Revlon Inc (REV) 2009 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's first quarter 2009 earnings conference call. At the request of Revlon, today's conference call 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, Miss Goldstein.

Thank you and good morning, everyone, and thanks for joining our call. Earlier this morning we released our results for the first quarter ended March 31, 2009. 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, CFO and President, Revlon International. On today's call, David will highlight the results for the quarter and provide a strategic update on the business. Alan will review our financial and market share results for the quarter and I will introduce our breakthrough new product lineup for the second half of 2009.

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 is set forth in the Company's filings with the SEC, including our 2008 Form 10-K and our first quarter 2009 10-Q, which we will file later today.

Our remarks today will include a discussion of adjusted EBITDA and free cash flow, which are non-GAAP measures that are defined in the footnotes to the release we issued this morning and are reconciled, in the case of adjusted EBITDA, to net income or net loss and, in the case of free cash flow, to net cash provided by operating activities, the most directly comparable GAAP measures in the accompanying financial tables.

As you know, we issued a press release on April 20 announcing that the independent members of our Board of Directors received a proposal from MacAndrews & Forbes, pursuant to which Revlon would issue new preferred stock in exchange for publicly held Class A common stock. We have no further comment at this time beyond what was in the press release and will not be taking any questions on this subject. If and when there are developments that require disclosures, we will of course do so.

Unless otherwise noted, our discussion this morning of share and dollar volume data is based on US mass retail dollar volume, according to ACNielsen which excludes Wal-Mart as well as regional mass volume retailers, prestige stores, department stores, Internet, door-to-door, television shopping, specialty stores, perfumeries and other distribution outlets, all of which are channels for cosmetics sales. The ACNielsen data is an aggregate of the drug channel, Target, Kmart and food and Combo stores, and represents approximately 2/3 of the company's US mass retail dollar volume.

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

Thank you, Abbe, and good morning, everyone.

Before we review our first quarter results, I would like to take this opportunity to comment on the organizational changes we announced. Our board elected:

Alan Ennis, President and Chief Executive Officer;

Chris Elshaw, Chief Operating Officer;

Steven Berns, Chief Financial Officer; and

I was elected Vice Chairman of the Board and will also serve as a Senior Executive Vice President at MacAndrews & Forbes Holdings Inc.

Let me congratulate Alan, Chris and Steven on their appointments.

Alan has extraordinary energy, the leadership skills and strategic ability to lead the worldwide Revlon organization at this time and continue to implement our strategy most effectively. As you know, Alan has been a key member of our leadership team as Chief Financial Officer, President, Revlon International, and as a member of the Operating Committee. In those roles, he has been closely involved in all of the key decisions we have made over the past few years.

Chris has been highly successful in leading our US region and, prior to that, our Europe region. Chris will continue to lead and manage the US region as well as the international business.

Later in May, we will welcome our new Chief Financial Officer, Steven Berns. We believe we are most fortunate to have someone in the key CFO position with Steven's broad financial experience and knowledge of our business.

We have, over time, formulated well thought-out and orderly succession plans for senior roles within our Company to ensure we have highly capable executives in position to continue to implement our strategy.

As part of these organizational changes, we have formed the office of the Vice Chairman which will include Alan, Chris and me to oversee the Company's strategic developments.

Going forward, I believe that Alan and Chris, along with the other senior management team that make up the Operating Committee, will provide the company with outstanding leadership.

Now, I would like to talk to you about our first quarter.

I will make, as I usually do, a few comments on our financial results for the quarter, followed by an update on the progress we made in executing our strategy and business plan, and then I will turn it over to Alan to review our financial and market share results in detail.

In the first quarter of 2009, we continued to execute our strategy, including our focus on the key drivers of profitable brand growth. In the quarter, we increased net income and free cash flow, reduced debt by $38.3 million, grew Revlon color cosmetics US retail sales over 9% and increased market share in the US.

Net sales for the quarter were $303.3 million compared to $311.7 million in the year-ago quarter. Excluding unfavorable foreign currency fluctuations, net sales were up 3.8%, driven primarily by the continued strong growth of Revlon color cosmetics in the US and in key countries around the world.

Operating income for the quarter was largely unchanged at $31.6 million, compared to the same quarter last year; and operating income margin improved to 10.4% in the first quarter of 2009 compared to 10.3% in the same period last year. Please note that operating income in the 2008 period included a $6 million gain on the sale of the non-core trademark.

We had net income of $12.7 million in the first quarter of 2009, compared to a net loss of $2.5 million in the prior year quarter and we generated free cash flow of $17.5 million, compared to $14.6 million in the same period last year.

We continue to be encouraged by the growth in the mass retail color cosmetics category in the US and in key countries around the world. However, we continue to manage our business, maintaining the flexibility to adapt to changes in the business conditions, including the ongoing economic uncertainties. We believe the continued execution of our strategy will, over time, generate profitable net sales growth and sustainable positive free cash flow.

We are enthusiastic and optimistic about our new product introductions for the second half of 2009, which continue the strong pipeline of new product launches in recent periods. Abbe will review these with you later on this call.

Our Revlon and Almay color cosmetics lineup includes a number of first-to-market breakthrough technology products and comprehensive new offerings in every segment of the category, namely face, eye, lip and nail.

So with that, let me hand it over to Alan, who will take you through the financial and market share results in detail.

Thank you Abbe, and thank you, David, 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 our financial results.

