Revlon, Inc.
Q1 2018 Earnings Call Transcript

Published: 12 May 2018

[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, 2018. 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 Paul Meister, Executive Vice Chairman; Chris Peterson, Chief Operating Officer, Operations; and Victoria Dolan, 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 2018 Form 10-Q. The company undertakes no obligation to publicly update any forward-looking statements, except for the Company's ongoing 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 non-operating items that are not directly attributable to the Company's underlying operating performance. The 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 will turn the call over to Paul Meister.

[Paul Meister:]

Good morning, everyone, and thanks for joining our call. Our discussion today is one of contrasts, great market response to our new marketing campaigns and products impacted – negatively impacted by supply chain issues. As you saw from the release this morning, our financial results for the first quarter were heavily impacted by several non-recurring events, most notably the service level disruptions following the SAP implementation at our Oxford facility at the beginning of February that we mentioned on our last call. Although the first quarter financial results are disappointing, we implemented a recovery plan and returned our manufacturing capacity to normal levels by early April. While our net sales continue to be impacted, we are now refilling the inventory pipeline in both our own and our customers' warehouses. That said, we made significant progress during the quarter on several key initiatives. First, we continued to build organizational capability by hiring a number of key executives to the leadership team, including Victoria Dolan, our new CFO, who has joined us today and joined us in March and will be reviewing the numbers shortly. Second, we improved the positioning of our brands, launching three new campaigns on our biggest brands, including Revlon Live Boldly, Elizabeth Arden's March On and Almay's Reveal the True You. Third, we continued to expand our presence in market segments and channels of strategic focus, including China, Travel Retail and e-commerce, all of which grew sales in excess of 25% during the quarter. And finally, we continued to focus on headcount and cost control measures across the business to ensure we are generating stronger returns on our investment dollars. And with that brief intro, I'd like to turn it over to Chris.

[Christopher Peterson:]

Good morning, and thank you, Paul. I would like to first expand upon the service level disruptions at the Company's Oxford, North Carolina manufacturing facility and provide an update on where we stand in our remediation efforts. In early February, we rolled out SAP for a large part of our North American business to integrate planning, sourcing, manufacturing, distribution and finance. We expect this rollout to provide greater visibility into real-time transactional information that will enable better and faster decision-making, improve customer service efficiency and better working capital management. However, we experienced issues during the SAP changeover that caused the plant to ramp up capacity slower than anticipated. This resulted in an estimated quarter-over-quarter sales decline on lost shipments of approximately $20 million, mostly in North America. Additionally, we incurred approximately $10 million in incremental charges in our manufacturing facility as a result of these disruptions, principally due to reduced overhead absorption stemming from lower-than-normal production levels. We dedicated significant internal and external resources to resolve these issues and, as of early April, returned the Oxford plant back to normal production capacity. In fact, we are now producing at levels in excess of those pre-SAP. Moving to other items, we made significant progress on a number of the company's strategic initiatives during the quarter. First, we reset and upgraded wall fixtures for Revlon and Almay across thousands of doors in the U.S., thereby improving our in-store shopping experience. Initial results are encouraging. For example, the first 140 Ulta stores to reset Almay have seen a near 50% sales uplift from the previous level. We also made significant progress on our digital efforts. We have now built a new internally staffed digital organization spanning from in-house content creation capability to an e-retail dedicated sales force calling on the top e-retailers. Online sales for the quarter increased in excess of 25% than the prior year quarter, driven by dedicated online platforms, such as Amazon.com and Tmall.com, as well as net sales generated by the Company's own internal websites and now represent 5% of the company's global sales. Turning now to an update on the integration of Elizabeth Arden, for the quarter, we delivered an additional $17 million in synergies, which were largely driven by the continued in-sourcing of Elizabeth Arden production as well as the rollout of our new shared services model and additional real estate co-locations. As a reminder, we are no longer providing forward-looking guidance on the amount of synergies that we expect as part of the integration. Now I'd like to turn the call over to Victoria.

