Revlon, Inc.
Q3 2016 Earnings Call Transcript

Published: 4 Nov 2016

[Operator:]

Good morning, ladies and gentlemen and welcome to Revlon’s Third Quarter 2016 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. I would now like to turn the call over to Siobhan Anderson, Revlon Chief Accounting Officer and Treasurer. You may begin, Ms. Anderson.

[Siobhan Anderson:]

Thank you. Good morning, everyone and thanks for joining today’s call. Earlier today, we released our financial results for the quarter ended September 30, 2016. If you have not already received a copy of the earnings release, you can obtain one on our website at www.revloninc.com. On the call with me this morning are Fabian Garcia, our President and Chief Executive Officer and Juan Figuereo, our Chief Financial Officer. Before I turn the call over to Fabian, I would like to remind everyone of a few items. First, our discussion this morning might include forward-looking statements that are based on our current expectations and are provided pursuant to the Private Securities Litigation Reform Act of 1995. Information on factors that could affect our actual results and cause them to differ materially from such forward-looking statements is set forth in our SEC filings, including our 2015 Form 10-K and our Q3 2016 Form 10-Q, which we filed earlier this morning. We undertake no obligation to publicly update any forward-looking statements, except for the company’s ongoing obligations under the U.S. federal securities laws. Next, our remarks today will include a discussion of certain GAAP and non-GAAP results. On an as-reported basis, Elizabeth Arden’s results have been included in the company’s financial performance beginning on the acquisition date of September 7, 2015. However, in order to provide comparative discussions, our remarks today will be on a pro forma basis, which presents the GAAP and non-GAAP results as if Revlon and Elizabeth Arden were combined companies for all periods discussed. From a segment view, all of Elizabeth Arden’s operating results have been included in the Elizabeth Arden segment. In addition, consistent with our past reporting practices, the company has identified certain non-operating and unusual items that impact the comparability of our period-over-period performance. As a result of these unusual items, the individual components within adjusted EBITDA obtained from that use in prior periods and such adjusted results have been appropriately restated. The adjusted measures are defined in our earnings release and are also reconciled in the financial tables at the end of the release. And finally, unless otherwise indicated, our discussion today will be on an XFX basis, which excludes the impact of foreign currency fluctuations on the period over period variances. Our discussion this morning should not be copied or recorded. And with that, I will turn the call over to Fabian.

[Fabian Garcia:]