So, starting with P&L for the first quarter of 2009, net sales in the first quarter were $303.3 million, a decrease of $8.4 million compared to $311.7 million in the first quarter of last year. Excluding the unfavorable impact of foreign currency fluctuations of $20.3 million, net sales increased by 3.8%.

Higher net sales of Revlon and Almay color cosmetics and Revlon ColorSilk hair color were partially offset by a decline in net sales of Mitchum anti-perspirant deodorant. Net sales of Revlon color cosmetics, excluding foreign currency fluctuations, increased 8.9%, driven by strong new product introductions.

In the first quarter of 2009, we increased advertising and promotional spending across our portfolio of brands, compared to the same period last year.

In the United States, first quarter 2009 net sales were $191 million, an increase of $13.8 million or 7.8%, compared to $177.2 million in the first quarter of 2008. The increase was driven primarily by higher net sales of Revlon and Almay color cosmetics and Revlon ColorSilk hair color. First quarter 2009 net sales benefited from higher pipeline shipments of first half and some second half 2009 new color cosmetics products, as a result of timing of shipments and a more extensive new product lineup, including Revlon ColorStay Ultimate Liquid Lipstick.

In our international operations, net sales in the first quarter of 2009 were $112.3 million, a decrease of $22.2 million or 16.5%, compared to $134.5 million in the same period last year. Almost all of the decline was due to unfavorable foreign currency fluctuations, which negatively impacted international net sales by $20.3 million in the first quarter of 2009. Excluding that unfavorable foreign currency fluctuation, net sales were down 1.4% as declines in fragrances and certain beauty care products were partially offset by higher net sales of Revlon color cosmetics. From a geographic standpoint, lower net sales in the Europe and Latin America regions were partially offset by higher net sales in the Asia Pacific region.

In our Asia Pacific region, which is comprised of Asia Pacific and Africa, net sales were down 10.9%, to $57.1 million. Excluding unfavorable foreign currency fluctuations, net sales increased 5.1% over the year ago quarter. This growth was primarily due to higher shipments of Revlon color cosmetics in China, Australia and South Africa, and higher shipments of certain beauty care products in South Africa. These were partially offset by lower net sales in certain of our distributor markets and in Japan.

In our Europe region, which is comprised of Europe, Canada and the Middle East, net sales were $35.7 million, compared to $49.1 million in the year ago quarter. Excluding unfavorable foreign currency fluctuations, net sales were down 9.4%. Lower shipments of beauty care products throughout the region, lower shipments of fragrances in the UK and increased returns in Canada were partially offset by higher shipments of Revlon color cosmetics throughout the region.

In our Latin American region, which is comprised of Mexico, Central America and South America, net sales were $19.5 million, compared to $21.3 million in the year ago quarter. Excluding unfavorable foreign currency fluctuations, net sales were down 2.8%. This decrease was primarily driven by lower shipments of beauty care products in Mexico and certain distributor markets, partially offset by higher net sales in Venezuela and Argentina.

Moving down the rest of the P&L for Revlon Inc. In the first quarter of 2009, we increased advertising and promotional spending across our portfolio of brands compared to the same period last year. Let me remind you, from a financial reporting perspective, that promotional allowances are recorded as a deduction to arrive at net sales while advertising costs are recorded within SG&A in the P&L.

In the quarter, our gross profit margin was essentially unchanged at 63.4%, compared to 63.7% in the year ago quarter. Gross margin was impacted by higher allowances on color cosmetics, unfavorable foreign currency fluctuations and higher pension expense within cost of goods, while we benefited from favorable manufacturing efficiencies, lower material costs and favorable changes in sales mix.

SG&A expenses of $160.2 million improved by $12.6 million from $172.8 million in the same quarter last year. This improvement was driven by the favorable impact of foreign currency fluctuations and lower permanent display amortization expenses, partially offset by an increase in advertising cost primarily associated with the launch of a certain new product and higher pension expense.

Operating income in the first quarter of 2009 was $31.6 million, representing a 10.4% operating income margin, compared to $32 million, representing a 10.3% operating income margin, in the same period last year. Adjusted EBITDA in the first quarter of 2009 was $49.1 million, compared to $57.5 million in the same period last year.

First quarter 2009 operating income and adjusted EBITDA included pension expense of $6 million, compared to $2.1 million in the first quarter of last year. As David mentioned, first quarter 2008 operating income and adjusted EBITDA included again of $6 million related to the sale of a non-core trademark.

Net income in the first quarter of 2009 was $12.7 million, or $0.25 per diluted share, compared to a net loss of $2.5 million, or $0.05 per diluted share, in the same period last year. Net income in the first quarter of 2009 benefited from lower interest expense of $8 million, a gain on the repurchase of 9.5% senior notes of $7 million, and lower income tax expense of $7.8 million, partially offset by higher foreign currency losses of $6.7 million and higher pension expense of $3.9 million. First quarter 2008 net loss included a gain of $6 million related to the sale of a non-core trademark.

Interest expense for the first quarter was $24.1 million, an improvement of $8 million compared to $32.1 million in the year ago quarter. This improvement was due to both lower average borrowing rates and lower average debt levels.

Operating cash flow in the first quarter of 2009 was $17.3 million, compared to $10.7 million in the year ago period, resulting in an improvement of $6.6 million year-over-year.

Free cash flow, which we define as operating cash flow plus proceeds from the sales of certain assets less capital expenditures, was $17.5 million in the first quarter of 2009, compared to free cash flow of $14.6 million in the first quarter of last year, an improvement of $2.9 million year-over-year. First quarter 2008 free cash flow included a gain of $6 million related to the sale of a non-core trademark.

