Revlon Inc (REV) 2009 Q2 法說會逐字稿

Good morning ladies and gentlemen and welcome to Revlon's second 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 Ms. Goldstein.

Thank you very much. Good morning everyone and thank you for joining our call. Earlier this morning we released our results for the second quarter ended June 30, 2009. If you have not already received a copy of the earnings release you can obtain one from our website at www.RevlonInc.com.

Here with me today are Alan Ennis, President and Chief Executive Officer, Chris Elshaw, Executive Vice President and Chief Operating Officer, and Steven Berns, Executive Vice President and Chief Financial Officer. On today's call Alan will provide a strategic update on the business. Chris will review our market place performance and Steven will review our financial results.

Before we get started I would like to remind everyone that our discussion this morning might include forward-looking statements which 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 second quarter 2009 10-Q which we plan to 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, and in the case of free cash flow to net cash provided by operating activities, the mostly directly comparable GAAP measures in the accompanying financial tables.

As you know, we issued a press release on April 20 noting 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 and what was in that press release and will not be taking any questions on this subject. If and when there are developments that require disclosure, we will of course do so.

Unless otherwise noted, our discussion this morning of share, dollar volume data and product ranking is based on US mass retail dollar volume growth 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 two-thirds 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 will hand it over to Alan.

Thank you Abbe and good morning everyone. As we have discussed with you in the past, our business strategy, which we formulated in late 2006, focuses firstly on building and leveraging our strong brands. Secondly, improving the execution of our strategies and plans and providing for continued improvements in our organizational capability through enabling and developing our employees. Third, continuing to strengthen our international business; fourth, improving our operating profit margins and cash flow; and fifth, improving our capital structure.

The successful execution of this strategy has led to significantly improved profitability, reduced debt, stabilized market share around the world and, in 2008 as you know, the generation of net income and positive free cash flow.

Revlon has incredible talent and capabilities, broad geographic reach, strong global brands, and a heritage that recognizes the importance of philanthropy. We continue to take actions to enable Revlon to become a stronger, more financially strong organization and continue to have measured success around the world, while staying true to our vision of providing glamour, excitement and innovation to consumers through high-quality products at affordable prices.

We are, of course, keenly aware of the current challenging economic environment. We are managing our resources carefully while maintaining a balanced perspective on the long-term growth of our brands. We are continuing to focus on successfully executing our established business strategy while we monitor economic and competitive conditions and adjust our plans, as appropriate, to deliver the best possible results.

Let me now take a few minutes to discuss specific actions we have taken and progress we have made in the second quarter of this year in furtherance of our established business strategy.

In relation to building and leveraging our strong brands, we continue to develop and improve our three-year brand portfolio strategy for all of our brands, and to focus on the drivers of profitable brand growth, namely - innovative, high-quality, consumer preferred brand offering, effective consumer brand communication, appropriate levels of advertising and promotion and superb execution with our retail partners.

To that end, in the first half of 2009 we introduced and appropriately supported a comprehensive lineup of key innovative new products and are pleased with their market place performance. A few such products are Revlon ColorStay Ultimate Liquid Lipstick, Revlon DoubleTwist mascara and Almay Smart Shade Smart Balance, all of which are doing well, albeit early in their launch cycles.

On May 1, 2009, we announced that Jessica Biel joined our star-studded lineup of accomplished, modern and glamorous group of brand ambassadors for our Revlon brand. Jessica joined the Academy Award winning actresses Halle Barry and Jennifer Connelly, actresses Jessica Alba and Beau Garrett and supermodel and entrepreneur, Elle Macpherson.

Also, we are very proud of our company's long-standing and continued philanthropic efforts. In continuation of that heritage, we again sponsored the annual EIF Revlon Run/Walk for women in New York City and Los Angeles in May of this year. Each year, these events raise more than $10 million in support of women's health initiatives and the fight against cancer.

Moving on with our strategy, in terms of improving our operating profit margins and cash flow, on May 28, 2009 we announced an organizational restructuring to reflect the more efficient workflows and processes that we have implemented over the past two years. That organization restructuring, which has now been fully implemented, is reducing our annualized costs by approximately $30 million, of which $15 million will benefit the second half of this year.

This action represented an important, necessary and logical next step forward for Revlon and is enabling us to become a stronger, more financially sound organization while continuing to invest in our people and our brands.

Additionally, we have an ongoing approach focused on taking advantage of all opportunities to reduce both our direct and indirect input costs. For example, during the second quarter of 2009, we delivered greater media presence, or gross rating points, by benefiting from lower negotiated advertising rates.

In terms of our capital structure, as Steven will cover with you in more detail later in this call, in the second quarter 2009 we reduced total debt by approximately $9 million. So far in 2009 we have reduced debt by nearly $50 million and since the start of 2008, by almost $160 million. In addition to lower debt levels, we have also benefited from lower interest rates on our floating-rate debt.

