Revlon, Inc.
Q4 2020 Earnings Call Transcript

Published: 11 Mar 2021

[Operator:]

Good morning. My name is Nikki, and I will be your conference operator today. At this time, I would like to welcome everyone to the Revlon Fourth Quarter and Full Year 2020 Earnings Conference Call. After the speakers' remarks, there will be a question-and-answer session. Thank you. I will now turn the call over to Jeff Kennell, Vice President, Treasury. Please go ahead.

[Jeff Kennell:]

Thank you, Nikki. Good morning, and thank you for joining the call. Earlier today, the company released its financial results for the quarter ended December 31, 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.

[Debbie Perelman:]

Thank you, Jeff. Good morning, everyone, and thank you for joining us. I hope that everyone and their families are staying safe and healthy. Our focus continues to be on the health and safety of our employees, their families and our consumers. It goes without saying that 2020 was a challenging year for our industry and for Revlon. That said, I'm encouraged by how the company navigated through this period. Our employees demonstrated incredible agility and resiliency, which enabled the company to make new products such as hand sanitizers, capture the accelerated growth in the e-commerce channel,as well as support important societal causes throughout the year. We faced increased complexity due to the pandemic and remain focused on the key strategic pillars, including our e-commerce channel, our iconic brands of Revlon and Elizabeth Arden and our important U.S. mass and China regions as well as strict cost discipline across the company. I am proud of all that the company accomplished last year. Now turning to our results for the fourth quarter of 2020. As reported fourth quarter net sales of $627 million declined by approximately 10% year-over-year. This decline was primarily driven by the impact of COVID-19 with net sales impact of approximately $118 million. From a segment perspective, while all of our segments were impacted by COVID-19, the impact relative to size was especially great in our Revlon and portfolio segments, we believe, due to the particular impact on the color cosmetics category. While we are all eager to return to growth, it is notable that the net sales decline has been steadily improving quarter-over-quarter.

[Victoria Dolan:]

Thank you, Debbie, and good morning to everyone on the call. Let me first detail our fourth quarter 2020 results. Fourth quarter as reported net sales were $627 million compared to $699 million during the prior year period, a decline of approximately 10% on an as-reported basis and 12% on a constant currency basis. As reported net sales includes approximately $118 million of estimated negative impacts associated with the COVID-19 pandemic. Excluding the COVID-19 impacts, net sales would have increased versus the prior year period. Fourth quarter operating income was $28 million compared to $77 million during the prior year period. The lower operating income was driven primarily by the adverse impacts of the COVID-19 pandemic impact on net sales, sales mix and higher manufacturing overhead absorption costs along with the costs associated with the company's various debt refinancing activities. These negative impacts were partially offset by $11 million in lower selling, general and administrative expenses, SG&A, driven in part by cost reductions associated with the company's restructuring program and additional actions specifically implemented to mitigate the adverse impact of the COVID-19 pandemic on the company's operating results.

[Debbie Perelman:]

Thank you, Victoria. In closing, in the fourth quarter, we continued to see improvement towards top line recovery from COVID-19 while protecting our bottom line. We anticipate emerging from the challenges of 2020 and once again driving growth by focusing on our key business strategies, including driving our e-commerce acceleration, iconic core brands of Revlon and Elizabeth Arden and growth markets such as China.

[Operator:]

We'll now take our first question from Steph Wissink with Jefferies. Please go ahead. Your line is open.

[Steph Wissink:]

Debbie, a first question for you is just on the shelf space for Revlon and Almay, how you're thinking about that over the course of this year and even into next year just given the performance in color cosmetics. And then Victoria, one for you is on some of the improvements you've seen in SG&A and gross margin, how much of those improvements should we continue to carry forward? How much are the permanent savings from the 2020 cost program versus the cost controls that you've leaned into for COVID? Just trying to assess how much of that spend could come back to support the brands.