Thank you, Siobhan. Good morning to all and thank you for joining our call. Today marks the first time that we are reporting our quarterly performance as one company since completing the Elizabeth Arden acquisition on September 7. And there are three key points that I would like to open with this morning. First, as a combined company, our global beauty business continues to grow. Second, we are managing the business as usual for now, minimizing disruption for integration planning and intend to continue to do so through the end of the year. We will begin implementing our integration plans early next year after the crucial fourth quarter is behind us. And third, we remain extremely enthusiastic about the tremendous value creation opportunities presented by the combination of our companies and brands. With that, I am now pleased to share with you more specific highlights for the third quarter. As stated in this morning’s earnings release, we ended the third quarter strong with as reported net sales up 30% or plus 2.5% on a pro forma basis for a combined company adjusted for foreign currency. All four of our reporting segments, Consumer, Professional, Elizabeth Arden and Color delivered ex-foreign exchange net sales growth in the quarter. As we take a closer look at the performance of each reporting segment, we are pleased to report that the Elizabeth Arden brand achieved its seventh consecutive quarter of net sales growth driven by new product innovation and efforts to modernize the brands relevance and attract new consumer. In the quarter on a pro forma basis, net sales grew in all three categories under the Elizabeth Arden brand in care, color cosmetic and fragrances. We have seen the Elizabeth Arden cosmetics category which experienced double-digit net sales growth for the period. Grand Entrance Mascara and Prevage Anti-Aging Foundation were notable contributors. The Elizabeth Arden brand business also grew online sales double-digit for the quarter as we continue to leverage digital strategies that align with shifting consumer purchasing behavior. Also within the Elizabeth Arden segment, our owned and licensed fragrance business has strong performance this quarter on a pro forma basis as many of the designer and lifestyle brands continued to grow both at retail and online. Specifically during the quarter, sales were strong in John Varvatos, White Diamonds and Britney Spears fragrances, the latter behind the new private shoreline. In addition to the strong performance from our new Elizabeth Arden segment, I would like to point out that the standalone Revlon business also continued its growth trajectory, reporting our sixth consecutive quarter of net sales increase. This segment experienced top line growth and increased consumption across many key new product innovations and core franchises in the portfolio, including Revlon Ultra HD Matte Lipcolor, which year-to-date September is the most successful new product innovation in the U.S. mass color cosmetics category according to news. Other strong performance for the quarter which contributed to net sales growth includes Cutex, American Crew men’s grooming line and 3-in-one shampoo, conditioner and body wash and the new Revlon Professional Be Fabulous hair care collection. The North American consumer business however was soft in the period driven primarily by Revlon color cosmetics and SinfulColors. These businesses were impacted by slowing consumption in the U.S. mass retail channels and in addition Revlon color cosmetics experienced key customer inventory rebalancing and promotional display timing. Although we have many examples of sustained growth within our portfolio and as previously reported, we continued to experience softness in three of our brands and have begun to implement strategies and plans to restore sales growth. First, Revlon ColorSilk hair color continues to be challenged in the enterprise in-home hair color category. The brand has already started to shift a new color protecting shampoo and conditioner range under the ColorSilk franchise and a new ColorSilk Buttercream Hair Color formula. This initiative further leverages our expertise in hair color and care and we are encouraged by early results. Almay will begin a re-launch of the brand in the second half of 2017 building on the brand’s core equities with a modern relevant positioning. Our marketing team has just completed extensive, qualitative and quantitative research with more than 1,700 consumers to assess purchase interest and acceptance for the repositioned brand concept. We will begin to present the new positioning to our trade partners before the end of this year. Also as previously reported, CND has been under pressure from low priced competitors in the U.S. and we are beginning to respond with a more strategic approach aiming to restore our growth in that category. Earlier this year, we introduced CND Creative Play, a range of 80 shades of vibrant colors in the value priced nail enamel category and we are gaining momentum behind expanded distribution of the range. We also have another exciting innovation in the pipeline for the second half of 2017 that is designed to restore CND’s leadership in the high-performance nail category. The vitality of our business is further demonstrated by strong international growth for the period across all our business segments with double-digit net sales growth for our consumer business in Asia and for Elizabeth Arden business in China. We also have notable growth in the quarter in Argentina, the UK, Mexico, France, Germany and South Africa. In addition to continuing to deliver our business objective, almost immediately after closing the Elizabeth Arden acquisition, we began fine tuning our integration planning to reconfirm the synergy estimate we have shared externally with you during the due diligence process. I am happy to report that we are making good progress across multiple fronts and have confirmed our ability to deliver at least $140 million in multi-year synergies and cost reduction related to the transaction. We have also been working to design a new organizational structure to enable us to drive and accelerate future growth. You will be hearing more about this in the future. Looking forward, we are already stronger and more competitive as a combined organization with exciting opportunities for growth and development for our employees, business partners, shareholders and consumers. As one company, we also have more capabilities and resources to grow our combined portfolio brand, as well as the opportunity to reach consumers wherever and however they shop for beauty. As we begin to understand and leverage the opportunities that the acquisition presents for our business and our team, I am encouraged by the strength and resilience of our iconic brand. Excited about our strong growth potential both in North America and internationally and impressed by our passionate and talented employees who are committed to our brands and business and to building a world-class beauty competitor. To help us achieve this potential, we will pursue the following strategic objectives. First, build a foundation for sustainable growth that outpaces the industry. We will focus on fast growing beauty segments and strategic categories, continue to diversify our channels, especially direct-to-consumer and accelerate our expansion in Asia. Second, harness the power of our iconic brand portfolio to delight consumers wherever and however they shop for beauty, advance our digital and multi-channel capabilities while ensuring we continue to win in traditional mass prestige salon channels around the world. And third, develop a cost structure that delivers world class profitability and permits us to continue to invest in our brand. I will now turn the call over to Juan who will walk you through a summary of our financial performance. Juan?