We believe that continued execution of our established business strategy will, over time, generate profitable net sales growth and sustainable positive free cash flow. So with that, let me hand it over to Chris, who will take you through our market place performance in detail.

Thank you Alan and good morning everyone. According to ACNielsen, which as you know does not include Wal-Mart, our largest customer, while the mass color cosmetics category in the US continued to grow in the second quarter of 2009, the rate of growth slowed sequentially to 1.1%, compared to 3.3% in the first quarter this year and 4.6% in the same period last year.

In addition, certain retailers reduced inventory levels versus the year ago period, which had a significant impact on our net sales in the second quarter. We believe that rather than these retailer inventory reduction actions being a timing shift from quarter to quarter, it is more likely to be a permanent reduction in retail inventory levels. There remains uncertainty about what further actions, if any, retailers may take going forward. We maintain strong working relationships with our retail partners and we continue to work closely with them.

Now moving on to our brand performance in the second quarter. Revlon color cosmetics' dollar volume declined 2.6% in the second quarter 2009, resulting in a share decline of 0.5 percentage points. This follows a share gain in the first quarter and resulted in Revlon's first half 2009 share increasing 0.1 percentage points compared to the same period last year.

Our period to period share reflects new product launch timing and promotional phasing, as well as the impact of market factors such as category performance and competitive activity.

In the face segment, Revlon dollar volume declined 9% versus the year ago period when we had the successful first half 2008 launches of Custom Creations foundation and ColorStay Mineral powder foundation, both of which were top 10 ranked new products in the year-ago period. However, the decline was partially offset by the positive performance of Age Defying Spa foundation and Age Defying Spa concealer, both of which are first half 2009 launches, as well as ColorStay Mineral Mousse makeup, introduced for the second half 2009.

Revlon continues to hold the number one position in the lip segment with a 22.3% dollar share. We grew dollar volume 1.9% driven by the strong performance of ColorStay Ultimate Liquid Lipstick which, while still early in its launch cycle, has gained a 1.9% dollar share of the segment and is already in the top 10 new products in the quarter. The continued positive performance of Creme Gloss and Matte Lipstick, both first half 2009 launches, also added to our positive lip segment results.

In the nail segment, our core nail franchise grew by 28.9%, driven by new shade introductions and effective brand advertising.

In the eye segment, our dollar volume declined 2.8%. Positive performance by DoubleTwist Mascara, still early in its launch cycle, continued strength in ColorStay ancillary products, as well as Matte eyeliner was offset by declines in eyeshadow and other mascara products.

Moving on to Almay, in the second quarter of 2009, Almay dollar volume decreased 6.5%. Declines from products launched in prior years and from discontinued lines were not fully offset by gains from new product introductions. We have seen positive performance by Smart Shade Smart Balance makeup, still early in its launch cycle, as well as Pure Blends. The Bright Eyes collection also continued to perform well in the eye segment, and Almay maintains its leadership in the eye makeup remover segments.

Moving to women's hair color, in the second quarter 2009, dollar volume in the women's hair color category declined by 5.2% while Revlon ColorSilk hair color grew by 14.4%. As we have said before, more units of Revlon ColorSilk hair color continue to be purchased in the US markets than any other brand.

Moving to antiperspirant/deodorants, in the second quarter of 2009, dollar volume in the antiperspirant/deodorant category grew by 0.9%, while Mitchum declined by 10.7%. Mitchum holds a leading position in gels, a subcategory that has been negatively impacted by the expansion of clinical-type products. Mitchum is a key strategic brand for us. We intend to continue to focus and support the brand with appropriate levels of advertising and promotion as well as new product introductions.

And finally beauty tools, in the second quarter of 2009, dollar volume in the beauty tools category declined 20.2%, as the category cycled the launch of a nontraditional pedicure tool in 2008. Revlon Beauty Tools declined by 9.5% and gained 2.4 share points, taking dollar share to 20.2%. Revlon continues to hold the number one position in the beauty tools category.

Our Pedi-EXPERT product, launched for the first half 2009, is ranked number one in the top 60 new beauty tools through June 2009. I will turn it over to Steven.

Thank you Chris and good morning everyone. Starting with our P&L for the second quarter of 2009, net sales in the second quarter were $321.8 million, a decrease of $44.7 million compared to the prior year's $366.5 million.

The primary drivers of the net sales decline were retailer inventory reduction actions and the unfavorable impact of foreign currency fluctuations. Excluding the impact of foreign currency of $16.7 million, net sales decreased 7.6% in the quarter.

From a brand standpoint, we had lower net sales of Revlon and Almay color cosmetics and Revlon Beauty Tools, partially offset by higher net sales of Revlon ColorSilk hair color.

In the United States, second quarter 2009 net sales were $186.2 million, a decrease of $30.2 million or 14%, compared to $216.4 million in the same period last year. This decline was primarily driven by retailer inventory reduction actions, which resulted in lower net sales of Revlon and Almay color cosmetics.