In terms of our borrowing capacity, our unutilized borrowing capacity and cash as of March 31, 2009, was $147.5 million, comprising $120.5 million available under our revolving multicurrency facility and $27 million of cash and cash equivalents.

In the first quarter of 2009, we reduced our total debt by $38.3 million: Regarding our senior secured term loan, during the first quarter of 2009, we repaid $18.7 million of our senior secured term loan. After this repayment, there remained outstanding at the end of the first quarter of 2009 approximately $815 million principal amount under the term loan, which matures in January 2012.

Regarding our 9.5% senior notes, during the first quarter we repurchased $23.9 million in aggregate principal amount of our 9.5% senior notes. As a result of these repurchases, we wrote off the ratable portion of the unamortized debt discount of $300,000. After these repurchases, there remained outstanding $366.1 million aggregate principal amount under these notes, which mature in April 2011.

Finally, we had outstanding borrowings under our revolving credit facility of $4 million at the end of the quarter.

Moving onto mass retail share, according to ACNielsen, the US mass retail color cosmetics category dollar volume grew 3.2% in the first quarter 2009 compared to the same period last year. In the first quarter of 2009, Revlon Color Cosmetics achieved a 13.2% dollar share, an increase of 0.7 points, and grew dollar volume by 9.3% compared to the year ago period.

In the face segment, Revlon Color Cosmetics grew 16.4%. Our strength in the face segment was driven by Revlon Age Defying Spa and Revlon Age Defying Spa Concealer, both of which were launched for the first half of 2009 and Revlon ColorStay Mineral foundation, which was introduced in 2008 as well as core ColorStay foundation.

Revlon color cosmetics holds the number one position in the lip segment with a 22.2% dollar share. We grew 8.9% in the lip segment in the first quarter of 2009 compared to the year ago quarter. This growth was driven by Revlon Creme Gloss and Revlon Matte Lipstick, both first half 2009 launches, as well as Revlon ColorStay Mineral Lipglaze, introduced in 2008, and Super Lustrous lipcolor.

In the nail segment, Revlon color cosmetics nail franchise grew by 33.8%.

In the eye segment, Revlon color cosmetics grew 3.8% for the first quarter of 2009. The primary drivers for us in the eye segment were Revlon ColorStay pencil and liquid eyeliners and brow products and Revlon Matte Luxurious Color Kohl eye liner, which were somewhat offset by declines in mascara.

Moving onto Almay. In the first quarter of 2009, Almay had a 5.7% dollar share while dollar volume was down 4%, compared to the year ago period. This performance was driven by declines in face and lip, partially offset by growth in the eye segment. Almay continues to be the number one makeup remover brand.

In the first quarter of 2009, much of Almay's advertising and promotional support focused on the introduction of the first half 2009 new Almay Pure Blends collection. This is a multi-segment offering, including products for face, eye and lip that is still early in its launch cycle. In the first quarter of 2008, Almay's advertising and promotional support focused on Almay Smart Shade, a highly successful and established collection of products in the face segment.

Almay's positive performance in the eye segment was driven by the Almay Intense i-Color Collection, the Almay Bright Eyes Collection, which were launched in the first half of 2008 and the second half of 2008, respectively.

Almay dollar volume in the lip segment declined largely due to continued declines in Almay Hydracolor lipstick, as we had mentioned in previous quarters.

Moving onto women's hair color. In the first quarter of 2009, dollar volume in the women's hair color category declined by 2.3%, while Revlon ColorSilk hair color grew by 1%, compared to the same period in 2008. More units of Revlon ColorSilk hair color continue to be purchased in the market than any other brand.

Moving onto anti-perspirants and deodorants. Dollar volume in the anti-perspirant deodorants category declined by 1/10 of 1% in the first quarter of 2009. Mitchum continues to maintain an approximate 5% dollar share, in line with its quarterly performance since the fourth quarter of 2006. Mitchum also continues to hold the number one position in gels.

And finally, the beauty tools category dollar volume declined 1.8% in the first quarter of 2009, while Revlon Beauty Tools grew by 0.5%, compared to the same period last year. Revlon holds the number one position in the beauty tools category with a 21.2% dollar share. Revlon Pedi-EXPERT, launched in the first half of 2009, is ranked number one in the ACNielsen top 60 new beauty tools, by retail dollar sales, through March 2009.

So moving now on to the balance of 2009, I would like to take a few minutes to update you on certain specific factors that are likely to impact the balance of our 2009 financial performance -- namely pension, foreign exchange and certain other items that may impact cash flow.

Firstly, relating to pension and post-retirement expenses and cash contributions. As mentioned during our last call, the declines in the financial market in the US and around the world in 2008 resulted in a decline in the value of our pension plan assets. We expect that pension and post-retirement expenses will be approximately $30 million to $35 million in 2009 compared to $7.4 million in 2008. Consequently, we expect our P&L expense related to pensions, to be $23 million to $28 million higher in 2009 compared to 2008.

Additionally, we expect that cash contributions to the pension and post-retirement plans will be approximately $25 million to $30 million compared to $12.8 million in 2008. Consequently, we expect pension cash contributions to be $12 million to $17 million higher in 2009 than in 2008.