[Juan Figuereo:]

Thank you, Fabian and good morning, everyone. As a reminder, unless otherwise indicated, our discussion today will be on an XFX basis and on a pro forma basis where applicable. And later, when we discuss total company results, please refer to the reconciliations of as reported results to adjusted and pro forma adjusted results, which are provided as an attachment to the earnings release. We will now review our segment results, starting with our Consumer segment. Consumer segment net sales were essentially flat in Q3 primarily as a result of incremental net sales from the company’s global consolidation of the Cutex brand as well as higher net sales of Revlon beauty tools and Revlon color cosmetics, mostly offset by lower net sales of simple color. As Fabian mentioned, our company net sales in North America were soft versus the prior year quarter, down 5.3%, primarily driven by softening market conditions in core categories, which impacted Revlon color cosmetics and simple color. These decreases were partially offset by incremental net sales in connection with the company completing the global consolidation of the Cutex brand, as well as higher net sales of Revlon beauty tools. Internationally, net sales within the Consumer segment grew 9.7% compared to the prior year quarter, driven by higher net sales of Revlon color cosmetics and Revlon ColorSilk hair color, as well as incremental net sales from Cutex. From a geographic perspective, the increase in international net sales was mainly due to Argentina, the UK and Mexico. Consumer segment profit was $81 million in Q3, representing a decrease of 5.8% primarily resulting from the absent in 2016 of a $3.5 million gain related to the sale of a non-core consumer brand that was completed in the third quarter of 2015. Excluding this gain, Consumer segment profit would have decreased by 1.8%, resulting primarily from the unfavorable impact of FX transaction within cost of sales, offset by decreased brand support on lower performing brand. Switching now to the Professional segment, Professional segment net sales in Q3 were $118.8 million, an increase of 4.5% versus the prior year quarter. In North America, professional net sales increased 2.2%, driven primarily by the American Crew men’s grooming product and the Elvis branded marketing campaign. Internationally, professional net sales grew 6.3% in the quarter, primarily driven by Revlon professional hair product, in part due to the launch of the Be Fabulous hair care collection, as well as an increase in net sales of American Crew men’s grooming products throughout most of the international region, partially offset by lower net sales of CND primarily in Russia. Professional segment profit was $23.7 million in Q3, an increase of 1.3%, driven by higher net sales internationally, partially offset by higher brand support. Moving to the Elizabeth Arden segment, on a pro forma basis, the Elizabeth Arden segment net sales in Q3 were $275.5 million, a 4.5% increase versus the prior year quarter. In North America, Elizabeth Arden net sales increased 2.4%, primarily driven by increased net sales of Elizabeth Arden color cosmetic, as well as higher net sales of owned and licensed fragrances in designer and heritage brands. Internationally, Elizabeth Arden grew 8.5%, driven by higher net sales of fragrances in South Africa and the UK as well as higher net sales of Elizabeth Arden color cosmetics in South Africa. Elizabeth Arden segment profit was $38.8 million in Q3, representing an increase of 46.7%, driven by higher net sales, coupled with lower cost of goods sold as a result of cost reduction initiatives and the favorable impact of product and channel mix. As for our other segment, net sales increased 6.7% versus the prior year quarter, while segment profit was essentially breakeven. Moving now to total company results, on a pro forma basis, we reported consolidated net sales of $745.1 million in Q3, an increase of 1% or 2.5% XFX over the prior year quarter. Consolidated pro forma adjusted EBITDA was $105.5 million, an increase of 9.3% XFX over the prior year quarter. This was driven by the increase in net sales as well as gross margin improvement in the Elizabeth Arden segment. Consolidated pro forma adjusted net income in Q3 was $15.8 million, an increase of $21.8 million driven by the increases discussed in pro forma adjusted EBITDA as well as the lower tax provision due to the spacing of pretax income. Now for our liquidity update, taking a look at cash, we continue to feel good about our liquidity position. As of September 30, 2016, we had approximately $307.2 million of gross liquidity, consisting of $99.2 million of cash on hand and available borrowing capacity of $207.9 million on our revolver. As for guidance, you will recall that we provided a full year outlook for 2016 sales and EBITDA on an XFX basis, in connection with the financing of the Elizabeth Arden acquisition. Now that the acquisition is completed, we will be returning to our longstanding practice of providing information about performance, but not forward-looking guidance. However, I wanted to close this chapter by letting you know that we still expect the standalone Revlon business to be within the previously announced range of $2 billion to $2.1 billion in net sales and $400 million to $420 million in adjusted EBITDA. And with regards to the integration of Elizabeth Arden as Fabian previously mentioned through our post-closing detailed planning work, we have confirmed our ability to generate at least $140 million of synergies and cost reduction. We expect to complete the integration planning phase by the end of the year and to start executing those plans early in 2017. We are also revisiting cost estimates and evaluating options to increase and/or accelerate synergy capture. We will provide more information at the proper time. Now, I would like to turn the call back over to Siobhan.