In our international operations, net sales in the second quarter of 2009 were $135.6 million, a decrease of $14.5 million or 9.7%, compared to $150.1 million in the same period last year. The entire decline was due to unfavorable foreign currency fluctuations which negatively impacted net sales by $16.7 million in the quarter. Excluding the unfavorable foreign currency fluctuations, net sales increased by 1.5%, driven by higher net sales in Latin America and Asia Pacific regions, partially offset by lower net sales in the Europe region.

The growth in net sales, excluding the FX impact, was primarily due to higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, partially offset by declines in Revlon Beauty Tools.

In our Asia Pacific region, which is comprised of the markets in the Asia-Pacific region and Africa, net sales were down 5.9% to $62.7 million. However, excluding unfavorable foreign currency fluctuations, net sales increased 3.3% over the year ago quarter. This growth was primarily due to higher shipments of Revlon color cosmetics in Australia and China, partially offset by lower shipment of Revlon color cosmetics in Japan.

In our Europe region, which is comprised of Europe, Canada and the Middle East, net sales were $45.7 million compared to $57.2 million in the year ago quarter. Excluding unfavorable foreign currency fluctuations, net sales were down 4.9%. Lower shipments of Revlon color cosmetics in Italy and Canada were partially offset by higher shipments of Revlon skin care in certain distributor markets.

In our Latin American region, which is comprised of Mexico, Central America and South America, net sales increased 3.4% to $27.2 million compared to $26.3 million in the year ago quarter. However, excluding unfavorable foreign currency fluctuations, net sales were up 10.6%. This increase was primarily driven by higher net sales in Venezuela and Argentina and higher shipments of beauty care products in certain distributor markets, partially offset by lower shipments of fragrances and beauty care products in Mexico.

Now moving down the rest of the P&L for Revlon Inc. During the second quarter of 2009, we maintained appropriate levels of advertising and promotional spending across our portfolio of brands compared to the same period a year ago. As a reminder, from a financial reporting perspective, promotional allowances are reported as a deduction to arrive at net sales while advertising costs are recorded within SG&A on the P&L.

In the quarter, our gross profit margin was 62.5% compared to 66% in the year ago quarter. In the second quarter of 2009, gross margin was impacted by increased inventory obsolescence charges, unfavorable foreign currency fluctuations and unfavorable changes in sales mix, as well as higher pension expense within the cost of goods sold line.

SG&A expenses of $156.3 million improved by $31.9 million from $188.2 million in the same quarter last year. This improvement was driven by the favorable impact from lower advertising expenses due, in part, to shifts in timing of certain advertising spending, as well as lower advertising rates. In addition, SG&A was favorably impacted by lower general and administrative expenses primarily due to lower compensation expenses, favorable foreign currency fluctuations and lower permanent display amortization expenses. These positive factors were partially offset by higher pension expenses.

It is important to note that the lower advertising expenditures I just mentioned were achieved while increasing the efficiency of our advertising as measured in gross rating points, also known as GRPs.

Operating income in the second quarter of 2009 was $26.6 million, including $18.3 million of restructuring charges related primarily to the May 28, 2009 restructuring, compared to $59.2 million in the same period last year.

As Alan mentioned, annualized cost reductions from the May 2009 organizational restructuring are expected to be approximately $30 million, of which approximately $15 million will benefit our second half 2009 results. Restructuring and related charges for the year are expected to be approximately $21 million, comprised of $18.3 million of employee-related costs, including severance and other termination benefits, which was recognized in the second quarter of 2009, and approximately $3 million related to the consolidation of our facilities in New Jersey which will be recognized in the second half of 2009.

Adjusted EBITDA in the second quarter of 2009 was $43 million, including $18.3 million of restructuring charges, compared to $81.3 million in the same period last year.

Second quarter 2009 operating income and adjusted EBITDA included pension expense of $5.7 million, compared to $1.8 million in the second quarter of 2008. As a result of the sale of a facility in Mexico, the second quarter 2008 operating income included a net gain of $5.9 million and adjusted EBITDA also benefited by that same sale by $6 million.

Net income in the second quarter of 2009 was $200,000 or nil per diluted share, including $18.3 million of restructuring charges, compared to $19.9 million, or $0.39 per diluted share, in the same period last year.

In addition to the restructuring charge, net income in the second quarter of 2009 was also impacted by higher foreign currency losses of $3.3 million and higher pension expense of $3.9 million, offset by lower taxes of $8.8 million and lower interest expense of $6.7 million. Second quarter 2008 net income included a net gain of $4.9 million related to the sale of the facility in Mexico.

Interest expense for the first quarter was $24 million, an improvement of $6.7 million from $30.7 million in the year ago quarter due both to lower average borrowing rates as well as lower average debt levels.

