Revlon, Inc.
Q1 2017 Earnings Call Transcript

Published: 6 May 2017

[Operator:]

Good morning, ladies and gentlemen and welcome to Revlon’s First Quarter 2017 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 Ms. Siobhan Anderson, Revlon Chief Accounting Officer and Treasurer. Please go ahead, 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 March 31, 2017. If you have not already received a copy of the earnings release, you can obtain one on our website at 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 and Chris Peterson our new Chief Operating Officer in charge of operations. 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 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 2017 Form 10-K 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, 2016. However, in order to provide a comparative discussion, our remarks today will include pro forma results, which presents the GAAP and non-GAAP results as if Revlon and Elizabeth Arden were combined companies for all of 2016. 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 items that are not directly attributable to the company’s underlying and operating performance. 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, our discussion today will include XFX variances, 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. This is the third time we report as a combined company. And while we have many areas of strength for this [Indiscernible] today our financial performance for the first quarter was below our expectations. As stated in this morning’s earning release, our first quarter cash reported net sales were $594.9 million an increase of 35.3% over the prior period. However, on our pro forma basis, net sales decreased by 5.3% adjusted for foreign currency. During the quarter and as widely reported, most of our U.S. retail partners experienced lesser food traffic, store closures and shopper channels shifting to online and beauty speciality retailer. Although beauty remains a growth category in the U.S. where and how consumers shop for beauty is evolving. The effect of these market based dynamics particularly impacted our consumer segment in North America which achieved net sales of $290.4 million down 9.3% as reported compared to the prior year quarter. In addition to slowing mass retail consumption which affected Revlon and Almay color cosmetics, we were up against Mitchum and SinfulColors innovation pipeline, which was not prompt in the first quarter of this year. We also experienced temporary inventory reductions of key retailer related to the softness in consumption. Despite all these challenges our iconic brands prove to be resilient and we were able to maintain market share. Our professional segment also experienced declines for the quarter with net sales of $108 million down 6.2% as reported versus the prior year quarter. Professional segment net sales declines can be attributed to continued lower price competitor challenges for CND and to American crew which experienced slower replenishment of pipeline ship in the fourth quarter of 2016. Turning now to the Elizabeth Arden segment, we finished the quarter up $192 million in net sales up slightly 0.4% versus last year on a pro forma XFX basis. This modest growth was driven by the Elizabeth Arden brand, designer and heritage fragrances and strong international net sales. We are delighted to report the Elizabeth Arden brand achieved its ninth consecutive quarter of net sales growth. Commenting on the balance of our company’s performance, our international business continues to demonstrate strength with high single digit growth across all regions. Our consumer segment grew internationally more than 9% as reported, driven by Revlon color cosmetics as well as a global expansion of a Cutex nail care portfolio. Revlon color cosmetics continues to experience robust international sales gain in Japan, Australia and Hong Kong. The professional segment also continues to grow internationally plus 7% as reported behind Revlon professionals Be Fabulous hair care range and Revlonissimo professional hair color. Growth in this segment was driven by the Revlon Professional brand in the U.K., Italy, France, Mexico, Russia and Germany. The Elizabeth Arden segment also achieved strong international net sales growth plus 10% on a pro forma XFX basis driven by Travel Retail, Hong Kong and Singapore. Net sales for our licensed fragrances were driven by Christina Aguilera and Britney Spears with international growth for these brands led by Germany, Austria and the U.K. In summary, international net sales were strong across all segments and all regions for the quarter providing a solid base for our global expansion. Moving now to another highlight from the quarter, we continued to make significant progress with the integration of Elizabeth Arden. As was outlined in the earnings release we have successfully transitioned from integration planning to the implementation and realization of related synergy. As previously reported our multiyear estimate of annualized synergies and cost reductions increased to $180 million. We expect to realize between to $50 million to $60 million this year with $9 million benefitting our P&L in Q1 already. We expect to sequentially increase this savings over the balance of the year. As you may recall there are three building blocks of relievers this synergies. In sourcing of Elizabeth Arden manufacturing, procurement efficiencies that are realized through our enhanced scale and organization restructuring. At the beginning of March, we began producing Elizabeth Arden licensed fragrance product in El Carretero Mexico factory and we are on track to start to produce skin care, color cosmetics and all the fragrance items in our manufacturing plant in the U.S. Mexico and Spain in the second half of the year. Following a strategic supplier summit held in February we have forged important purchasing partnerships with key component fragrance and raw material supplier that we contribute to significant cost synergies and reductions in the second half of this year and ongoing. Regarding organizational structure we announced in mid January our new brand centric operating model that are aligned with our global growth strategy. With a new order design in place, we have also taken steps to enhance our capabilities by recruiting new leadership with deep beauty expertise to manage Revlon and the Elizabeth Arden and fragrance business. We have also created a marketing center of excellence to alleviate our digital capabilities, customer relationship management, consumer insights and analytics and hire a Chief Creative Officer to alleviate our brand aesthetics across all touch points. While we have made great strides in capturing synergies and cost savings from the integration of Elizabeth Arden we have also begun to leverage our broader portfolio beauty brands, deep commercial expertise in the mass prestige and professional channels, and enhanced footprint to accelerate our global expansion. Now before closing I like to share with you solid [ph] key strategic initiative that we have already put in place to restore growth in the U.S. To remind you, our long term growth strategy is focussed on strengthening our brands making them accessible to consumers, wherever and however they shop and investing in them. We have taken actions across all brands and channels to drive growth so let me take this opportunity to highlight a few of those actions. Almay’s new, stronger and more modern positioning which generate individuality inclusiveness and sales expression has been positively received by retailers and consumers alike. In fact several retailers have agreed to expand their retail footprint for a brand. Almay with their new product innovations, new packaging and new advertising beginning in the second half of this year was a completely restaged brand presented across all price [ph] points by the first quarter of 2018. To restore growth in our traditional mass retail channel, Revlon has successfully tested a new merchandizing concept that alleviates the overall in store beauty shopping experience, on par with vesting class beauty speciality retailer. The new fixture provides best so consumers can try product by shelf, showcases curated products with how to get the look graphics and [Indiscernible] more modernized study. We will start to expand this format into speciality and select mass retailer later this year. We also continued to focus on capturing our fair of share on line and sharpening our capabilities in e-commerce. Our Elizabeth Arden business continues to achieve the overall digit sales growth online outpacing the other channel, with strong dollar digit sales growth in China, the U.S. and the U.K. The last project, a digital first campaign sponsored by Revlon helped to advance the way we communicate with consumers via social channel positively impacting consumers this perceptions about the brand modernity [ph] and relevance and help grow our Revlon business on Amazon. We are becoming more fluent in digital commerce and communications and will build social communities with our beauty influence and continue to explore all relevant online sales opportunity. In closing, despite this quarters disappointing performance I remain optimistic by the strength and resilience of our iconic brand and believe that the actions were taken to make them even more modern and relevant will deliver long term results. I remain confident in our strategy to continue to diversify our channels, especially direct to consumer while expanding across the geographies with a focus on Asia and Latin America. And we have assembled an outstanding leadership team with a capabilities and expertise that it takes to build a top ten ranked world class beauty competitor. Before I turn the call over to Juan I wanted to introduce Chris Peterson, who joined our company a little more than two weeks ago. As Chief Operating Officer responsible for global operations with oversight for global supply chain, finance and IT. We are delighted to have Chris on board and are looking forward to benefitting from the deep experience he bring. Welcome Chris.