Secondly, relating to currency, as you know, early in the fourth quarter of 2008 the US dollar strengthened significantly, relative to other major currencies. As a result, our reported first quarter 2009 net sales were negatively impacted by $20.3 million, which roughly equates to a 15% decline in net sales in the quarter in our international business or a 6% decline in total Company net sales in the quarter, driven by unfavorable foreign currency translations. Foreign exchange rates have not changed significantly from the levels in the fourth quarter of 2008 and thus, there may be an impact on net sales comparability for the second and third quarters of 2009.

As a consequence, there may also be an impact from foreign currency translation on the comparability of reported operating income in 2009 compared to 2008, broadly in line with our operating income percentage.

Additionally, in relation to currency, changes in foreign currency rates could have an impact on our 2009 results from the approximately 40% of our international products that are sourced from our manufacturing facility in North Carolina. As we export US-manufactured products to our international business, the impact of the stronger US dollar results in higher input costs for our international business and, therefore, unfavorably impacts gross margins, to the extent that we are not immediately able to pass those increased costs onto the consumer. However, with our inventory turning around 3 to 4 times a year, there is a time lag until that transaction impact flows through our P&L.

As I have indicated on previous calls, while we are not providing specific guidance for adjusted EBITDA for 2009, we have provided information to assist you in understanding the factors that will impact our expected full year 2009 cash flow.

I would like now to update you on the information that we provided during our February call:

Capital expenditures are expected to be approximately $15 million.

Permanent display expenditures are expected to be approximately $40 million.

With respect to interest, as I indicated, interest paid in 2008 was $123 million. At the end of the first quarter 2009, our total debt was $1.29 billion, which was $38.3 million lower than at the end of 2008. Approximately 60% of our total debt is at fixed interest rates, and approximately 40% is at floating interest rates. We are benefiting and expect to continue to benefit from the current low interest rate environment on our floating rate debt. In addition, we also expect to benefit from the expiration of our higher interest rate, $150 million swap, which expires in September 2009.

Taxes in 2009 are expected to be approximately $15 million;

And all other cash flows in 2009, including changes in working capital and the impact of higher pension expense and contributions, as mentioned, are anticipated to result in cash usage of approximately $15 million.

And so with that, I would now like to turn it over to Abbe to talk about our second half 2009 new products.

Thank you, David and Alan. As part of our strategy of continuing to build our strong brands, we believe launching high-quality consumer-preferred new products is a key driver of profitable brand growth.

Following a strong and successful lineup introduced for 2008 and in the first half of 2009, today, we announced the launch of our new lineup for the second half of 2009. The lineup features first-to-market, breakthrough technology product introductions of Revlon and Almay color cosmetics, together with new shades, that continue Revlon's track record of setting and influencing trends.

Second half 2009, Revlon color cosmetics introductions are as follows.

First, Revlon ColorStay Ultimate Liquid Lipstick is a breakthrough product that is the first and only one-step lipcolor that has it all - exclusive Colorstay long-wear technology, combined with an exclusive ultra conditioning complex to provide comfortable, food-proof wear for up to 12 hours in one simple step. The advertising campaign features Jennifer Connelly.

Second, Revlon DoubleTwist Mascara is the first-to-mass revolutionary 2-in-1 brush that has traditional bristles to thicken lashes, and innovative combs to define, providing massive volume and remarkable definition with a rich color impact. The advertising campaign features Jessica Alba.

Third, Revlon ColorStay Mineral Mousse Makeup and Revlon ColorStay Mineral Finishing Powder are extensions to the Revlon ColorStay Mineral franchise which was introduced in 2008. ColorStay Mineral Mousse Makeup is a first-to-market formula with ColorStay technology that offers the benefit of mineral makeup in a long-wearing mousse form with a luxurious matte finish. Mineral Finishing Powder features coordinated three shade marbleized pigments swirled together to provide a soft, all-over lift of color that diffuses flaws and minimizes shine. The advertising campaign features Halle Berry.

Fourth, Pure Confections is a collection of 14 new and on-trend shades featuring a palette of candy-inspired colors that will be introduced into core Revlon lip, eye and nail products.

Fifth, Passion Fusion is a collection of 13 new and on-trend shades featuring a rich and realistic palette that will be introduced into core Revlon lip, eye and nail products.

Sixth, Revlon Fruitful Temptations Nail Enamel is a collection of eight exotic summer fruit shades, each of which has a matching fruit scent when the enamel is dry.

And last, Revlon Makeup Remover Towelettes are oil-free, quilted and pre-moistened. The towelettes contain an antioxidant blend of pomegranate, rosemary and chamomile that leave the skin feeling clean and refreshed.

Second half 2009 Almay color cosmetics introductions are as follows. First, Almay Smart Shade Smart Balance Makeup is a breakthrough product that is an extension of the highly successful Almay Smart Shade franchise, which was launched in 2007. Almay Smart Shade Balance Makeup uses Almay's Smart Shade proprietary technology with shade sensing microbeads to adjust to skin tone, and uses new and breakthrough Smart Balance technology with skin balancing microspheres that work to keep oily areas shine-free and dry skin softly hydrated. The advertising campaign features Elaine Mellencamp and Marina Theiss.

Also for Almay is Almay Pure Blends Volumizing Mascara, which is an extension of the Almay Pure Blends natural collection of color cosmetics that was launched for the first half of 2009. Volumizing Mascara features a hypoallergenic formula and is made of 97.5% natural ingredients, housed in eco-friendly packaging. The advertising campaign features Leslie Bibb.

And finally, before we open for your questions, we'd like to inform you that the Annual Revlon Run/Walk For Women will be held in New York City on May 2 and in Los Angeles on May 9. We are very proud of our long-standing and continued philanthropic support for women's health initiatives and the fight against women's cancers. If you'd like to donate to this cause or register, please go to the Website at revlonrunwalk.com.

