Revlon Inc (REV) 2021 Q1 法說會逐字稿

Good morning. My name is Keith, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Revlon First Quarter 2021 Earnings Conference Call. (Operator Instructions) Thank you. I will now turn the call over to Jeff Kennel, Vice President, Treasury. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for joining the call. Earlier today, the company released its financial results for the quarter ended March 31, 2021. If you have not already received a copy of the earnings release, a copy can be obtained on the company's website at revloninc.com.

On the call this morning are Debbie Perelman, our President and Chief Executive Officer; and Victoria Dolan, our Chief Financial Officer. The discussion today might include forward-looking statements that are based on current expectations and are provided pursuant to the Private Securities Litigation Reform Act of 1995. Information on factors that could affect actual results and cause them to differ materially from such forward-looking statements is set forth in the company's SEC filings, including its Q1 2021 Form 10-Q.

The company undertakes no obligation to publicly update any forward-looking statements, except for the company's obligations under the U.S. Federal Securities laws. Remarks today will include a discussion of certain GAAP and non-GAAP results. Consistent with past reporting practices, non-GAAP results excludes certain nonoperating items that are not directly attributable to the company's underlying operating performance. These adjusted measures are defined in the earnings release and are also reconciled in the financial tables at the end of the release.

Please also note that certain amounts provided throughout this call have been rounded. The call today should not be copied or recorded. And with that, we'll turn the call over to Debbie.

Thank you, Jeff. Good morning, everyone, and thank you for joining us. I hope that everyone and your families are staying safe and healthy. Our focus continues to be on the health and safety of our employees, their families and our consumers around the world.

Our first quarter 2021 results reflect a continued sequential improvement as the business in many parts of the world begin to recover from the COVID-19 pandemic. While COVID-19 remains a significant global health threat and continues to impact our lives and our business, the positive signs of recovery continue to emerge, especially in the latter half of the quarter. Our business in the prestige and professional channels have begun to recover, and 2 of our 4 reporting segments experienced double-digit growth versus prior year quarter.

Our adjusted EBITDA dollars and margin grew over prior year quarter, and our e-commerce business continues to show growth, particularly in North America and EMEA, where we experienced double-digit growth in the quarter. I am proud of the company's resilience in managing through these last 15 months and in coming together as a team to find creative solutions to pivot the business to ensure a stronger future for the company.

Let me first highlight our overall topline and bottom line results. As reported, first quarter net sales of $445 million declined by approximately 2% or $8 million versus prior year quarter. FX favorability impacted our business in the quarter. When removing this impact, our net sales were $431 million or a decline of 5% or $22 million.

Our adjusted EBITDA was $38 million in the first quarter of 2021 versus $28 million in the first quarter of 2020, growing $10 million due to continued internal efforts to manage costs as well as impacts driven by our Revlon 2020 Restructuring Program. Additionally, our adjusted operating income in the first quarter of 2021 was the best first quarter operating income in the past 5 years at $2 million, approximately $13 million higher than first quarter 2020.

COVID-19 continued to impact our net sales, with an estimated impact of $44 million in the quarter. This was most significant in our Revlon segment, where the U.S. mass channel, our largest region, has been slow to recover from the pandemic, specifically the color cosmetics category. As the quarter progressed, we did see improvement in our Revlon color cosmetics consumption, gaining share in both the last 2 weeks of the quarter.

As markets around the world continue to reopen and COVID-19 restrictions loosen, we are optimistic around the continued rebound of the mass color cosmetics business. We saw strength in our Elizabeth Arden and Fragrances segments in first quarter 2021. I am very pleased that the Elizabeth Arden segment grew 12% ex FX, with skin care growing in all regions around the world driven by our Ceramide franchise. This growth was especially robust in North America, due in part to our newest launch of hyaluronic acid capsules.

In Asia, in addition to continued growth in our skin care business, our Elizabeth Arden fragrances performed very well, led by our Green and White Tea franchises. Turning to our fragrance segment. This segment grew 11% ex FX versus prior year quarter. Our Juicy Couture brand-led the growth driven by our Viva La Juicy core portfolio as well as new launches of Viva La Juicy Le Bubbly and [Vi] Splash. We also saw strong growth in our Curve and John Varvatos brands.