[Chris Peterson:]

Thank you Fabian. This is an exciting time to join Revlon. The company has a strong portfolio of brands, a global footprint with room for expansion and a talented leadership team. I believe there are significant opportunity being created for shareholder value overtime and look forward to contributing to the company’s growth ambitions. I intend to onboard quickly and plan to have more shares on the Q2 earnings call. Now let me turn the call over to Juan

[Juan Figuereo:]

Thank you Fabian and Chris and good morning everyone. As a reminder some of the comments I am about to make are based on non-GAAP results and are reconciled in our press release Starting with our total company results, we reported net sales of $594.9 million, an increase of 35.3% over the prior year quarter. However on a pro forma XFX basis net sales decreased by 5.3% mainly driven by the North American issues that Fabian previously described. There were four main items that impacted operating profit performance this quarter. First, significant net sales declined in North America mainly in mass and departmental store channels. Second, a declining gross margin mainly driven by lower sales in North America coupled with unfavourable product mix and the purchase accounting adjustment to cost of sales. Third, approximately $37.6 million of non-operating cost primarily acquisition related. And for integration-related cost synergies are beginning to favorably impact results. Reported gross margin was 55.4% compared to 65% in the prior year. The decline was driven by the addition of the lower gross margin Elizabeth Arden business, as well as a $16 million non-cash inventory adjustment associated with the acquisition accounting for Elizabeth Arden which adversely impacted cost of sales in the first quarter of 2017. Adjusted gross margin was 58.2% compared to pro forma adjusted gross margin of 60.4% in the prior year period, a decline of 220 basis points due to less overhead absorption, the unfavorable impact of product mix and higher promotional costs within net sales, partially offset by the realization of approximately $3 million of cost synergies within the Elizabeth Arden segment. As reported, net loss was $37.4 million compared to us reported net income of $11 million in the prior year. During the quarter the company realized approximately $9 million of synergies which benefited the Elizabeth Arden segment results and reduced structural corporate SG&A expense. Moving now to our segment results, the consumer segment reported net sales of $290.4 million down 9.3% as reported a 19.1% on an XFX basis compared to the prior year quarter. As a result of the effect of the North America marketplace downturn partially offset by strong growth internationally. Consumer segment profit was $32.9 million in Q1 representing and as reported decrease of 43.7% or 44.2% XFX versus the prior year quarter, primarily due to lower gross profit as a result of a decline in net sales in North America. Turning now to the Elizabeth Arden segment, we finished the quarter at $192 million in net sales slightly versus last year on a pro forma XFX basis. Elizabeth Arden segment profit was $14.3 million in Q1 representing a 25% pro forma XFX increase versus the prior year quarter, primarily driven by lower cost of goods sold as a result of cost reductions related to the Elizabeth Arden integration, as well as the favorable impact of product and channel mix. Finally in the professional segment net sales were $108 million down 6.2% as reported and 4.9% XFX versus the prior year quarter, driven also by North America partially offset by strong growth internationally. Professional segment profit was $16.1 million in the first quarter representing and as reported and XFX decrease of 37.1% primarily resulting from lower net sales and unfavorable product mix. Turning to liquidity, operating cash flow was the use of $85.6 million in Q1 and improvement of $14.2 million from a use of $99.8 million in the prior year quarter. The improvement was driven by favorable working capital changes partially offset by higher payments for interest inventory purchases, integration costs and capital expenditures. In 2017 we expect to spend approximately $100 million to $120 million in capital expenditures and approximately $60 million to $70 million in permanent displays. Our expected capital expenditures for 2017 include approximately $50 million for the integration of Elizabeth Arden. We continue to feel good about our liquidity position, until March 31, 2017 we had drawn $40.9 million on our revolving credit facility and had approximately $385.2 million of gross liquidity, consisting of $121.1 million of unrestricted cash and cash equivalent, as well as $264.1 million in available borrowing capacity under our revolver. Turning now to integration costs synergy, as Fabian indicated we’re now in full execution mode when it comes to realizing the Elizabeth Arden integration synergy. We’ve recently increase our estimate for annualized multiyear synergies to $190 million and we now expect to realize approximately $50 million to $60 million in the current year. During the quarter we initiated most of the actions that will help us ensure realization of the current year cost synergies. As previously indicated we realized approximately $9 million of cost synergies during the first quarter. In order to realized a multiyear synergies we expect to recognize approximately $65 million to $75 million of total pretax restructuring and related charges over the course of the program. In Q1 we incurred $1.1 million of restructuring and related costs and $16.9 million of non-restructuring integration cost. Total aggregate cost incurred since the acquisition amount to approximately $36 million in restructuring charges and approximately $39 million of non-restructuring integration cost. In addition, the company funded approximately $3 million of integration related capital expenditures in the first quarter. In closing this was a disappointing quarter for us in the U.S. Encouragingly our international business is growing building momentum across all of our focus market with particular strong performance in Asia. The integration of Elizabeth Arden is going very well with cost synergy realizations coming in strong ahead of our revised estimate. Looking forward we feel very good about the strategy and the actions we are taking to restore growth in North America and to continue to expand and accelerate growth international. Now I will 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 count the participants for questions.

