of executing our strategy. We believe that our focus on the key drivers including innovative high quality, consumer preferred new products, effective integrated brand communication, competitive levels of advertising and promotion and superb execution with our retail partners will continue to generate sustainable profitable sales growth and positive free cash flow.

Thank you.

Ladies and gentlemen, thank you for joining us for today's Revlon second quarter 2008 earnings conference call. This does conclude today's conference call. You may now disconnect your lines.