[Debbie Perelman:]

Thank you for the question. This is Debbie. Look, so with regards to shelf space, we don't provide forward-looking guidance. But what I can say with regards to 2020, we didn't have space loss. We had some of the normal ebbs and flows that happened throughout the year of normal course but nothing in terms of any major changes. With regards to '21 and '22, per your question, look, from an industry standpoint, what we are really looking for and working towards is the recovery of the industry in the -- particularly in color cosmetics. We're very focused on, obviously, tracking consumer behavior, understanding when this trend, this decline will mitigate and start an upturn. We started to see a little bit of that over the summer as the stimulus checks came in. We're looking to see -- track that to see as states reopen and as stimulus checks are sent to the consumers. Do we start to see that uptick again? We believe so. We believe that there is incredible opportunity within the color cosmetics as a whole, the category as a whole, and believe that there's a lot of pent-up demand. And I know you've heard that with regards to other industries, and I think it's very applicable to the color cosmetics industry. So with regards to our own space, again, I don't -- we don't provide forward-looking guidance. But with regards to the industry, we look forward to rebound. It's, as you know, an extremely resilient industry and believe that the disruption that we have seen is short term. Thank you.

[Victoria Dolan:]

Okay. And thank you for your question on the improvements in SG&A and gross margin. There were two portions to our cost reductions, as you rightly point out

[Steph Wissink:]

Debbie, could I just put 1 more question out, just as a follow-up to your first comments? Were there any major innovation initiatives in 2020 that you held back that you have plans to launch in 2021? I think we're just trying to assess, when the consumer does come back, hopefully, with some excess capital from stimulus, that there's going to be enough excitement in the category to thrill her to purchase. Maybe talk a little bit about your innovation as well just in the context of what you expect to be as kind of this pent-up demand effect.

[Debbie Perelman:]

Thank you, Steph. Look, I think it's a great question. And really it highlights the agility that our teams had throughout the year in terms of managing what we are focused on and how we are executing in the market. So we did actually hold back on launches in 2020 across actually multiple brands given the state of the market, right, given the closures in mass, the closures in prestige and the closures in the professional channel. And we do look to bring a lot of excitement into 2021 both with our product innovation across all of our brands as well as executing in the market with a real focus on executing in-store as well as executing on digital. So I think that from my perspective, we're prepared. We're prepared to capture that pent-up demand, frankly, globally as well as I believe that the industry itself is prepared to bring excitement to that consumer within beauty, right, beyond just color cosmetics.

[Operator:]

We will take our next question from Steven Ruggiero with R.W. Pressbridge. Please go ahead. Your line is open.

[Steven Ruggiero:]

Your purchase of permanent displays, can you give us a sense of if you're going to continue to cut back on that in '21 or will it remain about that $30 million? And also CapEx, is that a good number for '21, the $10 million that you did in '20?

[Victoria Dolan:]

That's a very good question. And we -- in the -- in our 10-K, you'll see that we have updated the guidance for both of those and are taking both of those ranges up. Let me quickly find them for you because, you're right, those numbers were somewhat artificially low in 2020 given the reaction to COVID. So if you just bear with me one second, I will find that for you. Just 1 second. It is in our 10-K, but they are both up because, again, we have to continue to reinvest in the business. And obviously, we were impacted, as you saw by COVID '20 -- by COVID.

[Steven Ruggiero:]

And you also signed that attractive Helen of Troy trademark license deal late last year. Are any other potential transactions like that, that you're contemplating in '21?

[Victoria Dolan:]

So we really don't comment on potential transactions. But obviously, we are always looking at ways to optimize our portfolio and optimize our business and our capital structure.

[Steven Ruggiero:]

And just a final question, can you give us a liquidity number with the couple of transactions you entered into in March that provided some further-out debt maturities? What is your liquidity as a result of those transactions as of today? Can you give us a sense?

[Victoria Dolan:]

So we refinanced the transactions, as you rightly point out. The U.S. ABL provided us the same borrowing base so really immaterial to our liquidity. The foreign ABTL that we talked about actually had incremental collaterals, so the amount went from $59 million to $75 million. Obviously, it fluctuates some with the value of that collateral. So we are comfortable with our liquidity position as we have now, and we are also comfortable that we have sufficient liquidity for the year.

[Operator:]

There appear to be no further questions at this time. I would now turn the call back over to Debbie Perelman for any closing remarks.

[Debbie 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 am truly appreciative of all of your significant efforts and continued dedication and passion throughout all of 2020. Thank you for all the efforts you make every single day, and continue to stay safe and healthy. Have a good day.

[Operator:]

This does conclude today's Revlon Fourth Quarter and Full Year 2020 Earnings Call. Please disconnect your lines at this time, and have a wonderful day.