[Victoria Dolan:]

Good morning, and thank you, Chris. Starting with total company results, net sales for the first quarter of 2018 were $561 million, a decline of 6% on an as reported basis from the prior year quarter. We experienced net sales declines in our Revlon Portfolio and Fragrances businesses, offset by net sales growth for Elizabeth Arden. These declines are attributable to three main factors. First, the disruptions in the Oxford plant caused an estimated $20 million or a 3% decline in sales during the quarter, mostly in North America. Second, another approximately 3% decline in net sales was attributable to our Fragrances segments caused by the loss of brand licenses and consumption declines in the mass retail channels, particularly in North America. Additional declines in net sales were driven by the combination of several factors, including efforts to tighten distribution and manage trade inventory of the American Crew and CND brands and consumption declines in regional project – products, particularly in international territories as we reposition some of these products. And these remaining declines in sales were partially offset by FX favorability. Turning to brand support, brand support expenses were slightly up quarter-over-quarter as we continued to aggressively support our brands through campaigns such as Live Boldly for Revlon, March On for Elizabeth Arden, and Reveal the True You for Almay. Next, our general and administrative expenses are higher due to executive management severance charges taken in the current quarter of approximately $4 million and the impact of foreign exchange, partially offset by improved discipline over spending as we continue to focus on cost control. The as reported operating loss for the quarter was $62 million compared to an operating loss in the prior year quarter of $43 million. On an adjusted basis, operating loss was $42 million for the quarter compared to $7 million in the prior year period, driven by the decline in net sales coupled with the increase in selling, general and administrative expenses discussed. As reported net loss for the quarter was $90 million as compared to our as reported net loss in the prior year quarter of $37 million. In addition to the other drivers discussed, the higher net loss is attributable to a lower tax benefit driven by the Tax Act passed in December, partially offset by the favorable impact of foreign currency fluctuations. Finally, adjusted EBITDA was $4 million for the current quarter compared to $32 million in the prior year quarter and, as noted, was negatively impacted mainly by the net sales reduction. Next, I'd like to discuss our segment results. Please note that we made a change as of January 1 in the way we report our business segments. This change is consistent with our management alignment as a global brand team structure with four global brand teams

[Operator:]

Thank you. [Operator Instructions] And the first question comes from the line of William Reuter from Bank of America Merrill Lynch. Please go ahead.

[William Reuter:]

Good morning.

[Victoria Dolan:]

Good morning.

[Christopher Peterson:]

Good morning.

[William Reuter:]

So my first question is on the Almay increase in sales of about 50%, I think you mentioned, I think you had doubled your shelf space in those stores. Would that imply that the productivity on a, I guess, per square-foot basis had declined a little bit? And I guess what's the feedback then from Ulta on the new space?

[Christopher Peterson:]

So on the new space, we did move from a two-foot set to a four-foot set. I think both us and Ulta are very encouraged by the initial results. It's still early days. As I mentioned in the prepared remarks, there were 140 stores that we've gotten this sort of pre-post read, but we're planning this reset and we've now completed resets across many more stores across the Almay franchise. So I think initial results are encouraging and both us and Ulta are excited about what we're seeing so far.

[William Reuter:]

That's good to hear. I think Revlon also had some new products that you were resetting, I think, in Ulta and some other retailers as well. Can you talk about what types of sales changes you've seen there and what the feedback has been from those customers?

[Christopher Peterson:]

Sure. So we upgraded the wall fixtures at key retailers in the U.S., including Ulta, Walgreens, CVS, Walmart and Target. And what we've moved from is a dark display to a backlit display wall set. The initial results that we've seen on that are positive relative to pre and post. However, the sales from that have been heavily impacted from the Oxford disruption because the Oxford disruption, which impacted our shipments into the retail trade in the first quarter, in February and March, particularly were on the Revlon brands in North America.