With that we'd like to open up to your questions.

(Operator Instructions). Reza Vahabzadeh. Barclays Capital.

The sales commentary -- just trying to get a better understanding of that. You mentioned that the sales shipments in North America were affected by the timing of shipments -- of some shipments of first half, as well as second half products, so I'm just trying to better understand that. Does this mean that some of the sales that you ordinarily would have shipped in the second quarter or maybe even third quarter were just shipped in the first quarter?

Well, let me address that. So what I said was that in the first quarter, our net sales did benefit from what we call pipeline shipments of some first half and some second half 2009 new color cosmetics products. The way the cycle works is there are shipments which go into the retail channel, and there's a lag between that, obviously, and consumption first point.

Second point is the timing of those shipments can vary, period to period. And so there are occasions where, a quarter end would reflect shipments related to what was sold into the channel, which will be consumed at a later point.

So I would say that there are shipments in the first quarter of 2009 that could otherwise have shipped in the second quarter. But because of the timing of those shipments, they occurred in March.

So they were shipped -- to answer that, Reza. They were shipped according to the marketing plan, so we -- this year because of some strong new products that we're launching, primarily for second half, we launched those products earlier or we wanted to and did, in fact, and have launched those products into the marketplace earlier than, let's say we did last year. And so we've got two very, very strong -- we have a very strong pipeline over all new products, but in particular, we've got some extraordinary products such as the ColorStay Liquid Lipstick product, which is a breakthrough product. So we launched those earlier into the market in accordance with our marketing plan.

But -- I hear you. But do you think that the earlier shipment, was that just a coincidence? Or does that mean that retailer reception to it is also maybe better than you expected?

Well, certainly in order to be able to launch these products earlier, let's say, into the marketplace we would have had to have retailer enthusiasm about them.

Yes. And then on the International front, obviously FX is a significant impact but the organic sales were down just modestly. Is that a dynamic that may persist into the second quarter with FX trends about the same, maybe a little bit more difficult comparisons but organic sales in the neighborhood of flattish?

Well, we wouldn't call out or forecast our sales in the second quarter or beyond. You already know that. We would say -

You wouldn't?

No, I'm not. I say I'm not forecasting that but you know obviously the currency trends continue today. So if they did continue, obviously they're going to have an adverse impact, to the extent that we can't offset them in other ways.

And secondly, you'll note that we did have good organic results in the Asia Pacific area, and that's continuing the trend that we've had for some time. We also had very good Revlon cosmetic sales, really around the world. So we had some softness in Europe and Latin America, primarily in certain of our beauty care products.

Got it. And then turning to margins, it seems like you have some manufacturing savings, some sales mix momentum that is offsetting the higher A&P spending and the pension expense. Give or take, is that a dynamic that you think is going to be sustained into the second or third quarter directionally?

Well, again, that's not something that we're going to call out at this point. But you're correct in your assessment in that, for the first quarter, we did see and were able to offset, the negative impact of currency and pension with efficiencies.

Right. Let me ask you the question in a different way. Do you think that the manufacturing savings that you were able to generate in the first quarter are likely to persist at the same rate in the second quarter?

Well, I'll give you the same answer. We're not going to talk about what we would expect past the first quarter.

And then lastly, so interest expense for the year. I don't know if you went over that, Alan, but is it going to likely be what, in the $95 million to $100 million range?

We didn't give a specific number, Reza. We called out some factors that you could use to approximate what you would expect yourself. We called out that we've got about $1.3 billion in debt at the end of the first quarter. 60% of our debt is at fixed rates and about 40% is at floating rates. And so we have benefited from both the lower interest rate environment on our floating debt and we have benefited from lower overall debt levels.

As you know, we reduced our debt by approximately $110 million during 2008 and by another almost $40 million during the first quarter. So I think you've got all the components you need to be able to calculate that.

And then lastly, you talked about cash contribution for pension expense of $25 million to $30 million and then when you were going through your cash flow guidance, I thought you said working capital, including pension expense, will be a use of just $15 million?

That's correct.

So obviously that means that working capital itself, before pension expense, would likely be a source.

Well, bear in mind that the calculation of working capital as it relates to pension will include the movement in the pension liability, so you've got a pension expense component that goes through your balance sheet in the form of pension expense offset by the cash contributions. So the combination of that change plus working capital changes we're saying would result in the use of $15 million.

Todd Harkrider with Goldman Sachs.

First of all, congratulations to Alan and David and everyone on the promotions.

Regarding the new product pipeline, it seems like you've picked up the level of innovation over the past couple of years a lot. How much flexibility and capacity do you have to keep adding more complex SKUs to your manufacturing lines?

Well, if I understand your question I would answer it this way that, you know, it's really not a question of number of SKUs or flexibility. I mean, we can -- we look at our offering at a point in time. Strategically, we are planning out three years in terms of our portfolio strategy. And we're taking advantage of the opportunities that we see from trends and in the marketplace.

And our end objective is to have, from that offering with all of our brands, profitable sales growth. And that's the broad sense. So it's not a question of capacity, it's a question of opportunity, how rapidly we want to take advantage of that opportunity, and what the impact of those opportunities, that we see, are on our offering as a whole.

So I would also say -- I mean, this organization's capacity to innovate and produce new products is extremely sound.