The second quarter of 2009 also had reduced amortization expense, primarily resulting from the lower spending on permanent displays which has been achieved by a significantly improved product portfolio planning process. We expect to spend approximately $40 million on permanent displays for all of 2009.

In the second quarter the company had a tax benefit of $200,000 as compared to a provision of $8.6 million in the second quarter of 2008. This was due to lower taxable income outside the United States and the favorable resolution of a US tax matter during the second quarter.

Looking at the P&L for the first six months of 2009, net sales during the first six months decreased 7.8% to $625.1 million, compared to the net sales of $678.2 million in the same period a year ago. Excluding unfavorable foreign currency fluctuations of $37 million, net sales decreased by 2.4%.

In the US, net sales decreased 4.2% to $377.2 million compared to net sales of $393.6 million in the first six months of 2008.

In our international operations, net sales in the first six months of 2009 decreased 12.9% to $247.9 million, compared to $284.6 million in the first six months of 2008. Excluding the unfavorable impact of foreign currency fluctuations of $37 million, net sales in international operations in the first six months of 2009 were essentially unchanged compared to the prior period -- the same period last year.

Operating income was $58.2 million in the first six months of 2009, which included a net charge of $18.8 million, primarily for restructuring. The $58.2 million is compared to $91.2 million in the first half of 2008.

Our Adjusted EBITDA was $92.1 million in the first six months of 2009, compared to $138.8 million in the same period last year.

And net income for the first half of 2009 was $12.9 million, or $0.25 per fully diluted share, compared to $17.4 million, or $0.34 per diluted share, in the first six months of 2008.

As compared to the first six months of 2008 net income in the first half 2009 was negatively impacted by higher foreign currency losses of $10 million and higher pension expense of $7.8 million, while being positively impacted by lower taxes of $16.6 million, lower interest expense of $14.7 million, and a $7.5 million gain on repurchase of $30.9 million principal amount of our 9.5% senior notes.

The first six months of 2008 included a net gain related to the sale of our facility in Mexico and the amount of the gain reflected in operating income was $5.7 million, net income reflected $4.9 million and Adjusted EBITDA reflected $5.9 million.

Operating income, net income and Adjusted EBITDA in the first six months of 2008 also include a net gain of $5.9 million related to the sale of a non-core trademark.

Turning now to cash flow, operating cash flow in the first six months of 2009 was $18 million compared to $20.8 million in the year ago period.

Free cash flow, which we define as operating cash flow, plus proceeds from the sales of certain assets, less capital expenditures, was negative $3 million in the second quarter 2009, compared to a positive free cash flow of $7.4 million in the year ago quarter.

Free cash flow in the first six months of 2009 was $14.5 million, compared to $22 million in the same period last year. Second quarter and first six months 2008 free cash flow did include the receipt of $2.7 million related to the sale of a facility in Mexico. Free cash flow in the first six months of 2008 also included the proceeds of $5.9 million related to the sale of the non-core trademark I just mentioned.

Regarding borrowing capacity, our unutilized borrowing capacity as well as cash at June 30, 2009 totaled $127.8 million and that was comprised of $111.1 million available under the revolving multi-currency facility and $16.7 million of cash and cash equivalents.

Repurchasing $7 million in aggregate principal amount of our 9.5% senior notes. After these repurchases, there remained outstanding $359.1 million aggregate principal amount under our 9.5% senior notes. Additionally we reduced outstanding borrowings under the revolving credit facility by approximately $2.5 million in the second quarter. In total, in the first half of 2009, we have reduced debt by $48 million.

Moving on to the balance of 2009, I would like to update you on several 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 flows.

As mentioned during our first-quarter call, the declines in the global financial markets in 2008 resulted in a decline in the value of our pension plan assets. On May 28, 2009 we announced an amendment to our US pension plan. At that time, we advised you that we expected pension and post-retirement expenses would be approximately $25 million to $30 million in 2009, compared to $7.4 million in 2008. We are confirming that estimate today.

As a result of the decline in 2008 in the value of the pension assets, and after giving effect to the amendment that we discussed, or that we stated on May 28 in our press release, we expect our P&L expense related to pensions to be approximately $19 million to $24 million higher in 2009, compared to 2008.

We also advised on May 28th that we were required to re-measure our pension plan assets and liabilities and we estimated, at that time, that we expected our liabilities would decrease by approximately $50 million from the balance at 12/31/2008. At June 30, 2009, the actual reduction in the pension liability related to these amendments is approximately $9 million. The decline in our estimate of $50 million to the actual of $9 million was caused by a significant decrease, late in the second quarter, in the benchmark interest rates used to discount pension liabilities.

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

Next, relating to currency, as you probably know, in late 2008, the US dollar strengthened significantly relative to other major currencies. As a result, our reported second quarter 2009 net sales were negatively impacted by $16.7 million, which equates to an 11.2% decline in net sales in the quarter for our international business, or a 4.6% decline in total company net sales.

