Revlon, Inc.
Q3 2020 Earnings Call Transcript

Published: 16 Nov 2020

[Operator:]

Good day, everyone. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Revlon Third Quarter 2020 Earnings Conference Call. All participant lines have been placed in a listen-only mode to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. And I will now turn the call over to Cari Robinson, Executive Vice President and General Counsel. Please go ahead.

[Cari Robinson:]

Thank you, operator. Good afternoon, everyone, and thank you for joining the call. Earlier today, the Company released its financial results for the quarter ended September 30, 2020. 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.

[Debra Perelman:]

Thank you, Cari. Good afternoon, everyone, and thank you for joining us. As the coronavirus remains a serious health concern in many places around the world, I hope everyone listening to today's call is staying safe and healthy. In the third quarter of 2020, our as-reported net sales were $477 million, a decline of $120 million or 20% compared to the third quarter of 2019. We estimate that COVID-19 contributed approximately $119 million to net sales decline, with all segments and regions negatively impacted. Therefore, excluding this COVID-19 impact, our third quarter 2020 net sales were essentially flat compared to third quarter 2019. Our adjusted EBITDA in the third quarter of 2020 was $55 million, a decline of $14 million versus prior year period. This decline of approximately 20% is in line with our net sales decline, and our adjusted EBITDA margin has remained steady at approximately 11.4%. While COVID-19 continues to have a significant impact on both the broader beauty industry and on our business, I am pleased that our profitability remains steady and that our third quarter 2020 net sales decline of 20% reflects a sequential improvement in our topline as compared to the second quarter 2020 net sales decline that was just short of 40%. Victoria will provide additional details as she reviews our third quarter financial performance.

[Victoria Dolan:]

Thank you, Debbie, and good afternoon to everyone on the call. Let me first detail our third quarter 2020 results. Third quarter as-reported net sales were $477 million compared to $597 million during the prior year period, a decline of 20%. As-reported net sales includes approximately $119 million of estimated negative impacts associated with the COVID-19 pandemic. Excluding the COVID-19 impacts, net sales were essentially flat to the prior year period. Third quarter operating loss was $10 million compared to $17 million of operating income during the prior year period. The operating loss was driven primarily by the lower net sales described previously and lower gross profit margin, driven in part by the adverse effects of the COVID-19 pandemic, including the negative impact from sales mix and higher manufacturing overhead absorption costs. These negative impacts were partially offset by $55 million in lower selling, general and administrative expenses, driven in part by cost reductions associated with the company's restructuring programs and additional actions specifically implemented to mitigate the adverse impact of COVID-19 on the company's operating results. Third quarter as-reported net loss of $45 million was essentially unchanged versus prior year period, driven by a $31 million gain on the early extinguishment of the 5.75% senior notes as a result of the company's repurchase and cancellation of approximately $44 million in principal face amount of the 5.75% senior notes during the quarter as well as a $17 million favorable foreign currency impact versus the prior year period. These impacts were offset by the higher operating loss in the quarter and a $19 million higher interest expense.

[Debra Perelman:]

Thank you, Victoria. In closing, in the third quarter, we continued to navigate the uncertainties of the current COVID-19 environment. We remain focused on executing on our business strategies, including our e-commerce acceleration as well as progress against our 2020 restructuring program objectives.

[Operator:]

And we'll take our first question from Carla Casella with JPMorgan. Please go ahead. Your line is open.

[Carla Casella:]

Hi. I just want to make sure that I understand the exchange transaction. Can you give us what the cash impact will be of the exchange? And does this mean that the 2021 notes that were not tendered will be paid down at par?

[Victoria Dolan:]

Hey, Carla. This is Victoria. Thank you very much. Yes, all of the remaining notes will be redeemed and we will pay them at par. So we've looked at the total value of what that exchange consideration is, and it's approximately, including all fees, because we have fees that we paid as well. Including fees, it's about 100 – somewhere around $185 million to $190 million. But that does include fees.

[Carla Casella:]

Okay, great. And then when you look at the business coming kind of in and out and choppiness around COVID, has the number of retail doors that you're selling through changed dramatically? I guess for any of the businesses, even the Revlon or the Elizabeth Arden, domestic, international, if you could just talk about your customer doors, whether there's anything that have closed permanently, that would be helpful.

[Debra Perelman:]

Hi, Carla. It's Debbie Perelman. Thank you for the question. I hope that you are doing well. So as you said, COVID-19 has had a significant impact on our business. We mentioned that the impact in the quarter was about $119 million across all segments and all regions. We did see that with, frankly, the closing, the shutdown of markets and the shutdown of travel retail, that did have a big impact on our international markets in the third quarter. Frankly, as well as lower foot traffic in prestige stores and in mass stores, frankly, globally. Where we saw less of an impact and, frankly, growth is in the e-commerce channel. But to your question with regards to store closures, what we're really seeing are these temporary shutdowns across all of the segments. So prestige, pro and mass with, depending on the market, some reopening faster than others. And then others, frankly, have reopened, like Pro, the professional salons, and then – and some areas are shutting down again. So it's really sort of been watching market and segments and managing through the openings and closings. With regards to permanent closings, I would say, at this point, it hasn't had a major impact on our business. Thank you.

[Carla Casella:]

Great. Thank you.

[Operator:]

And there are no further questions on the line at this time. I'll turn the program back to Debbie Perelman for closing remarks.

[Debra Perelman:]

Thank you. Seeing no additional questions, 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. I truly appreciate all of your significant efforts, especially during the third quarter as the company dealt with the continued impact of COVID on the business and successfully addressed its near-term debt maturity. Thank you for all the efforts that you make every single day, and stay safe. Thank you.

[Operator:]

This does conclude today's Revlon third quarter 2020 earnings call. Please disconnect your line at this time, and have a wonderful day.