[William Reuter:]

Great. And then, just lastly for me, you gave us the impact of the negative absorption from the challenges at the North Carolina facility. Can you talk a little bit about, when you were dealing with your customers that you may have made shipments to, what the feedback was, meaning were there any sort of additional payments that you had to make or discounts that you had to give or were there any kind of long-term implications in terms of shelf space?

[Paul Meister:]

So I would characterize the impact of Oxford, in respect to everything you just raised, in the following manner. First of all, we've been extraordinarily transparent and cooperative with all of our customers working on prioritization of shipments to them and communicating with all of them, I'd say, constantly. I would generally characterize the economic impact that you're referring to, penalties and things like that, has been minimal. I think that's largely as a result of the cooperation that we've seen with them. There has been some discussion about potential minimal shelf space implications on some SKUs, but the jury's still out on that and we're working with everybody. No specific impact has been seen so far.

[Operator:]

The next question comes from the line of Grant Jordan from Wells Fargo. Please go ahead.

[Grant Jordan:]

I guess my first question is on the liquidity. If you can help us understand maybe how much of the liquidity is elevated due to the ERP and inventory issues, and then how you think about liquidity going into the Q2 and Q3 inventory build?

[Christopher Peterson:]

Sure. So we mentioned in the prepared remarks, we did increase the liquidity post March 31 by doing an additional financing that added $41.5 million to the Company's liquidity position. The liquidity position at the end of March was somewhat negatively impacted by the reduction in shipments, which reduced the company's accounts receivable balance. As the – as we recover in Oxford and are shipping at more normal levels to customers, that accounts receivable balance is building and the Company's liquidity position is improving. So we are very comfortable with the liquidity position for the next 12 months. But we put the financing in place before we knew that the recovery status of getting out of the Oxford situation.

[Grant Jordan:]

Okay. And I think you have capacity for more secured debt in the term-loan basket. Has there been any discussions about looking to top that?

[Christopher Peterson:]

I think, at the moment, we don't really need that. So we feel comfortable with where we are today.

[Grant Jordan:]

Okay. On the overhead absorption add-back, can you help us just kind of think through how that is – how we should look at that? Is that truly a onetime? Is that like, just due to the $20 million of lower sales volume? Like, how do we think about that in terms of getting a normalized rate of EBITDA?

[Victoria Dolan:]

I think we think about that as a onetime and it was associated with the low asset utilization in the plant as we – and that has come back as we ramp up, so that – we should think about that as a onetime event.

[Grant Jordan:]

Okay. And then, last question. Can you give us the breakdown of the $20 million sales impact by segment?

[Christopher Peterson:]

Most of the – we haven't broken it out by segment, but most of the impact was in North America. And it would have impacted the Revlon segment and the Portfolio segment primarily. There was little to no impact on Elizabeth Arden or Fragrances.

[Grant Jordan:]

Okay, all right. And then last question – which of the Elizabeth Arden licenses roll off?

[Christopher Peterson:]

There were three or four relatively smaller fragrance licenses that were in the prior year period that didn't repeat this year. The largest one was Burberry, the Burberry fragrance license, and then there were a couple of the smaller ones.

[Grant Jordan:]

Okay. Do you expect any more license exits on the Elizabeth Arden side?

[Christopher Peterson:]

No. In fact, we've just recently announced that we've gained a license for All Saints and we're launching a fragrance for All Saints shortly.

[Operator:]

The next question comes from the line of Karru Martinson from Jefferies. Please go ahead.

[Karru Martinson:]

In your prepared remarks, you noted that while the plant returned to full production in early April, you had net sales continue to be impacted into the quarter, just wanted to get a sense of just the magnitude of that lingering impact versus the $20 million that we saw in the first quarter.

[Paul Meister:]

I think the short answer is we don't know yet. The retailers are filling – we don't have complete visibility to the retail pipeline. So the question is to how much of this is pipeline filling and how much is going through, we don't have a handle on yet. And secondly, the international impact takes a little longer to sort out, so the long-winded way of saying don't know yet.