Through June 30, 2009, foreign exchange rates versus the US dollar have not changed significantly from the levels in the fourth quarter of 2008 and, therefore, should they remain at those levels, there may be a negative impact on net sales and operating income for the third quarter of 2009 versus the third quarter 2008.

Additionally, changes in foreign currency rates could have an impact on our 2009 results as approximately 40% of our international products are sourced from our manufacturing facility in North Carolina. The impact of a stronger US dollar versus foreign currencies 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 on to the consumer. However, there is a time lag until such transaction impact flows through the P&L.

As we have indicated on previous calls, while we are not providing specific guidance for Adjusted EBITDA for 2009, we have previously provided information to assist you in understanding the factors that will impact our expected full-year 2009 free cash flows. So updating the information provided on our April 2009 call, we expect capital expenditures to be approximately $15 million in 2009. Permanent display expenditures are expected to be approximately $40 million. And with respect to interest paid, interest paid in 2008 was $123 million. At the end of June 2009, our total debt was approximately $1.28 billion, which was $48 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 from the current interest rate environment on our floating interest rate debt. In addition, based on current interest rates, we expect to also benefit from the September 2009 expiration of our $150 million interest rate swap. Taxes paid in 2009 are expected to be approximately $15 million. And at last, all other cash flows in 2009, including changes in working capital and the impact of the higher pension expense and contributions I previously mentioned, are anticipated to result in cash usage of approximately $15 million.

With that, we would now like to open up the call for your questions. Operator, if you would please prompt the participants for questions.

(Operator Instructions) Todd Harkrider, Goldman Sachs.

Thanks for taking my questions. I know you don't give out detailed guidance, but I was hoping to get some color on the third quarter in general. Is it tracking better than expected, lower or in-line with your internal plans?

As you know, as you correctly pointed out, we don't give forward-looking guidance in that context. What I can tell you is what we have seen in the second quarter and to reiterate some of the points we have made, which is different from what we saw in the first quarter and indeed different from what we saw in the fourth quarter of last year.

Specifically, in the US, that we saw the color cosmetics category, according to ACNielsen, the growth rate started to slow. So, it was at around a 3 to 4% growth rate for the last few quarters and in second quarter, that growth rate slowed to 1.1%. So that is a change from what we had been seeing in the past. Additionally, as we mentioned, certain retailers in the US, and in certain countries outside of the US, have taken inventory reduction actions which did impact our second quarter net sales. So, there is continued uncertainty, Todd, as we go forward.

What we are focused on is continuing to do what we have done well in the past, which is to execute our strategy, focus on the drivers of profitable brand growth. We have had some good successes in the market place in terms of our new product launches so far this year, and we believe that will continue.

Okay. Maybe to touch on the new ColorStay Ultimate Liquid Lipstick, it seems like such a strong product, given it is the first one-step long-lasting product out there. But comparing your dollar volume growth to the face segment last year where you had some other excellent product launches, it seems like this one might not be as successful as planned. Is that because it is taking longer to rollout - or, and we should see the benefits in the third quarter? Or is that product just performing below plan? Thanks.

As you rightly pointed out, the face segment is down but our lip segment has increased this year. So we are the number one brand in the lip segment. ColorStay Ultimate Liquid Lipstick is a relatively recent launch. It already has just under a 2% marketshare and is already in the top 10 new products. So, I think that augurs well for the future.

Okay. And you are around 20 months away from the maturity of your unsecured bonds. With the credit markets opening up, have you started talking to banks on refinancing that debt or would you rather wait until the MacAndrews & Forbes offer to the minority shareholders is cleared up?

As you correctly point out, the notes to mature in April 2011. We continue to monitor the financial markets to assess the appropriate course of action and we expect the -- and we consider the timing of any refinancing activities as we do that.

I appreciate it and good luck with the rest of the year.

Reza Vahabzadeh, Barclays Capital.

Just as far as the health of the category is concerned, let me just start off with a question about retailer inventory destocking. Do you think, whether it is the category or Revlon products, are you done with retailer inventory destocking as much as you know today?

All we know today is what occurred in the second quarter. As we said, the reduction in retailer inventories had a significant impact on our net sales in the second quarter. There is still some uncertainty about what retailers might do, if anything further, in the second half of the year. But we continue to work very closely with them on managing those inventories.

And how significant was the retailer inventory destocking in the second quarter?

Well, it was the primary driver of our net sales reduction in the US.

Okay. So ex retailer destocking you would have been nearly flat?

Here is what I will tell you. If you look at net sales for the company, the two single biggest drivers of the decline in net sales were foreign currency fluctuations and the retailer inventory actions. So take from that what you will.

I think another point worthy to note in relation to the inventory and the retail inventory points, and to build on what Chris said; we don't believe the actions taken by the retailers are specific to our brands or to our categories. So it wasn't a Revlon-specific action, we don't believe.

