Revlon Inc (REV) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Revlon's first-quarter 2012 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. At the conclusion of today's presentation we will open the call for questions. (Operator Instructions)

I would now like to turn the call over to Ms. Elise Garofalo, Revlon Senior Vice President, Treasurer and Investor Relations. You may now begin, ma'am.

Thank you, Doris. Good morning, everyone, and thanks for joining today's call. Earlier today we released our results for the first quarter ended March 31, 2012. If you have not already received a copy of the earnings release you can obtain one on our website at revloninc.com.

On the call with me this morning are Alan Ennis, Revlon's President and Chief Executive Officer; Chris Elshaw, Chief Operating Officer; and Steven Berns, Chief Financial Officer.

Before I turn the call over to Alan I would like to remind everyone of a few things. First, our discussion this morning might include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act. 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 2011 Form 10-K and our 2012 first-quarter Form 10-Q, which we filed earlier this morning.

Next, our remarks today will include a discussion of adjusted EBITDA and free cash flow, both of which are non-GAAP measures. These non-GAAP measures are defined in the footnotes to our release and are also reconciled to their most directly comparable GAAP measure in the financial tables at the end of our release.

And finally, as a reminder, our discussion this morning should not be copied or recorded. With that, I will turn the call over to Alan.

Thank you, Elise, and good morning everyone.

As we have discussed with you in the past, Revlon's vision is glamour, excitement, and innovation through high quality products at affordable prices and this underpins everything we do. We realize this vision by executing the five key elements of our business strategy -- building our strong brands; developing our organizational capability; driving our company to act globally; increasing our operating profit and cash flow; and improving our capital structure. We are carrying positive momentum into 2012 with respect to our strategic goal of profitably growing our business and in the first quarter we made progress in a number of areas.

With regard to our top line, net sales grew as a result of the inclusion of the acquisition of SinfulColors and improved net sales in Asia-Pacific, Latin America, and Canada. While we saw net sales growth in our Latin America region, we continued to experience lower net sales in Venezuela, as we have not yet fully resumed there following the June 2011 fire at our local facility. We saw some softness in the US and EMEA regions, which is primarily due to lower net sales of Almay color cosmetics in the US and fragrances in EMEA. Overall, we remain focused on generating profitable top-line growth in each of our five regions.

With regard to our Revlon brand, our new product launches performed very well in the marketplace, with particularly strong performance by Revlon ColorBurst Lip Butter and Revlon ColorStay nail enamel, both of which were launched with compelling advertising campaigns. We believe that Revlon's brand success in the marketplace is driven by delivering innovative, high quality new products, supported by effective brand communication and superb in-store execution. Our continued emphasis and focus on this approach is of the utmost importance to our objective of driving profitable growth.

From a financial perspective, we again delivered competitive operating income margins in the quarter. We continuously seek to optimize the investment of our resources, focusing on opportunities that will deliver the greatest return.

And, finally, our capital structure is solid and our financial profile is strong.

And, lastly, before I turn the call over to Chris, let me remind you about the Annual Revlon Run/Walk for Women. Our New York City Run/Walk is on Saturday, May 5th and will be hosted by our newest brand ambassadors, Emma Stone and Olivia Wilde, while our Los Angeles Run/Walk is on Saturday, May 12th, and will be hosted by our brand ambassador Halle Berry. We are very proud of our longstanding philanthropic support for women's health initiatives and the fight against women's cancers. Over the years we have helped raise millions of dollars for research, education, and advocacy. If you would like to donate to this cause or register to participate in either of the Run/Walk events, please visit revlonrunwalk.org.

So with that, I will hand it over to Chris, who will talk about our marketplace performance.

Thank you, Alan, and good morning, everyone. Today I will review our net sales performance, excluding the impacts of changes in foreign currencies, by region and by brand.

Total Company net sales in the first quarter of 2012 were $330.7 million, an increase of $1.5 million versus the first quarter of last year. The first quarter of 2012 benefited from the higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, as well as the inclusion of the net sales of SinfulColors for a full quarter. These increases were partially offset by lower net sales of Almay color cosmetics and fragrances, as well as lower net sales in Venezuela due to the June 2011 fire.