[Siobhan Anderson:]

Thank you, Juan. 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:]

Thank you. [Operator Instructions] We will take your first question from Kevin Ziets from Citi. Please go ahead.

[Kevin Ziets:]

Hey, good morning and thanks for taking my questions. The first one is just understanding the guidance a little bit, I see there is a breakdown for Arden’s EBITDA for the quarter, I guess prior to when you owned it of about negative $8 million. It seems to me that just using the segment information that they may have done somewhere around $20 million in EBITDA on a combined basis for the quarter, which leaves I guess a pretty good gap for Revlon standalone to achieve its $400 million to $420 million for the full year. I am just thinking about that in terms of the – what happened in North America in cosmetics this quarter and sort of where the confidence comes from?

[Fabian Garcia:]

Yes, good morning, Kevin and thank you for your question. I think what you are asking is really about the Revlon standalone obviously next quarter and the quarters after that will be very difficult to see Revlon standalone since we are now reporting combined. But with regards to the guidance, to be clear, I would tell you that we are in the range, but tracking towards the lower end of that range. The seasonality this year for Revlon standalone is a little higher than we have had in the past, although every year the fourth quarter has more weight than almost any other quarter on the EBITDA results. This year is higher, because as we had previously indicated that’s how we planned the rollout of the innovation and their significant pipeline of innovation in the fourth quarter this year. That is basically what drives such a heavy weight on the fourth quarter.

[Kevin Ziets:]

Okay, that’s great. I guess, along those lines, do you feel like you picked up additional shelf space going into the planogram resets in January?

[Fabian Garcia:]

Kevin, this is Fabian. Good morning to you.

[Kevin Ziets:]

Hey, good morning.

[Fabian Garcia:]

So, we feel that we are faring quite well with our trade partners given the innovation that we are presenting and the trends in the business. And I just wanted to add a comment to the guidance answer that Juan provided. We continue to feel very good about the balance of our business in Revlon and of course we feel very good about how Elizabeth Arden is doing. Our international business in Revlon are terrific, continue to accelerate and obviously, the headwinds in North America are what they are, but our brand continues to be strong and we have great innovation studies coming in the pipeline. So, the net of all of that, we feel good about getting within the range of the guidance that we provided towards the lower range despite the headwinds in North America.

[Kevin Ziets:]

Okay. I guess, along the lines of the retailer, I guess, rebalancing that you mentioned is do you feel like that’s complete or is that – I guess, how long do you expect that to be a headwind? Is it driven by some of the consolidation that’s happened or is it exclusive of that?

[Fabian Garcia:]

I would say first, it’s hard to predict however and move their inventory. Obviously, there is a lot of movement in consolidation as you mentioned with some retailers buying some orders. My view is that we have seen that in cycles as they close their own quarter. So, expectation is we are going to get to a normalized level that we can build from. So hard to predict is my answer to your question.