Yes, I definitely have seen that over the past couple of years and just wanted to know if there are any restraints in regards to the complexity of the SKUs today since you definitely picked up the innovation of them? But as a follow-up to that, I assume you're getting credit for all the hard work with the new products.

But can you talk about if you're seeing any resistance as you move prices up? You know, it appears there's a lot of white space between you guys and prestige products but wanted to see if you could give any color on how aggressive and how willing retailers and customers are into moving into that white space.

Let me be clear. We stay focused on our core customer in the mass retail channels and in terms of pricing, overall, in the category in the US -- I'm speaking about now -- overall in the category, pricing on average has gone up somewhat. But it's primarily because of the introduction of new products. There's been no overall price increase or across the board increase.

But you're on the higher end there and I know that the Ultas of the world and the CVSs and Beauty 360s are going to combine mass and prestige under one roof. I didn't know if you think there's any opportunity to even further the price increases, at a little bit quicker rate, as that happens.

We'll certainly have to evaluate that when we see how that particular situation works out, but if you want to take a comparable of what may be and I underline may, because we don't know exactly what's going to take place with the customer that you've called out or precisely what's going to happen there -- but if you take what is potentially a comparable situation with the Shoppers Drug in Canada, prestige brands live side by side with all -- with our brand and with the other mass brands. And it's been a very healthy mix.

So we look forward to those kinds of opportunities. We're not a bit concerned about being right alongside, and however that is merchandised or presented, in the store with prestige brands.

Yes, I would add to that. I would say, Todd, that we're actually well positioned, given our price point within the mass channel, which is at the higher end of color cosmetics, that we're well-positioned to participate at that level.

And I would also say that the quality of our products in all respects, and the quality and the innovation behind our products are extremely sound and we can compete with anybody.

Appreciate it and good luck with the Run/Walk for Women this weekend.

Karru Martinson with Deutsche Bank.

With the strong pipeline that you guys have, you know, some shipped here in the first quarter, are we seeing kind of a pull forward from the second half of the year into the 2Q as well? Or are we going to be more on a normalized sell-in rate going forward?

I would say that there's a little pull forward there. But we've also got strong second half launches, even though we're putting some of those in the marketplace a little earlier. But at the same time, I would say overall, it's reasonably normal.

Plus we'll have -- obviously we'll have first half 2010 products that we will start to ship later on in the year.

How are you guys feeling about the inventory levels at retail with the sell-in?

We're very comfortable with the inventory levels. We work closely with the retailers. We have done for years and will continue to. Consumption is still strong in the marketplace in the US. And so we believe, from our standpoint, there's no issue with inventory in the channel.

It's probably a bit early but just in terms of your Latin American sales, are you seeing an impact from the swine flu?

Well, it is too early to tell. What we do know at this point is we're continuing to ship to our retail partners on schedule in Mexico. What we don't know is what impact, if any, there would be on consumption.

However, our Mexico business, as you may know, is not a significant part of our overall business globally.

Absolutely. And then in terms of the debt repayment, a robust pay down here in the first quarter, what's your view for the year and going forward on the uses of cash?

Well, I'm not going to call out what we would expect to do with cash flow going forward. I would comment and agree with you that the debt pay down was a positive step and builds upon the steps we took in 2008 to reduce debt.

Obviously our focus in our strategy is to continue to improve our capital structure, and that would be the focus that we would look to going forward.

Carla Carsella. JPMorgan.

This is Mili Seoni for Carla. You mentioned earlier that you pulled forward some of your product launches. Just a little more on that. Could you give us a percent in what was from first half and what was from the second half?

We wouldn't want to quote you a percent. We're just saying that because of the timing of our marketing plan and the launch of those products, it had some positive impact on sales. But we can't give you a percent.

All right. And how much sales were driven by the new product launches this year versus last year?

That's not something we talk about publicly.

Okay. Can you put - what just on the Mexico, just a follow-up on the Mexico question, how much of your sales were to Mexico?

We don't call out sales by country, but our sales in all of Latin America in the first quarter were about $20 million.

George Chalhoub. BTIG.

Regarding the second half and the pipeline of launches that you're talking about, is there a way you can tell us if it's going to be more heavily weighted towards Q3 versus Q4? Especially that it seems you have in some of the Q4 late months, you're probably going to have some of the 2010 launches put in there as well.

The way the cycle works, George, is that second half 2009 shipments usually take place during the second quarter. What we called out today was that those second half 2009 shipments started at the end of the first quarter. They will continue through the second quarter and, in fact, trickle into the beginning of the third quarter.

We will then have, in normal course, as we always do, our first half 2010 new product launches that will start late in the third quarter and continue through the fourth quarter. And, again, that shipment schedule is primarily focused on what happens in the US. And it's driven primarily by the retailer reset schedules.

And it's been that way for the last several years. Outside the US, it tends to be less seasonal.

But I mean has that -- when you add it all up, is it going to be almost, for this year at least, more weighted towards Q4 than Q3 or do you think they're going to be almost split equally when it comes to the second half?

We're not going to call out an answer to that right now.

Okay. A different question. On the manufacturing cost, given that you're shipping into the international business out of the US-based production in North Carolina, and you mentioned that your inventory turns three to four times a year. And obviously some of that is going to probably reflect itself a little bit more in the balance of 2009. Is that in any way going to affect how your gross margin performance is going to be in the second half? Or do you think you're going to be able to still offset the impact of the currency on the gross margin with some of the pricings that you may be inputting in the new product launches?