[Operator:]

Thank you. [Operator Instructions] And we’ll go first to Grant Jordan with Wells Fargo.

[Grant Jordan:]

Good morning. Thanks for taking my questions.

[Fabian Garcia:]

Good morning, Grant.

[Grant Jordan:]

Good morning. I guess first just wanted drove little bit deeper on the North American consumer segment. Help us figure out like how much of it is consumers to slowing down purchases versus shifting purchases out of the mass channel, versus share moves within the mass channel?

[Fabian Garcia:]

Lot of is shifting, we have recent consumers data to indicate that about half of consumers are now buying online. And still 74% of consumers are buying in mass on traditional retailers. So there is omni-channel purchasing and the way we think about it is consumers are spending more dollars in other channels where we’re not as strong.

[Juan Figuereo:]

Grant, this is Juan, just to add a little bit more color. If you were to take the total sales decline. These are just very rough orders of magnitude. About one-third was consumption, roughly about a third was promotional activity and those really were the main drivers of the sales decline.

[Grant Jordan:]

And then, like how do you go about getting your fair share within say, online?

[Fabian Garcia:]

Well, with developing capabilities, we’ve opened that business in Amazon this quarter and we need to do more of that and gain more scale in all of the online detailer including not just Amazon, but our partners.com site and there’s a lot of work going on as you can imagine in that front. We feel very encouraged by how we're doing with Elizabeth Arden in the three largest markets; the UK, the U.S. and China, and we are adding capability at a frantic pace to make sure that we increase that capability to impact also Revlon.

[Grant Jordan:]

Okay. And then my last question, whenever you look at Elizabeth Arden you obviously up on a segment profit, but I think you said $3 million of the increase was due to the cost sales. At what point do you think you build up, I guess improve the underline Elizabeth Arden business you talk about on the road show like the benefits would be in a larger company and negotiating with your retail partners. When do you think some of that should start to flow through?

[Fabian Garcia:]

I think this going to be gradual, Grant, these obviously doesn’t happen overnight. We just came back from NACVA with great success in meeting as one company with many of the largest retailers in North America. So, we came out very optimistic that we can leverage the larger size of a company. We provide to them solutions as one company across categories where we could be. So, we feel good about that and internationally we’re starting to see the impact of that. So overall market growth is related to the fact that the companies are now integrated, And I could speak to you about Germany or the UK or some countries in Asia where we’re starting to benefit from the fact that we are larger company.

[Grant Jordan:]

Okay. That’s helpful. All right. That’s all I have. Thank you.

[Fabian Garcia:]

Thank you, Grant.

[Operator:]

We’ll take our next question from William Reuter with Bank of America/Merrill Lynch.

[William Reuter:]

Good morning, guys.

[Fabian Garcia:]

Good morning, William.