[Kevin Ziets:]

Okay. And then just on the synergies, I know you said you are sort of evaluating the timing of the spend, could you talk maybe just in broad strokes, I think you had laid out at the time of the deal sort of a split between what was going to be achieved in supply chain versus other cost savings and I was wondering if you could maybe update your thoughts on that?

[Juan Figuereo:]

Sure, Kevin. This is Juan again. We said about $140 million in synergies and roughly about 60% of those were from supply chain. And we also said that we expected about $105 million to be implemented, not realized to be clear, implemented, meaning that we would have taken the actions necessary for the reductions to happen. But I think the important thing that we would like to leave you with is that we feel really good about that estimate now that we had a chance to go into the details and we are actually now looking for ways to either accelerate the spacing, the timing, or increase or both, the total amount of the synergies. When we have more details then we will be able to provide it, but right now, we are in the final stages of that announcement.

[Kevin Ziets:]

Okay, great. I will jump back in queue and let some other people get in.

[Fabian Garcia:]

Thank you, Kevin.

[Operator:]

We will hear next from William Reuter from Bank of America/Merrill Lynch.

[William Reuter:]

Good morning, guys.

[Fabian Garcia:]

Good morning, William.

[William Reuter:]

So, you guys talked about in North America some of the – you described as I think soft market conditions for color cosmetics and SinfulColors. I am wondering whether you believe that this was specific to those brands or whether you feel like and I guess whether they have lost share in the quarter or whether alternatively it was just the category that was down?

[Fabian Garcia:]

Let’s take that in two parts. The category is decelerating. That is the category of North America color cosmetics and also is happening in hair coloring. So, the growth rate for the third quarter is a fraction of what they were in the beginning of the year. So, that’s that. Our brand continued to be strong especially the Revlon color cosmetics brand is about 10% share. And within that, we are seeing very encouraging growth in the lip category and in the eye category. So, those are, of course, where the innovation has been most active for the quarter. So, there is – this is a story of a market that is decelerating and the market shares that are at – they are holding. So, that’s how the numbers span out in North America.

[William Reuter:]

Okay, that’s helpful. I know that when we did the financing for the acquisition, you guys were unable to talk to some of your customers about Elizabeth Arden in certain ways. I am curious now that you guys have had a chance to talk to some of them what you guys believe the opportunity maybe for revenue synergies are, but I think most of the synergies we talked about were in the cost side?

[Fabian Garcia:]

Yes, thank you for the question. So obviously, we are very busy with the cost reductions and cost synergies and that is our number one priority. But at the same time, we are seeking to materialize some of their revenue synergies that we said though during the funding period. So, I will give you an example very recently, my team and I went to visit a very large multi-geography retailer in the drug category and presented our combined plan. And the reception that we had was very positive. We had started to lay out specific opportunities by country, mostly distribution gains by making sure that we address joint business plans now that we have a combined portfolio in the four categories that drive most of the growth. And the outlooks were positive and immediate. So, we are planning to have these kind of meetings with most of our multinational retailers in the next two quarters. So, we are encouraged by what we hear from great customers and we will continue to materialize those quick wins in revenues.

[William Reuter:]

Do you think in a couple of quarters after you have had these conversations, you would be able to provide estimates for what types of opportunities they would be in terms of be, I guess, quantifying them?

[Fabian Garcia:]

I don’t think we are going to provide them customer-by-customer, but we feel very good about the prospect of that revenue synergy. And obviously, that will add up to the cost synergies which will make the acquisition more accretive for Revlon.

[William Reuter:]

Okay. And then just lastly for me, I guess given you guys there is a lot of opportunities, I guess for synergies here, will you guys focus on integrating the Elizabeth Arden business or would you guys consider other acquisitions at this point?

[Fabian Garcia:]

Obviously, we will not comment on future acquisitions. Our focus right now is to make sure this is a great success from both a cost reduction and synergies point of view as well as the revenue synergies that we just discussed. So that’s our number one priority. And believe me it will keep us busy for a while.

[William Reuter:]

Okay. I will turn it to others. Thank you.

[Fabian Garcia:]

Thank you.

[Operator:]

[Operator Instructions] We will hear next from Grant Jordan from Wells Fargo.