Your analysis is correct in that as we export US manufactured products to our international businesses, the stronger US dollar will result in higher input costs for those businesses. So that would unfavorably impact gross margins to the extent that we could not immediately pass it on to the consumers.

Passing price on to consumers is a function of the marketplace as opposed to a function of our margins. And so, the ability to do that will be driven by our position in the markets on a country-by-country basis.

So there are certain markets where we can do that relatively easily. There are other markets where we don't have the leverage to do that. So there will be, certainly, if rates stay where they are today, there will certainly be an impact on gross margins for the balance of this year.

And my last question is, in terms of -- it seems to me that given the cash uses that you outlined in your prepared remarks, you're still going to be meaningfully free cash flow positive. I know you didn't give EBITDA guidance but I have mine.

In terms of the use of cash, you mentioned you want to strengthen the balance sheet. Now specifically, do you have any limitations on buying back the senior notes versus having to pay down bank debt or can you do both like you did in Q1?

Well, as I mentioned during the prepared remarks, we did reduce debt by almost $40 million in the first quarter. We have limited ability to repurchase additional 9.5% senior notes. We can always prepay term loan at any time, but we'd have to buy that back at par and I believe plus a 1 point call premium.

When you say limited I mean, is this -- can you give us the number? Is it meaningful? Or do you think it's small at this stage, given the limitation?

It's a limited availability.

Lance Vitanza from Knighthead.

Congrats on the much better than expected quarter. I'm just going to ask you, following up on George's question. Could you be a little bit more specific in terms of what exactly your capacity is for incremental repurchases of the bonds?

You know, Lance, we're not going to get any more specific on this call. All of the information that's needed to work that out is in the public domain and the various agreements and indentures.

Okay. A question about the trademark sale from last year. Is that basically the $6.2 million that you have there in the restructuring costs and other line of your P&L?

Yes, that's correct.

And then on the impact of currency on gross margin, we've spent a fair amount of time talking about this on prior calls and so forth. And if I remember correctly in Q4, because of the lag in terms of the working capital, you really couldn't see that impact. But am I correct in presuming that for the Q1 quarter, we really did get a full quarter's worth of that impact in there?

That's correct.

So then, as we think about Q2, all else equal, we should expect a similar impact on your gross margin?

Yes, assuming rates stay where they are you should expect that. Yes.

Connie Maneaty. BMO Capital Markets.

Its actually Pat Trucchio on behalf of Connie. I guess I just want to follow up on the FX. I just want to make sure that in the first quarter was the - so the FX pressure in the first quarter, was it about where you expected? Or was it -- or I guess is it going to -- I guess yes, that's it. Was it about where you had expected it to be?

Well, rates as I mentioned -- rates against the US dollar moved to where they are today right at the beginning of the fourth quarter. And they've roughly stayed there. I mean certain rates have bounced around a little bit but they've roughly been in line with where they were very early on in the fourth quarter. So from that standpoint, yes.

And then, second question, how much -- I guess, could you quantify in percentage terms the sales in the US that benefited from the pipeline sale?

That's not a number we're going to call out publicly.

Ken Bann. Jefferies & Company.

I was just wondering if you could tell us what the increase in advertising spending was in the quarter? And with the launch of new products, do you plan to increase it further in the next few quarters versus the prior year?

Well, there were some increases we called out in the release. We won't give you the dimensions of that. And we're not going to forecast what our advertising expense is going to be going forward.

I'll just say generally, as we've said in the past, that we support our new products based on what we think is competitive and given the nature of those products, what type of products there are and so forth, and what the expected performance is out of those products. But beyond that, you know, we're not going to call it out.

Can you say whether you think you'll --?

If you look back over the past two years, you'll see some indication of how we have spent our advertising. And our strategy continues to be the same. We continue to have maybe slightly greater number and, I'd say, strength in new products. So you can put all that together and get some indication of what our spend is going to be.

Bill Ross. Pali Capital.

It's actually Kevin Ziets. I was wondering - I was just kind of looking through my notes, but did CapEx and display number come down from prior forecasts?

Yes, they did. CapEx came down from, I believe, $20 million to $15 million, and permanent display expenditures came down from approximately $50 million to approximately $40 million.

So could you talk about what's driving that? Are you seeing better rates on your purchases or is there something related to the product lineup?

It's not related to the product lineups, specifically. We are seeing some improvement in our ability to purchase our displays and our CapEx at slightly better rates. It's also a function of us looking at our spending and making sure that we're making only prudent investments at this time.

Is that your decision or is that somewhat the retailers' decision on the display side specifically?

Well, the display spending as you're alluding to is a function primarily of a couple of factors -- one of which is new product launches, the other which is store openings, etc. So the new product launches would be a key driver but the decision in terms of spending is ours.

We're actually getting more efficient in our operation and, as Alan indicated, we're also seeing some better costs. There's some improved costs there as well. On CapEx, our capital spending is a matter of just adapting and changing our plans, making better decisions, we believe, based on the returns that we get from that capital.

On the international prices, or on the international business did you specifically take pricing to hold margins where they are? Or did you experience a mix shift that helped the margin rates stay so strong?

It's actually a combination of both of those things. In certain countries around the world, where we have the ability to pass on price to the consumer, we have done that. In certain countries, where there is inflation or higher levels of inflation, where it's normal to increase prices, we have done that. And we've also benefited somewhat from a shift in mix towards color cosmetics away from beauty care.

I guess along those lines, is it the strategy to basically sort of test newer products in the US first and then bring them into international markets? I know it's probably a mixed boat, but is that generally the strategy and I guess (multiple speakers) --?