In the United States, net sales in the first quarter of 2012 decreased $1.5 million. Lower net sales of Almay color cosmetics and Revlon beauty tools were partially offset by the inclusion of the net sales of SinfulColors for a full quarter in 2012. The largest driver of lower net sales in the US was in the eye segment of Almay color cosmetics, primarily the intense i franchise. Last year we had the very successful launch of intense i smoky-i kit, which brought industry-leading innovation to consumers. While we continued to expand and restage the intense i franchise in 2012, its net sales performance neither met our expectations nor matched its performance in the first quarter of 2011. We are not satisfied with Almay's US performance and, as a result, we are reviewing all elements of Almay's marketing mix, including adaptations to our brand support plans.

Now let me return to the discussion of the first-quarter results outside of the US. In Asia-Pacific, net sales increased $1.2 million, or 2.3%, primarily due to the higher net sales of Revlon color cosmetics in certain distributor markets.

Moving on to Europe, Middle East, and Africa, net sales decreased $800,000, or 1.6%. Lower net sales of fragrances in Italy in certain distributor markets were partially offset by higher net sales of Revlon color cosmetics in certain distributor markets. We continue to be very pleased with the strong marketplace performance of the Revlon brand in the UK.

In Latin America, net sales increased $1.7 million, or 6.3%, primarily due to the higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, partially offset by the lower net sales in Venezuela.

With respect to Venezuela, you will recall that prior to the fire in June of last year which destroyed our local facility, approximately half of the net sales there were sourced locally and the other half were imported from our US facility. In August of 2011 we resumed shipping of product imported from the US and in 2012 we began importing certain products from third-party manufacturers outside of Venezuela. However, net sales in Venezuela have not resumed to the pre-fire level. Actions to address the sourcing of products previously manufactured locally are still under review at this time.

Finally, with respect to our Canada region, net sales increased $900,000, or 5.2%, primarily due to the higher net sales of Revlon color cosmetics and Revlon beauty tools.

Now, moving on to the performance by brand, starting with Revlon cosmetics, total Company net sales increased as compared to the prior year. We continue to innovate and introduced some great new products. In fact, we extended our PhotoReady franchise with the introduction of three lightweight primers. The use of primers is gaining traction as an additional step in the consumer's makeup regime to transform skin into a smooth canvas for makeup application. Also within the PhotoReady franchise we introduced Airbrush mousse makeup, which contains innovative photochromatic pigments that bend and reflect light to give a flawless, airbrushed appearance. To date, Airbrush mousse is performing well in the marketplace.

In eye, we introduced PhotoReady 3D volume mascara, a revolutionary, volumizing mascara with a unique reflecting formula that makes lashes look 100% more magnified and multiplied. And continuing in eye, we restaged and upgraded our Revlon ColorStay Eyeshadow Quads with 16-hour wear and new premium design and packaging. This restaging is consistent with our approach of not just expanding our product range with new products, but also strengthening our existing products with new technology.

In lip, we extended our Revlon ColorBurst franchise, introducing Revlon ColorBurst Lip Butter, a buttery balm that instantly hydrates lips while providing color with a high shine finish. To date, where launched, our ColorBurst Lip Butter has been exceptionally well received in the marketplace.

Lastly, in nail we introduced ColorStay Longwear nail color containing our exclusive ColorStay light-curing technology which cures in natural light versus a salon UV light, providing a gel-like shine and 11 days of high-impact color. To date ColorStay nail color is performing very well in the marketplace.

Three of our new Revlon color cosmetics products won Oprah magazine's Spring Makeup "O-Wards"-- Revlon ColorBurst Lip Butter, Revlon PhotoReady 3D volume mascara, and Revlon ColorStay Longwear nail color. ColorBurst Lip Butter was also recognized in Redbook magazine's May edition as part of the MVP Awards as the best tinted lip balm, as well as in Seventeen magazine's February edition as part of the 2012 Reader Raves.

Moving on to the Almay brand, as I discussed earlier in the business performance by region, net sales decreased year over year, driven by our performance in eye in the US. Aside from eye, from a marketplace perspective, we maintained positive performance in face with Almay during the period, largely behind our Smart Shade franchise which included the introduction of Almay's first primer, Smart Shade Perfect & Correct.

In women's hair color, net sales of Revlon ColorSilk increased versus the first quarter of 2011. Building on the success of ColorSilk and ColorSilk Luminista, we introduced Root Erase by ColorSilk, which erases roots and grays with ease for beautiful, seamless color in 10 minutes. Root Erase was noted in Good Housekeeping and also was recognized in OK! Magazine's Spring Beauty Awards, calling it the "fastest roots fix." Year to date we are pleased with the performance of both Root Erase and our core ColorSilk franchise.