The growth in our Elizabeth Arden and Fragrances segments was offset by our Revlon and portfolio segments, due in part to the slow recovery of the U.S. mass color cosmetics market, which impacted our Revlon color cosmetics business. Our Mitcham brand also declined versus prior year, following strong sales in March 2020 as consumers pantry-loaded at the beginning of the pandemic.

And now turning to e-commerce. Our net sales from e-commerce represent approximately 13% of our total net sales and grew 5% versus prior year quarter. It is important to note that a key e-commerce event in Asia region shifted from the first quarter 2020 into the second quarter 2021, thus impacting our year-over-year growth particularly as Asia is such a large portion of our e-commerce business. Additionally, both North America and EMEA regions had double-digit e-commerce growth as did our elizabetharden.com business, which grew 25% over prior year quarter.

We continue to focus on driving growth in this channel including across our own platforms, peer players and retailer.com partners. Before I hand the call over to Victoria, the company made 2 exciting announcements this morning. First, we closed an amendment to our 2016 asset-backed revolving credit agreement with MidCap Financial as a collateral agent and administrative agent. This amendment is yet another positive step towards strengthening our capital structure to support our future growth.

Second, the company announced our Revlon Global Growth Accelerator, or RGGA program. This program marks a turning point in Revlon's trajectory to focus on reinvesting in and driving growth in our iconic brands, margin improvement and long-term value. RGGA is specifically focused on our Revlon and Elizabeth Arden brands in their key markets of U.S. mass and prestige, EMEA and China as well as our e-commerce channel globally.

The program consists of 3 key initiatives: one, strategic growth, which will drive organic sales and deliver an approximate mid-single-digit compound average annual growth rate through 2023; two, operating efficiencies, which will fuel this investment in revenue growth as well as increase in margin. We expect to deliver annualized incremental cost reductions of approximately $75 million to $95 million through 2023; and three, capability building, a critical element to enhance our internal capabilities and upskill employees throughout the organization. This program will build the foundation for Revlon's future, and I look forward to building on the timeless legacy of our iconic brands and once again leading in the beauty industry. I will now turn the call over to Victoria, who will share more details of our Revlon Global Growth Accelerator program, and recent financing as well as walk you through the details of the first quarter 2021 results.

Thank you, Debbie, and good morning to everyone on the call. Let me first detail our first quarter 2021 results. First quarter as reported net sales were $445 million compared to $453 million during the prior year period, a decline of approximately 2% on an as-reported basis and 5% on a constant currency basis. As reported net sales includes approximately $44 million of estimated negative impacts associated with the COVID-19 pandemic.

First quarter as reported operating loss was $13 million compared to a loss of $186 million during the prior year period. The lower operating loss was driven primarily by $124 million in lower impairment charges, $29 million in lower selling, general and administrative expenses, SG&A, driven in part by cost reductions associated with the company's restructuring program and $19 million in lower restructuring charges.

Despite continued COVID-19 headwinds, the company was able to improve its gross margin by 70 basis points. Adjusted operating income in the first quarter of 2021 increased by $13 million to $2 million from an $11 million adjusted operating loss in the prior year period. As Debbie mentioned, we are pleased that our adjusted operating income in the first quarter 2021 was the best first quarter operating income in the past 5 years.

As reported, net loss was $96 million versus a $214 million net loss in the prior year period. The lower net loss was driven primarily by improvements in as reported operating loss offset by higher interest expense of $11 million. The adjusted net loss was $83 million compared to an adjusted net loss of $65 million during the prior year period. Finally, adjusted EBITDA in the first quarter was $38 million versus $28 million in the prior year period, which represents an approximately 240 basis point improvement to adjusted EBITDA margin over the prior year period. The higher adjusted EBITDA was driven primarily by the lower adjusted operating loss.

Next, I would like to turn to our segment results. Revlon segment net sales in the first quarter of 2021 were $162 million, representing an approximately 14% decrease on a constant currency basis. The segment's lower net sales were driven primarily by Revlon color cosmetics across all regions, lower North America net sales of Revlon ColorSilk hair care as well as other Revlon branded hair care, due primarily to the ongoing effects of the COVID-19 pandemic. This decrease was partially offset by higher net sales of Revlon branded beauty tools and Revlon Professional hair color.