[Karru Martinson:]

Okay. In the last quarter call, you guys showed very strong momentum in kind of building out that online part of your portfolio. Now you have the internally staffed team. Where are we today on that and kind of how we should think about that over the course of the year?

[Christopher Peterson:]

I think we're very encouraged by what we're seeing there. As we mentioned in the prepared remarks, we saw the e-commerce business grow in excess of 25% in the quarter and that's following a growth last year of in excess of 30%. Our online business now is 5% of the company's global sales, which is a record high, but we think there's a lot more potential. And more important than that or equally as important as that is we've also started to build out influencer marketing capability. We started to move the company's marketing activities to be more socially – more on social media. We've had strong results from the new campaigns on Instagram, on YouTube and on Facebook. We're growing our user base and we are getting much more capable on things like search engine optimization. We are developing digital assets internally inside the company, which is much faster and much less expensive than using outside agencies. And so I think it's – we're excited about the progress that we've made, but there's still more to come.

[Karru Martinson:]

Okay. And when we look at your CapEx and display needs for the year, how should we balance that against your liquidity profile? Are there areas where we can perhaps stretch out some of those projects? Or do you feel that the liquidity you have today as it improves is sufficient to fully fund that?

[Paul Meister:]

I think the headline which we've tried to convey a couple of times here is we are looking at everything that's not bolted down, so to speak, that we don't need to do. And so if something can be stretched or something can be eliminated to improve our position and ultimately improve our performance, we'll do it.

[Karru Martinson:]

Okay. And just lastly, on the reported data for Almay and the launch, it's been double-digit negative. Now how do we kind of reconcile what the – those reports have been with you guys talking about traction? What category are they missing when they kind of sum all that up?

[Paul Meister:]

I would preface and then I'd ask Chris to make a few additional comments. Look, Almay is kind of an interesting situation that we have at the moment. We are, in a sense, relaunching Almay right into the teeth of supply disruptions. So we are sitting here, frankly, trying to dissect, not very elegantly, how much – where can we see traction identifiable – identifiably tied to both our repositioning and our product launch and how much is related to supply disruptions. And I would say, quite candidly, we've got green shoots on the reintroduction, but I think it's going to take us another quarter or so to definitively say we've got this thing turned because we're – because of the two things that are coming together.

[Karru Martinson:]

Because of the two things coming together, all right, thank you very much guys, appreciated.

[Operator:]

The next question comes from the line of Hale Holden from Barclays. Please go ahead.

[Hale Holden:]

I was wondering if you could give us some more color on the international markets. In the release, you called out some weakness in Brazil. I think in the script you talked about some specific markets that were kind of up and down. It's the first time we've seen a little bit of a slow down on growth there. And then, I had a follow-up.

[Paul Meister:]

I'll give you headlines. I mean, look, we're doing great in the Far East broadly, spectacularly. You mentioned Brazil. I don't think we mentioned Brazil. And if we did, it was a slip of the tongue. We're really not doing much there, if anything, at the moment. We have seen slowdown in certain European markets that I would characterize as largely specific either to our situation and, to some extent, tangentially related to the supply issues that we've talked about, so broadly speaking, Asia, great; Europe, down a little, although market-by-market; Latin America is too small to matter.

[Hale Holden:]

Okay. And then on CND and American Crew, we've been talking about this sort of inventory de-stocking or rightsizing for some time. I was wondering kind of where we were in that process and what the path to stabilization in that segment would be?

[Christopher Peterson:]

Yes. So we have been talking about this and this is, I think, the fourth quarter that we've been talking about it. And what we've done is we proactively pulled back on shipments into the distributor channel in an effort to improve the diversion and the pricing profile of that. We're very encouraged with the results of that. When we get to next quarter, we will have lapped that pull back. So this is the last quarter that we'll have a year-over-year impact from the proactive pullback on those businesses.

[Operator:]

The next question comes from the line of Carla Casella from JPMorgan. Please go ahead.