[William Reuter:]

I wanted to ask another question about the North American consumer segment. If we were to look at the different brands, were there some brands that were struggling substantially more than others? And I guess I'm wondering whether these are issues with the channel or if it's maybe certain brands that the consumer's either you know don't have recent affinity for or the innovation hasn't been quite a success. So if you talk little bit about that?

[Fabian Garcia:]

First of all, thank you for the question. [Indiscernible] is doing well inside North America mass channel as we’ve reported this year were sustain in the quarter. And everybody knows that Almay has struggle for years. The good news in Almay is that the re-launch of Almay has now been presented to the trade and the welcoming mat has been rolled out. We had terrific meeting with all those customers I referred to in NACVA. And what has been a pattern of phase reduction now is a conversation about phase expansion. So our expectation is as we start to rollout a new Almay brand in the fall of 2017 and in its full bloom if I can call it that way in the first quarter of 2018, we’re going to see that trends in Almay start to turn. But between now and then we need to attend to the issue that has been our long term trend that its been very well documented.

[William Reuter:]

Okay. That’s helpful. My second question I think you mentioned that 50% of consumers are shopping online for these categories. And then I think you said something like 74% are shopping in mass. If you were to just look in big kind of buckets, if we were to think about the categories that Revlon competes in, what percentage of those products you think are sold online versus brick-and-mortar retailers?

[Fabian Garcia:]

I have to give you a number, but I would tell you its more makeup and skincare that it is strider [ph] but it depends on the brand, so, very hard to pinpoint that. I think we need to take a micro view here or the consumer is buying omni-channel. And you need to be present and competitive in all channels and that’s exactly our strategic attempt. We have repeatedly. Our brands need to be accessible to consumer wherever and however they show. And to gain the skill set to competing some of this channels we have to build a capabilities in-house. So that is what happening and obviously that take some time.

[William Reuter:]

Okay. And then just lastly from me, when you guys initially did the Elizabeth Arden acquisition. Over time I think that there was going to some revenue synergy opportunities. Can you talk a little bit about whether you guys have forgotten those efforts, and I guess how fruitful you think that that opportunity is going to be over time? That’s all from me. Thanks.

[Fabian Garcia:]

The opportunity over time is very fruitful and it’s where we’re focused on. We’re starting to benefit from that combination as I mentioned before international where we can sit in the top line. I mentioned the UK, I mentioned countries in Asia, I mentioned Germany. So that is happening. And here in the U.S. it’s more of the macro issues that getting in the way of achieving those top line in it.

[William Reuter:]

Okay. Thank you.

[Fabian Garcia:]

Thank you, William.

[Operator:]

We’ll go next to Carla Casella with JP Morgan.

[Carla Casella:]

Hi. Thanks for taking the questions. One clarification, your CapEx number, 100 to 120, that does not include the permanent display spending. Does it?

[Juan Figuereo:]

No. It does not. It’s a separate estimate, for that is 60 million to 70 million.

[Carla Casella:]

Okay, great. And then 100 to 120 what’s the time payment on that, because your 1Q run rate doesn’t look like you’re anywhere near that. So the heaviest spend going to be middle of the year or end of the year, any kind of timing guidance?

[Juan Figuereo:]

The heaviest spend is in the second half of the year, that is consistent with the curve also for the synergies, because lot of their manufacturing CapEx comes in the second half of the year.

[Carla Casella:]

Okay. I’m assuming the display spend is also skewed to the back half, just given where you are today so far in display spend?

[Juan Figuereo:]

Yes. That also correct. Not as much as a CapEx is also skew to the back and so remember also what Fabian just indicate about the omni relaunch that’s going to happen in the second half of the year. And so good portion of a display spend will go to support that.

[Carla Casella:]

Okay. And then, in terms of the competition at Mass, have you – you mentioned a third of the weakness in sales consumption and service promotional activity. Have you lost shelf space at mass or promotional space at mass, or was it just general promotional activity?