Revlon segment profit was $8 million in the first quarter compared to $16 million in the prior year period, a decrease driven primarily by the segment's lower net sales.

Elizabeth Arden, as reported net sales were $112 million in the first quarter, representing an approximately 12% increase on a constant currency basis. The higher net sales were driven by the Ceramide and [Seeka Glow] skin care products as well as the Green Tea fragrance collections in North America and Asia. This growth was partially offset by lower net sales of other skin care products.

Elizabeth Arden segment as reported profit was $9 million compared to $4 million in the prior year period. An increase primarily due to the segment's higher net sales, partially offset by higher brand support expenses to support the increased level of sales. As reported net sales for our portfolio segment were $96 million in the first quarter, a decrease of 15% on a constant currency basis. The decrease in segment net sales was driven largely by the sale of the Natural Honey brand in December 2019, which continued to produce transition services revenue during 2020 and lower net sales of the Mitchum brand. Portfolio segment as reported profit was $13 million, an increase of $6 million versus the prior year period, driven by lower SG&A expenses driven by cost reductions achieved through the Revlon 2020 Restructuring Program and brand support expenses as well as higher gross profit margin, partially offset by the segment's lower net sales.

Finally, our Fragrances segment as reported net sales were $75 million in the first quarter, representing an 11% increase on a constant currency basis. The segment's growth was driven primarily by Juicy Couture, Curve and John Varvatos in North America. Fragrances segment as reported profit in the first quarter was $8 million, a $7 million increase compared to the prior year period, primarily as a result of higher net sales and lower brand support expenses, partially offset by the segment's slightly lower gross profit margin.

Turning to liquidity. Net cash used in operating activities during the first quarter was $28 million compared to $78 million used in the prior year period. Free cash flows used in the first quarter was $29 million compared to $79 million used in the prior year period. The decrease in cash usage was driven primarily by lower adjusted operating losses and lower inventory levels, offset by COVID-19-related lower net sales. During the first quarter, our capital expenditures were immaterial, and the company spent $6 million on permanent displays. And finally, as Debbie highlighted, we also announced today 2 subsequent events. First, we announced an amendment to the 2016 asset-based revolving credit agreement with MidCap Financial, replacing Citibank as the administrative and collateral agent. This transaction will enhance our liquidity, provide additional operating flexibility and extend the maturity to May 2024, subject to certain springing maturities.

Second, we launched our Revlon Global Growth Accelerator program. This program is an expansion of our Revlon 2020 Restructuring Program and includes a reinvestment strategy to strengthen our brands as well as drive long-term sustainable margin and revenue growth. As Debbie mentioned, regarding our growth expectations, we expect to deliver an approximate mid-single-digit compounded annual growth rate through the end of 2023.

Regarding our cost reductions, the RGGA is expected to deliver approximately $75 million to $95 million on an annualized basis, which, when combined with the cost reductions embedded in our 2020 Revlon Restructuring Program, total annualized cost reductions of $275 million to $325 million through 2023. Additionally, combining the Revlon Restructuring Program and the Revlon Global growth Accelerator, we expect to recognize a range of total pretax restructuring and related charges of approximately $185 million to $205 million.

With the continued momentum we are seeing in our business, our strengthened capital structure and the industry's recovery from COVID-19, now is the time for Revlon to embark on this exciting journey to strategically reinvest behind our iconic brands and build the foundation for our future growth. I'll now hand the call over to Debbie for closing comments.

Thank you, Victoria. In closing, our first quarter results reflect the continued improvement in the business. Our recent refinancing strength in our capital structure, and our Revlon Global Growth Accelerator is the road map for Revlon's long-term sustainable growth. I look forward to sharing our continued momentum forward on future calls. With that, we will now open the call for questions. Thank you.

(Operator Instructions) Speakers, it does appear we have no questions at this moment. I'll return the floor to you, Debbie, for any closing or continuing remarks.

Thank you. Seeing no questions today, let me say thank you to all who joined the call today and a special note to our team members around the Revlon world who are listening. Thank you for all the efforts you make every single day and continue to stay safe. Thank you. Have a good day.

And this will conclude today's program. Thank you for your participation. You may now disconnect.