Right. And then as far as the category is concerned, regarding mass cosmetics. The category obviously slowed in the second quarter from the first quarter trends, not to mention prior-year trends. As far as run rate trends, did that deceleration continue late into the second quarter and into the third quarter, as best as you can tell from a POS standpoint?

We don't have third quarter Nielsen information as yet. In the second quarter, it did actually include the first month of decline since November 2004. So, that certainly is a difference. It's a long period of years since there has been a decline.

However, if you look at the growth range over a longer term, say since 2000, the category has been between a minus 2 and a plus 6. And that is the area it seems to inhabit. So we will know more obviously as we go through the third quarter.

Got it. But I mean just from our perspective, from a modeling perspective, is it reasonable to expect some deceleration in the category as we go into the third quarter, based on all the comments you have made, and ACNielsen made, and the like?

It is difficult to foresee that because the months vary. Some months are up, some months are down. It is hard to get a trend from that. What we know to date is it decelerated in its rate of growth.

Got it. Okay, and just one financial housekeeping question, and I appreciate all of the disclosure you provided previously. The cash restructuring spend for 2009 and also second half of 2009, did you to mention that number?

Yes. We mentioned in the release we published on May 28, we did disclose in that release the expectations for the cash disbursements both in 2009 all the way out through 2012. That is in the May 28 release.

Got it. As it relates to the P&L, do you have additional cost savings in the second half of 2009, over and beyond the SG&A cost savings you talked about, in order to be able to cushion maybe, FX headwinds, or maybe even category headwinds? I know you had some manufacturing cost savings in the last 18 months.

Well, as you know, and I know you have followed Revlon for some time, we are always looking at ways to improve our costs. Specifically, in the first part of this year, we took some specific actions as I mentioned. We did announce our restructuring, as I mentioned to you, which will generate about $15 million of incremental savings in the second half of this year. We also are benefiting from, and will continue to benefit from, lower advertising rates. So for example, in the second quarter, we actually increased our media presence but did so at lower rates.

We are also looking at all of our input costs, direct and indirect, to make sure we are benefiting from the best rates that are out there. That includes chemicals, packaging, etc., all of our manufacturing and non-manufacturing inputs. So we continue to find ways to improve our cost structure going forward.

Right. You are not talking about a specific new manufacturing cost savings plan in the second half that would be necessarily significantly above the prior year?

No, and our approach has been, and will continue to be, that as and when we have information about a cost saving action, whether it is in manufacturing or elsewhere, we would report that to you at that time.

Got it, thank you.

Carla Casella, JPMorgan.

They answered a bunch of my questions. But I wonder if you could just talk about returns and allowances and how that trended during the quarter?

Nothing specific to call out there really, in terms of returns and allowances. We have made significant improvements over the last couple of years, since the beginning of 2007, in our level of returns. That is really driven by the effective implementation of our three-year rolling portfolio plan.

So what we have for all of our brands, Carla, is we have a view out three years, at any point in time, to what we plan to launch and also what we plan to discontinue. So with that backdrop, we're able to make better decisions around timing of shipments, inventory management, etc., all of which have resulted, generally, in a decline in the level of returns, the ongoing level of returns expense period to period.

And you don't think that could tick up with the retailers destocking?

No. We have not seen that. I think the impact of the retailer destocking actually is lower shipments. So we are shipping lower inventory into the channel in the second quarter. So in actual fact, there would be less inventory to return should there be a discontinuance of a product.

Okay, and then on the destocking, one more related question. Are you seeing still an increase in the number of store brands in the retailers? And do you think they are destocking to move away from the national brands and more into the store brands?

If you mean by store brands - private-label?

Private label.

Private label is not a big influence in this category. Most of the share in the category is owned by branded products. So, certain retailers bring in very niche brands, but in general we don't see any private-label introductions.

Okay. It just seems like, in the drug category, we're starting to see more of the higher end skincare lines, many of which are private-label and then some are just new lines. And I am wondering if they're shifting more towards that look. There are more consultants in the store and they are focused more away from the national brands.

No, we have not seen that in the drug category.

Lastly, on the new product side, going forward in third quarter/fourth quarter, can you give us a sense for your new product shipments for third quarter? Are they to the same magnitude as third quarter last year?

Well, as you probably know, many of the new product shipments take place in the second quarter. The way that the cycle works is that, in the US, there are two periods a year where most of the new product shipments take place. Towards the end of the second quarter, leading into the third, and towards the end of the fourth quarter, leading into the first. In the international markets, that is not the case. They tend to take place throughout the year.

Right, but I think I have seen you, maybe talking about last quarter the shipments of the first quarter. So I guess as we look into the back half, I'm just trying to get a sense for - are we looking at an apples to apples type size of launches or are the launches greater or less than in the past?