[Fabian Garcia:]

Let me comment on that. Carla, hi, good morning. We haven’t lost there any material space in mass. As you kind of imagine the mass retailers and so how our mass competitors are resorting to increasing promotions to bring the consumer back. And that’s what quite intense in the first quarter and hasn’t waited so far, and one would expect the fact that this behaviour is typical because this is use to be a game of innovation and starting to become more of a game of promote. And we need to be sure that we keep consumer coming back because of innovation we’re providing, because the brand that’s relevant and are strong and they become destination brands for the consumer to come to mass.

[Carla Casella:]

Okay. And you mentioned some store closures had an impact. Was that mass drugstore, supermarket and when did the store closures occur, are they conceded now that we start at second quarter?

[Fabian Garcia:]

The majority of a store closures were referring to is the Macy's public domain documented store closures that have been the happening since the fourth quarter and were taking place this quarter. The impact is including our expectation.

[Carla Casella:]

Okay, great. So that was more on the Elizabeth Arden side than on the Revlon side?

[Fabian Garcia:]

Yes.

[Carla Casella:]

Yes. And then in the event the Walgreen and Rite Aid combine or don’t combine, are you stronger in one of those retailers versus another. And do you foresee some store closure or consolidation on the drug for space?

[Fabian Garcia:]

The way I will answer that question is we have had the basic conversation with Walgreen. As you probably have heard from them, they are including 2100 beauty advisors in stores in North America. They have opened up the fragrance section in many of their stores and they’re testing new merchandise options for fragrance and we are in the process of upgrading our walls in Walgreen for the Revlon and Almay brand. So we feel good about how the business look in Walgreen and how they are approaching the improvement of a in store beauty experience for shopper and that very important change. So we feel very good about that. The Rite Aid issue are completely separate issue and as we engage with the outcome of the final right solution of their merger or not we will have to engage with Rite Aid separately if needed.

[Carla Casella:]

Okay. And then, did you – I may have miss there, I had to jump for one second, but did you give any trend? Are you seeing the similar trends for the first quarter continuing in April?

[Fabian Garcia:]

That’s public domain, so what we know from – what we all know from this thing is that their market trends are not changing material.

[Carla Casella:]

Thank you.

[Fabian Garcia:]

Thank you.

[Operator:]

We’ll go next to Hale Holden with Barclays.

[Unidentified Analyst:]

Hi, Good morning. This is actually Chris [ph] on for Hale. So, I guess can you talk a little bit about the cadence in the quarter. It was somewhat of consensus that consumer has disappear in January and February and did you see a little better trends in March and also I think you just said April is not necessarily trending better. So any color you can give us that would be helpful?

[Fabian Garcia:]

Yes. I don’t know that I would use the characterization of the consumer disappear, but the characterization that consumer behaviour was a typically perhaps more precise. So the sequencing on the quarter was worst in the beginning, better towards March. There’s also few calendar changes there with how Easter fell in the calendar. So we need to see the normalization of trends before we can adjudicate any substantial improvement to the trend.

[Unidentified Analyst:]

Got it. So the fourth quarter, would you say a decline in mass channel is in line with overall kind of industry and what is your overall thought. Are you expecting like second half maybe it ease your comparison, a little better outlook for the U.S. mass channel?

[Fabian Garcia:]

We are working really hard to make improvements in the second half on our revenue line by engaging with out trade partners to bring that consumer back to the channel as I have said in prior conversations. It’s all about innovation and making sure that our brands are strong. It is very hard for me to say today whether there would be a gradual improvement in market conditions because we need to continue to see how the market trend evolve over next months going forward.

[Juan Figuereo:]

This is Juan. An important point to note is that, you have heard also from other consumer good company is that in addition to the consumption that was retailer destocking to some degree in the mass channel, so that also has an impact in the quarter.

[Unidentified Analyst:]

Right. Related to that can you comment on the channel inventory coming out this quarter?