And, finally, with regard to Revlon beauty tools, net sales were down in the quarter. While the category remained soft, we continue to maintain our strong position as the number one brand in the US and Canada. And in 2012 we have new products that are performing well in the marketplace, including our mini tweezer set and designer nail files.

Now I'll turn it over to Steven to walk you through the rest of our financial results for the quarter.

Thank you, Chris.

As we have already discussed our net sales performance, I will start with gross margin performance in the quarter. In the first quarter of 2012 our gross profit margin was 65% versus 66% in the first quarter of 2011. The lower gross margin in the first quarter of 2012 was primarily due to the unfavorable impact of product mix.

SG&A in the first quarter of 2012 decreased $4.5 million, or 2.6% to $170.7 million, primarily due to lower advertising expenses as a result of the timing of advertising campaigns as compared to 2011. Also in SG&A in the first quarter of 2012, we recognized a $1.1 million benefit from insurance recoveries essentially making the Company financially whole from business interruption losses during the period related to the June 2011 fire in Venezuela. Additional details of the impact to our business of the Venezuela fire are included in our Form 10-Q filed earlier today.

Operating income in the first quarter of 2012 was $44.3 million compared to $44.7 million in the same period last year. And adjusted EBITDA was $60 million compared to $60.7 million in the same period a year ago.

Interest expense, including dividends on preferred stock, decreased $2.6 million to $21.6 million in the first quarter of 2012, primarily due to the refinancing of our term loan in May 2011 at lower interest rates.

Income before taxes was $19.5 million as compared to $18.1 million in the first quarter of 2011. The provision for income taxes was $11 million in the first quarter of 2012 compared to $7.7 million in the same period last year. Net cash paid for income taxes was $3.4 million in the first quarter of 2012 compared to $2.2 million in the same period last year.

Net income in the first quarter of 2012 was $8.5 million, or $0.16 per diluted share, compared to net income of $10.4 million, or $0.20 per diluted share, in the same period last year.

Moving on to cash flows, net cash used in operating activities in the first quarter of 2012 was $20.4 million compared to a source of $24.1 million in the same period last year. Free cash flow was a negative $23.9 million compared to positive free cash flow of $21.7 million in the same period a year ago.

Cash flow was unfavorably impacted by a number of factors. First, the first quarter of 2012 included the renewal and partial prepayment of premiums for certain of the Company's multiyear insurance programs. Second, during the first quarter of 2012, we began to experience the cash impact of higher sales returns and allowances as expected and as previously accrued for in the fourth quarter of last year. As a reminder, during our year-end 2011 earnings call in February of this year we discussed a higher than usual number of product discontinuances in advance of our extensive 2012 new product introductions. And lastly, impacting cash flow in the first quarter of 2012 was a net unfavorable change to other working capital.

As a reminder with respect to operating cash flow in general, the timing of cash flows from working capital can vary from quarter to quarter based on a number of factors. We continue to closely manage our key working capital accounts including receivables, payables, and inventory.

On the liquidity front, our unutilized borrowing capacity and cash on hand as of March 31, 2012 was $200.4 million, comprised of $78 million of available cash and $122.4 million available under our revolving credit facility. Our revolver was undrawn at the end of the quarter and we had $10.7 million of standby letters of credit issued under this facility.

This concludes our prepared remarks and we would now like to open up the call for your questions. Operator, please prompt the participants for questions.

(Operator Instructions) Carla Casella; JPMorgan.

This is Paul Simenauer on for Carla Casella. First, I was just wondering if you could give us some color on the timing of your product launches this year versus last?

Sure. As you know, around the world product launches vary by quarter. But within North America there are two major tranches of product launches. So everyone in general ships the major tranche towards the end of the prior year, in December, and they appear in store in December and January onwards. And then there's the second tranche which happens towards the end of the second quarter of the year, and starts appearing in store from June onwards.

Great. And then is there any significant shifts in your sales given the Easter shift?

No, we haven't been conscious of any of that.

Got you. And then, has the warm weather helped your sales in the US at all?

I'm not sure that we've drawn any correlation between the weather and the sale of our products, Paul.

Okay, great. And then, finally, what are your thoughts around refinancing and your capital structure?

As we always do, we look at the marketplace as well as our business and we evaluate our capital structure on a regular basis. There's nothing that we've done differently at this point in time versus what we've done in the past. We evaluate and we make those decisions as and when appropriate.

Okay, great. Thanks very much.

David Wu; Telsey Advisory Group.

First, on the gross margin, sounds like you didn't see an impact from higher promotional allowances this quarter. I was wondering if that implies that you're seeing a less competitive environment out there and if you could perhaps talk about your expectations for the remainder of the year.