[Carla Casella:]

First question is on the inventory. Can you talk about how much of the increased inventory was from the facility issue in the ERP system versus how much of this is pre-build going into the rollout this year?

[Paul Meister:]

I would say we were looking at the quarter – I'll give you a top line answer and then if it's not enough, we'll have experts answer it. But the headline is at the end of the quarter, we had two big impacts going into inventory build. Number one is the confluence. If you think about what's going on in the – particularly the Oxford plant, we were not getting things out as fast as we wanted, particularly the inbound raw material. We had inbound raw material still coming in because we knew the production was going to turn. That resulted in an inventory build. The second thing that happened, and this is a year-over-year impact, is we in-sourced some of the Arden fragrances and so that has a natural and a predictable inventory build. I would expect and, in fact, we've got lots of initiatives in the company at the moment to make sure that as we improve production out of Oxford that those inventory levels will come down.

[Carla Casella:]

Okay. So that really happens over the next quarter? Does that take two or three quarters?

[Paul Meister:]

I would say, based on what I alluded to earlier, it will certainly start in the next quarter. How many quarters that goes on, I can't answer.

[Carla Casella:]

Okay. And then the higher inventory in the quarter that would have also helped your borrowing base? Or was it inventory that was not – was it a type of inventory that was not included in the borrowing base?

[Christopher Peterson:]

It was not largely the type of inventory that has high advance rates because, as Paul mentioned, it's lower-level inventory and lower-level inventory have very low advance rates. So as we convert that lower-level inventory into finished goods, that also will improve the borrowing base going forward. So we had really 2 negative impacts on the borrowing base in the first quarter. One was the lack of conversion to finished goods and the build of lower-level inventory and the second was the drop in accounts receivable. Both of those are improving as we speak and have improved since the end of the first quarter.

[Carla Casella:]

Okay. Great. That's very helpful. And then, on the [indiscernible] facility, is the way to look at the EBITDA impact just the $10 million adjustment you made? Or is there some other impact that you haven't added back to EBITDA, the impact of that facility, I guess, issue?

[Christopher Peterson:]

Well, I think the sales impact and the gross margin impact from that sales impact also was – is something that we believe is directly related to the SAP conversion.

[Victoria Dolan:]

And the $10 million is in our regular EBITDA. The 10 – I mean the sales impact is in EBITDA. The $10 million cost is below the line, right, as non-recurring.

[Carla Casella:]

Okay. Gross margin was actually a little bit better than we had expected. And I'm just wondering is there any key call-outs or drivers for it? Was it in mix? Was it less fragrance markdown post-holiday, anything key in that number?

[Victoria Dolan:]

Well, let me take you through that. So on an as adjusted basis, our gross margin is up 60 basis points. And so there was additional inventory costs in the first quarter of 2017 related to the increase in fair value of inventory for Elizabeth Arden, which does not cycle this year, so we get a 70 basis point advantage for that. We had some favorable foreign exchange fluctuations, which also increased gross margin by about 60 basis points. And we are seeing the benefits of continued supply chain synergies, which was about 30 basis points. And offsetting that, we had some higher inventory obsolescence reserves for about 20 basis points. When we look at then the impact of Oxford, to get back to an as reported basis, there were those additional impacts of costs that we just talked about, which was about 40 basis points.

[Carla Casella:]

Great. That's very helpful. Have you ever given a sense for how big Ulta is as a percentage of your total? Is it in your top 5 customers?

[Christopher Peterson:]

No. We don't disclose customer-specific detail.

[Carla Casella:]

Okay. And then, in terms of that rollout at Ulta, you mentioned you've got 140 doors that you can now comp. Where are you in terms of when – will that rollout be completed pre-holiday? And how many more doors do you have to add at this point?

[Christopher Peterson:]

The rollout was completed at the end of April. So we basically did the reset starting in January and finished them at the end of April. So they were partial impact in the first quarter, but we've now completed the upgrade for the Revlon doors and the Ulta doors across the retailers – or and the Almay doors across the retailers we talked about. So those upgrades have now been completed as we sit here today.