[Fabian Garcia:]

There was – what just mentioned there was a reduction of inventory that was commensurate with the consumer decreases as you know, some of our customers, mos store customers replenish inventory based on algorithms that have consumption as a input and when that consumption goes down they start to lower their inventories to keep the same numbers of days in inventory in their warehouse. So, that happened in this quarter.

[Unidentified Analyst:]

Okay. Thank you very much.

[Fabian Garcia:]

Thank you, Chris.

[Operator:]

We’ll go next to Karru Martinson with Jefferies.

[Karru Martinson:]

So, when we look at these inventory reductions, I mean is this just going to be a continuation of how a new normal as we go forward or do you feel that you’ll get some of that back as we progress through the year?

[Fabian Garcia:]

I think this is going to normalize eventually because the inventory will be a function of consumption and consumption is expected to normalize at one point in time. When is that going to happen? I cannot say.

[Karru Martinson:]

Okay. And when you look at the cost savings you talked about them increasing sequentially as we go through the balance of the year, bulk of the CapEx spend on synergies will be in the second half. So would you say that when we look forward here to the second quarter would be a smaller increase and then the bulk of it still coming in the second half?

[Juan Figuereo:]

If you’re referring to the cost savings, the majority of the cost savings, more than 60% will be in the second half of the year, because the actions that we have already set, motion will be actually being implemented in the second half of the year. And most of them will be in SG&A in the second half of the year.

[Karru Martinson:]

Okay. And then, when we look at the CapEx spend, how much of that is being allocated to ecommerce efforts and where do you feel that that’s been should be over the next couple of years?

[Juan Figuereo:]

I don’t think we want to get into the level of detailed disclosing the allocation of resources, capital expenses to resources beyond what we have disclosed for their achievement of synergies.

[Karru Martinson:]

Thank you very much guys.

[Juan Figuereo:]

Thank you, Karru.

[Operator:]

[Operator Instructions] We’ll go next to Matt Sweeney with Laughing Water Capital.

[Matt Sweeney:]

Thank you. My questions has been asked and answered.

[Fabian Garcia:]

Thank you.

[Operator:]

And we’ll go next to [Indiscernible].

[Unidentified Analyst:]

Hi. Thank you. Most of mine have been answered too. I just had a question of around whether you guys have a sense of how much of your overall product is currently been sold online versus in brick-and-mortar?

[Fabian Garcia:]

Yes. We do especially for the Elizabeth Arden brand. Call it about 3% of our business for Elizabeth Arden sold online, growing very high double digit.

[Unidentified Analyst:]

So as we look at the overall consumer business, how much of that is sold directly to a consumer in brick-and-mortar versus online, and I realize you guys are trying to build. I’m just trying to kind of reconcile that with the 50% of shoppers do so online and 75% in store?

[Fabian Garcia:]

Help me understand your question. Can you repeat it please?

[Unidentified Analyst:]

I’m trying to get a sense of how much of your product is available online and how I kind of build that up to the overall consumer sales if 50% of shoppers shop for product online?

[Fabian Garcia:]

First, are available online, so its one until how we commercializing those and how we are promoting those online. How effective we are in doing that and how competitive we are in doing that relative to the other brands are available. So this is not a simple answer that one can provide because there it’s not just about availability on a site. It’s about the ecosystem that’s surround that site and how the consumer engages with you and with your brands to eventually shop online.

[Unidentified Analyst:]

Got it. Thank you.

[Fabian Garcia:]

Thank you very much.

[Operator:]

And at this time, I’d like to turn the call back to our speakers for any additional or closing remarks.

[Fabian Garcia:]

Thank you Diana [ph]. I want to thank everyone who is on the call for your questions and your continuous interest in our business. I’d like to also take the opportunity to thank our teams around the world for their continuous efforts to advance our business toward sustainable growth and we will be hearing from each other in the next quarterly call. Thank you very much. Have a good weekend.

[Operator:]

Thank you. And that does conclude today’s conference. Thank you for your participation. You may now disconnect.