Yes, as it relates to gross profit in the first quarter, there were a couple of impacts. One, as we talked about, there was the impact of product mix which reduced gross profit as a percentage of net sales by about 0.7 of a percentage point. In addition, we had higher allowances and those reduced gross profit as a percentage of net sales by about 0.4 of a point.

Okay, so you did see higher allowances.

Yes. And so offsetting that -- there were certain offsets to that, one related to inventory obsolescence and sales returns. And that had an increase to gross profit of about 0.2 of a point. As we've talked about in the past, our objective is to deliver competitive operating margins. And so what we do is we're looking at, obviously, the gross margin generated and then the costs that we incur to support those products to drive consumption, delivering the competitive operating margins that we once again did deliver in the first quarter of '12.

I think, David, to add to that, to add to Steven's point as it relates to the environment, the competitive environment remains intense. And period to period you'll see the competitive set shift between higher promotional activity and lower advertising or higher advertising and lower promotional activity. We stay very attuned to that and make sure that we are supporting our brands in both those drivers at the appropriate level. But it's as intense as it has been.

Got it. And in Latin America, your performance in Venezuela obviously still impacted by the plant fire last year. I was wondering if you perhaps just give us an update on your manufacturing strategy there in the region. You did mention using some third-party suppliers, but if you could perhaps elaborate more on that and if ultimately you're planning to rebuild a new plant there and timing on that.

Yes. Well, first of all, the first thing I would say is bear in mind Venezuela is 2% of our net sales, so let's keep that in context, first of all. Secondly, as we said pre-fire about half our sales in Venezuela came from our US facility and the other half was sourced locally. We had a manufacturing facility there which, as you know, burned down. We've now resumed, as we said, since last August supplies from our US facility. And while our Venezuelan facility still is burnt down there's no manufacturing going on there. We've had to resort to supplies from third-party manufacturers outside Venezuela.

As for the future, at this stage everything's under review as to how we manufacture going forward. But our first objective was to quickly get some product back in the marketplace. So we had to take the alternatives that were available in the short term.

Great. And on ad spending, can you elaborate more on the different timing in ad spending this year versus last year, and when perhaps we should see maybe some more pressure on SG&A this year? And just related to marketing, too, can you perhaps talk about the findings of any new sort of consumer ad or product testing you've done recently and what you could do perhaps to drive better sales, especially on Almay? I know you've previously just mentioned that you're looking into new strategies there.

Okay, so advertising -- Alan mentioned earlier the mix between advertising and promotion. And just a reminder from a financial reporting perspective, net sales are reported net of promotional allowances, while the advertising costs of course are recorded in SG&A. So depending on the nature of the brand support in the period, it ends up in different locations on the income statement. That's the first thing.

The second thing I would say, effective brand support's not just about advertising, but also promo activity, digital and social media, as well as in-store activity. So the way we approach the business is our strategies for advertising and promotion is to drive the new product introductions with the appropriate levels of total advertising and promotion. And that includes these point-of-sale activities. And we always plan to do that through coordinated joint business plans with our key customers. So that's another key part of the equation, that these are all related to what customers are doing and what we're doing with them. So that's what I would say about advertising.

In terms of product testing, we extensively test all our new products before we launch them. We have certain action standards that we must meet before we deem a product worthy of launch. And we also test all our advertising. And over the last five years our advertising test scores have consistently risen, so we're very happy with the effectiveness of our advertising.

And then you asked about Almay. As I said, the Almay decline was driven by the eye performance. Couple of things I'd say about the Almay brand. First of all, it's a well defined brand with a loyal customer base amongst consumers with sensitive skin and eyes. So that's a great benefit we have. And our offering is positioned to meet that need.

So as we focus on enhancing that we're doing a number of things. First of all, we're working on refining the brand proposition to the consumer. We're also improving the merchandise of the brand, which includes the in-store wall layouts as well as graphics and packaging. And then we're going to continue doing some things that are working very well for us, so leveraging Kate Hudson, who's our Almay brand ambassador who we believe has had a very positive impact with consumers. And we also continue to focus on innovative new product development, as you know, in this category that's a key driver of net sales performance.

Excellent. And then, just lastly, can you comment on how inventory levels are tracking across the US mass retailers and drugstores and whether or not the sell-in versus sell-out rates are essentially more or less in line with each other?

Yes. As we constantly say, inventory's a constant focus of the retailers. They are watching it constantly. We watch it with them because it's in our interest to have the right inventory there. But we haven't called out any impacts in the quarter from inventory fluctuations. It's a constant source of focus for both the retailer and us.