[Carla Casella:]

Okay. And then, just given you've moved away – around the way you report, are there any brands that you would consider noncore, mostly maybe in that Portfolio segment or brands that you would consider exiting to help give you more to invest in the brands that are – that you're – that you would like to invest behind?

[Paul Meister:]

There's a tail of very small brands which we've looked at and will continue to look at as to whether it makes sense to invest in or divest. But I think the short answer with respect to the brands we've talked about today or mentioned specifically, the answer is no.

[Carla Casella:]

Okay. And then, is it just bad luck that you were doing the facility transition at the same time as doing the Almay and the restage at Ulta? Or was there a timing issue where you expected to do the rollout sooner and the facility later or just...

[Christopher Peterson:]

Well, I think the – honestly, it's just we did not expect to have the issues on the facility that we did. So in hindsight, the phasing looks a little off, but the reality is we were expecting to execute flawlessly on the SAP situation at Oxford.

[Carla Casella:]

Okay. And one last one, do you have the ability to buy bonds back on the open market under your credit agreement?

[Paul Meister:]

The company, yes, so the company could – I think has the ability to do that, but the company hasn't done that today.

[Operator:]

The next question comes from the line of Tom Radionov from Corre Partners. Please go ahead.

[Tom Radionov:]

I just wanted to go back to one of Carla's questions. I just want to make sure I understand the EBITDA math. So if I take the $4 million number that you reported and I add back the $4 million in severance, which I don't think was added back, would it be fair to then say you've got this $8 million number and I think someone mentioned that, effectively, the sort of that the gross profit impact from the $20 million in lost sales was not added back. So just directionally, if I assume like a 40%, 50% gross margin with that $20 million, then that really gets me closer to more like an $18 million EBITDA number for the quarter? Would that be a fair way of thinking about what happened in the quarter?

[Christopher Peterson:]

Yes. I think that's a fair way, except that the gross margin that I would use on that would be higher, probably 60% or something like that on the $20 million of sales.

[Tom Radionov:]

Got it. Okay. That's very helpful. I appreciate that. And then, Nielsen, over the past 3, 4, 5 weeks, we've been basically seeing what I would characterize as meaningful improvement in some of your numbers. Just curious if you guys are seeing that sort of same trend in your internal numbers as well or if this is not necessarily reflective of what's happening in the business?

[Paul Meister:]

No. I think we were trying to allude to that in my opening comment about sort of we've got a lot of good news going on in this company at the moment and yet, at the same time, we are hiding a certain amount of it through what we're doing – or what we were doing, I should say, in Oxford.

[Tom Radionov:]

Got it. Okay, and then, two quick questions as well. One is on the pipeline, I guess, for the rest of the year. I mean, typically, when we see companies in your space launch products, it tends to happen at the beginning of the year when the major resets take place, and that happened with Almay. It didn't really happen with Revlon. There's been sort of a few products here and there, but really nothing meaningful. And I feel like you've talked about innovation in the past and what you're doing in the background. Do you expect to see sort of any meaningful changes to your portfolio in terms of products for the Revlon brands specifically later this year and, in particular, when the second reset happens in the summer? Or is this more of a 2019 initiative?

[Paul Meister:]

The short answer to your question is yes. We've got a fair amount of back-half innovation coming out and, obviously, 2019, quite a bit more. So innovation doesn't certainly historically happen overnight, but yes, we're expecting great things in the back half.

[Tom Radionov:]

Got it. And last question on the Professional business. I think you talked about how in the second quarter of this year we're going to start lapping some of the difficult compares from last year. But I don't think you really talked about whether that means that just optically the numbers are going to look better because of that, sort of easier compare or if you're actually going to pull back on that sort of proactive reduction in the – in distribution. So I'm just kind of trying to understand the timing there. And also, just big picture when I think about your Professional business, your competitors have been reporting relatively decent numbers. And I think that's on the back of, especially OPI launching a bunch of products. And I think there's been sort of a few Wella products as well that have been launched. So it seems like there's been a lot going on from an innovation spend point-of-view from the competition that's been driving numbers there. We really haven't seen too much on the Professional side from you guys. How do you think about, again, sort of the compares going to the second quarter, but also innovation from a longer-term perspective?