[Grant Jordan:]

Good morning. Thanks for taking my questions. Most of mine were covered, I guess I had one, we did see some improvement in the Elizabeth Arden segment profit in the press release, it called out cost reduction efforts, was that stuff that Arden had already enacted or were those the results of some of the actions you have already taken post the close?

[Juan Figuereo:]

Yes. Hi, Grant. The improvements are mostly part of the – driven by the actions that they had already taken before we took them over. I think they had done a good job with the previously announced cost reduction plan, so some of that was already flowing through the P&L. There is some impact related to some of the actions that we are taking, but I would say, in the quarter that was very small, it was mostly what they had already done.

[Grant Jordan:]

Okay, that’s helpful. And then I think last quarter, maybe the quarter before you talked about on the CND product, trying to introduce some more lower price products, was that what you are talking about earlier, you said you were hoping to regain share in that category?

[Fabian Garcia:]

Exactly what we have – this is Fabian, Grant. We have in prior quarters talked about a strategy that will help us address the value issue and the commentary I made in my remarks and I also mentioned that we have another strategy, another strategic initiative coming in the second half of ‘17 that would allow us to reassert the superiority of CND to gain share in the premium segment of the category.

[Grant Jordan:]

Okay, alright. So, those two are separate both on CND. Okay, that’s helpful. That’s all I had. I appreciate it.

[Fabian Garcia:]

Thank you, Grant.

[Operator:]

Hale Holden from Barclays. Your line is open.

[Hale Holden:]

Good morning. Thanks for taking the call. I had a couple of quick ones, on the U.S. retailer kind of inventory management, do you have a sense of what your sellout was during the period, presumably they are going to have to restock at some point, so I was wondering if you feel good about the sellout of the stores versus what those stores were doing internally?

[Fabian Garcia:]

Hale, good morning. Yes, we feel good about the sellout and we are working practically to restore the inventories in stores and in their warehouses so that we can give consumers what they are looking for.

[Hale Holden:]

On the two innovations that you highlighted, CND and the other products for the second half of 2017, how do we think about those brands in the meantime between now and then, it’s a decent amount of time, is there going to be sort of a continued trail-off in sales for the next two quarters before it rebounds or can you keep it kind of steady state?

[Fabian Garcia:]

We are trying to keep it kind of steady state. In fact we are seeing improvement in the trend for CND in the U.S. and outside of the U.S. in this particular quarter. We have also seen improvement in this quarter on our mix. So, I have been pleased to take the necessary measures to stabilize the business before the strategic solutions to Asia’s counter play.

[Hale Holden:]

And then my last question was, you highlighted in the script the strong performance of Arden in China, which is kind of a continued theme for that part of the business, can you just provide us a little bit more color or details on where the strength of China is coming from, how it’s working and maybe the outlook for that?

[Fabian Garcia:]

Well, we actually talked about this during the due diligence and as we were presenting the opportunity to the bank. We see a great opportunity for growth in China with Elizabeth Arden and obviously based on their platform also for Revlon. They are doing terrific in two aspects. I think in the online world, they continue to experience double-digit growth. And they kind of experienced such growth now for a sustained period of time. In the brick-and-mortar world, they are renovating the distribution and revitalizing the brand. Recently, two and a half weeks ago I was with my team and the Elizabeth Arden team, opening a new counter in a prominent department store in Shanghai [indiscernible]. And that is the first execution in the world of the brand new counter look for Elizabeth Arden. We had a similar effort in the UK a couple of weeks ago, but we are very encouraged about this renovation and that revitalization of the brand in brick-and-mortar. So we feel very good about what they are doing in China and how that Chinese initiative continues to confirm the growth potential that we have in the apparel world.

[Hale Holden:]

Great. Thank you for the additional color. I appreciate it.

[Fabian Garcia:]

Thank you.

[Operator:]

We will hear next from Carla Casella from JPMorgan.

[Carla Casella:]

Hi, can you just give us some color on gross margin, how much the gross margin was for Revlon and for Arden or some sort of comparison year-over-year?