Great. Thank you very much.

Reza Vahabzadeh; Barclay's Capital.

As far as marketing spending, this quarter marketing spending was down. But as you mentioned, you have an extensive line of new products set to be unfolded and shipped out. So does that mean that essentially marketing spending for the rest of the year is likely to be up?

Well, your conclusion's not necessarily accurate. What I said was marketing spending is a combination of advertising, which you see in SG&A, and promotional allowances which occur before net sales.

Right.

So, as I say, we constantly monitor the competitive environment and in addition work with our customers on our joint business plans. So the particular levers that we pull at any one time can change. And we intend and aim to support our new products with appropriate levels of what I would call brand support. So that's advertising and promotion, in-store display, merchandising, all those things. There are many parts of the marketing mix that are in there.

The other thing I would say is you've got to be careful about looking at one quarter. Over time is what you need to look at as the best indication of our brand health. Quarters change and things don't necessarily always line up within a quarter.

I think the net point there, Reza, is that we're going to spend what we believe to be appropriate in the marketplace, both on advertising and on the in-store promotion activity. And so there's no -- you shouldn't read anything into the decline of advertising spending in the first quarter.

Okay. No, but the reason I asked that is because you clearly pointed out that promotional allowances were up 40 basis points in the first quarter. But SG&A was 100 basis points lower. So when one does look at our best indicators of total marketing spending, promo and brand support, it seemed like the first quarter was lower. And yet you do have some new products to be shipped out in the second quarter. And so I just assumed that this was a timing factor.

Well, we believe our total advertising and promotional support in the quarter was appropriate.

Right. And then, as far as the category in general, can you discuss your outlook for the category, at least here in the US, how the consumer is responding to the category offerings and spending and what your competition is doing out there? Are they introducing more products? Are they increasing marketing support? Any color would be appreciated.

Well, look, the consumer likes this category. It continues to perform pretty well in the economic environment. It's very accessible for consumers. There's been an explosion in the nail category, for example, which is a good example of accessibility of easy-to-use products. The level of competition remains intense. We've got no reason to suspect that that will change.

As for forecasting the category, I can't really forecast that. All I can tell you is that it continues to be robust.

And you may have alluded to this before, but retailer inventory levels are in what shape?

Well, they continue to be constantly monitored by the retailer and by us. But there is no reduction in their attention to them. They continue to pay close attention to them. So do we, because it's very important for us that we have the right inventory at point of sale. But we haven't called out any impacts from inventory in this quarter.

I see. And, I'm sorry; you mentioned the insurance recovery in this quarter. I guess I missed it.

Yes. As you may recall, in the fourth quarter of last year and during last year as a result of the fire that we had, that hit our Venezuela facility in June of 2011, we have received insurance proceeds and those insurance proceeds are taken back in through the SG&A line as business interruption losses to effectively make us financially whole. And so during the period we had approximately $1.1 million of insurance business interruption losses that are a benefit to the SG&A line.

I see. Got it. And then, pension contribution -- you've in the past laid out your outlook on that. But in the first quarter it seemed higher than in some other first quarters. Is the full-year number still going to be in line with your expectations?

Yes. The full-year number is still expected to be in line, approximately $35 million, which is consistent with our guidance that we gave back in February.

Right. And then, as far as working capital, I see in the first quarter as you highlighted you had to make payments on the multiyear insurance program. So for the year will working capital still wash out or, because of this, be a use?

Well, I wouldn't look at the first quarter and draw any conclusion about the balance of the year. We don't -- we haven't given guidance on the full-year working capital. Consistent with our guidance on cash flow we've talked about the absolute level of certain items. As I indicated in my prepared remarks and as we've constantly done, a very strong focus on maintaining a low level of investment in working capital, but yet supporting the business appropriately, so making sure we have the right inventory and the right level of accounts receivable and accounts payable management. Once again, it's going to vary from quarter to quarter, just as a function of the business activities that we engage in.

I see. And so on mix, when you talk about the mix being negative for you on the gross margin line this quarter, was that because of beauty tools or was that because of Almay or something else?

On a brand-by-brand basis we don't specifically discuss the impact on our margin. Really what we're talking about is we sell a portfolio of products in various retailers across the globe and there are different price points and different costs associated with those products getting to the channel with the componentry and the packaging and the formulation of those products. And so there's a number of factors which go into the gross margin, none of which were, if you would, out of line with what we would typically experience in any period, in the first quarter.