[Paul Meister:]

Two headline answers. Number one, I think the comments we made earlier was merely to point out that the year-over-year comparables next quarter will be clean, i.e., you'll be able to see what's going on in the business without us talking about sort of additional impacts, point number one. Point number two, we have a fair – much like I said about Revlon, we've got a fair amount of innovation coming in the second half in Pro also.

[Christopher Peterson:]

And on CND specifically, we're launching a major innovation this summer, so – to upgrade that business. So you'll see that come out from us that we think is an exciting innovation.

[Tom Radionov:]

Got it, okay. Thank you very much. Look forward to seeing all these changes. Appreciate it.

[Operator:]

The next question comes from the line of Mary Gilbert from Imperial Capital. Please go ahead.

[Mary Gilbert:]

I wondered if you could talk about Fragrance, what's going on there. Are there some lack of new product launches, for example, with Juicy Couture and then also with John Varvatos, because those are both very big. Well, I think Juicy is the largest, right? So I wondered if you could talk about that.

[Paul Meister:]

So I'd say three things going on, again, headlines, in Fragrance. One is, as Chris and Victoria mentioned, we did have some licenses that lapsed, point number one. Point number two, we do have some very significant back-half innovation coming in Fragrance also. Actually, I think the Fragrance business has got some of the biggest launches coming, including some incremental product positioning, if that's the right phrase, in Juicy. And then, point number three, we are in the market looking at incremental license adds, as Chris alluded to earlier. So I at least look at the Fragrance business as one where, yes, sort of the lapsing effect of some things that in theory should have been done a year ago or a year – half year ago or something. That's life, but I think I'm very optimistic about where that business is going.

[Mary Gilbert:]

Okay great and then also on John Varvatos, too?

[Paul Meister:]

Yes.

[Mary Gilbert:]

Okay. And then ColorSilk, is that where we're going to see some innovation to bring that back?

[Christopher Peterson:]

Yes. So ColorSilk was also impacted by the Revlon – or by the Oxford plant situation in the first quarter, because we make ColorSilk product in the Oxford facility. And so as the plant has now recovered to production levels, we expect that to have a positive impact on that business.

[Mary Gilbert:]

Okay. And then, finally, I had a question on the efforts that you're doing digitally. So I noticed that, with some of the major retailers in the mass channel, that the websites for Revlon don't incorporate the new Live Boldly campaign. And so I wondered when we're going to see that effect in there? And so...

[Paul Meister:]

Soon.

[Mary Gilbert:]

Okay.

[Paul Meister:]

No. I know one-word answers are unusual on these things, but soon. We're on it.

[Mary Gilbert:]

Okay, all right. And then finally, you talked about Europe, some weakness there. Part of it is due to the ERP disruption, but I also wondered if there's any distribution issues. I just noticed when I was overseas that in some of the rural markets that there wasn't the Revlon presence in Boots and that it had exited Boots about three years ago, is what I was told, in those outlying markets. I think it's still in London...

[Paul Meister:]

That's not right. We're in Boots. And I don't know when you were there, but I suspect that was supply chain issues.

[Mary Gilbert:]

Okay, all right. Thank you very much.

[Operator:]

The next question comes from the line of Steph Wissink from Jefferies. Please go ahead.

[Stephanie Wissink:]

We have three really quick ones as well. I wanted to just follow up on the ERP conversion at Oxford. If you could just remind us where you are in the rollout of ERP more broadly across your network? That's question number one. And then, question number two is on the e-commerce strength. I'm curious if you're seeing any differences by region of the world. I think you mentioned it's about 5% of your global sales, but if there are any distinctions by major region of the world.