Well, as an indication, second quarter shipments on new products are commensurate with the shipments in the second quarter of last year. And Alan said, we have a rolling three-year portfolio plan, the aim of which is to make sure that we continually build product our portfolio in stores throughout the years.

Great, that is helpful. Thank you.

Walter Branson, Regiment Capital.

Thanks. I'm not sure if you said this, but of the $18 million in charges you took for employee severance, how much of that was already paid through the first half?

We did not say that. What we said was during 2009 as was disclosed in 28 May release as well as what will be disclosed in our 10-Q, we expect to pay approximately $12 million this year.

Okay. And my other question is (multiple speakers)

And that is in the second half of 2009.

In the second half?

Correct.

But then I can take from that not much has been paid through the first half?

Correct.

And my second question is: You bought some more bonds during the quarter; how much additional ability do you have at this point -- whether you intend to do it or not -- but how much ability do you have under your credit agreement to buy additional bonds?

We have limited availability. And those documents, in terms of the credit agreements as well as the indentures with regard to the capacity, are all in the public domain. We have not disclosed that.

Thanks very much.

Karru Martinson, Deutsche Bank.

Good morning. Apologies; I had to hop on and off the call, so if this is a repetition, my apologies for that. In terms of the inventory reduction, are we seeing any change in the aggregate shelf space for Revlon? Or is this basically getting rid of the stock in the backroom?

It is exactly that. There is no change in our shelf space.

And no change for the 2010 new product launches and the planograms that you have? That all remains the same?

As far as we are aware at this moment there is no change there either.

And in terms of the slow down for the cosmetic category growth, I think when you guys announced the restructuring, you said it had been really the past four weeks at that time. Have you seen that trend accelerate? Or what have you been seeing on that front?

Well, as we said, what we have seen is a deceleration over time and that happened throughout the first half. Months go up and months go down, but certainly the aggregate level in second quarter was lower than first quarter. We are all interested to see of course how that will play out in the third and fourth quarters. At this moment, there isn't a clear trend as to what is going to happen.

OK and then just in terms of the competitive response to inventory the destocking. Are you seen any change from your competitors, whether it is to be more promotional or more aggressive in terms of displays?

As you well know this is a highly competitive category.

Absolutely.

And it continues to be highly competitive.

All right, we'll take it at that then. Thank you very much guys.

Mary Gilbert, Imperial Capital.

Just kind of going back to the inventory reductions that - was that -- did that take place across all types of retailers, one? And then two, is it kind of a one-time effect? In other words they've already reduced their inventories. Or is it because of the slow down in the category we are going to continue to see inventories, shipments down year-over-year, as we move through the balance of the year?

A couple of things Mary. First of all, as I mentioned, we don't believe that the retailer inventory reduction actions were specific to Revlon's brands. We believe that it is across brands and in fact across categories. So we don't think it is specific to our company.

The second point is, what we do know is what happened in the second quarter, as we talked about. We work, and have worked, and continue to work, very closely with our retailers. We have extremely good relationships with all of our key retailers, both in the US and around the world, and we will continue to work with them. In terms of what is going to happen in the future, too early to tell.

Okay. The other thing is I just wanted to get these numbers very quickly, because you went pretty fast. But how much was outstanding under the revolver? How much was available?

The revolver availability, in total, we had total capacity of $127.8 million, including $111 million available under the revolving credit facility. And as we said, we had $16.7 million of cash at quarter end.

Okay, so the $127.8 million is total liquidity, is that how you were describing it?

Correct.

So $111 million available under the revolver and how much was outstanding and borrowing?

At that time, at the end of the quarter we had approximately $1 million borrowed. Correct.

As you know, Mary, the revolver has $160 million of capacity, but it is an asset backed revolver, which means that it is tied to your asset levels. As you know, over the last certainly 12 to 18 months, we have continued to improve our inventory levels. A direct consequence of that is that your borrowing base comes down.

So essentially, our revolver was, for all intents and purposes, undrawn at the end of the second quarter. We do have around $13 million of letters of credit which we have had for some time. So the difference between the $127 million plus $13 million, which is $140 million, and the $160 million is a decline in the asset base that supports that facility.

Okay, that makes sense.

One other thing just to clear up on pension, how much is pension funding expected to be this year? Not the year-over-year increase but the actual dollar amount of funding and how much is the expense number expected to be?

Right. As I discussed, this pension funding is expected to be $25 million to $30 million.

Okay.

And the pension expense is also expected to be $25 million to $30 million.

Okay. So, in other words, it is basically going to match, so there's going to be excess funding, over and above what is expensed? So the $15 million of other, let's see other cash items that you talked about including working capital, is that reflecting the -- (multiple speakers) -- is that reflecting the $11.9 million of cash restructuring costs, then, that $15 million?

Yes.

Okay, perfect. Thank you very much.

Reza Vahabzadeh, Barclays Capital.