Thank you much.

Connie Maneaty; BMO Capital Markets.

On cosmetics I'm wondering if you can comment on whether any of the new entrants into the category have had an impact on its positioning and attraction to consumers?

Well, I would say that the category continues to be extremely attractive to the consumer, Connie. As you know, the consumer likes the variety. They're very motivated by new products coming in. And there's always, in this category, a lot of people trying to enter with new brands. It's not a particularly new thing; over the years people have done that. But I don't see any change in the attractiveness of the category to the consumer. They're very attracted to it.

Okay. And then, just anecdotally, because the rest of my questions have really been answered -- anecdotally, in maybe 25 or 30 drug stores that I've been looking at in the nail category, I've never seen a full selection of the Longwear ColorStay nail. Are you getting the right kind of distribution?

Yes. I'm -- yes. You should send me the list, Connie. I need to fix that. We're having a very good launch of ColorStay nail enamel, actually. We're very happy with its performance; it's performing very well in the marketplace. So all our reads are very positive on it.

You know, the reset timing, Connie, the reset in the US is somewhere between -- Walmart is typically the first to start in the January timeframe, and resets finish around now, late April. And so, depending on when you went to the drugstore and depending which drugstore it was, the reset may not have been completed. But it's full distribution throughout the US and throughout our major markets outside the US now.

Okay. That's all I had.

Jeff Kobylarz; Stone Harbor Investments.

Just curious about what you mentioned, you said little bit earlier, about an explosion in nails. What's driving that and are you participating in that?

So, yes. Well the answer, the second bit first, yes we are participating. We're participating very strongly. Revlon was founded on nail color. That was the first product that the company had back in 1932. So we have a strong heritage in nail. We have very strong formulations and we have a good brand position on nail. And we have a very strong pipeline of new products coming. You've started to see some of them in the marketplace and you'll be seeing a lot more.

In terms of nail itself as a category, yes, it has exploded. And it's a trend of people accessorizing more. And compared to some other product categories, there's not so much concern about getting it wrong. There are people who don't wear a lot of foundation or are worried about how they look with lipstick, but everybody finds nail very accessible.

So what you see is, you see a number of different segments emerging. So you have a core color nail, which we have a strong position in. We innovated with scented nail, which has been a good performance for us. We launched our Top Speed quick dry nail enamel which dries in less than 60 seconds, enables people to change their nail color very frequently. And of course we've just launched our gel-like Longwear nail. And gel nail is a big trend in the salons but, as anyone will tell you, first of all it's quite expensive and, secondly, it's very difficult to remove. So our gel nail which we were referring to earlier, the ColorStay gel nail is going to be very successful for us.

The other thing I would mention is, of course we made the acquisition last year of Sinful nail color. And Sinful nail color is also performing extremely well. We're very pleased with it.

All right, fine. Can you give any general comments about your outlook for costs this year, just as far out as you can look? Do they look stable with last year? Is there any pressure from the rise in oil prices over the last 12 months?

Well, a couple of things, Jeff. First of all, what we're focused primarily on is driving profitable growth. And so in this marketplace it's very easy to drive the top line, but you lose a lot of money if you do it the wrong way. So we're making sure that we're growing and that we're making investment choices that have a positive return for us. That's the first thing.

The second thing, as it relates to commodity prices, like everybody in the space, we experience pressures from changes in commodity prices like oil, as you mentioned. What we've been effectively able to do over the last number of few years is find ways to offset those cost pressures such that we maintain, as we have done for the last couple of years, a very competitive operating income margin. I will tell you that quarter to quarter you're going to see shifts in the gross margin, as Steven talked about, and even in the OI margin. But over time we believe that we have the right structure and processes in place to maintain that highly effective and highly competitive operating income margin.

Okay. Thank you. And then, can you comment about the line reviews that have occurred this year and the shelf space? Is there any change that you can comment about for this year versus last year?

Yes. We're seeing no significant change in space this year.

All right. And then, can you give any guidance on cash taxes this year?

We've given cash taxes guidance previously and that is $20 million are expected in 2012, which is consistent with our guidance that we gave back in February.

All right. Sorry; I missed that. Thanks very much.

And at this time there are no further questions. Mr. Ennis, I'll turn the call back to you, sir, for any additional or closing remarks.

Thank you very much and thanks for joining our call this morning. We look forward to speaking with you when we report our second-quarter results later this year. Thank you.

And ladies and gentlemen, that does conclude today's presentation. We thank you for your participation.