[Juan Figuereo:]

Hi Carla, sure. First, let me point out kind of the obvious, which is Revlon has the higher gross margin than Elizabeth Arden. So the combination on a pro forma basis will take lower gross margin. On a comparative basis, Revlon goes by the combined on a pro forma basis was actually 40 bps higher than the combined pro forma for the previous year at 56.9%. And Arden gross margin standalone was also a slight increase primarily as a result of products and geographic mix.

[Carla Casella:]

So Arden on standalone was up whilst Revlon went down?

[Juan Figuereo:]

No. Revlon was essentially – Revlon was a little down from FX. We had the impact of ForEx on our gross margin was negative in the quarter. Other than that...

[Carla Casella:]

And then on the – holiday is very important for fragrances, can you just give us a sense for how the retailers are setting up this holiday for fragrances, are they allotting more or less shelf space to either general fragrances or special box sets or other special promotional items?

[Fabian Garcia:]

So finally, I haven’t seen any material changes in space allocations. So on the contrary, we feel very good about the sell-ins and the support that we are getting for fragrance with this decision. So, so far, so good.

[Carla Casella:]

Okay, great. And then can you give us a sense to how much you expected to spend next year on display spending for the combined businesses?

[Fabian Garcia:]

Thank you for the question, Carla. The answer is not yet. We are beginning our budget process right now. Obviously, we have the first half of the budget already approved for Elizabeth Arden as they did that on their fiscal year basis before. But we would have a much better sense of the combined spending on displays, walls and counters when we come back to you back to you guys after first quarter.

[Carla Casella:]

Okay, great. Thank you.

[Fabian Garcia:]

Thank you.

[Operator:]

[Operator Instructions] We will go to a follow-up from Kevin Ziets from Citi.

[Kevin Ziets:]

Hi. Thanks for getting my follow-up. And the question was around brand support levels going into ‘17, you have announced a number of big initiatives including the CND launch and the Almay launch in the second half of next year, so do you think in general we will be seeing higher levels of brand support maybe at a pace faster than sales growth in next year?

[Fabian Garcia:]

Yes. I think we made a comment on that, Kevin. I think as I said before we are in the middle of the budget season for the year. Obviously, we will be supporting the innovations on the products that have been re-launched – that will be re-launched in the year. Obviously, lots of innovation in the major brands and I intend this to make sure the consumer gets exposure to those innovations. So we will comment when the budgets are ready, but my expectation is that we will be supporting the brands competitively.

[Kevin Ziets:]

Okay. And then in terms of the – you mentioned the double-digit online growth for Elizabeth Arden, was that only in China or predominantly in China or is Arden experiencing strong online growth in the U.S. as well?

[Fabian Garcia:]

My understanding is that it’s not only in China. So, we have for the quarter, they were up significant double-digit up 25%, so they did well wherever we are doing online sales.

[Kevin Ziets:]

Okay. And then lastly on hedging, I am just curious if the pound is taking a beating, I am curious if you are hedged for that exposure at least from a transaction perspective?

[Juan Figuereo:]

Yes, Kevin. I think we had indicated previously that we have rolling hedges in play for all the currencies where we have significant exposure, including of course the British pound. But in terms of our rule of thumb, I think every $0.10 in the rule, in the pound is worth about roughly about $1 million in EBITDA impact to us.

[Kevin Ziets:]

Okay, that’s great. Thank you very much.

[Juan Figuereo:]

Sure.

[Operator:]

And at this time, there are no additional callers in the queue. I would like to turn the conference back over to Ms. Anderson for any additional or closing comments.

[Fabian Garcia:]

This is Fabian. So, thank you very much for joining our call and for your continued interest in our newly combined Revlon and Elizabeth Arden Company. And a special thanks to both our Revlon and Elizabeth Arden teams around the world for their hard work, executional excellence and continued commitment to growing our company. And I wish you all a very happy and healthy upcoming holiday season. We will talk to you in January. Thank you.

[Juan Figuereo:]

Thank you.

[Operator:]

That does conclude today’s teleconference. We thank you all for your participation.