I was wondering if you have a feel, and can discuss, what you think will be the pace of new product introductions category-wide, and especially your competitors. Is the pace of new product introductions increasing sequentially and year-over-year, or is it decreasing?

No, we have not seen any change in the pace of new product introductions. As you know, it is a significant portion of the category and that continues.

So versus last year and the run-rate, we're about the same as we have been?

Yes.

And then as far as just competitive activity, and I know it has always been highly competitive and it may stay like that as well. But as far as promotional prices and duration, have you seen any change in that?

Not as yet. The promotional activity continues to be intense.

So, to what factor do you attribute your changes in market share versus last year?

As you know, the share from period to period depends upon a number of different things. It depends upon our new product timing, it depends on our competitive activity, and also what goes on in the market place. So, while the aggregate continues to be around the same, if you are not directly anniversarying in the same period to prior year, that can shift around. So, it is really a matter of timing year-over-year on some of these things.

So you don't think you are losing share because of increased promo activities? Is it just timing of new products - because the market share in mass cosmetics in the second quarter was clearly one of the lowest, at least in the last few quarters.

And as we talked about frequently, it's a question of market share over time. Share does go up and down in this category, period to period.

I get it, thank you.

Patrick Trucchio, BMO Capital Markets.

In terms of FX and gross margin, assuming rates remain about where they are now, would we have seen the worst effect from currency on gross margin in the second quarter?

What we said earlier in our prepared remarks was that it would be an impact in the third quarter of 2009, versus the third quarter of 2008, if the rates were to stay at the same levels that they were at in the second quarter.

What we can tell you is that unfavorable foreign currency fluctuations, as I mentioned earlier, did reduce gross profit percentage, gross profit as a percentage of net sales, by 0.9 percentage points. So there was the impact as I mentioned. Primarily there's a couple of factors. One, it is obvious that our international operations are buying product from our North Carolina facility.

Okay. And do you purchase advertising on a spot basis or do you have longer-term contracts?

Like most of the market place, it is a combination of upfront purchases and what is called scatter purchases and that is how we operate.

Okay, great. Thanks so much.

Just to clarify one other point that Steven made if I can, Pat. On the FX piece, you talked about transaction. And as you know, and we have talked about it many times, unfortunately, there is a translation piece and there is a transaction piece.

On the cost of goods margin piece, while the translation impact, should rates stay where they are, that will wash through the third quarter. And in the fourth, on that basis, we would be apples and apples. But from a transaction standpoint, because of inventory turns, that transaction impact would bleed into the fourth quarter.

Would it also bleed into 2010, the transaction piece?

For the most part, no. We typically turn inventory three to four times a year, so from a general standpoint you would expect most of that transaction impact to come through in the fourth quarter. There would be, potentially, a small tail in the first quarter of 2010. But, by and large, the fourth quarter of 2009 should take care of that, again, assuming rates stay where they are.

Great, thank you very much.

(Operator Instructions) Mary Gilbert.

Just a follow-up on ad spend and your strategy. I know you gave these numbers, and it was a bit quick. But could you go over how much did you reduce ad spend year-over-year in the quarter?

Steven will give you some specific numbers. I think the important point here, Mary, is that we have maintained an appropriate level of spending in the quarter. Ad spending, quarter to quarter, can vary depending on the timing of new product launches, for example.

What we did also say is we did benefit from reduced rates. So we actually achieved a higher level of, what they call gross rating points or media pressure, for actually lower dollars spent.

(multiple speakers) Okay so there was no dollar reduction in ad spend.

Not meaningful.

What about on a go forward basis? Is there any kind of a strategy there because of lower rates where you were still able to get the benefit you intended to get, and -- but you are just lowering the dollar spend because of better rates? Or in that you were able to measure or spend more efficiently in terms of the media?

Well, we certainly intend to maintain our media pressure. There is no doubt about that. But at the same time we are, like many other people, in negotiation for the upfront right now. So, at this moment it is all in a state of flux. But clearly there are significant savings occurring in the media market.

Okay and then do you expect to redeploy those savings into further brand support or to realize those benefits in cash?

The first thing is to maintain competitive and appropriate market pressure. So we will continue to make sure that we are appropriate in the level of gross rating points we are achieving.

Okay. One last thing, just kind of looking at all of the puts and takes, do you expect to be, and I realize you are not providing guidance, but do you expect to generate cash this year, be neutral or have a slight burn?

That would be forward-looking guidance obviously, Mary, which we are not going to disclose. You know me better than that.

Okay. All right, thank you.

This ends the question and answer session of today's call. We will now turn things back over to Mr. Ennis for closing remarks.

Thank you Leslie and thank you everyone for joining our call. We continue to do what we have done well over the last several years and we will do so going forward. Thank you for your continued interest in Revlon.

Thank you. This concludes today's conference call. You may now disconnect.