No, that's never been the strategy.

Then I guess the international Revlon success is attributable to specific launches that are designed for those markets?

No. What we do and what the strategy is, it's well laid out in everything we've written and printed, is that we -- all of our brands, all of our key brands are run, for the most part, on a global basis. We leverage off the brand strategies, the brand plans, the advertising and so forth in every market around the world, to the extent that we possibly can. We only adapt in certain countries where consumer taste or preferences cause us to do that.

In fact, Kevin, in many of the key countries around the world we actually launch our new products simultaneous with the launch timing in the US.

I guess that's what I was getting at, I wanted to understand if there was -- if we should expect the success that you've had to -- sounds like that's already happening.

And I guess lastly, I'll throw my congratulations in the ring again but I wanted to ask if you think there are any sort of strategic changes that come about by the change in responsibilities? Or is the Company more focused on acquisitions than maybe you have been in the past or divestitures, for that matter?

Our strategy, as it's been established and communicated, will continue. And I would just keep in mind that these changes in management have been planned and thought through and they're all part of a succession plan.

Mary Gilbert. Imperial Capital.

Congratulations to everyone. I wanted to find out with Almay, you do have a new lineup with the Smart Shade Balance Makeup. Could you also talk about any other new introductions, because it seemed like a lot of it was focused on Revlon, and what your strategy is with Almay overall?

Sure. I mean we outlined the new product introductions in our release. I think we've got a very good and strong lineup.

Yes. The Pure Blends collection that we launched, it's still early in its launch cycle. So we're watching that. The Smart Shade Smart Balance, that you mentioned, is building upon the successful Smart Shade franchise that was launched in 2007. We also have, as Abbe mentioned, within the Pure Blends franchise, the Volumizing Mascara which we're launching for the first half of 2009. So we feel good about the Almay new product launches.

And just remember with the Almay brand, we're primarily focused on the face and the eye segment.

So we should see - I was just kind of looking at the market share data there. And so I was just wondering if maybe we could see some positive trends there as we move forward like we did with Revlon in the quarter.

It's certainly our intention to have that happen.

Well, actually, just getting back to permanent display cost, is $40 million sort of the new level that we should look at as being the recurring level? Like the amount that you'll always need to spend -- that previously it was sort of $50 million, now it's $40 million? And then of course that number will adjust, depending on what you have going on with new product launches and that sort of thing. But is it kind of like the maintenance level of permanent display costs? Is that the new --?

To your point. in the last few years -- 2007 and 2008, we have spent, as you pointed out, approximately $50 million. We now expect that to be approximately $40 million -- which is an improvement, obviously -- and it's a combination of, as David mentioned, us getting more efficient in our spending. It's a combination of us getting better prices on our inputs and just doing the whole process better.

You've effectively reduced that sort of maintenance expenditure requirement significantly.

Right, and there's factors that could impact that, as I mentioned, going forward. So new product launches would impact the level of spending. Retailer in-store changes in design or layout could impact that spending going forward. So we've got to focus on what we believe to be our spending level for 2009 right now.

Okay, got it. So we could see a change in 2010?

We could.

And then also can you talk about the status of the -- I'm calling it the "go private" transaction?

No, as we indicated at the beginning of the call we won't have any comments on that.

Walter Branson with Regiment Capital.

I apologize if this one was already answered already, but regarding the foreign exchange impact of manufacturing in North Carolina and shipping to international markets, given the slow turn in inventory, did you see a full impact of that in the first quarter? Or is the full impact still to come?

By and large we saw full impact of that in the first quarter. Our inventory turns around three to four times a year. The rates essentially dropped to their current levels at the beginning of the fourth quarter last year. So at the end of 2008, we had essentially all of that negative impact on the balance sheet with the inventory. And that started to bleed through the P&L at the beginning of the first quarter.

And in terms of the ability to price more aggressively to -- or at higher prices, to offset that in international markets, it may not be one answer but do your key competitors in the international markets have the same issue? Or do they typically manufacture in those markets, rather than shipping to the US?

I'm not sure what their manufacturing footprint is, so I couldn't readily address that for you.

Dax Vlassis from Gates Capital Management.

My first question is, do you consider Almay and Mitchum core brands?

Yes.

Okay. And what is the strategy for those two brands? I mean it seems like more of the new products have been towards Revlon and I don't know what the status of Mitchum is or the size of that brand.

Well, Almay has a full range of new products in the segments that we focus on for that brand and continues to be a very strong brand in the US and in the countries that it's in around the world.

The Mitchum brand is also a strong brand in its category. It's the leader in gels. We continue to advertise the brand and we're upgrading the packaging as well. So you'll see that in stores. So it's a very good and profitable brand for us and it is a core brand.

On a similar subject, is there anything that you would consider non-core similar to the -- I don't know how you pronounce it, the Bozzano brand or --?

Bozzano brand. Well, the Bozzano brand was in fact a core brand at the time, a very healthy brand, strong brand in Brazil. We took advantage of an opportunity to realize the value of that brand. So it was a core brand. It was a very healthy brand. We had invested in the brand, we had grown the brand and we happened to have an opportunity come our way and we were able, like I said, to realize the value of the brand.

This ends our Q&A question-and-answer session of today's call. I now turn the call back over to Mr. Kennedy for closing remarks.

Thank you very much, everyone, for participating in today's call and for your continued interest in Revlon.

This concludes our conference call for today. You may now disconnect your lines.