[Christopher Peterson:]

Sure. From an ERP system, the North America implementation that we went through that we talked about at the beginning of February was the last major ERP implementation in our current planning cycle. We now have SAP implemented in about 22 countries on the Revlon legacy side of the business. And the Elizabeth Arden business is a JD Edwards ERP system that is implemented in the vast majority of the countries for Elizabeth Arden. So there – with this implementation, we believe that we've gotten to a relatively upgraded ERP system in most of the markets around the world. So there's not a plan for future implementations at this point. On the digital side and the e-commerce side, I do think that it's different by market. The place where we are the most advanced is China. If you look at our business in China that we've gotten from Elizabeth Arden, that business, we do about 80% of our business there online through Tmall, JD and other third-party retail sites. And so – and that business is growing very rapidly. In the U.S., we're making strong progress, as we mentioned. I think some of the other markets are a little bit slower in terms of adoption for a variety of reasons, but I would put China and the U.S. in the lead relative to what we're seeing.

[Stephanie Wissink:]

Just one follow-up on the U.S., a number of your large prestige partners have withheld engaging in some of the online activities of the online-only retailers. I'm just curious, your thoughts and philosophy around launching your higher-end prestige and luxury fragrance and beauty portfolio online on an Amazon or an online-only distributor.

[Paul Meister:]

Look, I think, as a broad statement, without getting into the details of our strategy, online, at the risk of being a complete wise guy, is here to stay and we've got to play in as many ways that we can do so and do so profitably.

[Operator:]

And again, we have time for one more question, and this comes from the line of Jenna Giannelli from Citigroup. Please go ahead.

[Jenna Giannelli:]

I think I got dropped from the call earlier, so a lot of mine have already been answered, but I still do have a few. We heard a lot of CPG companies this quarter just talk generally about inflationary costs, so weather, freight, distribution, wages, but I just didn't hear much mention of that in your prepared remarks. Can you just speak to that a little bit? And how might these have been an impact to EBITDA and EBITDA margin in the quarter?

[Paul Meister:]

I think the short answer is we didn't see a lot in the numbers. As a general matter, at a macro level, I think it's out there and we should all be thinking about it. So I'm not unmindful of the pressures, but nothing meaningful in the numbers.

[Jenna Giannelli:]

Okay. That's great. And then, I believe that you took up your restructuring guidance in the K. I think you gave the total number, but can you just tell us how much of on that we'll expect to flow through in 2018? So basically, the cash restructuring charges we should expect to model for this year?

[Christopher Peterson:]

I think we provided the update out to our disclosure in our Q, which we're filing today. So I would refer you to the Q. And I think that's the level of forward guidance that we're going to give.

[Jenna Giannelli:]

Okay. Okay. And then can you – just on – I know you said about Amazon, it's growing significantly. We're at 5% penetration now. Have you talked at all about the economics of what that relationship looks like versus some of your other customers?

[Christopher Peterson:]

No. We don't disclose customer-specific profitability, yes.

[Jenna Giannelli:]

Okay. Fair enough. And then, just finally, I think you guys had called out the CapEx and display spend will be about flat year-over-year, obviously with some ability to push out the timing of some of those projects as necessary. But can you just talk about the allocation of the CapEx and where you see those dollars going? And how that might be similar or different to you last year?

[Christopher Peterson:]

So I think on CapEx, we still are spending a fair amount of CapEx on the integration plan with Elizabeth Arden. So there's still some amount of CapEx associated with the in-sourcing work and there's still some CapEx associated with co-location of facilities and that type of thing. The balance of the CapEx is really focused on the digital transformation, ongoing maintenance and other types of items. So that really is what the CapEx. The permanent display spending is at an elevated level as we redo the walls and invest behind the upgraded walls on Revlon and Almay across thousands of stores in the U.S. market. And so you'll see that, but that's included in the guidance that we've given. End of Q&A

[Operator:]

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation and you may now disconnect your lines.

[Paul Meister:]

Thanks very much.